Fuzzy Picture Painted Of Second Half

New York —Uncertainty regarding key issues such as logistics problems, retailers-direct sourcing, and the future of quotas left many suppliers in the home textiles business with a cloudy outlook for the next six months.

“The biggest issue right now is freight — the costs of containers coming in from overseas due to increasing gas and oil prices, and getting goods in time because all the ports of exportation are fully booked,” said George Kouri, president of Avonhome.

Corey Faul, president of Newport/Layton Home Fashions, said that while no large port disruptions have taken place yet, the writing is on the wall.

“I do feel that we are already getting warnings from the ports,” he said. “So I feel that in the third and fourth quarter we will experience longer lead times and greater delays as we get into the fall.”

To deal with such delays, Faul said his company is “preparing” its retail customers to anticipate delays, as well as encouraging them to “work with us a little farther ahead than they are accustomed to.” However, he admitted, that was easier said than done.

Nonetheless, Faul said that Newport/Layton was pleased with its open-order levels for the fall, though business continues to be difficult.

Kaela Forker, vice president of sales at American Pacific, is cautiously optimistic for the second half, despite the fact she anticipates service disruptions later in the year due to port congestion.

“Our ports are not designed to handle the traffic levels we've been seeing lately,” Forker said.

Also displeased with the port situation is Jeff Hollander, president and chief operating officer of Hollander Home Fashions. He said that delays at California ports have increased, while port charges are also on the rise — up 5 percent.

Hollander also cited the additional logistics hurdle of finding enough truck drivers to get the goods from port to store, due to “new regulations for truck drivers and how many hours they can be on the road.”

Coming off six months he described as “flat” and “soft,” Carl Goldstein, senior vice president with S. Lichtenberg, said high gas prices, a soft stock market and an uncertain economy have all contributed to a “general malaise” in the home textiles industry. Nonetheless, Goldstein said he was “relatively optimistic” that the second half would offer stronger results.

But continued deflation has left Goldstein, and others in the industry, working harder to attain the same profits.

“We are shipping as many units, but our dollar volume is down because of the influx of Chinese goods at lower retails,” he said. “I am looking at a report right now that says our units shipped were almost equal to last year, but our dollar volume is down.”

Goldstein said, though it was hard to estimate, dollar volume was down between 5 and 10 percent.

Also affecting how many dollars the industry will see in the second half of 2005 is the status of potential quotas or new tariffs limiting the flow of home textiles products into the United States from China. With trade groups on each side of the issue fighting it out in court, the industry must wait and see the results before formulating a real plan.

Suppliers, in general, look to be safer from chargebacks — or at least the overzealous use of them — in the second half of the year, thanks to the Saks scandal. The fallout at Saks included a number of executive firings and millions in refunds promised to suppliers — something no retailer wants on its record or balance sheet.

Kevin Creegan, executive vice president and national sales manager at PDK Regency, said that the Saks scandal may bring about some reconciliation in what has occasionally become an adversarial relationship between retailer and supplier.

“I believe retailers will go back to more of a partnership situation as a result of the Saks lawsuit,” he said.

Joe DelCastillo, regional sales manager at PDK Regency, said a more collaborative relationship between retailer and supplier is inevitable.

“In terms of chargebacks, I think the situation will sort itself out, because I don't think the industry can survive being at war with its customers and one another,” he said.

Though the scandal may ultimately diminish some chargebacks, it certainly has not eradicated them. Janie Leonard, national sales manager at PHI, said her company was still getting hit.

“They are up to their old tricks as far as what we have seen. There has been no change in the chargebacks, but it will be interesting to see the outcome,” she said.

While chargebacks may be a revenue stream on the decline for retailers, that stream will certainly dry up if retailers continue to import directly from offshore suppliers. By taking on the duties of sourcing, gathering and transporting good directly to their own U.S. warehouses, retailers are taking on more risk and tying up more capital in logistics than they ever have before. Goldstein said he wonders if that is a business retailers really want to be in.

“Retailers want to do more and more direct importing, but are they willing to tie up vast amounts of capital where in the past that was the job of their suppliers?” he asked. “They are saving money in buying direct, but they are carrying vast inventories, so who will handle the markdowns if the goods don't sell through? Who will supply them in 48 hours if they are trying to bring in goods from India and China? They will have to have huge warehouses to stock goods that do not turn.”

Barry Goodman, vice president of national accounts with Commonwealth Home Fashions, said retailers going direct is having an effect on his business.

“Of course, imports are the major factor facing our industry, and the fact that retailers are direct importing themselves makes things that much tougher,” he said. “Being price competitive is obviously so important, but you still have to make a profit.”

Making a profit has a lot to do with selling goods at the right price point.

Maples Industries is hoping that consumers have some money to spare, as the company is raising prices on its synthetic bath and accent rugs to keep pace with the increase in raw materials costs, according to Wade Maples, owner and president.

“There is not much growth, and prices are going up,” he said.

But Loren Sweet, president of Brentwood Originals, said the pricing environment is conservative. “No prices are going up,” she said. “The business is not strong enough for that to happen.”

Sweet predicted overall flat holiday sales for home, with the decorative categories doing somewhat better.

Bud Frankel, CEO and president of Arlee Home Fashions, said he didn't see home textiles being strong in the second half of the year, “except for some really great values.”

“Every major store that talks about it says home textiles are their weakest point,” he said. “This fall and holiday, low-end goods won't drive the business. It will be the better goods at a value and higher price point.”

Charlie Barrese, senior vice president of merchandising with Ex-Cell Home Fashions, said that rather than opening price point goods gaining favor, luxury has been doing well.

“(The trend) movement has been to more luxury goods, featuring more glitter and other fabric enhancements,” he said.

Items priced between $49.99 and $69.99 are selling particularly well at PDK Regency, according to DelCastillo, who voiced optimism regarding the second half.

“If you have the right products at the right prices, they will continue to do well,” he said.

Toby Weinstein, vice president of sales and marketing for Creative Home Furnishings, said that prices are on the rise.

“Price points are starting to inch up because stores realize that they have to sell so many more of the cheaper priced items in order to make any profit,” she said, noting that decorative pillows priced from $19.99 to $29.99 are selling well.

When it comes to moving merchandise in the second half of the year, most suppliers seem to agree that, whatever the price point, newness and fast turns are keywords with retailers.

“The whole thing is about newness,” said Dan Harris, vice president of marketing and product development with Revere Mills. “Customers are looking for more innovation, and they are willing to pay a higher price point for value, so long as they have a reason.”

Noting that “many retailers have stepped up their fashion-oriented merchandise, offering the consumer many choices in materials, fabrics and constructions,” Bryan Siegel, president and chief operating officer with Elrene Home Fashions, said the outlook for the consumer in the second half is very positive.

“We are going to see a lot of trend-right merchandise coming from retailers,” he said.

Bob Altbaier, senior vice president of Down Lite International, agreed that yesterday's merchandise is old news.

“Customers are interested in newness,” he said. “And we try to keep ahead of the competition by anticipating new product and construction trends.”

Looking to the second half, Goldstein said overcoming challenges is nothing new in a business he has been a part of for over 40 years. Putting a decidedly positive spin on all that faces the home textiles industry in the latter half of 2005, he noted, “If you have no problems, then you have no business.”