Sourcing opportunities in Far East

HIGH POINT — In the second half of 2018 and most of 2019, much of the industry’s focus was not only on shifting product from China to Vietnam, but also on how to manage that transition from a quality, logistics and service standpoint.

While those issues continue to be addressed, Vietnam remains a steadfast sourcing destination in the Far East, particularly as factories there continue improving quality and managing the ongoing flow of orders from the U.S. market.

The proof is in the numbers, which show Vietnam’s shipments rose about 35% from $3.8 billion to $5.2 billion from January to November, the latest month for which figures were available. Predictably, amid concerns about double-digit tariffs, China’s shipments fell 27.5% from $12.5 billion to just over $9 billion during the 11-month period.

Now, the coronavirus, which has had parts of China on government lockdown for several weeks and may continue for several more, has further illustrated the need to source more product outside of China.

So even while Vietnam continues to grow, the industry has kept tabs on other parts of the region, particularly in countries such as Malaysia, India, Indonesia and even Thailand. In these countries, companies can achieve unique looks in product categories ranging from bedroom and dining to accent and occasional furniture.

Here is a country-by-country look at some of the areas of opportunity for the industry in the months — and perhaps years — ahead.

Malaysia shines as resource for multiple categories

Malaysia is one of the most talked about countries due to its capabilities in multiple categories, including bedroom, dining and upholstery largely at promotional to lower middle price points. In the first 11 months of 2019, it had shipments of $865.2 million, up from $672.9 million in the same period the prior year and a 28.6% increase.

From all indications, this number could continue to grow in 2020 and beyond.

Andy Stein, CEO of Coast to Coast Accents, said that the company is not sourcing anything in Malaysia now but is considering it for some categories.

“Malaysia is not necessarily new, but there is an opportunity there,” he said. “We are looking at dining, occasional and accents. It wouldn’t be at starting price points, but it would be very competitive price points.

“In other words, the price point for the Malaysia goods is a lower price point than India goods, and depending on the piece, it may even be a lower price point than Vietnam goods,” he continued. “It’s a price point we don’t offer now,” noting that the result could be smaller scale pieces. “It’s just slightly different.”

Kelly Hahn, chief creative officer at case goods resource Design Works, said that the company is currently sourcing its line entirely out of Vietnam. However, it soon plans to sample some bedroom out of Malaysia.

“We are in the middle of the food chain in price points, and Malaysia is very promotional,” he said, noting that he has a sense of familiarity with Malaysia as the family business ran Hong Kong Teakwood — initially a dining room factory that later also produced bedroom — there for about 20 years until selling the factory around 2012.

“The capability and potential is there,” Hahn added. “There was a little bit of gravitational pull to see what was going on. We found a factory there, and this is an opportunity to step up.”

Bill Dominguez, vice president of product development at New Classic Furniture, said that last year the company shipped between 1,200 and 1,500 containers from Malaysia, with 70% of that being wood furniture and the balance upholstery. This year, it is looking to boost that number to 2,000.

“Malaysia has been making furniture probably longer than Vietnam,” Dominguez said, adding that the quality is very good and the factories understand the U.S. market. “The quality is very consistent, and you can get all kinds of price points. It depends on how difficult the product is.”

For New Classic, Malaysia has been particularly strong in promotional to mid-priced bedroom, retailing from $699 to $1,299, with some as high as $1,799 and $1,899.

Both fabric and leather also are strong categories, with fabric sofas retailing from $599 to $699 and leather sofas retailing from $899 to $999.

The company also sources both formal and casual dining in Malaysia. It started sourcing wood there about four years ago and, in the past year, expanded to upholstery, Dominguez said.

“The workers know how to build furniture, and their quality is very good,” he said.

One of Malaysia’s strengths has been its rubberwood supply, a natural resource that supports veneered bedroom, dining and occasional with solid wood components.

Malaysia also has increased its capabilities in laminate bedroom, thanks to its increased automation and ability to work with melamine and other high quality laminates that mimic wood grains in both look and texture.

Derrick Ng, president of Lifestyle Enterprise, said that of the 40 bedrooms in its line, about half are from Malaysia. These are mostly older veneered groups that are more promotional in nature than what it gets from Vietnam.

But he said the country is also coming on strong in paper laminates, particularly in bedroom groups retailing from $599 to $999.

“The laminate product is a sweet spot for Malaysia,” Ng said. “They used to do more office (furniture), and that helped them developed (in bedroom) faster than we expected. The choice of colors and the variety of the finishes changed the whole promotional lineup. It used to be brown, black and white. Now with paper lamination you have way more choices.”

Others also see opportunity on the upholstery side in Malaysia.

John Wampler, a former executive with Pulaski Furniture, said Pulaski first went to Malaysia to source product in 1999. For years, Malaysia was primarily a bedroom resource, so Wampler initially never really put much thought into sourcing there for upholstery.

But as Malaysia increased its capabilities in the category, that changed. Wampler’s company, JGW Furniture, has sourced dining chairs and some accent chairs and other accent seating — such as benches — out of Malaysia starting in the second half of last year. Retails range from $99 to $349 for accent seating and dining chairs.

“I never (originally) thought of them for upholstery, but I think they see an opportunity with the demise of furniture exports out of China,” Wampler said. “I think the Malaysians also see some opportunities with the capacity challenges in Vietnam, and they will be ready to grow. A lot of these companies are well capitalized and in a position to take advantage of it.”

He said that his company only sources a small percentage of these seating categories now, but he believes it will grow to 50% by the end of 2020.

