After several years of slow growth, middle market furniture executives are feeling more optimistic about the future of their sector. A rebound in the housing market and innovations in how furniture is being made and marketed may lead toward year-over-year growth in 2014. CIT Commercial Services executives share their viewpoints on the challenges and opportunities ahead in the furniture sector.

1. 1
Q&A
© 2014 CIT Group Inc.
CIT Executive Spotlight
“I would say wholesalers
believe the current state
of the furniture industry
is optimistic.”
- Mike Hudgens
How would you describe the current state of the furniture
industry?
Mike Hudgens: I would say wholesalers believe the current state of the
furniture industry is optimistic. Several of the companies that we do
business with are doing very well right now. They’re growing at a multiple of
the overall economy. We’re coming off of High Point Furniture Market, one
of the largest furnishings industry trade shows in the world, that was one of
the most successful ever, and just around the corner is Las Vegas Furniture
Market. There’s more optimism going into the Market than there has been in
several years. Although it may never come back to the extent it was, housing
is making a comeback and it’s driving growth.
Jon Lucas: Keep in mind that even though housing hasn’t been terribly
robust over the last several years since the Great Recession, the rental
market has been very strong. There are a lot of younger people who are
postponing home ownership in favor of renting. You still need furniture in an
apartment or a leased townhome or condo.
Hudgens: With the job market and the economy like it’s been, furniture is an
easy purchase to put off until things have improved. There comes a point in
time where you have to replace your worn-out sofa.
Lucas: And to that, I think there’s also a lot of optimism in the outdoor space
where you have six or seven years, specifically in the Northeast or Midwest,
of weather pounding on the furniture. It doesn’t last forever. I think we’re in
an upswing here and our clients may have increases year-over-year.
Which areas within the furniture sector do you see growing
over the coming year?
Lucas: For the first time in a long time we’ve started to see some innovation
in how furniture is grouped, as well as in the product lines. There have been
a lot of color schemes coming back and we are seeing the emergence
of electronics and technology built into a lot of groupings and furniture.
Furniture is being tied into some of the hot and newer electronics, whether
it’s the televisions or smartphones or the flexible and moveable stereo
equipment that you can get today and run off of an iPad. All of this
innovation is under the umbrella that the price/value equation is still king.
The consumer is still looking for value.
2014 Furniture Sector Viewpoint
Jon Lucas
President
CIT Commercial Services
Mike Hudgens
Southeast Regional Manager
CIT Commercial Services

2. 2© 2014 CIT Group Inc.
May 2014
2© 2014 CIT Group Inc.
CIT Executive Spotlight with Jon Lucas and Mike Hudgens
2014 Furniture Sector Viewpoint
Hudgens: If you’re making a recliner and it’s got built-in speakers, why does it
have to be sold at a furniture store? It doesn’t. It can be sold in an electronics
store, which is why we’re seeing electronics stores get into certain segments
of the furniture business. The companies that are making products that are
sold through non-traditional channels are doing quite well. Bedding is also
doing well. Mattresses have become a hot category and the technology and
innovation that Jon mentions is applicable to bedding as well. We’re starting
to see beds that are controllable by smart devices. So consumers are looking
for value and for interesting products.
How is the “Made in America” movement impacting the
sector?
Lucas: It’s hampering the sector and it’s not gaining as much traction as
many furniture companies would like. You’re seeing a lot of on-shoring as
the cost of foreign production and imports continues to go up. There are
companies setting up more manufacturing facilities here in the United States
to take advantage of the rising costs of producing in Vietnam and elsewhere
in Asia.
Hudgens: The problem with the “Made in America” initiative is that it means
different things in different industries. Companies in the furniture sector are
not really able to participate like they would like to. An example – a car can
have manufactured foreign parts that are 100% imported. If it’s assembled
in the United States it’s still called “Made in America.” It doesn’t work the
same for furniture, which is causing frustration with furniture executives. If an
upholstered furniture manufacturer imports her fabric, she can’t say “Made
in America.” She can say, “Assembled in America.” So I think there’s interest.
We’ve got clients that employ hundreds of people in this country. They’ve
got huge manufacturing facilities, but they can’t call their product “Made in
America” because one component of their product is imported.
What are key issues keeping furniture executives up at night?
Hudgens: The labor rates in Asia are rising, the cost of transportation is
rising, and on-shoring is something that everybody in the sector is talking
about, but the difficulties in doing so is keeping furniture executives up at
night. They’d love to be able to buy domestically produced fabric, but there
are very few mills in the United States making upholstery fabric anymore. If
they try to move some of the cut-and-sew back to the United States, a new
problem arises – we’ve lost that pool of labor that knew how to run a sewing
machine. If you talk to case goods manufacturers, they can more easily
move product back to the United States because there’s technology now,
there’s machinery that will do the sanding and the fitting and all the cutting
that people used to have to do. They buy machinery that can do that now
and this kind of leads to the question of cost. There’s a pretty big capital
investment required to do that, so the question becomes, do they keep
dealing with the rising cost in Asia or do they try to get control of that by
investing capital here? It’s one of those things they’ve got to figure out what
to do.
“The companies that are
making products that
are sold through non-
traditional channels are
doing quite well.”
- Mike Hudgens
“You’re seeing a lot of
on-shoring as the cost
of foreign production
and import continues to
go up.”
- Jon Lucas
“The labor rates in Asia
are rising, the cost
of transportation is
rising, and on-shoring
is something that
everybody in the sector
is talking about, but
the difficulties in doing
so is keeping furniture
executives up at night.”
- Mike Hudgens

