Many exhibitors at the recent Ligna Hannover Fair in Germany reported booming business. Buoyed by a stronger European economy, shipments of woodworking machinery by German machine makers are set to rise by ten percent in 2007. 

The exhibits of the large high tech machine makers like Homag, Biesse and IMA were jammed with visitors.  Many of the small meeting rooms were continually taken by buyers in the midst of negotiating purchases.

Lightweight panels were the buzz of the show.  European furniture makers are rapidly substituting these materials for solid MDF and particleboard components.  New technology in the lay-up and pressing of these honeycomb core panels has eliminated much of the labor in the production process.  Machine makers now offer a range of equipment enabling woodworkers to match their investment to volume demand. 

Hardware producers like Häfele offer special connectors that allow creative assembly of these hollow core panels.

Furniture giant Ikea has long incorporated lightweight panels in their product offering to reduce weight, energy input and wood fiber consumption.  Europe limits the weight of RTA furniture cartons to 55 pounds per package.  About forty to fifty percent of all furniture in Europe is flat packed (ready to assemble).  The lightweight panels also allow designers to utilize thicker panels (1-1/2” to 2”) in place of ½” and ¾” solid core components.

This construction is nothing new. Architectural door producers have used honeycomb as the core material for interior doors for years.

Big questions remain to be answered about this technology:

1. Will the consumer accept lightweight panels? Certainly those who shop at Ikea do, by the millions.
2. What are the cost trade-offs? These panels cost more than MDF and particleboard for thinner components.

Swedwood, Ikea’s manufacturing subsidiary, is installing a highly mechanized line for production of lightweight panels.  Ikea is known for intelligently integrating their product and process design to achieve low costs.  Keep your eyes on this technology.

California Gets Tough On Formaldehyde

The California Air Resources Board (CARB) has enacted tighter restrictions on formaldehyde gas leaching out of composite wood panels.  To meet the law’s standards, panel producers must modify their adhesives and binders to eliminate most, if not all, of the formaldehyde contents. 

Set to take effect on January 1, 2009, the Phase One standards will have little impact on materials cost.  However, Phase Two will raise the cost of MDF, particleboard, and plywood – key raw materials for furniture, cabinetry and millwork manufacturers, as well as homebuilders.  CARB estimates that Phase 2 will raise the material cost of cabinets, countertops, shelves, and mouldings in a 2,000 sq. ft. home by $400.

By January 2011, plywood makers must lower their product’s formaldehyde emissions to no more than 0.08 parts per million.  Particleboard must emit no more than 0.18 ppm, while MDF’s limit is 0.21 ppm.  Phase 2 pushes these limits to 0.05, 0.09 and 0.11 ppm respectively.

Formaldehyde is deemed to increase the risk of cancer.  Woodworking companies and industry trade groups contended that CARB’s rules are based on unsubstantiated health consequences and ignored newer scientific data. 

CARB will require that domestic and foreign users of these panelboards must provide third party certification that their materials meet the emission limits.  Industry experts wonder how CARB will monitor record keeping at foreign labs engaged by Chinese and other manufacturers.

Another stake in the heart of the U.S. furniture industry will hurt our cabinetmakers and other woodworking sectors that have managed to stave off the import tidal wave.

The U.S. is continuously slammed for its extravagant energy consumption.  Yes, the U.S uses more energy per capita than any other country in the world.  But what about per unit of gross domestic product, the broad measure of an economy’s size?

Oil Consumption per Unit of GDP
(tons of oil per $million)

Seems the U.S. is not so profligate after all…

Sector Report

Kitchen Cabinets

Cabinet sales continue weak following the end of a ten-year uptrend last November.  According to the KCMA’s Trend of Business Survey, April sales fell by 11.2 percent, an improvement over March sales which dropped 17.1 percent versus the same month last year.   YTD 2007 sales were down 13.9 percent. 
  
