Despite being battered by a combination of cheap imports, a stronger Canadian dollar and a U.S. market that's softening, Canada's home furniture sector says it has no intention of raising the white flag.
Instead, it's looking at solutions to give it a leg up on the competition.
"Our members are saying how tough it is, that 2006 hasn't been a good year at all," says Murray Vaughan, who took over as president of the Mississauga-based Ontario Furniture Manufacturers' Association (OFMA) in November of last year.
"It's the imports and the dollar. I hear all the time about how bad the industry is."
According to figures from the Canadian Furniture Industry, Canada has seen an increase in both Chinese and American imports of home furnishings, while Canadian exports are on the decline. The Canadian Furniture Industry includes the OFMA, the Quebec Furniture Manufacturers' Association (QFMA) and Furniture West Inc., which represents the industry in Manitoba, Saskatchewan, Alberta and British Columbia, "Rough estimates are that total shipments at manufacturers prices in Canada are at $5.2 billion. Of that, $1.2 billion is manufactured in Western Canada," says Joe Malko, president of Winnipeg-based Furniture West.
"I would say that it has to be on a downward spiral because of the impact of the quantity of product coming in from offshore. It's mainly from China, although other countries in Asia are becoming furniture manufacturers and exporting product as well. But China has been the giant."
There are predictions that imports from China will grow by 30 per cent annually and control 35 per cent of the furniture market share in 2007, says Malko. "It's gone from $120 million in 1998 to probably about $1.6 billion in 2007. That gives you some indication of the impact of imports from China."
A weaker U.S. economy is also wreaking some havoc on the industry.
"Right now what is hurting a little bit is the fact that the U.S. economy is not very strong," says Jean Francois Michaud, president and CEO of the Montreal-based QFMA. "There are no sales in the stores. That's the new factor."
But while doom and gloom is prevalent in the industry, there are also signs of hope. In Western Canada, Furniture West is trying to turn the tables by reorganizing the way it does business.
It has ditched its annual market - a traditional tradeshow where manufacturers would display their wares and retailers would make their purchases - and transformed the event into a new showcase called Connections West.
Members of the home-furnishings industry will now come together to network, build strong relationships, and exchange crucial, technical and marketing information. Connections West will debut in Calgary in mid-June.
"We didn't do a show in 2005. Instead we surveyed retailers throughout Western Canada," says Malko. "We found out that the retailers wanted to come together in Calgary (for the market), but they weren't interested in visiting the traditional market as we set it up in the past.
"What they wanted really was an opportunity to meet management and factory personnel to look at their new products and discuss with them if they were appropriate for product placement in their stores."
The move will help the independent dealer work with the manufacturers to produce unique products with innovative designs that are appropriate for their markets, he adds.
Other creative strategies are also being studied. QFMA's Michaud says one successful example is Canadel, founded in 1982 in Louiseville near Montreal.
"Canadel is the biggest casual dining manufacturer in North America. Their business model is based on mass customization," says Michaud.
"A consumer goes to a store or their workshop and chooses the wood they'd like their table to be made with. They choose the size of the table, they pick the chairs they want, and they can mix the colour of the chairs. It's about a manufacturer standardizing their product - but with a standard that permits personalization at the end of the product line, such as different colours, trims and table dimensions."
That kind of customization and service is necessary if the Canadian home-furnishing industry is to survive, says David Cohen, a University of British Columbia professor who teaches in both the commerce and forestry faculties and has an interest on the impact of China on the global market for wood products.
"Canadian manufacturers need to recognize that they must compete on design and service, not being the lowest-cost producer," says Cohen. "They need to be able to either bring in offshore product or offshore components to be able to compete with other manufacturers. They need to build better relationships with both their customer and the end user."
One way to do this, he adds, is through developing a stronger brand with a focus on rapid market response and design expertise.
Cohen says the tide started turning against Canadian manufacturers in 2001, when Chinese products started appearing in the U.S. market.
"It was fairly low quality and there wasn't too much concern," he says. "But in the last six years or so we've seen an explosion in Chinese production and the export of furniture. Today, China is the largest exporter of furniture in the world, surpassing Italy in 2006."
There is also a crisis in the Italian furniture industry due to a flood of products from China "so we are not unique in the difficulties we are having," Cohen notes.
Even Swedish furniture giant IKEA sources 29 per cent of its product from China, he adds. "The global business environment is always changing. Today it's China, tomorrow it may be Vietnam. All companies need to be able to adapt quickly."
Terry Clark, president of Acme Chrome Furniture Ltd. of Winnipeg, which makes metal furniture for both home and commercial uses, says business has not been easy. But his company is succeeding by carving out its own niche.
"It's been difficult to grow because of globalization," says Clark, who also serves as volunteer chairman of Furniture West.
"In the last decade we noticed a trend. Competition changed from the province next door to the country next door to the continent across the sea - particularly in consumer products. Consumers vote with their purses (and pocketbooks) and if they find something that will do the job at a lower cost and it's good value, that's the product they will select."
While Acme Chrome has managed to maintain its business volume and viability, it has taken a couple of hits. Its staff numbers about 40, one-third of what it was 20 years ago, and the company occupies less space than it did in the past.
"Our company decision was not to become importers," adds Clark. "It was to design and develop products that would stay below the import radar. Imports have been successful in high-volume, low-margin areas in the metal furniture industry. Domestic manufacturers, we found, can't compete on those tangibles."
The company intentionally develops products that differentiate themselves by design and product performance. "In that way you avoid the direct conflict with the imported product."
But Clark adds that imports have been a moving target.
"A lot of the early imports in any category were not necessarily the best product, but lower priced. But as time goes by, they improve," says Clark.
However, he remains extremely positive on the future of the Canadian furniture manufacturing industry.
"This is not all despair. We have to replace what's not working or in decline and replace it with something that will work. We can't rest on our laurels. But we're not throwing in the towel."
The Quebec association's Michaud says the Canadian industry has to focus more on niche markets like it did at the beginning of the '90s following the free-trade pact with the U.S. "We weren't as productive as our U.S. counterpart, but we succeeded very well with that strategy," he says. "It's the same strategy we have to use right now: Added value and very quick delivery. And of course, quality is No. 1."
Furniture West's Malko also sees some light at the end of the tunnel.
"There's no question about the fact the (Chinese) product is flooding in to Western Canada, but looking ahead there will be some problems with importing furniture," he says. "There's every indication the cost of labour in China will continue to increase, which will add to their costs.
"At the same time costs to bring that here to Canada will also increase."
(Laura Severs can be reached at laura@businessedge.ca)
