New owner, new name, new outlook for Furniture Brands?

Dec. 01, 2013 @ 05:00 AM

It’s no secret that, for furniture companies like Thomasville and Drexel Heritage, the days of large manufacturing plants in the Triad and other parts of the state are long gone.
Furniture companies cut thousands of jobs over the last two decades, as production moved offshore.
What the future will look like for the industry in large measure now rests with a private equity firm based in New York.
Furniture Brands International, or FBI, owner of the Thomasville, Drexel Herigate, Broyhill, Lane, Henredon, Pearson, Hickory Chair, Lane Venture, Maitland-Smith and La Barge brands, filed for bankruptcy in September.
KPS Capital Partners on Monday announced the formation of a new company, Heritage Home Group, LLC, which acquired FBI’s assets for $280 million.
The High Point Enterprise asked one local expert, Ken Smith, furniture analyst with Smith Leonard PLLC in High Point, for his take on the situation.
Smith publishes a monthly report, Furniture Insights, on the state of the industry. His answers to the following questions have been edited for clarity and brevity.

Q: Why would a firm like KPS Capital Partners be interested in FBI?

A: I guess, first of all, private equity guys have got to try to find opportunities and places to put their money. And (FBI) clearly has a group of leading brands in the industry, probably some of the better known names, with Thomasville, Broyhill, Lane, Henredon and others. They’ve got some turnaround expertise and I think they apparently have looked at it and feel like they can make some changes to bring it back to life.

Q: Do you have any sense for what the future might hold for local furniture lines like Thomasville?

A: There’s been nothing but rumors. The initial thought process was that somebody would buy them and split them up — sell them off or sell certain ones off. But, then when (KPS) came in, at least it has appeared that’s not in their plans, at least initially. The first group that looked at it was going to buy everything but Lane. And this group said they would only be interested in it if Lane was still involved. Which tells me that, at least they plan to keep it together.

Q: Did FBI produce a lot of its furniture offshore?

A: Yes, and I don’t think you’re going to see a lot of change in that. If you look at what’s happening in the industry, upholstery has not gone offshore to the extent case goods have, mainly because a lot of it’s custom upholstery. So, I wouldn’t see a lot of change from that perspective. The reality is, with so many plants shuttered here in the (U.S.), to get back into production in a big-time way in case goods is a very expensive proposition. Can they move some product back, as they have? Yes, but I don’t think you would see a big-time shift.

Q: Is it still less expensive to make furniture overseas than domestically?

A: There’s certain products that are competitive. I think it really depends on things like ornate product that take a lot of labor. Certainly, what we’re seeing is, a lot of it has moved from China to other southeast Asian countries. Vietnam has picked up quite a bit. I think the Philippines and some of the other countries over there have too. I think China has lost some of its volume because of things like rising labor and shipping costs, but there’s still a lot of it coming out of China.

Q: Does FBI still have a lot of employees in the Triad and North Carolina?

A: They don’t really put out those numbers publicly. While there certainly have been cutbacks, I think, from what we hear on the street, some of their brands in the Hickory and High Point areas have continued to do reasonably well, so hopefully there wouldn’t be any further cuts.

Q: FBI closed a Drexel Heritage retail store next to a Thomasville store off Business 85 in September. What do you think the future holds for these types of stores?

A: I think a lot of it will depend on what this new company’s thoughts are toward having both wholesale and retail operations. Retail is just a different ballgame. Some companies have figured it out and some have continued to struggle with it. But I think that’s really going to depend on their appetite for retail.

Q: I noticed in your most recent survey that furniture orders and shipments continue to increase. Does this bode well for FBI’s brands and the industry as a whole?

A: I think, as the old saying goes, a rising tide lifts all boats. I think most everybody in the industry hopes that these guys will survive. Does that mean that people haven’t been going out and trying to take their business during this period? I’m sure they have. I think a lot of it’s going to really depend on how well each of the brands have been able to hold their brand together. And how much the retailers have stuck by or will stick by them.

Q: Why was FBI in such weak financial shape to begin with?

A: I think when a company is struggling somewhat to begin with and then you go through (the Great Recession), that’s a hard pill to swallow. Our numbers showed the industry dropped something over 30 percent during that period of time. That’s a hard thing to manage, especially when you’re as big as they were. I think one thing that happened was, even the small companies, we’d never seen it drop like that. So nobody reacted as quickly as they needed to and we saw some good companies turn from black bottom lines to red bottom lines that had never seen that before.