The furniture industry’s fragile comeback
Trump presidency poses a threat to manufacturers’ trade with U.S.
After nearly a decade of diminishing returns, the furniture manufacturing sector in Canada is finally enjoying some prosperity.
“I feel really good about our industry now. We’ve had explosive growth the past two years,” said Laine Reynolds, vice-president of Superstyle Furniture Ltd., a Woodbridge-based company that counts Sears Canada, Hudson’s Bay and Leon’s as clients, in addition to a host of independent retailers.
Reynolds is also chair of the board of directors of the Canadian Home Furnishings Alliance.
“The economy is improving, the housing industry has been on fire and the millennials have hit our industry — finally — and they have a huge appetite for housing and furniture right now.”
Furniture exports are up, buoyed by the low value of the Canadian dollar, which has made Canadian furniture an easier sell in the U.S.
But the election of U.S. President Donald Trump has the industry wondering if the robust recovery will last.
“He’s so unpredictable. We are quite worried about what he will do,” said Peter Tielmann, president, Palliser Furniture Holdings and CEO of EQ3.
Tearing up NAFTA would create an obvious problem — nearly 100 per cent of Canadian furniture exports go to the U.S. On the other hand, if Trump blocks cheap imports from Asia, furniture manufacturers in Canada may benefit.
“There’s a big question mark as to what lies ahead as far as the American market is concerned,” said Pierre Richard, president and CEO of the Canadian Furniture Show and the Quebec Furniture Manufacturers’ Association.
The concern isn’t limited to furniture manufacturers. The Canadian manufacturing segment as a whole has been more or less stagnant for about five years, said Mathew Wilson, senior vice-president of Canadian Manufacturers & Exporters, the sector’s trade and industry association.
Having Trump in office could make that situation worse. If he acts on his promises to reduce taxes and regulatory burden facing corporations in the U.S., Canadian companies would be at an even greater competitive disadvantage than they are today.
Canadian manufacturing could be further harmed if Trump insists on “buy American,” as he did when he approved the Keystone Pipeline, saying that the pipes would be made in the U.S.
“Canadian companies make that steel, make that pipe and are selling it to TransCanada,” Wilson said.
“Very little has been said of policy substance,” said Peter Hall, vice-president and chief economist of Ex- port Development Canada (EDC), the Crown corporation tasked with supporting and developing Canada’s export trade.
“It seems to be one-off tweets or statements . . . but there is no clear overall direction that companies can react to. It’s created a climate of uncertainty.”
It took the furniture industry in Canada eight years to climb back to what it was in 2008, when the implosion of the housing market in the U.S. triggered a global financial meltdown.
In 2008, home turnover — the number of homes bought and sold — collapsed in Canada along with the U.S. housing crisis, said Chris Walsh, lead consultant on furniture retail accounts at Fusion Retail Analytics.
That, combined with steep declines in consumer confidence and discretionary income, led to slowed growth in the industry.
Home turnover is now running at consistently strong levels, and discretionary income growth and consumer confidence are steady.
The industry has posted an average annual growth of 4 per cent over the last three years, said Walsh, who is forecasting growth of just over 3 per cent in 2017.
Furniture manufacturing sales are also outpacing overall manufacturing sales in Canada, according to Mike Holden, chief economist at Canadian Manufacturers and Exporters.
Based on the 11 months of data available from 2016, manufacturing sales in Canada were up 0.6 per cent over 2015 and furniture manufacturing sales were up 4.4 per cent. That followed on the heels of an increase in furniture manufacturing sales of 6 per cent in 2015 over 2014.
Furniture manufacturers and retailers have also been fighting a flood of cheap Asian imports — but that too, seems to be changing.
Consumers are becoming disenchanted with low-cost, low-quality goods and are beginning to look for quality in furniture.
“I think there is a stronger buyCanadian mindset than there was five or 10 years ago. People are more conscious about preserving local jobs. And they’re sick of the low quality of imports,” said Superstyle’s Reynolds.
Palliser’s Tielmann said consumers are also more concerned about the environmental footprint of what they buy, and the notion of using furniture for a while and tossing it in the trash is beginning to irk them.
“The Canadian consumer, if they have a choice, they like to buy Canadian, if the prices are not too much higher,” said Tielmann.
And while Canadian manufacturers are selling at prices similar to seven or eight years ago, costs for Asian producers are rising along with rising transportation costs and rising labour and environmental costs, according to Richard. That has decreased the price gap between imports and Canadian-made.
The Canadian companies that have pulled through the dark decade have reinvented themselves, said Richard. They have modernized their lines and moved into custom, made-tomeasure furniture, mostly leaving the low end of the market to cheaper, imported goods.
“Most of the companies, I know at one point in the past years, probably should have given the keys back to the bank, yet there is that passion in this industry that I haven’t seen in many others,” Richard said.
“It’s partly social responsibility in some cases, because often these manufacturing companies are in towns, villages, where a large number of the employees come from that area and many of these companies are now in their second and third generation, and they felt a responsibility toward that community and that seems to be that little extra drive that just pushed them through every obstacle.”
The situation is different for some bricks and mortar furniture retailers in Canada, who are facing an onslaught of new competition from eretailers like Wayfair.ca, based in Boston and offering millions of items for sale online, and homegrown startups like Vancouver-based Article.com, which delivers custommade furniture in Canada and the U.S. for a flat shipping fee of $50.
The end of the manufacturing downturn came too late for Toronto’s Leda Furniture. At the end of the month, the family-owned company will close its doors for the last time, after nearly 50 years in business.
The remaining pieces of furniture are being sold from the Woodbridge manufacturing plant at less than cost. The machinery was auctioned off in October.
Company president Marco Confalone said Asian imports undermined the business and it was not able to recover from the downturn in 2008, especially in light of skyrocketing hydro rates and rising labour and regulatory costs. Confalone said consumers became so used to low prices on Asian imports that the cost of Leda’s luxury Canadian-made furniture gave them sticker-shock. They tried to adapt to the marketplace, but they couldn’t find a sweet spot.
“Consumers will pay $120 for a Tshirt or $20-$50 for a hamburger, but furniture no longer has any respect,” Confalone said.