The American insatiable appetite for furniture makes the US a $100-billion dollar market. With a 70% slice of wooden imported furniture, Asian suppliers are ahead of the competition. But shifts in sourcing within Asia and new markets are redefining the furniture supply chain.
It’s early February, just a few days before the start of the 2018 lunar New Year, a period when factories in China and Vietnam close down for two or three weeks. Like others in the field, Jeff Sears is scrambling to get as many furniture-filled containers out the factory door and loaded on ships from Chinese and Vietnamese ports bound for North America.
Sears is director of international logistics for Art Van Furniture, a major and fast-growing Midwest retailer, with stores throughout Michigan, Iowa, Indiana, Ohio, Illinois and more recently, in Pittsburgh and Washington DC.“The biggest challenge right now is getting space” on container ships, said Shears, by telephone from his base in Shenzhen, China. “We’re shipping double orders right now. Plus, this time of year, we have to ship all our outdoor furniture.”
That rush to beat Lunar New Year, with cargo space so tight, is only one issue facing furniture importers in the US and the logistics specialists such as Sears that support them. They must contend with a changing manufacturing landscape across Asia, competition from China’s growing consumers and the expanding online furniture market in the US, with more complicated packaging and delivery requirements.
Vying for America’s Billion-dollar Marketplace
America’s 100-billion-dollar furniture marketplace remains healthy, amidst steady growth over the past several years. According to Furniture Today research, furniture sales, including bedding, topped $108 billion in 2017, with a 3% growth projected this year.
Asia supplies more than 70% of imported wooden furniture, which last year totaled $23.3 billion, according to US International Trade Commission (USIT) data, a 9% increase over 2016. However, manufacturing origins are shifting within the continent. China continues to dominate, while Vietnam is on the rise. Malaysia, Indonesia and India continue to be part of the mix. There’s talk that Cambodia, Bangladesh and Myanmar may all get a boost within the next five years or so.
But the biggest story of the past decade is the rise of Vietnam, a transformation that is likely to continue developing. “Vietnam is still going to keep growing for furniture for ten years at least,” said Sears, who also has served as the longtime chair of The International Furniture and Transportation Logistics Council.
According to Furniture & Furnishing Export International, China exported $52.7 billion worth of furniture globally last year, while Vietnam exported $6.7 billion. But the US accounted for more than half Vietnam’s exports, while less than one-third of China’s.
According to US Census Bureau data, Chinese imports totaled $11.3 billion in 2017, a 48% market share. Vietnam was second, with $3.4 billion, an 11.5% share.
The US is by far the world’s biggest importer of furniture, accounting for about one-third of the world’s import totals.
Art Van is indicative of the shift within Asia. When Sears first came to Shenzhen 11 years ago, China supplied 80% of the retail chain’s needs, with the rest divided between Vietnam, Malaysia, Indonesia and India. China now accounts for only 40% of a much bigger total, with Vietnam another 40%, according to Sears.
Labor costs are certainly a big factor in giving Vietnam a competitive advantage, although not nearly as much as a decade ago. A furniture factory worker in Vietnam these days gets about $300 a month, while a Chinese worker makes about $450 a month. Ten years ago, a Chinese factory employee made about $300 a month, while his or her counterpart in Vietnam made only about $100 a month.
Most shipping lines and freight forwarders will common rate the port of Ho Chi Minh with Chinese ports, such as Shenzhen and Shanghai, making Vietnam that much more attractive.
However, the shift away from China to Vietnam in part was forced upon the industry. In early 2005, America’s Department of Commerce slapped Chinese manufacturers of wooden bedroom furniture with antidumping duties. This followed a time of extraordinary growth, when Chinese suppliers in a four-year period from 2000 to 2004 more than tripled their furniture exports to the US, and more than doubled market share to about half of all furniture imported into the US.
After Washington’s move, importers of China-made bedroom furniture faced duties that ran anywhere from 7% to almost 200%. (These duties continue to this day. The International Trade Commission last year voted to keep the duties for another five years.)