At the company level…

• Masco Corporation with their Merillat, Mills Pride, and KraftMaid cabinet brands reported 1Q2007 cabinet sales of $691 million, down 18.9 percent from a year ago.  Operating margin fell from 14.2 percent to 11.9 percent.  In spite of the revenue shortfall, management claims to be maintaining market share.

• American Woodmark reported 4Q2007 sales of $166 million, a 23 percent decline year on year.  Gross profit followed suit with a 23.9 percent drop.  Operating profit fell to $9.1 million, down 58 percent.  Management is forecasting FY2008 sales down 7 to 11 percent as the weak housing market continues.
  
  1. Importer Sunny Wood Products announced its relocation to a new Cerritos, CA, distribution/assembly facility.  At lower price points cabinets “assembled in the US” from imported cabinets are found in the big box DIY stores like Lowe’s.  Keep your eye on this challenge to domestic domination of the cabinet sector.  Historically imports account for less than 5 percent of total cabinet sales in the U.S.

Home Furniture

The weakness in furniture retailing reported in April’s Business Briefing continues…

• Havertys Furniture, who operates 122 retail stores in 17 southern and central states and sells in the mid- to upper mid-price points, reported an 8.6 percent drop in 1Q2007 sales.  Earnings fell a whopping 84 percent.  In April, the first month of their 2Q, the downturn continued as sales declined 17.1 percent versus a year ago.  The company has responded with an aggressive financing offer – no interest until January 2010.
  
• Attendance at March’s High Point Furniture Market was down 20 to 25 percent. 
  Along with the new Las Vegas Market, High Point is the place where retailers view and order new products for their stores. 

Poor business has even affected importers.  Casegoods importer Mirador announced its closing and blamed slow business in the past 6 to 8 months.  Mirador imported its products from 11 Far Eastern factories and was noted for its innovative designs.

Furniture giant Ikea however continues to swim against the tide as the company opened a 310,000 sq. ft. store in Draper, UT, to serve the Salt Lake City market.  The Utah store is its 30th in the U.S. and 255th worldwide.  Its new Danville, VA, plant is scheduled to begin production in early 2008.

Chinese manufacturer, Coe Ltd., has established a U.S. marketing subsidiary, Amelia Home.  Coe has 5,000 employees, 50 factories totaling 3 million square feet, and its own timberlands and saw mills.  Well-financed Chinese producers continue to go direct to U.S. retailers in a move to optimize the supply chain.

Competition in the U.S. furniture business has never been tougher.  As noted below, even upholstery producers, who many believed to be immune from foreign competition, are feeling the pain.

More at the company level…

• Furniture Brands announced 1Q2007 sales of $574 million, down 13.3 percent year-on-year.  The company earned only $2.9 million, off a whopping 90 percent.  Management predicted a difficult 2Q2007 with sales down 15 percent.  In response, the company is closing three Thomasville Furniture facilities:  two upholstery plants in Troutman, NC, and a 325,000 sq. ft. casegoods plant in Thomasville.  Additional staffing cuts were announced in the executive and administrative ranks bringing the total of affected workers to 330.
  
  
• Producer and retailer Ethan Allen Interiors reported 3Q2007 revenues of $247 million, down 7.7 percent from the prior year.  In spite of weaker sales, gross margin rose 3.3 percent to 52.1 percent.  At the end of the quarter, the company’s retail network consisted of 310 stores with 154 company-owned.
  
• Bassett Furniture announced a 15.1 percent drop in its 1Q2007 sales to $73.4 million.  This decline resulted in a net operating loss of $4.2 million.
    
  
• Stanley Furniture reported sales of $75.1 million for its 1Q2007, down 10 percent.  Gross margin followed lower at 18 percent of sales, off 24 percent from the prior year.  Operating profit fell to $3.1 million, down 64 percent year-on-year. Management is predicting sales to be off $4.5 to 8.5 million in 2Q.
  
