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Covid Update

Business Support in a Changed World

It was the best of times, it was the worst of times, a famous author once wrote. That pretty much sums up the furniture industry in 2020. This newsletter is dedicated to giving you the best chance to navigate this changed landscape with specific ideas on how to manage your orders and a guide to what is happening with the second half of the year. Be forewarned: There's no magic bullet that will solve all the issues we are facing together, but we put together some ideas that might help.

Headwinds: What's causing delays and stress on the system

The arrival of the COVID-19 virus to the US in mid-March began a litany of changes that we are still understanding today. Around St Patrick's Day, Chicago shut down. We were shocked when the NBA cancelled their season and schools shut down. Most thought it would last a few week and be done.

In business, factories and retailers closed their doors waiting for the storm to pass. But it didn't. COVID -19 has been with us for four months now, although it seems like a lifetime. It's not going away anytime soon.

Furniture retailers and manufacturers had to go from being closed down with minimal business to the greatest frenzy of home furnishings buying that we have seen in decades. The capacity to make products due to this pullback and then huge expansion of orders left manufacturers scrambling to fulfill orders.

At Ashley, we had to rework millions of square feet of production and warehousing to ensure the safety of our workers due to social distancing requirements. Can you imagine the cost Ashley incurred in lowering the density of workers (thus slowing down production lines), installing safety shields, performing temperature checks, etc.. Ashley incurred those costs to keep our people safe and did not pass along the higher costs to our dealers.

Add in the unemployment and stimulus money that created a disincentive for workers to return to making furniture and you start to see the challenges of quickly rebuilding a manufacturing process.

More fun: different states have different rules. Our Leesport PA plant closed down and strictly regulated while other plants faced varying degrees of limitations on how much we could open up. Plants like Arcadia WI that were already stressed beyond capacity had to pick up the slack for our closed plants.

Outside the factories, supply chains both nationally and internationally also faced massive changes as the virus flared up in different countries and at different times. Even if our factories could spring back to full capacity with enough space and workers to be at 120%, the supply of raw materials, parts, finished goods and other components continue to vary wildly.

And even if we were at full capacity, the sheer volume of orders coming in weekly is unprecedented. One of our teams wrote as much business by July 3, 2020 as did in all of July 2019. Product demand is up 40%, way past what anyone forecast at the end of 2019.

And then there is the headwind of transportation and shipping. Long haul trucking has been in crisis with a driver shortage for the last 10 years. The new demands for consumer goods have continued and deepened the crisis. Now consider that less truckers want to travel state to state as the COVID 19 virus ignites brush fires all over the US. Capacity to deliver the furniture we have in stock is also limited.

Internationally, container and trans-oceanic freight companies have both pulled back capacity AND raised rates. In Chicago, we are paying $300-$400 more per container, an increased cost of around 10%. This is not going to get better any time soon and affects both our cost structure and our ability to get the kits, raw materials, parts and finished products that are made overseas.

Finally, the second half of 2020 is going to produce more challenges. Social unrest and protests cost many of our customers their stores and their ability to remain open, and continue to deepen the challenges of doing business in a diverse and active city. We are in the middle of one of the most divisive elections in decades. Managers of the economy have historic unemployment numbers to reconcile, new spending and stimulus to consider, and higher governmental debt obligations to resolve. And COVID continues to escape containment. The only thing we can be certain of is that few people will miss 2020.

Ch-ch-changes: It's a new world

The current COVID-19 crisis accelerating several hard trends that have been evolving over the last decade. Many things that seemed marginal are now mainstream. Doing business on-line went from a somewhat fringe part of the economy to huge growth with more people ordering groceries, meals, clothes and home furnishings on-line. Amazon is doing great. Wayfair stock prices are through the roof. Online banking has grown incredibly, as has contactless payment. These trends were happening before COVD but have now accelerated.

Certain things we used to spend money on we simply don't. We are not flying or taking cruises; we are not buying Cubs, Bulls or Bears tickets. Dining out is mostly OUT. We are even getting refunds from insurance companies as we drive less and use less gas. Shopping is restricted to necessary trips and no one is strolling through malls aimlessly.

So why review all this in a furniture newsletter?

Because it is vitally important that your business is keeping current both with your ability to conduct business on-line and in-store; that your marketing is meaningful and not embarrassing. You probably don't want to run a free cruise with purchase promotion these days, right? In our Marketing section below, we give you some ideas....

Managing Orders: Let's do it!

The first rule of doing business today is to throw the old rules out the window.

Until global and national supply chains settle into a smoother more reliable pattern, we will have turbulence. The "triple threat of headwinds" is

• Manufacturing safely
• Transporting reliably
• Insuring a predictable supply chain to insure parts, components and finished goods.

All three have been disrupted.

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