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Retail Furniture Stores – Appraisal Factors
Introduction
Retail sales of furniture and bedding are expected to increase $29.9 billion by 2011, a projected growth of 27%. Many retailers might be surprised at this number, given the difficulty they have faced in the last decade—the amount of furniture-manufacturing plants that have closed in the last six years is estimated at more than 250. Gross profit margins reported by American manufacturers varied from significant increases to double-digit decreases. This wide range can be explained by a number of factors, including the increase of overseas imports, price competition, the current downswing of the housing market, changes in the economy and competition from mass merchandisers and other retail channels. The dramatic increase of imported goods, particularly from China, Vietnam and Indonesia, has driven prices down, influenced quality and caused many domestic manufacturers to close or sell out to larger competitors. A number of foreign manufacturers are going direct-to-retail, omitting the need for a U.S. middleman, establishing plants in the United States and buying failing domestic facilities to handle repairs and fill small orders. The result of increased outsourcing is intensified price pressure. U.S. retailers are finding that the best survival method is to acquire merchandise from overseas manufacturers at lower costs, allowing them in turn to lower retail prices. This is especially vital to retailers’ success, because though today’s shoppers are more willing to spend than past generations, they are also more savvy when it comes to product quality, pricing and additional services. Many smaller retailers are unable to compete and are closing, while larger companies continue to grow due to their ability to acquire large amounts of imports cheaply. Based on recent liquidation and appraisal experience, Tiger Valuation offers the following additional appraisal factors for consideration:
Appraisal Factors
o Customer deposits – A higher deposit percentage and dollar value of total deposits could negatively affect recovery values. Large amounts of unfulfilled customer orders can create serious public relations problems potentially avoidable by employing a liquidator early in the wind-down process. Aged Inventory – An important factor is the continuous depreciation of inventory. The introduction of good-quality imports has lowered the replacement cost of merchandise. Aged inventory could be overstated by as much as 25% of cost. Augmentation – Furniture retailers are prime targets for augmentation by liquidators. In order to bid into a potential augment play, it must be logistically feasible to bring in augment merchandise. Little geographic concentration and lack of square footage in retail chains can become barriers to augmentation. Years in business – Older and more established retailers are able to hold larger sales events and also to achieve higher recoveries.
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Conclusion
The furniture market has seen dramatic evolution in recent years and many analysts are hesitant to forecast what the future will bring. While there are several additional factors driving the changes and it is difficult to predict which will have a major impact on the industry, the most significant driver is the increased importation of goods from foreign manufacturers. Low production costs overseas continue to drive prices lower and squeeze profit margins. This is particularly important because today’s consumers are price-sensitive and tend to sacrifice high quality for lower prices, as seen through the increase of furniture sales in such stores as Ikea, Target and Costco. Due to a variety of factors that have the potential to affect a retailer’s success or failure, insider knowledge and experience are imperative in order to accurately appraise furniture. In order to better serve the needs of an expanding client base in the furniture niche, Tiger Valuation, an experienced inventory appraisal and advisory firm focusing on retail, consumer and industrial companies, is pleased to announce a joint venture with Planned Furniture Promotions, Inc. (PFP). PFP’s coast-to-coast experience in all aspects of the furniture industry along with their strong international buying power and resources will only increase the pinpointed accuracy of a Tiger Valuation inventory appraisal report. March 2007 – Retail Furniture Stores Contact Info: John Cronin (617) 523-4021