“They are on par with Vietnam price-wise,” Wampler said, adding that they also are eager to grow the business across multiple categories. “I think they are just willing to seize the opportunity. They have a willingness to do it.”

Wood species, mixed media do well in India’s smaller factories

Shipments from India during the first 11 months of 2019 rose 7.65% to $342 million from $317.8 million for the year-earlier period. While resources are getting bedroom and dining room furniture, many are sourcing standalone accent and occasional pieces as well as desks, chairs and consoles.

One of India’s main advantages is its wood supply of indigenous species such as sheesham, mango and acacia. But the country also has a mixed media story, too, thank to its supply of metal and stone.

Todd Wanek, CEO of Ashley Furniture, said that India is probably the second most-important emerging sourcing destination outside of China after Vietnam. He noted that India does particularly well with handicrafts, accent tables and dining chairs vs. larger volume categories such as bedroom.

“They are still not competitive in the realm of bedroom furniture,” he said. “They just don’t do well with mass production. … They have set up many small factories, but it is tough for them to compete with factories in Vietnam that ship 1,000 containers per month.”

Wanek said that freight also can be expensive from India, and transit times also tend to be long.

“I see those as obstacles now,” he said. “It is not that they can’t be overcome — India is very entrepreneurial — but it just takes a shift in government policy and a cluster of manufacturing to be developed that can be considered a supply base.”

Riverside Furniture also sees the potential of India, thanks largely to the capabilities of various factories it works with, along with the wood supply and access to other mixed media materials.

“They have an abundance of mixed media materials, and that allows us to differentiate our product line,” said John Iasiello, senior vice president of strategic planning and business development.

In India, Riverside has begun sourcing accent furniture such as chests, consoles and accent tables as well as some casual dining and home office. Right now this represents about 10% of its product mix, with Vietnam and Mexico representing the other 80% and 10%, respectively.

The company plans to introduce its first bedroom line from India for the April High Point Market.

“We want to put our toe in the water slowly to make sure we can handle our capacity issues,” Iasiello said. “If we get some Top 100 (retailers) on board, it will be a capacity issue. We want to walk slowly.”

Hekman Furniture also is sourcing product out of India, including bedroom, dining and occasional furniture as well as some accent desks and storage pieces such as bookcases and small file cabinets.

“India is doing all those categories, but it has to be solid wood, and it is limited to those things that you can build out of solids,” said Neil McKenzie, director of product development at Hekman.

He added that India also has strong capabilities in building pieces that mix metal, stone glass and wood. Yet despite these capabilities, he noted, India is still in its developmental stages in terms of finishing.

“We have been able to do some great finishes there, but it is a totally different process than is done in most countries. You have to work with the systems and the materials that are available,” he said, noting that the finishing suppliers are local. “You don’t see the big international finishing companies over there like you do in other countries.”

Some other companies getting product out of India include Chromcraft Revington, which sources some occasional there, and Coast To Coast, which sources some of its wood line including dining, accent and occasional pieces.

“We are entrenched in India now,” said Andy Stein, CEO of Coast to Coast. While the country has a strong wood and materials story, he said, delivery times can be long. This can be a challenge, especially when supplying dealers that have come to expect service levels comparable to China, Vietnam and even Malaysia.

At the high end, case goods and upholstery resource Sarreid Ltd. also is getting product out of India. Company Chief Operating Officer Brad Cates said in December this amounted to roughly 20% of its throughput. He sees this ultimately rising to the low to mid 30% range thanks to the development of new collections in partnership with a factory the company has a financial interest in located in Jaipur.

Like other manufacturers, he said that India remains strong in the use of mixed media.

“For us, having so much mixed media in the line, that is become a more and more important resource,” he said of the mix of woods, metals and leathers available in the Jaipur region, where its manufacturing is located.

Indonesia, Thailand gain ground as important resources

Both countries remain important resources for the industry, albeit for different reasons.

Indonesia is known for its wood story, particularly the amount of solid wood species such as mahogany, mango, teak and acacia to name several. Thailand also has some native wood species such as teak and rosewood, but like the Philippines it is known largely for ability to mix various materials ranging from stone and shells to natural woven elements.

For the first 11 months of the year, Indonesia shipped $730.2 million in furniture to the U.S., up 20.61% from the $672.9 million shipped during the same period in 2018, placing it fourth on the list of Asian furniture producing countries for the U.S. market, just behind Malaysia.

During the same period, Thailand saw its shipments to the U.S. rise 35.5% to $141.5 million, from $104.4 million for the first 11 months of 2018.

McKenzie, of Hekman, said that while Indonesia never really got the boost from everyone leaving China, “we still feel they are a very viable resource.”

He said that due to the size of their wood plants, Hekman can be important to a number of Indonesian source factories there.

“These factories don’t have high MOQs (minimum order quantities); you aren’t having to put in (orders of) 200 dressers to make them happy,” McKenzie said.

He said that the supply of wood species such as mahogany, mindi and acacia is another advantage as is the level of finishing from resources such as AkzoNobel.

Due to these and other benefits such as good infrastructure including roads and airports, he said that Hekman is looking to grow the number of factories it works with in Indonesia, while also remaining important to its current manufacturing partners.

“We want to be important to those we are dealing with, so that they are important to us and they feel we are important to them,” he said.

Thailand remains an important resource for Flexsteel, which produces much of its KD Home Styles line sold online.

“In Thailand, they can handle more complex manufacturing,” said Tim Newlin, vice president, marketing and product management at Flexsteel, noting that a small percentage of this line is also made in China and other parts of Southeast Asia.

“They have niche capabilities, so when you need something very specific and specialized, they are able to deliver that.”