The Coming Golden Age of Furniture Retailing - AHFA · The Coming Golden Age of Furniture Retailing...

transcript

The Coming Golden Age of

Furniture Retailing

November, 5th 2016

Presentation by W.W. “Jerry” Epperson, Jr. C.F.A.of

1970’s Snapshot1978 US Furniture

Production

Wood $4.6 Billion

Upholstery 3.2 Billion

Metal & Other 1.7 Billion

Total $9.5 Billion

Imports 8.5%E

Top Import Sources

Taiwan

Canada

Denmark

Yugoslavia

Furniture Retailing

Furniture Stores

Department Stores

1970’s Snapshot (‘78)Inflation? 1971-79

All consumer goods +70.4%

Furniture, mattress & floor covering

+44.8%

Recessions? 1970,1975

Consumer Base?

Baby Boomers 14-32 78 million

Silent Generation 33-51 46 million

Greatest Generation 52-70 39 million

Decade Growth for Furniture? +119%

ProductionImports Source Nations

Wood $7.9 Billion $1.824 Billion Taiwan, Yugoslavia, Mexico

Upholstery 5.3 Billion 0.318 Billion Italy, Canada, Taiwan

Metal & Other 2.5 Billion 0.243 Billion Taiwan, Italy, Mexico

Total $15.7 Billion $2.385 Billion

% of Total Shipments 86.8% 13.2%

+27.8%

Recessions? 1980,1982

Consumer Base?

Wood $9.7 Billion $3.1 Billion Canada, China, Malaysia

Upholstery 7.9 Billion 0.7 Billion Italy, Mexico, Canada

Metal & Other 2.4 Billion 0.9 Billion Taiwan, China, Canada

Mattresses $3.3 Billion n/m Canada, Mexico, China

1990’s Snapshot(‘96)Inflation? 1990-99

Recessions 1990

Consumer Base?

Generation X 17-31 57 million

1996 Channels of Distribution

Wood $7.9 Billion $10.8 Billion China, Canada, Vietnam

Upholstery 9.7 Billion 3.5 Billion China, Mexico, Italy

Metal & Other 2.8 Billion 5.6 Billion China, Canada, Taiwan

Mattresses $6.5 Billion $0.2 Billion China, Mexico, Canada

All consumer goods +20.3

(19.8)%

Recessions 2000,01,08,09

Consumer Base?

Millennials 9-27 83 million

2007 Channels of Distribution

Local/Regional Stores, 20.5%

Top Furn Stores, 18.9%

National Furniture Chains, 9.4%

Manufacturers' Dedicated, 7.8%Decorator/Designer, 8.7%

Speciality Stores:, 6.8%

Factory Direct, 1.7%

Discount Department Stores, 6.5%

Office Supply Stores, 4.3%

Rental/Rental Purchase, 3.2%

Non-Store Retailing:, 3.0%

Wholesale Clubs, 3.1%

Department Stores, 3.7%

Not Elsewhere Classified, 2.2%Pre-Furnished Manufactured

Housing, 0.2%

Source: Mann, Armistead & Epperson, Ltd., Furniture/Today

Wood $3.3 Billion $11.5 Billion China, Vietnam, Canada

Upholstery 8.8 Billion 5.8 Billion China, Mexico, Canada

Metal & Other 1.5 Billion 8.0 Billion China, Canada, Taiwan

Mattresses $8.0 Billion $0.6 Billion China, Mexico, Canada

2010’s Snapshot (‘15)

Consumer Base?

Millennials 17-35 83 million

Summary (imports vs. domestic)

1996 1999 2002 2005 2008 2011 2014

Wood Furniture (Imported) Wood (Domestic)

Wood Imports

Wood Domestic

Summary (imports vs. domestic)

1996 1999 2002 2005 2008 2011 2014

Upholstered Furniture (Imported) Upholstered (Domestic)

Upholstered Imports

Upholstered Domestic

Summary (imports + domestic)

1996 1999 2002 2005 2008 2011 2014

All Household Furniture Wood Furniture Metal Furniture Upholstered Furniture

Upholstered

All furniture

Population by Age

>7565-7455-6445-5435-4425-34<25

Sources: Third Wave Research and Mann, Armistead & Epperson, Ltd.