Chinese manufacturers did what they often do in situations such as this: They picked up and relocated, in this case to Vietnam, taking advantage not only of low labor costs but preferential duties as well. Art Van now uses 47 factories in Vietnam. “I would say forty of them are Chinese-owned factories,” said Sears. “They were in China. They moved the whole operation to Vietnam.”
While Vietnam began by making bedroom furniture for the American market, its factories now construct as well furniture for the dining room, entertainment centers and home offices. China, by contrast, now supplies the US primarily with sofas and other upholstered and leather goods, along with steel and glass-related furniture.
Malaysian factories, for their part, continue to produce extremely low-end bedroom and dining room sets, while Chinese manufacturers in Indonesia have moved upmarket supplying affluent customers with hardwood furniture.
China-based furniture manufacturers have begun to move out of major cities to cut labor costs. However, they are also turning to their own consumers for increased sales. Furniture in China sells for more than it does in the US, with a higher profit margin. China’s fast-growing domestic market, with a middle class that numbers in the hundreds of millions, offers its furniture manufacturers a lucrative alternative to export.
“Consumers’ increasing purchasing power has driven the furniture market to develop in leaps and bounds,” wrote the Hong Kong Trade and Development Council in a research paper last year, adding, “China’s furniture market has vast room for expansion.”
According to the report, sales in 2016 totaled RMB 856 billion ($134.75 billion), an 8.6% growth over 2015.
That burgeoning domestic market impacts American buyers such as Art Van. “A lot of factories we have dealt with in the past we don’t buy from anymore, because they focus fully on the Chinese domestic market,” said Sears. “They’re not as hungry for the US business the way they used to be, now they have more options,” he said.
Furniture, itself, is a relatively low-value commodity. A container of furniture will be worth anywhere from $7,000 to $20,000, according to Sears. That means, he said, that freight represents a relatively high percentage of the total, so it’s critical to keep those transport costs down.
Volume provides one obvious advantage. Art Van this year should ship around 6,500 containers from 185 suppliers in Asia, through one shipping line and three freight forwarders.
“Added demand means more containers, means more bargaining power when we talk to carriers and it cuts contract time,” Sears explained.
According to Furniture Today, Art Van ranks 18th among American furniture retailers. With estimated sales in 2016 of $740 million, an increase of $65 million from 2015.
Keeping Freight Costs Down
In the case of Art Van, all furniture is destined for a single distribution center in Detroit. Sears wants to keep the average price of a delivered container to about $3,700. Vancouver is the number one port destination for Art Van, with Los Angeles second and Montreal and New York in third place. Containers are carried from the ports by rail, the cost of which is as high or higher than sea transport from Asia to North America. (The Port of Los Angeles receives more imported furniture than any other in the US, according to customs figures, more than twice the value of New York, which ranks second.)
Flexibility is the name of the game. “You have to go after the lowest price in the market and that means you have to give up things,” Sears said. In this case, he said, “You don’t get loaded like you want to all the time.”
Unlike, say, garments and many other consumer goods, furniture isn’t tied to the seasons, with the obvious exception of those meant for outdoors. What’s more, there’s no great Christmas rush. “Overall, it’s about the same volume each month,” said Sears.
It takes about 90 days from when an order is made to when it’s shipped, plus another 45 days for shipping, wait time and delivery.
Furniture packaging has developed over the years, and most suppliers have risen to the challenge.
“Ten years ago, packaging was not the standard we needed from Asia. They were using recycled cartons. They weren’t using proper foam protection, side protection. They weren’t wrapping sofas properly,” said Sears. “Over time, that’s got a lot better.” The exception is India. “No matter how hard we try with India, we’re still getting substandard packaging and we have to deal with that,” he said.
Brick and mortar stores still dominate furniture retailing in the US. Online furniture accounts for only about 10% of total retail sales, but the number of buyers is exploding, and proper packaging for home delivery has become more and more of an issue. For items the company knows will be sold online, “we have to have better packing, more of the UPS-type packing, where we know it can’t be destroyed,” said Sears.
He used the example of a sofa. Normally, when a supplier ships a sofa on a container, it’s wrapped in plastic, with a little cardboard on the ends. But UPS or FedEx requires much better packing. “We have to have it boxed,” Sears said.