State of the Furniture Market- Jerry Epperson Address at Canadian Trillium Press Conference

Furniture World Magazine

It is seldom one comes to the furniture show with as much momentum as our industry has at this time. We have seen business grow over the last six months to such a point that many manufacturers are having trouble delivering on time, getting sufficient raw materials and labor, and it is causing problems for our retailers. This will complicate relationships between retailers and manufacturers. There arc a number of things that have come into play that are extremely important to the furniture industry. First, we have seen consumer confidence grow to a 30-year high. The low unemployment level is certainly a major factor in this because consumers not only are able to get employment they are able to have comfort that they have jobs for the long run. Of course, everything is helped by the lower inflation that we are experiencing. To be blunt, we are not sure that inflation can remain as low as it is today, without some unusual events relative to commodity and oil prices. Even if inflation goes up slightly, interest rates should remain low which impacts our industry in numerous ways. First, and most obvious, the demand for housing has not been better since the early 1970's. Existing homes sales, new home sales, home remodeling and home additions are all at record levels. We will build more new residential square footage this year, building about 1.4 million new homes, than we built in 1971 when we built 2.1 million new homes. That is because today's homes are larger and much more affluent than the homes built in the early 1970's for the emerging Baby Boomers. These lower interest rates are making credit more affordable and more profitable, and they are allowing young people to buy things that they have been deferring. While we had a record level of bankruptcies in 1997, we are seeing some moderation there. In fact, we believe that the credit situation is now past the worst point and is improving. One of the most difficult elements for residential furniture manufacturers and retailers is the slow down in new household formations created by the small number of Generation Xers who are out there. that's hit a trough and we are going to see an acceleration in new household formations beginning in 1999 or 2000. Of course, the most obvious beneficiary to us all are the Baby Boomers. Not only are they hitting their peak earnings, they are coming into $16 trillion in inheritances over the next 15 years. We see not only a boom as these people are able to afford more but also as they begin to spend more time at home, work fewer hours, and as we see the start-up of more home-based businesses. The growth in electronics in both home office and home theater will continue to fuel furniture sales. As these inheritances flow through, we also expect a boom in second/vacation homes. At year end, we believe a lot of people saw for the first time the real impact of the higher stock market as they got their statements on their profit sharing and savings programs. This stock market has put a lot of money into consumers hands and they feel more comfortable not only about their own personal well being but also about their future. Some of our competing expenditures have peaked. Consumer electronics, while at a record level last year, have leveled out with a slower growth rate and fewer new product items to capture the consumers attention. We are also seeing a leveling out in auto sales after a three record years. Corporate profits are up nicely and that is allowing the furniture industry to grow as well. The manufacturers and retailers have not been this profitable since the 1970's. As a result, they are out there looking at new ways to make the industry better. In case you haven't noticed, there is more consumer research being done today by the Associations, by the Trade Press and by different industry-related groups than ever before and this is teaching us what we need to do to reach the consumer. We are seeing Baby Boomers spend not only on themselves but on their children and this is an extremely viable market going forward. The inflation rate we have today is allowing consumers to have larger and more usable gains in real income and this is allowing them to spend more and use less credit. Relative to our industry, we do not have the overhang of Levitz or Montgomery-Wards, and as a result, we feel more positive. Are there concerns? Of course. What is going on in Washington or in the Pacific Rim could have negative affects on our economy but we don't see it having any sort of negative influence that could push us into an economic decline this year or next. Instead, we see new stores opening, consolidation within retailing and manufacturing, new alliances between retailers and manufacturers, new merchandising concepts and an industry that is maturing and recognizing that it is selling a service not just a product. We believe that everyone should note when business is good and enjoy it. There will be times when there is reason to be concerned and times when business is bad, but today when business is good is when we should all be out making the changes and tough decisions that will make our business more profitable for years to come. All of us need to look at our companies and focus today on what we can do to improve them. These decisions are much more easily made when business is good than when business is bad. Enjoy today, enjoy this market, and take some comfort that we have perhaps a year to eighteen months more of this type of steady business. Problems with fabric availability, lumber supplies, and other raw materials are with us by they are nice problems to have relative to the sloppy business our industry has experienced for the last several years. Take comfort that a slow growth economy is finally yielding positive results for our industry. For further information contact: JERRY EPPERSON, Mann, Armistead & Epperson Ltd., Investment Bankers and Advisors, 121 Shockoe Slip, Richmond, Virginia, 23219, (804) 644-1200 Fax (804) 644-1226, e-mail: maefurn@aol.com.