Daily News: May 13, 2014

CIT: Furniture Sector Optimism Highest in Years

After several years of slow growth, middle-market furniture executives are feeling more optimistic about the future of their sector. According to Jon Lucas, president of CIT Commercial Services, and Mike Hudgens, Southeast regional manager of CIT Commercial Services, a division of CIT Group, a rebound in the housing market and innovations in how furniture is being made and marketed may lead toward year-over-year growth in 2014. These are some of the insights found in the “2014 Furniture Sector Viewpoint” (cit.com/furnitureoutlook), the latest installment in the CIT Executive Spotlight (cit.com/executivespotlight) series of in-depth executive Q&As.

“Our furniture sector clients are doing well and feel confident about the future,” said Hudgens. “Optimism is the highest we’ve seen in years, and it looks like the market should continue on an upward swing.”

With growth in the housing market and increased jobs numbers, many American consumers that postponed their furniture purchases should be looking to replace their older furniture units. Innovations, such as new color schemes and the merging of furniture with smartphones and tablet technology, are taking root to meet consumer demand. Furniture with these innovations are being sold through non-traditional channels and seeing solid success.

While there is overall optimism, the sector faces several challenges to its continued growth, including:

  • Uneven Rules Governing “Made in America” Initiative – Furniture companies are finding it difficult to leverage the “Made in America” label because of stricter standards for the furniture sector versus other industries.
  • Difficulties with On-Shoring Back to United States – Companies looking to lower labor and construction costs by on-shoring back to America are facing difficulties in finding domestic suppliers. The labor pool with the necessary skills to produce components, such as fabric, has shrunk in the United States.
  • Adjusting from Exporter to Manufacturer Business Model – As a result of on-shoring, furniture makers are switching their businesses back from an importing to a manufacturing model. With this change comes the worry about the sustainability of the market to allow them to make reasonable returns on their investment in property, plant and equipment (PP&E) in the United States.

“Shifting a business model from importing to manufacturing adds risk,” comments Lucas. “Executives will exercise caution as they invest more in PP&E here in the United States.”

As furniture companies increasingly pivot from importing their units to manufacturing their products domestically, the market will see an increased demand for PP&E financing and working capital for receivables and inventory. It will be crucial for the growth of the sector and the American economy that these companies have access to the types of financing that will meet their needs.