CIT's Furniture Outlook Predicts Record Shipments Through 2000 --Furniture Sales to Set New Benchmark For Growth

Furniture World Magazine

Driven by possibly the best economic conditions in over 35 years, the household furniture industry will continue its growth to record levels through the year 2000, says The CIT Group/Commercial Services, Inc. in its annual Furniture Industry Outlook. Following a solid 5 percent gain in 1997, real shipments are expected to grow at the fastest rate in 11 years. Predicted to reach a growth rate of 5.7 percent, real shipments for 1998 should reach a record $27.19 billion. "With the economy as strong as it is, the housing market is doing extremely well," said Michael Paslawskyj, Vice Preside it of Economic Research of The CIT Group. "The housing market is the key driver for this industry," he added, Growth is expected to slow to 2 percent in 1999 due to the predicted lull in the housing market. This lull will give way to a brighter 2000 as economic conditions recover and growth accelerates to a 3.6 percent pace, resulting in record level shipments exceeding $29.72 billion. The continuing challenge for U. S, manufacturers is to compete for domestic market share with the ever-growing number of foreign producers. Since 1991, imports to the U.S. have doubled. Last year, imports grew more than 17 percent to an unprecedented dented $7.08 billion as they captured 22.7 percent of the U.S furniture market, "The main culprit; in 1997 were the Asian financial crisis, the resulting currency devaluation, and a comparably stronger U. S. dollar," said Paslawskyj. "These combined forces have caused reductions in the prices of imports from Asian countries affected by the monetary meltdown." As a result, imports from Indonesia, Malaysia, and Thailand accounted for $841 million of U. S. furniture imports last year, an 11.9 percent share of the import market. Imports from these countries will undoubtedly continue to grow in the near term. With a 46 percent increase in 1997 to $1.29 billion, China should surpass Canada as the number one source of foreign made furniture in the U.S. during the coming years. Other exporters seeing a double-digit growth in the U.S. market were Mexico, up 28 percent, Indonesia, up 19 percent, and Philippines and Canada, both up 17 percent. This trend is expected to continue until the year 2000, when U.S. import growth is expected to stabilize due to the forecast of a weaker dollar. U.S. manufacturer exports are also on the rise. Leading the way for U.S. export markets in 1997 was Canada, with an export growth rate of 17 percent to $663 million. Other growing export markets for U. S. furniture were Mexico, at $118 million, Japan, at $114 million, Saudi Arabia, at $65 million, and the United Kingdom, at $61 million. While 1998 figures are expected to drop below those of 1997, exports should rebound in 1999 and 2000 as the dollar value weakens, Exports in 2000 are expected to reach $1.75 billion. New Home / New Furniture The success of the furniture industry relies heavily on the condition of the housing industry, according to Terry Oelschlaeger, Senior Vice President and Regional Manager of the Southeast Region for The CIT Group/Commercial Services. "Furniture ranks as the second most common durable good purchase made by people who move, second only to major appliances. Surveys indicate that among homeowners who move, 62 percent buy new furniture within a three-month period," said Oelschlaeger. Today., the furniture industry is reaping the benefits of the strong housing market, which is driven by the combination of the booming economy and affordability levels that have not been seen since the early 1970's. These factors enable more consumers to afford to purchase single-family homes. As a house is typically twice as large as an apartment and as today's homes are much larger than those built in the past, more furniture has to be bought to fill the increased amount of space. Amenities for the home that have become popular in recent years include entertainment centers, large master suites that can accommodate exercise equipment, computer rooms and home offices. Home Work: Another important factor affecting furniture purchases the amount of time homeowners spend at home. According to studies, higher levels of stress and uncertainty have created a trend toward "cocooning" - spending more time at home. Since home is among the best places to relieve stress because it is a comfortable and familiar environment, individuals will naturally want to add new furnishings to make their environment more attractive. Another trend affecting the furniture industry is the home office. According to the National Association of Home Builders, 43.5 million households have home offices, while 51.5 million individuals work at home at least part of the time. "As technology advances and more people telecommute, more homeowners are opting to work out it of their homes, at least part-time," said Oelschlaeger. According to Wirthlin's 1998 Home Office Trends Survey, about one third of all U.S. households have a room or area in their home in which they "conduct business, pay bills, work on a computer or do homework." As the market is maturing, consumers have become more discriminating and are more apt to upgrade their home offices to include more amenities, "The maturing of the home office furniture market and consumer plans to upgrade their home offices represent an even bigger opportunity for home office furniture manufacturers," Oelschlaeger added. Baby Boomers Big Buyers: The furniture industry stands to benefit from the demographic standpoint as well. With the baby boom generation enjoying their prime earning years, the notoriously big spending boomers are more likely to replace old, inexpensive furniture. "Representing 44 percent of all households, the growth of this key buying group will not only help sustain in the industry's upward momentum but it will provide support on the downside as well," said Oelschlaeger. "The combined effects of the favorable demographics, booming economy and new trends in the home promise a bright future for the household furniture industry," said Oelschlaeger. "As price remains king in the purchase decision. the formidable challenge facing the furniture industry is successfully educating consumers about furniture quality and encouraging them to buy higher priced, higher quality furniture. " The CIT Group/Commercial Services is one of the nation's leading providers of credit protection, receivables management and lending services to the furniture industry,. It is a business unit of The CIT Group (NYSE., CIT). With $23 billion in managed assets, the CIT Group, Inc http://www.citgroup com (is one of the nations largest commercial and consumer finance organizationse-mail them at info@cs.citgroup.com