HOUSING SURGE DRIVES UPSWING IN HOUSEHOLD FURNITURE SALES

Furniture World Magazine

According to "The CIT Group/Commercial Services 1998 Household Furniture Outlook," real household furniture shipments continue to rise and are estimated to grow 2.0% in the current year to a record $24.8 billion. CIT also notes that slow growth will follow 1997 with a flattening of the market in 1999 to a predicted high of $24.9 billion in real shipments. "Prime reasons for this year's increase are attributed to positive demographic factors, a trend towards home remodeling and the growing popularity of home offices," says Michael R. Paslawskyj, Vice President of Economic Research for The CIT Group. "We anticipate, before removing the effects of inflation, furniture shipments will reach $26.3 billion in 1999 -- an 8% jump over 1996." Home Ownership Drives Purchases The single-family home has become the unit of choice as apartment construction and dwelling has declined. Home ownership is at a 15-year high with more than 65% of people owning property they occupy and, according to CIT's Outlook, as home sales increase, furniture sales will follow inevitably. Additionally, households purchasing single-family homes have, on average, higher income levels than apartment dwellers and therefore can more readily purchase furniture for their homes. Demographic Trends: Boomers Increase Spending The aging baby-boomer generation, which has typically spent more on home furnishings than previous generations, is now entering its peak earning and spending years. By the end of the century, boomers will account for 44% of all households, up from 38% in 1990. In 1995, 35 to 44-year-olds spent an average of $434 per household on furniture and 45 to 54-year-olds spent $397 per household, more than the national average of $334 for all households. The 11.4 million homes that were built in the 1970s now require major repairs, improvements and updating. "Many households, particularly those of baby boomers, have chosen to remodel rather than move to avoid all the disruption a move causes," said Terry Oelschlaeger, Senior Vice President and Southeast Regional Manager of The CIT Group/Commercial Services. "Typically these homes lack master suites, great rooms or entertainment centers that accommodate the growing trend toward 'cocooning.' Remodeling, therefore, creates a sustaining effect on the furniture market." Another product of remodeling is the proliferation of home offices. More people are upgrading their home offices with furniture and electronic gear. According to the National Association of Home Builders (NAHB), 43.5 million households are equipped with home offices, and 51.4 million individuals work from home at least part time. Remodeling should stimulate additional sales with a commensurate need for newer and more expensive furniture to replace older starter furniture. U.S. Loses Ground to Foreign Producers In 1996, furniture imports surged to a record $6 billion, up 12% from 1995. Large increases were recorded from Canada, up 22%; China, up 30%; Mexico, up 39%; and Malaysia, up 21%. NAFTA helped with the Canadian and Mexican gains, but NAFTA's impact is waning as furniture tariffs decline toward their eventual elimination by 2001. A strong U.S. dollar (against the Canadian dollar and Mexican peso) was also responsible for the growth spurt. CIT expects continued growth in imports through 1999 reaching $7.2 billion, a projected 22% share of U.S. household furniture consumption. In 1996, exports were essentially unchanged from their 1994 level. Exports to Canada, the largest foreign market for U.S. household furniture, declined but was offset by numerous smaller gains with other nations, including a 30% gain from Japan, the second largest foreign market for U.S. household furniture. Last year the U.S. exported $497 billion of household furniture to Canada, compared to a little over $110 million to Japan. CIT expects improvement in exports between now and 1999 with potential to reach $1.3 billion in 1999. This would be an 11% increase over 1996 figures of $1.23 billion. The CIT Group/Commercial Services is the nation's leading provider of customized credit protection and lending services including domestic and international factoring services, working capital and term loans, letter of credit programs, bulk purchases of accounts receivable and accounts receivable bookkeeping and collection services. It is one of eight business units of The CIT Group (www.citgroup.com), a $20 billion asset-based lender to businesses and consumers throughout the U.S. Editor's Note: For a free copy of CIT's 1998 Household Furniture Outlook please call Lara Weingust at (212) 382-9061. Access CIT's web-page through www.citgroup.com