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What Home Furnishings Experts Are Talking About: Inventory, Reshoring and Warehouse Woes

Two years of unprecedented demand, supply chain disruptions, labor shortages, and a global pandemic have created a furniture marketplace unlike any seen in the past. And that market continues to shift, as consumer spending on home goods softens and managing inventory becomes a challenge.

At the recent American Home Furnishings Alliance (AHFA) Logistics Conference, furniture industry experts and analysts gave an inside look at where the business stands now, and where it’s headed in the coming months.

With consumer demand softening, it’s no surprise furniture orders were down this spring. According to a survey by Smith Leonard Accountants & Consultants, March orders were down 26 percent compared to March 2021 and year-to-date orders were down around 21 percent.

“Orders are soft, and units are down significantly,” said Ken Smith, partner at Smith Leonard. “Backlogs are still very high, but lead times are better.”

That decline was reflected in May retail numbers reported by the National Retail Federation, which found furniture and home furnishings stores were down 0.9 percent month over month seasonally adjusted, but up 2.3 percent unadjusted year over year.

Smith said the survey found shipments were up 19 percent over March 2021 and up 4 percent year-to-date, which has helped alleviate backlogs somewhat. But that moving product has left many retailers scrambling for warehouse space to store the sudden glut of inventory heading their way.

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“Retail warehouses are packed, and some are asking to slow deliveries,” Smith said. “La-Z-Boy had to lease 40 percent more additional warehouse space to accommodate its inventory.”

To make space, many retailers have been forced to discount merchandise. But Smith cautions that discounting should be done strategically to avoid devaluing product over the long term.

“It’s imperative that if we do some discounting, we need to let the consumer know it’s because of excess inventory,” he said.

With the ongoing and evolving issues with imports, some furniture manufacturers have looked to reshoring or nearshoring as an alternative to production in Asia. Mexico has been a popular choice for many companies, with furnishings makers such as Ethan Allen, Marge Carson, Palliser, among others, investing in facilities south of the border.

And according to Rosemary Coates, executive director of the Reshoring Institute, a return to domestic production has become more favorable to many consumers, particularly since astronomical freight rates have made imports more expensive.

“The mood of America has changed,” she said. “Most Americans prefer to buy goods made in the U.S., and people have this perception that products made in the U.S. are better quality, and they’ll pay more for it.”

Coates said the Reshoring Institute conducted a consumer survey in 2020 that found that 87 percent of Americans would prefer to buy products made in the U.S. And 60 percent of those consumers said they’d be willing to pay more, with the majority saying they’d pay up to 20 percent more.

“If we can get the production cost within around 15 percent, we can make a case to make it here,” Coates said.

But Coates said the key to making a domestic production model work is bringing skilled labor back to the U.S. focused on higher-quality products.

“We don’t want to bring every job back to the U.S.—we want to bring back the good jobs,” she said. “Instead of having them put pegs in holes, we want them running the robots putting pegs into holes.”

As furniture manufacturers and retailers navigate the ever-changing landscape of the supply chain and retail climate, Smith said plenty of challenges and opportunities remain ahead.

“The second half of the year is going to be a rollercoaster,” he said. “We’ve had two unprecedented years in the furniture industry, and who knew business could be so good and so hard at the same time.”