• Manufacturer and importer Chromcraft Revington reported a 1Q2007 loss of $1.2 on 26.3 percent decline in sales. 
  
• Hooker Furniture announced that its 1Q2007 sales were down 15 percent to $77.3 million.  Net income was down 26.5 percent to $4.3 million. The company, which closed its last U.S. plant earlier this year, imports all of its wood products while producing upholstery domestically at its Bradington-Young and Sam Moore divisions.
  
  
• Sauder Woodworking, the largest RTA furniture maker in the U.S., has acquired the brand name, select designs, patents and a licensing agreement from O’Sullivan Industries.  O’Sullivan halted production in early April after emerging from bankruptcy in April 2006.  The acquisition does not include O’Sullivan’s 1.1 million square foot plant in Lamar, MO.  The deal enables Sauder to expand its distribution to key retailers like Lowe’s, Staples, Big Lots and Wal-Mart.
     
• Bush Industries, another RTA producer, announced the closing of its Little Valley, NY, facility.  The transfer of production to one of its Jamestown, NY, plants will idle about 50 workers.  This closure is the third such consolidation in recent months, following the shuttering of two Erie, PA, plants and one in Tijuana, Mexico.
  
  
• Richardson Brothers, longtime casegoods producer, announced its exit from the furniture industry.  The company closed its Sheboygan Falls, WI, plant in 2003 where it manufactured furniture for 120 years and became an importer of Chinese and Bolivian-made products. 
  
  
• Upholstery maker Berkline announced the lay-off of 250 workers at its Livingston, TN, recliner plant.
  
  
• Moosehead Manufacturing, an old line Maine furniture maker, announced the closure of its casegoods operations.  The 60-year old company was unable to compete with lower-priced imports.
  
  
• Canadian producer Dorel reported the closing of its Ameriwood subsidiary’s Dowagiac, MI, RTA plant.  The closure will affect 170 workers.  Management is attempting to balance its capacity with demand.  The shutdown leaves Ameriwood with plants in Cornwall, Ontario, and Tiffin, Ohio.
  
  
• Upholsterer Ashley Manor is closing its High Point, NC, plant in July.  The company employs 30 workers who produce high-end sofas, loveseat and chairs.  Management blamed the soft retail environment and strong import competition. 
  
  
• Smith Furniture Manufacturing, the Waco, TX, upholsterer, announced the closing of its operations in early May.  The company had been in business since 1939.
  
• On the bright side, furniture and cabinet maker University Loft is opening a $22 million warehouse and manufacturing facility in Mount Comfort, IN.  The 508,000 sq. ft. operation will produce casegoods and inventory accessories to support its vanity and kitchen cabinet business.  The company also operates a 600,000 sq. ft. plant in Morristown, TN.

Office Furniture

BIFMA, the sector trade association, reported April orders for office furniture up 5 percent.  Shipments increased by only 2 percent, down from 8 percent in March.  Analysts believe that sector growth is moderating toward a GDP-like 3 to 6 percent growth rate.  The association’s economic advisor lowered their growth expectations to 6.8 percent in 2007 and 5.6 percent for 2008.

At the company level…

• Knoll reported a 13.7 percent jump in sales for its 1Q2007.  Gross margin rose to 34 percent, up from 32 percent last year.  In spite of higher SG&A expenses, operating margin rose to 12.4 percent.
  
• HNI Corporation reported its 1Q2007 sales of its office products up only 2.1 percent.  Management is expecting little improvement over the remainder of 2007.  Operating profit in the office sector was down 8 percent.

Wood Flooring

At the company level…

• Armstrong World announced that its 1Q2007 wood flooring sales declined 3 percent to $199 million. 
  
• Mohawk Industries reported 1Q2007 sales of its Unilin laminate flooring at $352 million, up from $303 million last year or 16.3 percent.  Operating margin on flooring was 17.2 percent, up from 13.2 percent last year.