Diapers Funerals

Tricycles/

Bicycles

(used) Cars (new) Wheelchairs

Education First job Marry Children Grandchildren Retirement

Parents’ home Better homeFirst home Best home Retirement home

Vacation home

Demographics

Baby Boomers (54-72)

76 million

• Lots of wealth, best incomes

• Occupying largest homes

• Children leaving or have left home

Longer Term: Demographics

Inheritances• Savings incentives (IRA’s, etc.)

• Life insurance

• Health insurance (Obamacare?)

• Stock market

• Real estate

• Negative? Longer life expectancyLife’s Wealth Transfer

Longer Term: Demographics

>7565-7455-6445-5435-4425-34<25

Sources: Bureau of the Census and Mann, Armistead & Epperson, Ltd.

Income vs. Wealth

Wealth

Income

Generation X (38-53)

57 million people

• Too few but in the peak spending years

• Can’t support retail base built for Boomers + Internet

• Cannot buy all the homes built for Boomers

Millennials (19-37)83 million

• Largest Generation EVER

• Women and minorities have equal educational and employment opportunities

• Grown up using computers

• Have access to parents’ money (Baby Boomers)

Parallels to 1970’s

• Strong household formations

• Need for new housing units

• Rebound in birth rate

• Retail expansion; not contraction

• Internet/entrepreneurs

• More second incomes

• New businesses

• New types of retail

• New home decorating concepts

• Not as automotive focused

• Environmentally insistent

• New priorities in life

Technology: Life Moves into the House

Sports Arena

Library

Movie Theater

Communication Hub

University

Shopping Center Work Station / Office

Restaurant

Dating/Visits

Fitness Center

Health Care

Church

Game Central

PhoneSkype

FacebookTwitter

Online Bill PayChecking/Saving

Investments Loans

Family & Loved Ones

We Expect• Higher Interest Rates will have a

DRAMATIC impact:1. Low interest rates have reduced urgency in

inventory turnover and quantities.

2. Reduce inventories on all levels including in-transit.

3. Consumers will pay for priority/faster delivery as higher interest rates impact availability.

• Internet:1. Will demand and create better logistics.

2. Global pricing: pay for speed.

3. Must resolve returns issue.

4. Cannot exist forever without profits.

We Expect• The “ ” Effect:

1. Expect anything/everything in two days (0r less).2. Amazon offers speed, selection (the endless aisle) and

convenience, not necessarily best price.3. Amazon will have captive global delivery system similar to

UPS and Federal Express soon.4. A new “eBay” for discounted returned merchandise.5. No more reference pricing.6. Amazon’s own brand on “top shelf”.7. Best “search engine” for consumer purchases.

• The “ ” Effect:1. Get anything from anywhere.2. New packaging methods and technology.3. More entrepreneurial opportunities.4. Can sell anything for something; the “endless yard-sale”.

Too Many Places Sell Furniture & Mattresses

Long Term Solution? Shared Inventory

Retail

Shifts at Retail

Retail

2013201220112010200920082007200620052004

Furniture Store Sales Alternative Distribution

• Our customers buy any item, like a sofa, so infrequently that they don’t remember pricing from when they bought their last one.

• There is no quality stratification in our merchandise. La-Z-Boy, Bassett, Sealy or any of our leading brands don’t stand clearly for a low price, mid-priced or premium item. Compare that to Chevrolet-Lexus-Rolls Royce.

• We have lost lots of the reasons consumers used to visit our stores like floor coverings, appliances, electronics etc.

• Are we a fashion driven industry if our furniture is replaced so seldom?

• If you can buy your favorite shirt for 40% off, you might buy several shirts. If a sofa is 40% off, does anyone buy several sofas?

• Do lower prices sell more furniture?

1970 2015 %

Best Selling Sofa

$399 $799 +100.2%

Cheapest VW $1,870 $16,200 +766.3%

• Our furniture goes into the home – and we try to sell it from a store.

• Even our buyers don’t know pricing!

• Have you defined your targeted consumer or are you trying to sell everyone, everywhere?

