In the outdoor furnishings space, both demand and costs are going up at the same time, leaving many producers and importers with a good-news, bad-news dilemma.
Absorb the increased costs and risk a lower margin? Pass along increased costs and risk lower demand? Make concrete plans to ride out the storm and rely on the remedy of wait-and-see, along with a dose of cautious optimism, until a solution finds its way into the marketplace?
The cost of materials, shipping, the lack of available containers, are all having an effect on costing structures just now.
Some producers pointed to how it’s been discussed in the trades for the past few months, at the exact time that outdoor furniture is starting out its sales season. Some believe there is no short-term solution and none on the immediate horizon.
But others have found a number of possible solutions that are being considered, are underway or have been substantially completed.
All do agree on the extent of the problem, as William Kruzel, business development partner at Mamagreen, describes it: “Our container costs have doubled bringing freight from anywhere in the Pacific to the East Coast of the U.S. Our increase for foam is 30%.”
He added that fabric is up by 7.5%, even though the supplier is unable to ship anything within a reasonable time. Hardware, screws, nuts and bolts all cost more and are in short supply.
“We froze pricing for the 2020-2021 period, but we are forced to have an increase for 2021-2022,” said Kruzel.
At Summer Classics, founder Bew White said that as time has gone on, he has passed along price increases as much as possible but with a caveat.
“Because we keep substantial inventory, we’ve been able to not have increases for several months after our increases from suppliers happen,” said White. “If you remember a couple of years ago, we had the tariffs come into place, and we delayed that for over a year. Right now, things are in such flux that our next price increase will be when our new price list and product comes out in July.”
White said the increases will be in the 3% to 7% range.
“We realize that is not a very pleasant topic for either dealers or manufacturers,” he said. “Unfortunately, between the tariffs and cost increases on raw materials and freight increases on both containers and on domestic freight, we are faced with substantial headwinds on pricing. While we hate to pass this on, price increases look like they will be coming at us for the next 12 months.”
And White has some advice for retailers.
“Back in the 1970s, we were in an incredible inflation situation and lead times moved out to 24 months,” he said. “While that seems almost impossible now, it was reality then, and supply was on allocation at the time, like we are currently experiencing on some fabric and foam.
“Hopefully, we don’t get into a position like that, but it’s possible,” White continued. “We suggest dealers keep inventory on hand. The idea that you can buy hand to mouth in a market like this is not realistic.”
At Barlow Tyrie, Executive Vice President Charles Hessler said that his company is holding the line, for now.
“We are absorbing the increase in our inbound container costs,” he said. “Our main factory is in Indonesia and container prices have more than doubled for us. That’s if you can even get an empty delivered when you require it.”
Hessler said that his company usually revises its selling prices in September, and he does not anticipate any changes until then.
“However, we will have increases across the board due to shipping costs and raw material costs,” he said. “Even cardboard sheet for product cartons have had sizeable increases. Exactly how much of an increase we will take is not yet decided. If we are able to absorb some of it, we will, but the bulk will be passed on to our dealers.”
Perry Solomon, senior vice president of residential sales for Woodard Furniture, said that, for dealers, knowledge is key.
“Woodard has experienced significant increases in both the cost of materials as well as ocean freight on component parts,” said Solomon. “As a result, we have no other option other than to announce an increase in excess of 5%.”
Solomon said that while most of his competitors have announced surcharges, Woodard is announcing and printing its 2022 prices effective early and in hopes that the prices will carry over into next year.
“No one likes a price increase, but we feel that this is a much more workable solution as our dealers will have a printed MSRP reflecting the new pricing which they can then show their customers,” said Solomon.
At Sunset West, owner Wes Stewart said that the topic of price increases is one often discussed regarding what manufacturers are facing, the strain it puts on retailers and the challenges that occur when the increases are passed along to retail clients.
“I think the consensus among peers is the current environment we find ourselves in is one of surge pricing,” he said. “I wish that we as an industry were as sophisticated as Uber or Lyft and had pricing models that could be updated real time with increasing costs factored in, but alas, we just sell furniture.”
Furniture’s not alone, however, as the cost of most consumer goods is also going up.
“I believe the largest component of our situation was taught in my freshman economics course and is simply the relationship between supply, demand and price,” said Stewart. “The greater the demand, along with a relatively fixed supply, results in a higher price of the good or service.”
The challenge is that, today, steamship lines are in a position to raise prices indefinitely as capacity continues to be extremely tight, he noted. This presents a tremendous problem with sales already booked at agreed upon prices and assumed margin, only to be fulfilled at a higher cost of freight to both the manufacturer and retailer.
In addition, foam is in short supply and the pricing increase was higher than anticipated, as it increased 30% virtually overnight, although it appears that increased capacity is on the horizon, with some relief in sight.
“As a company, we have honored pricing on all previously booked business regardless of our changing cost structure, as I do not believe that it is appropriate to raise the price of goods on already accepted orders,” said Stewart. “As a result of the increased costs, we have had to print an additional price list this year.”
Other changes have included Sunset West pulling back from any margin-eroding events such as planned promotional periods and trade show discounts.
“Fortunately, consumer demand is high and has proven to be relatively inelastic with regards to the increased prices,” said Stewart. “Ultimately, we cannot simply absorb unlimited and ongoing price increases. We are monitoring our costs closely, and I hope to continue selling this season at our current prices, but I feel that we are at the mercy of that freshman economics lesson of supply and demand.”
Benjamin Ma, vice president of Treasure Garden, said that the outdoor industry as a whole was hit hard.
“Our industry as a whole experienced an explosion in business as the consumer demand of outdoor products was at some of the highest levels we’ve ever seen,” said Ma. “The pandemic, along with the challenges and demand that it came with, weighed heavily on us and the dealers. It resulted in material shortages, combined with further increases in shipping, production, labor and raw material costs beyond the past few years.”
He said that it remains a priority to do whatever possible for the dealer base, even during challenging business cycles.
“While absorbing the great majority of these untimely cost increases as best we could, these obstacles put pressure on all aspects of production, which necessitated a small cost increase in the form of a surcharge to the dealers,” said Ma. “This surcharge does not cover the ever-rising costs; however, we are mindful of any cost change implications in the middle of the selling season, and we have tried to minimize that impact.”
He added that Treasure Garden remains committed to find a solution that works well for everyone.
“We will continue to try and absorb as much as we can going into the 2022 season,” said Ma. “Our goal is to continue to adapt and improve on all areas of our business, while continuing to provide the most comprehensive selection of quality products at the best possible pricing.”