Furniture Retailers Start to Feel Tariff Pain More Acutely

Date: Monday, November 11, 2019
Source: Wall Street Journal

HIGH POINT, N.C.—Amid seemingly endless displays of chairs and dining-room sets, the furniture industry’s fall trade show here featured a few signs of the times: placards atop non-Chinese goods proclaiming “No Tariffs!”

“People see the signs and they come over,” said Luther Revels, a salesman for  furniture wholesaler Bramble Co., whose showroom featured sofas, tables and nightstands made in Indonesia.

The furniture business is one of many caught up in the Trump administration’s tariff campaign against China, and lately the pain has started to intensify.

Shares in online furniture retailer Wayfair Inc. W -2.54% plunged 14% on Oct. 31 after the company said tariffs exacerbated a third-quarter loss, by hammering Wayfair suppliers and making consumers wary of purchases.

“Tariffs are injecting greater-than-expected volatility into our marketplace,” said Wayfair co-founder and Chief Executive Niraj Shah.

China was the top furniture exporter to the U.S. last year, shipping $34 billion in tables, chairs, couches and other furnishings.

These imports were first hit with 10% duties in September 2018, before the tariffs jumped to 25% in May after U.S.-China trade talks hit an impasse.

“This has been very challenging for the furniture industry as a whole because of the huge exposure that it has to China,” said Peter Keith, a Piper Jaffray analyst who added that the discretionary nature of furniture purchases means the industry faces more potential for tariff-related financial difficulties than many other businesses.

While a 25% tariff suggests steep price increases and plummeting sales, retailers and industry experts said the furniture industry’s pain has been dulled by several factors, including furniture shipments from countries other than China and suppliers who agreed to cover some of the costs. They also said customers often aren’t aware of the shifting prices.

Ed Menapace, owner of the Farmhouse Store in Westfield, N.J., said he has made more than 30 passes through his 10,000-square-foot furniture showroom since the tariffs first hit, adjusting prices.

Still, he said his customers haven’t noticed the changes. “They don’t have a clue how much furniture costs,” he said.

Darrin Williams, of Richmond, Va., said he has been shopping for a new sofa for several months ahead of a move to a new home, and hadn’t noticed any price changes. But data shows prices are indeed going up.

From 2014 to 2017, furniture prices fell about 1 percentage point a year, but began to rise in 2018 as the tariffs took effect. Furniture prices rose 2.3% for the year ended Sept. 30.

A June study from the National Retail Federation warned that the tariffs would add $4.6 billion a year to what consumers will spend on imported furniture such as recliners, couches and upholstered living-room items.

Some furniture retailers say they have little choice but to pass on tariffs to consumers. Arnold’s Office Furniture, located outside of Philadelphia and employing about 100 people, generates about 80% of its revenue importing an office-furniture system that is only manufactured in China, under a five-year contract that began in 2018.

“I have to lose money, which I’ve been doing since the 25% [tariff] started. Millions of dollars are being lost,” said Jay Berkowitz, chief executive of Arnold’s.

Mr. Berkowitz said his company, with about $20 million in sales, has had to pay $2.2 million of furniture tariffs—enough to wipe out all of its profit for the year since the duties took effect and force the company to operate at a loss.

Arnold’s raised the price of its furniture by about 7%, Mr. Berkowitz said. A larger increase would have posed a significant threat to sales, he added.

“We’re walking the tightrope right now,” Mr. Berkowitz said. “They better yank that tariff back soon or we’re going to have a big problem. We’ll be out of business if they don’t.”

The Trump administration has defended tariffs by saying they are necessary to force China to end practices that hurt U.S. businesses. President Trump has said the tariffs could also lead to the return of more manufacturing jobs to the U.S.

Industrial-production data shows that there has been no spike in U.S. furniture manufacturing since the tariffs took effect, but import patterns are shifting.

Shipments of furniture from China to the U.S. declined 30% from September 2018 to September 2019, according to records collected by Panjiva, a division of S&P Global Inc. that tracks the flow of goods overseas.

During the same period, shipments from Vietnam increased 51%. Ashley Homestores Ltd., one of the world’s largest furniture manufacturers and retailers by sales, began moving the bulk of its sourcing to Vietnam more than a decade ago.

Retailers credit two factors with cushioning the impact to consumers: increased furniture supplies from non-tariffed countries, and the availability of financing plans that allow shoppers to spread out payments over time.

“I don’t think it’s forced anybody to close,” said Matt Schultz, president of John V. Schultz Furniture, whose operations include a 90,000-square-foot store in Erie, Pa.

Even so, tariffs are on many people’s minds in the furniture business. Tom Conley, chief executive of the High Point Market Authority that organizes the twice-yearly trade show here, said preshow registrations were up 8% for individuals and 4% for businesses, compared with the previous year.

Mr. Conley attributed that to tariffs anxiety, but as he talked to participants around the show’s 12 million square feet of display space he realized that other factors—such as a potential economic downturn and current labor shortage—were also at play.

“Everybody’s still concerned [about the tariffs], but I get the sense that some folks are moving on,” he said.

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