Cost increases continue to exert pressure
Cost increases continue to exert pressure
By Thomas Russell -- Kids Today, 7/1/2008
With ongoing pricing pressure on items ranging from foam to fuel, many furniture sources that have so far avoided passing along price hikes say they can no longer absorb the costs.
Some already have raised prices on finished goods, while others expect to do so between now and August.
An informal poll of vendors showed that prices on average have risen or are set to rise between 3% and 5%.
Several factors are driving up prices, according to manufacturers.
- Foam producers have recently requested a 20% increase, in response to higher costs of chemicals used produce the material.
- Crude oil prices have risen from just over $90 per barrel in January to $138 in June, according to industry logistics services provider Globe Express Services. This affects the price of fuel and other items ranging from packaging materials to finishes.
- As of May 1, ocean shipping rates from Asia were estimated to have risen $200-$250 for 40-foot containers shipped to the West Coast and $300-$350 for containers shipped to the East Coast. Ocean carriers also are adjusting “bunker” fuel charges on shipments on a monthly basis rather than quarterly as they did in the past.
- Some wood prices are rising. Prices of certain grades of red oak have actually fallen over the past year, according to Hardwood Review. But prices of two different grades of kiln-dried ash have risen from 2.68% to 9.66% since last June.
- Prices on steel components used in furniture have gone up three times this year, rising a total of nearly 50%, according to industry sources.
Randy Ford, president of Leggett & Platt’s home furniture components unit, said the company has had to raise prices on sinuous wire, which is used in upholstery seating, by more than 50% since January.
The principal culprit, Ford said, is the soaring cost of steel. A year ago, the company was paying about $600 per ton for rolled steel and now is paying about $1,200, with no signs that trend will end.
With retail sales slow, suppliers know it’s not the best time to be passing along price increases. But they say there isn’t much they can do to avoid them.
Todd Wanek, president and CEO of Ashley Furniture Inds., said this is probably the worst inflation he has witnessed in his 20 years in the industry.
“It’s very inflationary right now,” he said. “It’s a situation that no one has control over. We have to figure out ways to keep our costs down, of course, but this is an environment I have never seen.”
Several other industry executives also said their companies were feeling price pressures.
“It’s all direct costs relating to materials, labor involved in the making of furniture, and the freight,” said Alex Boyer, sales manager of accent furniture specialist Furniture Classics, adding that the company avoided passing along any price hikes this year until mid-June. “It’s all a direct cost problem.”
“It is very difficult to predict when you have to react to those types of (cost) increases,” said Glenn Prillaman, senior vice president of marketing for Stanley Furniture. “When you have freight and materials costs increases like that, there is no way to absorb them.… Those are things that have to be passed along. It’s inevitable.”
“We look at our prices on an ongoing basis,” said Dan Stone, vice president of strategy and business development for Furniture Brands International, who said the company has implemented price hikes ranging from 3% to 6% across its brands in recent months. “We try to keep ahead (of price pressures) as much as we can and if there are additional inflationary pressures, we try to stay ahead of those as well.… We try to match cost and pricing the right way.”
Furniture/Today Business Editor Larry Thomas contributed to this report.
