Furniture manufacturing: viable marketing strategiesNew Zealand furniture manufacturers have been dealing with the reality of cheap imports from Asia since the lifting of tariffs in the late 1980s. Michael Smith talked to two important players whose marketing models have seen them survive and prosper, despite ongoing industry consolidation.
Competition from imports has seen furniture manufacturers employ any number of strategies to survive. They include relocating production offshore, consolidating operational sites, shifting away from long-run production into custom-made/bespoke manufacturing, and moving into less exposed areas such as kitchen/bathroom manufacturing and office/shop fit-outs.
Still others have taken the plunge into dealing directly and exclusively with the public via online sales. The move online may well be an inevitable commercial pressure, but it can also be a reaction to increasingly assertive furniture retailers who are eating into manufacturers’ profits by squeezing margins, dictating terms of production and controlling management decisions.
Blair McKolskey, chief executive of the PLN Group, based in Auckland, says the industry continues to shrink in terms of companies and employees. “My take is that the number of companies needs to reduce further. We still have approximately 1,400 manufacturers in New Zealand – that’s one company for every 3,000 people. More than 75 per cent of these companies employ five or fewer people.
“The end result is that adding value and moving away from cost-based competition is not going to happen with firms of that size. It is difficult to run a design or research programme with the annual revenue that five employees can generate. I believe a number of like-minded firms need to consolidate and create a more viable model that can compete for a greater share of the consumer dollar here and overseas.”
Vertical integrationThe PLN Group combines research, design and manufacturing in a vertically integrated approach to doing business. “With our heritage in manufacturing, we adapted to the increasingly competitive and changing nature of the industry by making our products more technical, sophisticated and design led. That means a more complex sales process and story to be told. We will always be best placed to tell our story and that naturally led us to formally integrate and set up as a reseller.”
McKolskey says the group’s model involves a two-pronged approach. “Finewood is our manufacturing arm and specialises in contract manufacturing for PLN and select clients with established designs. PLN is our research, design and sales arm.
“PLN works in several types of markets including residential, commercial and hospitality furnishings. To meet these different markets we use several designers and design brands. For example, the IQ Commercial brand is a series of innovative and technical designs that will appeal to the commercial market.
“Meanwhile essenze involves a very craft-centric set of designs that will naturally appeal to the residential market. That said, essenze’s biggest sales have come from the commercial market as the influences there make it a natural fit. So the designers and brands focus on a particular market, but are not necessarily limited to just one.”
Advanced solutionsNow exporting to 14 countries, PLN’s research-based products and solutions include “soft and hard furniture, lighting, acoustic solutions, nano fibre, air filtration and sensor-based technologies”. They have been sold to top companies worldwide, including Google, Apple, Hewlett-Packard, Citibank and HSBC.
McKolskey is enthusiastic about the possibilities of health-promoting and noise-reducing nano technology. He says, “nano fibre is spun from a liquid polymer that is subject to an exceptionally
high electrostatic charge. The result is fibres that are caught on a flat substrate and which are 1/1bn metre in diameter. With development you can spin fibres out of various materials to create different properties, depending on how you wish to use them – for example, to strengthen materials, filtration and acoustics. We have used them in acoustic/sound absorption [focus pods and workplace furniture] and in filtration concepts developed for international markets.
“In certain parts of the world air quality is at a premium and an important factor in keeping employee productivity and engagement high, and reducing absenteeism. We have developed ways to provide the users of our product in spaces with filtered air, which reduces airborne particulate.”
McKolskey says PLN’s process is all about original thought and collaboration, leading to original design – notably in partnership with Revolution Fibres in West Auckland. This, combined with total dollar investment in R&D, saw PLN receive government backing in the shape of a Callaghan Innovation Grant.
On the world stageHe says much of the group’s revenue is generated from a significant presence at international furniture fairs and exhibitions. “Attending these showcases helps to build our brand as one of the most innovative furniture research and design firms in the Asia-Pacific region. With a number of patents granted and pending, we are well on our way to building a solid international brand.” (The group earns some 40% of its revenue offshore with global product sales growing by more than 500% in the last five years.)
“Our new product Keystone is being touted as a game-changing modular furniture system supporting modern workplace practices, and as a result was invited to feature in Haworth’s regional showcase starting from July. In the coming months we will be presenting Keystone to clients in Australia, Singapore, China and India.”
Conventional successNo less successful, but whose marketing model could be described as more conventional, is Otago Furniture based in Dunedin. Manager Roye Haugh says that in the late 1980s the firm did what most furniture manufacturers were doing – competed with the imports head on.
“We did big runs of standard items and tried to sell them in bulk to retailers [like the importers]. By the mid to late 1990s we realised there was no way we could compete in that market and still pay our staff a reasonable wage. So we switched to targeting the upper-middle market where people had the discretionary dollars and wanted a quality product and more choice. We also extended our customer base from the South Island to all of New Zealand.”
Otago Furniture was also involved in retailing in the South Island, running department stores that extended beyond furniture. “These retailers relied heavily on being able to provide easy hire purchase arrangements. With the advent and growing use of computers in the 1980s, smaller retailers were able to offer financial facilities. That supported the general move by the public away from department stores to specialised boutique stores. Retailing in that climate became very difficult for us – so, after discussions with a competitor in the same market, we sold our retailing interests to them.”
Strategic sellingHaugh says the company concentrates on supplying to commercial and retail customers. “We have a small showroom for our commercial clients, but we do not deal directly with the public. Understanding and interpreting individual requirements requires specialist skills and, to some extent, different production plans. There would also be a real risk of losing our retail customers because we would be in direct competition with them.”
And there are no immediate plans to engage in online sales. “That requires a third layer in the production-to-customer process – ensuring customers can pay and dealing with customer complaints should they arise. We would need more staff with different skills to use this strategy.”
The company’s large commercial customers include Ryman Healthcare, the University of Otago and the Millennium Hotel in Queenstown. These are augmented by smaller orders from lodges, motels, cafes and bars. Harvey Norman is the company’s major retail outlet, while several other independent stores throughout New Zealand are also supplied.
“Overall our sales have increased 20 to 25 per cent since the 1990s and that increase has been mainly from commercial customers. There has been a gradual decline in retail’s share of our production from 38 per cent in the late 1990s to 30 per cent in 2011 to 12 per cent currently. Recently, some of that has been due to capacity as much as to demand.
“But we still give equal attention to both sides of the business. Whilst different, the two markets are complementary and we see it as important to maintain the skills of our staff so we can respond to a change in the market.”
Positive outlookHaugh is optimistic about the industry’s prospects. “I think the novelty of cheap imported furniture is on the wane, especially as prices of imports begin to rise. Personally, I would very much like to see the furniture manufacturing industry expand and oust some of the imports.
“And there is no doubt that manufacturers have to be clear about who they are selling to and what their customers want. A well-trained and experienced workforce, and good technology are essential. Ideas, certainly, and good relationships with suppliers feature well up the list; and a realistic expectation of rewards helps.”
McKolskey adds: “I think the world is coming out the other side of disposable furniture. The appreciation of craftsmanship and quality is on the rise, which bodes well for the industry in general. That does not mean we are on our way to easy street. There are still too many manufacturers in New Zealand, let alone the world, to be complacent.
“The companies I see making a mark or heading towards international success have done one thing well and that is ‘differentiate’. Some do it through design, some through innovation and some through good old-fashioned quality. Whichever way they choose, they excel with a point of difference and make themselves noticeable. New Zealand will not be a centre of low-cost furniture manufacturing for the world, so we have to stand out in other ways.”