The Bush Administration and Ways and Means Chairman Charles Rangel (D-NY) have struck a deal for imposing new requirements on trade partners as a condition for approval of any new trade agreements.  It is possible the deal might serve as the basis for an effort to renew the Trade Promotion Authority law that permits the President to negotiate trade agreements without interference by Congress.  Under the law, which expires soon, Congress can only vote to approve or disapprove an agreement.  The new majority in Congress has made it clear it would not entertain renewal without some changes regarding labor and environment standards.  In the meantime, the Administration will have to go back and renegotiate some of the pending agreements with Peru and Panama.

The agreements must include a fully-enforceable commitment that Free Trade Agreements (FTA) countries will adopt, maintain and enforce in their laws and practice the five basic international labor standards, as stated in the 1998 International Labor Organization Declaration on Fundamental Principles and Rights at Work.  These principles are: the freedom of association; the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labor; the effective abolition of child labor and a prohibition on the worst forms of child labor; and the elimination of discrimination in respect of employment and occupation.

There must be a new, fully enforceable, binding commitment prohibiting FTA countries from lowering labor standards.  The FTAs must have new limitations on "prosecutorial" and "enforcement" discretion.  FTA countries cannot defend the failure to enforce laws related to the five basic standards due to resource limitations or decisions to prioritize other enforcement issues.  These labor commitments must be subject to the same dispute settlement mechanisms and penalties as other FTA obligations.

According to the United States Trade Representative’s office, violation requires showing that non-enforcement of labor obligations occurred through a sustained or recurring course of action or inaction.  A violation must occur in a manner affecting trade or investment between the parties.  The agreement does not change the current definition of labor laws in our FTAs and thus applies only to federal labor laws.  Only a government can invoke dispute settlement against another government for a labor violation under an FTA.

There must be a fully-enforceable commitment that FTA countries adopt, implement, and enforce in their laws and practice obligations under seven common major multilateral environmental agreements (MEAs)  The MEAs are: the Convention on International Trade in Endangered Species; the Montreal Protocol on Ozone Depleting Substances: the Convention on Marine Pollution; the Inter-American Tropical Tuna convention; the Ramsar Convention on the Wetlands; the International Convention for the Regulation of Whaling; and the Convention on Conservation of Antarctic Marine Living Resources.

There must be a new, fully enforceable, binding commitment prohibiting FTA countries from lowering environmental standards.  There must be a "conflict of laws" provision where a covered MEA obligation affects an obligation under an FTA.  The FTA cannot be used to undermine the MEA obligation.

“This is truly a historic breakthrough,” said Chairman Rangel.  “For decades now, trade has been a polarizing issue in Congress, but today’s agreement signals a new direction and a renewed spirit of bipartisanship.  We hope that we can improve the image of trade by creating new jobs and forging a partnership with the private sector to ensure that at the end of the day we’re advancing a policy that makes trade work, not just for shareholders, but for all Americans.” 

“This agreement will allow us to move the American trade agenda forward,” Ranking Member Jim McCrery (R-LA) said, “I believe it is a good and fair compromise that takes into account the concerns of all parties.  I urge all Members of Congress who care about making sure our nation remains a leader on trade to support this agreement.”

These developments are encouraging.  The key is whether we are willing to "go to the mat" to enforce these agreements after the fact.  This Administration has gotten more aggressive in using the World Trade Organization to hold China’s feet to the fire.  The next test comes this summer; the Administration will have to decide whether to allow certain products from India and Brazil to enjoy duty-free status under the General System of Preferences program. Keep an eye on it.


The Manufacturing Debate Continues…with WMMA at the Table
By Ken Hutton, WMMA Sr. VP, Public Policy & Industry Relations

Thirty-six WMMA members exhibited at Ligna (May 14-18 in Hanover, Germany), the world’s largest woodworking equipment trade fair. Although member participation was down from the 2005 high of 44, all that were interviewed felt their participation was well worth the effort. Some were elated with the results and look to overseas markets as a projected bright spot for 2008 and perhaps longer.