3. 3© 2014 CIT Group Inc.
May 2014
3© 2014 CIT Group Inc.
CIT Executive Spotlight with Jon Lucas and Mike Hudgens
2014 Furniture Sector Viewpoint
Lucas: If you look at most of the furniture today, most of our clients are in
either Mississippi or North Carolina, and to a much lesser extent, Virginia. We
also have clients in California, which do some of their manufacturing down
in Mexico because they’re close to the border. I think any time you shift your
business model from importing to manufacturing you’re adding complexity,
and in most cases, some leverage and therefore an increased risk to the
business plan. They’re going to worry about the sustainability of the market
to allow them to make reasonable returns on their investment to the extent
they’re investing in property, plant, and equipment (PP&E) here in the United
States. I know North Carolina and Mississippi have tried to make their states
attractive from a tax standpoint. I don’t know how successful that is or has
been, but we do know of some clients that have opened up new facilities or
expanded existing facilities recently.
Have financing trends in the sector changed?
Lucas: Some of our clients that borrow domestically are requiring additional
funds for working capital to support growth. Furniture manufacturers went
from a model of manufacturing here in the United States, which meant they
had to have capital tied up in PP&E and working capital, i.e., receivables and
inventory. When they moved to an importing model, they didn’t necessarily
need the PP&E financing but they still needed working capital financing.
As businesses evolved to open accounts, letters of credit are now used
infrequently. So they’re back to a receivables-only kind of manufacturing
model, but as they’re starting to move more things back into this country
they’ve got to think about more investment and working capital.
“Some of our clients that
borrow domestically
are requiring additional
funds for working capital
to support growth.”
- Jon Lucas
“Any time you shift
your business model
from importing to
manufacturing you’re
adding complexity, and
in most cases, some
leverage and therefore
an increased risk to the
business plan.”
- Jon Lucas
To learn more about CIT Commercial Services, visit cit.com/commercialservices. Members of
the press who have an interest in speaking with Mr. Lucas or Mr. Hudgens can contact Curt
Ritter at Curt.Ritter@cit.com or Matt Klein at Matt.Klein@cit.com. Additional CIT Executive
Insights can be found at cit.com/ExecutiveInsights.
Executive Biographies:
Jon Lucas is President of CIT Commercial Services. CIT serves consumer product
companies that sell to wholesalers and retailers. Lucas previously served as Chief Sales
Officer and Northeast Regional Manager for CIT Commercial Services and was responsible
for client service and retention, business development, and client credit quality. Lucas has
spent his career developing financing solutions for companies in all stages of the business
cycle.
Michael Hudgens is Southeast Regional Manager of CIT Commercial Services. In this role,
he is responsible for overseeing new business, client retention, and profitability. Prior to his
current position, Hudgens was Senior Vice President and Head of Business Development for
the Southeast Region of CIT Commercial Services. Southeast Region. His team specialized
in tailoring asset-based lending solutions for small and mid-sized companies.