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When motorists drive through Martinsville in Southside Virginia, one of the first things they see are cow-sized multicolored dinosaurs, all modeled loosely in the shape of a brontosaurus. The fake dinosaurs on downtown streets hawk a bone exhibit at a local museum, but local wags see something else. Once the T-Shirt capital of the world, Martinsville's mighty apparel industry has been decimated by foreign competition. The current fear is that the other stalwart of local industry - furniture - may go the way of the dinosaur, too. For years, Martinsville and other Virginia cities have boasted of many name-brand companies such as Bassett, Hooker and Stanley. These venerable firms and their counterparts in North Carolina just across the state line took advantage of plentiful hardwoods nearby and the finely honed skills of local woodworkers to make their region the center of fine furniture manufacturing in the U.S. Today the same global economic forces that have pushed clothing factories to such cheap-labor countries as Mexico and Guatemala are threatening the furniture makers.

The biggest challenge yet is China, which won enormous new clout last fall when it was admitted into the World Trade Organization. China already has a huge, cheap and hard-working labor force, but some say the WTO gives it special advantages in tariffs, making it easier to export its goods and attract foreign imports and co-production agreements with foreign furniture makers - all at the expense of Virginia furniture makers.

China represents the largest increase in imports through the giant port of Hampton Roads, and furniture leads the list. "We anticipate very significant increases in furniture components, especially accessories such as tables, chairs and lamps. The pace and the volume have quickened very rapidly," says Robert Armbruster, regional manager of China Shipping North America in Norfolk, a major Chinese-owned shipping agent.

Yet as they try to shore up their defenses, Virginia's furniture makers, like others in the U.S., face another dilemma that, if not addressed, will seriously hamstring them if not prove their undoing. The industry, some analysts say, has become lax in service and needs to restructure and streamline its product lines. Gary Shoesmith, a professor at the Babcock Graduate School of Management at Wake Forest University, is among those who say the furniture industry needs an overhaul. "A huge amount of restructuring is due over the next 10 to 20 years," he said. "Service is horrible. I recently ordered a mirror and it took them eight months to deliver it. Eventually something like that will need to come in in eight days, not eight months."

Some Virginia companies have heeded the call, however. Trying to blunt imports and survive, they are meeting with suppliers to insure timely deliveries and high quality, or opening their own stores to tighten control and speed up shipping.

Unless they take such measures, the alternative could be much worse. The pain is already spreading throughout Southside. For example, Bassett Furniture Industries, one of several companies near Martinsville, closed three plants last year, sending more than 1,000 people to the unemployment line. Pulaski Furniture Co., based in Pulaski, has operated a plant in Martinsville since 1960. The firm closed shop and left Martinsville in 2000.

The plight of the furniture industry stretches throughout the nation and the worst is yet to come, analysts say. Last year, the total value of imported furniture products in the U.S. stood at $12 billion, which represented a 1 percent growth from the previous year.

That may not sound like much, but the furniture industry saw a decline of 10 percent during the same year - so even in a recession imports were growing and capturing more of the market. Over the past five years, imports have grown at an annualized rate of 15.6 percent. Jerry Epperson, of the Richmond-based investment-banking firm of Mann, Armistead & Epperson, says imports accounted for 43 percent of the wood products and 13 percent of the upholstery products sold in the United States last year, up from 29 percent and 7 percent in just five years. "We just went through the worst recession the furniture industry has had since World War II," Epperson says. "We had over a 10 percent decline (in sales) last year." But imports from China were up 15 percent during the same period - growing even when the rest of the industry was in decline.

China has come to this point very quickly. Just 11 years ago China was barely a blip on the radar screen, accounting for a mere $98 million in imports. What's more, according to Art Raymond, president of A.G. Raymond and Co, a furniture industry consulting firm in Raleigh, N.C., imports of furniture from China saw a drop in prices last year, so the actual amount of Chinese furniture sold in the United States may have grown even more - perhaps as much as 25 percent. "China accounted for one-third of the imports, $4.2 billion," he said.

The onslaught of the Middle Kingdom is costing thousands of jobs nationwide. Last year the furniture industry lost nearly 10 percent of its work force nationwide, with work rolls dropping from 247,000 jobs in 2000 to 222,000 last year. "Another way to look at it is to look at what the Labor Department calls a mass layoff," says Raymond. "A mass layoff is when 50 or more people are let go. Last year we had 122 mass layoffs, which generally represented a plant being closed. The average for the five years prior to that was 43." Hard times are still ahead. "I'd say we'll see at least another 10 percent drop, maybe more, in the next 12 months. A 10 to 15 percent drop … I just don't think we've hit bottom yet."

As bad as the numbers are, Raymond says there's a hidden havoc to increasing imports - ancillary industries are also taking a hit. "The hardwood sawmill business was off about 35 percent last year. That business has lost employees and plant workers," as have other industries, including "the veneer people, the machinery industry," and others. "When you start putting that in there, you can multiply that loss by at least a factor of 2, if not more."

Both Epperson and Raymond say the situation will get worse for domestic-based furniture manufacturing as China and other Pacific Rim nations invade the market. Both analysts agree that trade agreements have little to do with the increase in imports. According to them, the driving force behind the switch to imports is simply the continuation of a trend, with furniture manufacturers seeking out the lowest labor cost available. Abundant and cheap labor was available in New England. As the job markets there diversified and labor became more expensive, furniture makers moved their operations to western New York state and Michigan, Epperson says. When the labor force there became unionized, the manufacturing base migrated south, settling in Virginia and North Carolina, where labor was cheap, plentiful, and the Appalachians were full of good, solid wood to be harvested.

