The Urethane Blog

Tariff Impact on Furniture

Furniture manufacturers, retailers eye impact of tariffs

Hassell Franklin doesn’t like tariffs or the effect they have on his business and customers.

But the result, he hopes, will be worthwhile.

“There’s an old adage – it’s difficult to produce gain without pain,” said Franklin, the founder and chairman of Franklin Furniture Corp. in Houston, one of the nation’s largest suppliers of recliners and motion furniture.

President Donald Trump announced last month that the U.S. would levy a 25-percent tariff on another $200 billion of Chinese imports, and a swath of furniture-related components are affected this time.

Franklin supports the Trump administration’s and other economic experts’ view that China has been stealing intellectual property rights and dumping goods in the U.S. market to undercut domestic businesses. And Franklin thinks it’s long past time that something was done to level the playing field.

“But it is painful for the consumer,” Franklin admitted. “A 25-percent increase for manufacturers like us will be passed along to the dealers, and the dealers will have to pass that along to the consumer. I just hope that it will be resolved quickly, but I really think that in the end it will work out. It’s just going to hurt a bit.”

Last year, a 10-percent tariff on steel and aluminum raised costs on components like recliner and sleeper mechanisms, but they were more easily absorbed by manufacturers.

The new tariffs are a different story, and manufacturers won’t be eating all the costs this time.

Northeast Mississippi has long been a manufacturing hub for decades, and making upholstered furniture – sofas, love seats, recliners and chairs covered in fabric and leather – has been a staple of the region’s economy. But during that time, the fabrics used by hundreds of manufacturers has evolved from being domestically sourced to primarily import-sourced.

Furniture manufacturers have had little choice but to buy from overseas as their suppliers have closed their factories in the U.S. Besides fabrics and cut-and-sew kits, other key components used across the furniture industry include fiber, springs, plastic packaging, mechanisms and motors.

Price increases for those components have manufacturers and retailers alike scrambling to figure out their next move.

Lisa Hawkins, owner of Room to Room Furniture in Tupelo, said some vendors are adding tariff surcharges to their shipments. Others are taking a wait-and-see attitude for now.

“Most of our manufacturers are waiting until July 1 to make some major price changes, but in the meantime, some are putting a tariff surcharge, much like they tacked on a fuel surcharge back when gas prices went way up a few years ago,” she said. “Not everybody is doing it yet, but the situation is very fluid. I think they’re scrambling to see what they’re going to do.”

According to a Reuters report last week, some retails and vendors are canceling or pausing orders coming from China, while others are imposing tough new contract terms, rerouting sourcing and discussing ways to share costs with each other.

“Many have gone to Vietnam for sourcing, and that’s been going on for a few years,” Hawkins said.

The U.S. retail furniture industry is valued at some $114 billion, and China has a major role. According to North Carolina-based investment banking and advisory firm Mann, Armistead & Epperson, which has long been a key furniture industry analyst, the U.S. imported $5.7 billion in wood furniture, $5.3 billion in upholstered furniture, $7.2 billion in “metal and other” furniture and almost $1 billion in mattresses from China for residential use. According to the U.S. Trade Representative’s office, China’s impact is even greater, placing the value of furniture and bedding imported from China at $29 billion.

Skipper Holliman, president of HomeStretch Furniture in Nettleton, said his 450-employee factory will, like others, have to absorb whatever costs it can but will also have to pass along those costs.

“The situation is different for everybody because not everybody does the same thing,” he said. Some manufacturers make greater use of components from Southeast Asia outside of China, and many have increased their own cut-and-sew departments to rely less on kits coming from overseas.

Still, the tariffs will eventually have a ripple affect at every point in the industry, trickling down to the consumer.

Like Frankin, however, Mississippi Manufacturers Association president Jay Moon said additional tariffs will do what they’re supposed to do.

“It’s very selective, and by that I mean that if there’s a tariff particular to a given industry, they may be impacted and others are not,” he said. “Some are benefiting, for example, like aluminum and steel producers in the U.S. But agriculture is getting pretty hard hit, and so is furniture production.”

Moon said tariffs and trade wars are nothing new, and this round is really no different.

“The purpose of free trade agreements is to do away with tariffs so we can compete on the basis of quality and price,” he said. “China violates a lot of trade laws and if we continue to allow them to do that and continue to hurt a lot of our companies in the U.S, we’ve got to have a course correction. Is it painful? Sure it is. Does it hurt more companies and people? It does because that’s the nature of selective tariffs. But in the long run, I think our companies will be able to get into the Chinese markets much like they’ve entered our markets, and eventually I think the course correction will lower the tariffs and possibly eliminate them, so we’re better able to compete on the world stage.

“The key is patience … we have to understand there’s going to be some short-term pain, but we can’t have a rogue player in the game. And it’s not just the Chinese, but others who have violated trade agreements. We have to have a level playing field to better compete.”

https://www.djournal.com/news/furniture-manufacturers-retailers-eye-impact-of-tariffs/article_9ce8c46e-56e2-5e33-946b-b27d3bf0840f.html