Delivery Times for the rest of 2021

It's no secret that delivery times are averaging 5 to 6 months across the industry from all makers. Shortages of components (especially foam) continue to hamper build times. We are already past ordering in time for Thanksgiving and right now completion days from most makers will be Christmas if ordered by July 1st. That is not delivery to you - that is completion and on their shipping docks, ready for transport.

I fear we are in for yet another round of price increases. Bradington Young and Hooker are going up July 1, Hancock and Moore says they will have a price increase August 2nd.

Trucking lines are adding surcharges, because they are having to pay driver's quite a bit more including large signing bonuses. A year ago I could land a sofa to my store for $ 80 in four to five days, now it's $ 125 and takes three weeks.

There are no manufacturer supported sale periods from any supplier I know of. They have all been stopped as they try to catch up on their backlogs. Don't get taken in by "SALE" ads you may see, there is virtually no inventory to support them.

What frustrates me about this is that these are permanent price increases to deal with a temporary problem. Does anyone really believe foam will never be available in necessary quantities again, that the labor market will never recover and shipping will never be competitive again? That build times will never decrease as people get back to work and spend less time at home? I would give it another year, probably less, for the material and labor shortages. But who is going to decrease prices when things get back to "normal"? I think this is a plan to make a killing long term on a temporary crunch. As long as people keep buying the prices will keep going up whether it is really necessary or not. It will eventually just keep padding the bottom line. Charge whatever the market will bare. If that weren't the case these would be temporary surcharges, etc. Clearly the new owners of H&M want to keep it going up. Do you really think it will ever go back down? I don't.

This is not just Hancock and Moore, its everyone in the industry. I have so many price increases I have to re-price my entire store. Increases this week from Bradington Young, Hooker Furniture, Wildwood Home and Jonathan Charles.

Here's how businesses work - all businesses. They take their costs (and the trick is really figuring out what your costs are in time studies and all overhead) then you add on a profit margin. Your profit margin has to be healthy enough to allow you to prosper and innovate. If the company doesn't make enough profit, then it becomes unhealthy, falls behind and eventually fails. A business really needs to be able to have around an 18% net profit at the end of the year when all costs are figured in and taxes paid. Get down into the 12% to 15% range and your business suffers, unless you can do massive volume. If you get a good year, you may get up to 20 to 22% net.

Before I owned this furniture store, I was in charge of pricing at Grand Union Supermarkets, Florida Division, East Coast. We would agonize over a one penny increase in the price of milk, eggs or butter, and those were sold below margins because customers were highly attuned to them. We would make it back up in Frozen Foods, Candy, Pet Food and Household cleaners (except Bleach, which was priced like milk). It was an art to price the store, and two days a week I was in Winn Dixie, Publix, Albertson's, etc. checking their prices to make sure we were aligned with them. My job was not to underprice, or overprice, but hit those target margins. Grocery stores run lower margins because they have massive volume, and you come back weekly to re-supply.

The furniture business is different. You don't come back often to re-supply! Your sofa may last 20 years or more, that's an industry problem. So you constantly need new customers. And since this is a price-driven industry, not a quality-driven one, the business as a whole is extremely price-sensitive. Completion will hold everyone in place, its not "greed", these costs are very real. Covid really turned everything upside down, many workers retired or quit. Many are happy on extended unemployment. There is a severe worker shortage and if you drive around Hickory NC and see the HELP WANTED signs, they all have "Signing Bonus" attached to them. One upholstery maker was so bold they put a sign out in front of H&M's Plant 1 that said "We will pay you more".

Components are still a problem Not enough foam, not enough reclining mechanisms. That plus worker shortages is why there is a 5 to 6 month production time.

Temporary Increases are maddening and I actively campaign against them. Why? A store may have 200 suppliers and each one has a different temporary increase. This one 2 %, this one 4%, another 3.25%, another 5%...and so on and so on. Try to keep that all straight! You can't. And you wind up underquoting to the customer only to find that surcharge listed on your invoice and then the store eats it. I want a printed price book with the current price, that's accurate!

No one is making a killing. They absorb costs until they see a deterioration in their margins (same as I do). When the margins deteriorate enough, then you have to raise prices. Take the example on landing a sofa to my store. From $ 80 to $ 125. My cost on that went up $ 45. Did I increase my margins in the store to cover that? Not yet, but I may. And I was paying my delivery guys $ 18 and hour, they don't want to work for that and now they get $ 25 an hour, but I have not yet raised my delivery fees. My warehouse rent increased 23% this year. Still I am not going up. Mastercard/Visa rates increased as well, but 95% of my customers pay by check/cash so that takes that pressure off. However, eventually I will have to raise my prices 5%, it will happen, because there are too many increases. Increases are retroactive to supplier costs, they don't happen until the pressure is too great to absorb them any longer. We all know customers are not happy to look at a sofa in March and then come back in June and its increased $ 300. That doesn't win any friends.

If you have a crystal ball and can tell us the future, that would be great! Meanwhile, I buy stock as soon as I hear of price increases, because that helps build my margins to cover costs. And I tell everyone as soon as I hear of them, so they can get in under the wire as well.

The owner of Hancock and Moore told me the company makes net profits of 16% in one of our discussions. I was shocked by that, I thought them 20% Net. He laughed and said "I wish". By comparison Apple makes a net profit of 38% (2020). And you replace that iPhone a lot more frequently than your sofa.

My point was not that they do not need them now. I am sure they do. My point was that they will never come down when the current situation eases. We are still in the midst of a once in lifetime pandemic and just starting to recover. The current situation is going to continue to change dramatically, but I am betting those prices won't. I understand temporary price increases are a nightmare to you. But permanent ones because of a temporary situation I believe is unfair to their customers. And I thought the temporary price increases were honest and necessary. Now, as we are recovering they are making them permanent and adding to them. I am not saying it is just H&M, they are just the ones I like the best. I wonder if the profit margin they gave you was from the previous owners, which I suspect, or the current ones. Every company needs to make a profit. I am just going to wait and see if they come down as the world gets back to "normal". I just doubt it. I would have had a little more faith in the old owners of H&M doing the "right thing" than the current ones, but maybe they will prove me wrong.