How do you Differentiate Furniture?

Near Term: The Economy

• Employment

• Incomes

• Credit Availability

• Consumer Confidence

• Household Formations

• Stock Market

• Consumer Wealth

• Migration

Near Term: The Economy

• Unemployment

• Consumer Debt

• Mortgage Rates

• Inflation (flat)

• Bankruptcies

• Foreclosures

• Jobless Claims

• Gas Prices

Near Term: Housing

• New Home Sales

• Existing Home Sales

• Home Prices

• Remodeling

• Multi-family Starts

• Homes for Sale

• Mortgage Rates

• Foreclosures

• Home Ownership

• Home Size

Near Term: Housing

• Home demolitions each year: 250,000

• Avg. household formations 2016-2020:

1,200,000

• Underbuilding in 2008-2015: + 100,000(Need 1 mil. more over next 10 years)

• New Homes Necessary/year = 1,550,000• Housing Starts in 2016 = 1,186,000

Concern?

• Housing-related expenditures got a late start because of the housing crisis and foreclosures.

• 2014 before owner-occupied homes began to grow

• Economic recovery is 7 years old

• Furniture recovery is 3 years old

• Fed has no remaining ammunition!

Who we are•Mann, Armistead & Epperson, Ltd. is a privately owned investment banking and corporate advisory firm. Based in Richmond, Virginia, our firm assists public and private companies in maximizing shareholder and corporate wealth. We bring value to our clients by assisting them to initiate, structure and execute a diverse range of innovative corporate financial and shareholder-related transactions.

•Our clients deal directly with the founding partners, who bring to the table over 100 years of aggregate investment banking experience. Our track record is undeniably strong - the result of having faced hundreds of deals, spent endless hours developing industry expertise and brought management teams advice they could trust at crucial moments in their firms’ histories.

•We are internally organized as a boutique investment bank, offering corporate finance execution supported by industry research capabilities. The professionals at Mann, Armistead & Epperson, Ltd. can provide:

• Merger, acquisition and sale advisory services and fairness opinions

• Corporate finance and strategic advisory services, such as performing business valuations and advising on capital formation and balance sheet restructurings

• Industry research and expertise, including demographic market analysis and exclusive data

• Litigation support and expert witness testimony services

•Our clients generally range in enterprise value from $10 million to $300 million, but we have been engaged by companies with values in excess of $1 billion. Over the last 24 years, we have advised and represented a diverse set of clients, including manufacturing and service-based companies, private equity sponsors and venture capital groups. Likewise, we have represented boards of directors, shareholders and management teams. Our client base is also geographically diverse. We have completed transactions in almost all of the contiguous United States and have advised clients located in Asia, Canada, Central and South America, Europe and Mexico. As corporations and economies continue to expand and diversify globally, so has our client and transaction base.

a named Partner on every deal

Wallace W. "Jerry" Epperson, Jr., CFA

Jerry is one of the founders of our firm and a Managing Director of Mann, Armistead & Epperson, Ltd. Jerry is the head of our research efforts and has in excess of thirty years of experience in the publication of hard/soft dollar research which focuses on demographics, consumer products, furnishings (residential and contract) and related issues. More specifically, Jerry’s research in the furnishings industry is recognized on a world-wide basis for its in-depth coverage of suppliers, manufacturers and retailers. Jerry has also been acknowledged by several industry, research and Wall Street associations for his coverage. On several occasions, Jerry has been requested by the U.S. State Department to travel to the Pacific Rim and Europe to assist those countries in understanding the furnishings industry. Prior to founding our firm, Jerry spent fifteen years at Wheat, First Securities, Inc. and five years at Scott & Stringfellow, Inc.Jerry earned a Bachelor of Science degree in Commerce from the University of Virginia and an MBA from the College of William & Mary. He is also a Chartered Financial Analyst.

•Contact Jerry at: wwe@maeltd.com

Contact

Mann, Armistead & Epperson, Ltd.

119 Shockoe Slip

Richmond, Virginia 23219

T. 804.644.1200

F. 804.644.1226

info@maeltd.coma named Partner on every deal

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