Furniture demand falls, ripples felt worldwide

HIGH POINT, North Carolina (Reuters) - The aftershocks of the U.S. housing slump are hitting the global furniture industry hard, bankrupting U.S. retailers, slowing the flow of goods through shipping channels and shuttering factories both here and halfway around the world.

A decade ago, before U.S. furniture companies piled into China in search of lower costs, much of the pain would have remained at home. Thanks to globalization, it has spread, and there is little hope that business will improve until the housing market recovers.

It is a story that could play out in a host of products such as toys, clothing or appliances, where manufacturing has steadily moved offshore, linking the U.S. economy more closely than ever with China's. But because of its connection to the suffering housing market, the furniture sector stands out as the U.S. economy hovers perilously close to a recession.

Jeffrey Scheffer, the head of Stanley Furniture (STLY.O), said last week that the industry was enduring its worst downturn since the early 1980s as the housing market and rising inflation hammer consumer confidence. His company is no longer expecting to turn a profit this year.

"Business, we believe, will come back. Exactly when, we are sort of clueless at this point, but we believe it will come back," he said on a conference call with analysts.

Stanley plans to close a North Carolina factory this year and cut 350 jobs, one of many U.S. furniture companies forced to retrench as consumers cut back on all but essential purchases in a slow economy.

The situation is similar in southeast China, where exporters are struggling to cope with falling U.S. demand as well as sharp increases in their own domestic labor and raw material costs. Countless factories have closed, and others have shifted to serve domestic demand.

At the height of the U.S. housing boom which ended in 2006, the U.S.-China connection was a money maker all around as China ramped up production and American companies reaped the benefit of lower costs. From 2003 to 2007, U.S. imports of furniture and household items from China jumped 78 percent to $13.95 billion, according to Census Bureau data.

The pace of imports has slowed in 2008 as demand faded. In the first six months of this year, sales at furniture and home furnishings stores are down 5.1 percent from a year earlier, Commerce Department figures show.

SURVIVAL

In High Point, North Carolina, the self-styled home furnishings capital of the world which hosts the world's largest furniture trade show twice a year, empty factories serve as a painful daily reminder of the slump.

The latest blow came with the announcement that Furniture Brands (FBN.N) was closing a plant that makes the upscale Henredon brand. Some 300 jobs will be lost.

"That's a real jolt," High Point Mayor Rebecca Smothers said in an interview. "We had been seeing the high-end (manufacturers) stay. With the economy like it is, everybody is getting hit from all four sides."

In the past year alone, home furnishings retailers including Wickes Furniture, Bombay Co Inc and Levitz Furniture have all filed for bankruptcy. A number of smaller firms also failed. Larger furniture companies including Furniture Brands and Stanley have warned of worsening profits.

Tom Mitchell, president and chief executive of the International Home Furnishings Center where the High Point Market trade show is held, summed up the biggest concern for furniture retailers and manufacturers in one word: Survival.

"They want to get through these tough times," he said in an interview. "You've got inventory, you've got real estate you have to pay for."

Mitchell said business was surprisingly brisk at the spring trade show, where furniture manufacturers, importers and distributors hope to book big sales with retailers. While the traditional furniture stores were pulling back, interior designers and Internet retailers showed up in greater numbers.

At the California ports, where the bulk of goods from China lands, imports are down sharply while exports are rising almost as fast, albeit from a smaller base.

The number of containers arriving at the Port of Long Beach was down 15 percent in June, while the total loaded for export was up 13.6 percent. Since the start of the fiscal year on October 1, inbound shipments are down 9 percent, while outbound is up 27 percent.

Across the ocean in China, slumping U.S. demand tells only part of the story. Steep food and energy prices have pushed inflation up sharply, and wages are on the rise.

For some U.S. companies that relied on China to keep costs down and profits up, the numbers are not adding up any more. For the first time in at least a decade, U.S. companies' quest for the next low-cost manufacturing center may include a closer look at home.

(Editing by James Dalgleish)