Ligna continues to draw visitors from outside Europe. This year’s event drew over 50,000 from outside Germany, or about 47% of the 107,000 total. Some were exceptionally pleased with leads from East Europe, as well as Australia and New Zealand and parts of South America and Canada. One disappointment was the number of Russian visitors. A major Russian furniture fair was held in Moscow the same week as Ligna and many prominent Russian furniture producers and suppliers were absent because of it.

Members credited both the continued fall in the dollar and their repeated participation in Ligna for their good results.

Other Ligna 2007 statistics are:

• Number of visitors: 107,000 up from the published 97,000 in 2005.
• Number of exhibitors: 1,879, slightly up from 1,857 in 2005
• Percentage of exhibitors from outside Germany: 56% up from 53% in 2005.
• Space occupied: 133,000 sq. meters (1.4 million sq. ft.), up from the 2005 level of 130,000 sq. meters.
• Percentage of international visitors: about 47% of visitors came from outside Germany; up from 43% in 2005.
• There were an increased number of exhibitors from China, Taiwan, Eastern Europe and former Russian territories (again, a trend witnessed in 2005).

Dealers and buyers from around the world meet every other year at Ligna to see what’s new, what’s changing within the industry to maintain old contacts and make new ones.  For these reasons, Ligna is critically important to WMMA members interested in maintaining or expanding their international markets --- whether by exporting, importing or a combination of both. It is also a unique opportunity to assess new technologies, identify market niches and anticipate competition. It bears repeating that any member interested in international trade must be at Ligna. 

The next Ligna will be held May 18-22, 2009 and the WMMA will have another stand on the floor for members use.

The WMMA Booth

The WMMA organized a 300 sq. ft. corner stand in Hall 12 (solid wood processing hall). There was adequate space for members’ brochures, samples and back wall space for company logo or product photos. A 50” plasma flat screen monitor was mounted behind the bar area about 2.5 meters from the ground. It could be easily seen from across the hall. The booth also had tables, seating and a bar for visitors.

A one meter wide strip of red carpeting was laid in either side of the isles bordering the WMMA booth and the six neighboring members’ stands. The effect was to give the appearance of an enlarged, unified area. Six roll up banners designed for members exhibiting at the AWFS Fair were also provided to members to further unite the area.

All members were invited to share the booth for a WMMA fee of $200, plus a Deutsche Messe “co-exhibitor fee” and “media charge” of $720 (euros 529). The booth provided first timers with an opportunity to experience Ligna while gaining exposure. For those that had exhibited previously, it provided an opportunity to be more flexible and make appointments to meet with existing and new clients. Still others, which had attended Ligna in years past, found the booth an excellent “home away from home” where they could display their literature, meet with clients and easily visit exhibits.

Eight WMMA members took advantage of the booth sharing option and displayed literature; six sent company executives who worked out of the booth. The WMMA hired three translators to assist members with foreign language guests and provide refreshments. Between the three, they were either fluent or conversant in English, German, Spanish and Russian.

Most traveling executives spent much of the time outside the booth meeting with potential and existing clients. Like member exhibitors the results were mixed with most stating they were pleased with their results.

The WMMA will take out space on the exhibit floor in 2009 and most likely in Hall 12.

What WMMA membership benefits are you taking advantage of?
Help your fellow members learn how to make the most of their
membership –send your WMMA membership benefit success story
today and your submission will be featured in an upcoming
issue of the Cutting Edge.

Use this form to capture how WMMA has helped you. 
Please send your story to  mpappas@fernley.com.

ASC O1.1 Committee Needs Your Help!

Mark Your Calendar Today!

The Woodworking Industry Conference (WIC 2008)
April 23-26, 2008
La Quinta Resort & Club Palm Desert, CA