Now, Raymond says, the furniture industry is simply moving to "the ultimate source of cheap labor, China." In the U.S., the typical worker may make $10 to $11 an hour, but the hourly rate for China is about 50 cents per hour. He notes that China enjoys most favored trading status with the United States, so its products already come into this country tariff-free, and the nation's entrance into the World Trade Organization will have little practical effect on the industry.

Shoesmith, of Wake Forest, disagrees with that assessment. Over the past 10 years, the industry has lost a third of its workers, he says, and the North American Free Trade Agreement with Mexico and Canada made the problem worse. "This business with China and the WTO is going to be much worse," Shoesmith says. "China is going to be a formidable competitor. Furniture is a 'chosen' industry that will receive significant government subsidies. They will subsidize and promote, and the quality of their goods is going to be very high. In the U.S. if you have three workers spot checking, in China you will have 30 inspectors checking and still have a much lower price."

Whether it's due to China's membership in the WTO, or just a continuation of the present trend, many in the industry agree China will be a force to reckon with. And even China eventually may be supplanted, to a degree, by Vietnam. As Vietnam becomes more accepted as a global trading partner, China will feel the threat of new imports, says Raymond. "As cheap as labor is in China, it's only about a quarter of that in Vietnam," he says. The furniture industry, he reiterates, will follow that cheap labor, "whether it's China, Vietnam, or one day Africa."

The threat of imports has, to some extent, lit a fire under the furniture industry. One key for furniture makers, Epperson says, is to change the way they do business with their business partners. Vaughan-Bassett is doing just that, he says.

The company's CEO, John Bassett, says one simple but important step he has taken is meeting with 200 key suppliers to smooth relations and address problems. "That's the first time we've met with them in 40 years," Bassett says. "Basically, what I told them was that we're not in a recession. Recessions come and go, but what we're facing today is what we've never faced before, and that's global competition."

Bassett was armed with all the statistics - the dropping furniture sales, the growing import figures, the effects plant closings have on the suppliers to those companies. "I told them, 'If you want me to be a world-class customer, you have to be a world-class supplier.' They've got to be part and parcel of this. … We (in the furniture industry) can't do this by ourselves."

The results were positive. Bassett acknowledges that his suppliers are now giving his company better prices, the best quality they can and they have increased the speed of shipments.

Another industry trend is for furniture companies to get into the retail business themselves. Ethan Allen, with its large retail stores, is a premier example. "Go to an Ethan Allen store," says Raymond. "Compare that to most any other furniture store, the experience you have there. The sales people are well-trained; they understand their product. The atmosphere inside the showroom is way above what it is in most stores. I think that affects the ability of Ethan Allen to charge a premium price for what they are selling."

Bassett Furniture Co. has leapt into company stores in a big way. Opening its first Bassett Direct Store in 1994, the Martinsville-based firm now owns or has licensed 78 of the stores nationwide. Jay Moore, director of corporate communications, says the company has tighter control over the shopping experience customers have in a Bassett Direct Store. The result, say company officials, is better sales. Company stores also help Bassett streamline production, making it easier for shoppers to get what they want, faster. "Say you want a sofa. You can pick the back, the arms, the legs, and we promise to have it in your home in 30 days or it's free," says Moore.

Hooker Furniture Co., also based in Martinsville, started preparing for the Asian onslaught earlier than other companies. "Fifteen years ago we actually began to import," says Kim D. Shaver, director of marketing and communications. Clyde Hooker, the company's leader from 1950 until his retirement in 2000, saw the growing influence of imports as inevitable, says Shaver. By using selective imports, she says, the company is able to focus on its core products - entertainment centers and home office furniture. The firm's officials studied how these products were produced in the factories and did what it could to make the process as efficient as possible. At the same time, company officials didn't concern themselves with holding onto production of all the accessories - coffee tables, end tables and other smaller pieces. The focus, says Shaver, was to "protect our niche in the market while complementing it with imported pieces."

That strategy is paying off, she believes. "None of our six domestic factories have closed, nor do we have any plans to close," she says. "In fact, over the past eight months, prior to summer, we have been working full time and even selected overtime in some of those plants."
Despite such moves, analysts say that the future of U.S. furniture manufacturing will boil down to its ability to deliver products with speed. Even Bassett Furniture's 30-day sofa guarantee may not be fast enough, Raymond says. "The upholstery process is a lot easier to streamline, because many of the upholstery guys have converted to plywood frames, instead of hardwood frames, and they're making them to order rather than making them for inventory. That's a much leaner and more streamlined process." While in the not-too-distant past furniture deliveries could be measured in months, today it's generally measured in weeks, but double-digit weeks are not uncommon.

That still may not be fast enough, some analysts believe. Shoesmith and others say that a top-to-bottom streamlining and restructuring is needed if furniture is to survive. "Some company will eventually figure out how to streamline their product lines. They'll make 20 couches rather than 80 couches and that will satisfy 80 percent of their customers," he says. While it isn't clear how much Virginia's furniture industry needs to retool, one point is obvious. If more steps aren't taken to meet and best foreign competition, motorists of the future driving through Martinsville may find old pieces of American-made furniture sitting next to the street-side dinosaurs.

Return to Virginia Business - August 2002