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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
Italy
Yugoslavia
Furniture Retailing
Furniture Stores
92%
Department Stores
8%
3
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
4
Decade Growth for Furniture? +119%
1980’s Snapshot1989 US Furniture
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%
5
1980’s Snapshot (‘89)Inflation? 1980-89
All consumer goods +46.8%
Furniture, mattress & floor covering
+27.8%
Recessions? 1980,1982
Consumer Base?
Baby Boomers 25-43 78 million
Silent Generation 44-62 46 million
6
Decade Growth for Furniture? +57%
1990’s Snapshot1996 US Furniture
ProductionImports Source Nations
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
Total $20.0 Billion $4.7 Billion
% of Total Shipments 81.9% 18.1%
Mattresses $3.3 Billion n/m Canada, Mexico, China
7
1990’s Snapshot(‘96)Inflation? 1990-99
All consumer goods +20.4%
Furniture, mattress & floor covering
+7.2%
Recessions 1990
Consumer Base?
Generation X 17-31 57 million
Baby Boomers 32-50 78 million
Silent Generation 51-69 44 million
8
Decade Growth for Furniture? +85%
1996 Channels of Distribution
9
2000’s Snapshot2007 US Furniture
ProductionImports Source Nations
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
Total $20.4 Billion $19.9 Billion
% of Total Shipments 50.6% 49.4%
Mattresses $6.5 Billion $0.2 Billion China, Mexico, Canada
10
2000’s Snapshot (‘07)Inflation? 2000-2009
All consumer goods +20.3
Furniture, mattress & floor covering
(19.8)%
Recessions 2000,01,08,09
Consumer Base?
Millennials 9-27 83 million
Generation X 28-42 57 million
Baby Boomers 43-61 74 million
11
Decade Growth for Furniture? +20%
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
12
2010’s Snapshot2015 US Furniture
ProductionImports Source Nations
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
Total $13.6 Billion $25.3 Billion
% of Total Shipments 39.5% 60.5%
Mattresses $8.0 Billion $0.6 Billion China, Mexico, Canada
13
2010’s Snapshot (‘15)
Consumer Base?
Millennials 17-35 83 million
Generation X 36-50 57 million
Baby Boomers 51-69 74 million
14
Summary (imports vs. domestic)
15
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
1996 1999 2002 2005 2008 2011 2014
Wood Furniture (Imported) Wood (Domestic)
Wood Imports
Wood Domestic
Summary (imports vs. domestic)
16
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
1996 1999 2002 2005 2008 2011 2014
Upholstered Furniture (Imported) Upholstered (Domestic)
Upholstered Imports
Upholstered Domestic
Summary (imports + domestic)
17
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
1996 1999 2002 2005 2008 2011 2014
All Household Furniture Wood Furniture Metal Furniture Upholstered Furniture
Wood
Upholstered
Metal
All furniture
Population by Age
0
2
4
6
>7565-7455-6445-5435-4425-34<25
$ E
xp
en
dit
ure
s/Y
ear
(in
de
xed
)
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
19
Demographics
20
Baby Boomers (54-72)
76 million
• Lots of wealth, best incomes
• Occupying largest homes
• Children leaving or have left home
21
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
22
Longer Term: Demographics
23
0
20
40
60
80
100
>7565-7455-6445-5435-4425-34<25
in $
th
ou
san
ds
Sources: Bureau of the Census and Mann, Armistead & Epperson, Ltd.
Income vs. Wealth
Wealth
Income
AGE
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
24
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)
25
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
26
• New businesses
• New types of retail
• New home decorating concepts
• Not as automotive focused
• Environmentally insistent
• New priorities in life
27
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
Bank
Family & Loved Ones
28
28
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.
29
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”.
30
Too Many Places Sell Furniture & Mattresses
Long Term Solution? Shared Inventory
32
Retail
Shifts at Retail
33
Retail
30%
35%
40%
45%
50%
55%
60%
65%
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.
34
• 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?
35
• Do lower prices sell more furniture?
36
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?
37
38
How do you Differentiate Furniture?
Near Term: The Economy
• Employment
• Incomes
• Credit Availability
• Consumer Confidence
• Household Formations
• Stock Market
• Consumer Wealth
• Migration
40
Near Term: The Economy
• Unemployment
• Consumer Debt
• Mortgage Rates
• Inflation (flat)
• Bankruptcies
• Foreclosures
• Jobless Claims
• Gas Prices
41
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
42
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
43
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!
44
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: [email protected]
Contact
Mann, Armistead & Epperson, Ltd.
119 Shockoe Slip
Richmond, Virginia 23219
T. 804.644.1200
F. 804.644.1226
[email protected] named Partner on every deal