Ashley Furniture booms in a gloomy industry

By RICK ROMELL
U.S. furniture making is in a funk. Employment is down,

factories have been shuttered and the sales of industry leaders have been sluggish.
Over the last six years, one analyst estimates, some 280 manufacturing plants have closed. About 95,000 jobs – 33% of the original total – have been lost.
In 2000, according to investment banking firm Mann, Armistead & Epperson Ltd., the three biggest manufacturers collectively posted $5.2 billion in U.S. sales. By 2016, their total sales had shrunk to $4.9 billion.
Then there’s Ashley Furniture Industries Inc. In 2000, the upstart manufacturer based in little Arcadia, ranked fourth in sales, with far less than half the revenue of leader La-Z-Boy Inc.
Today, Ashley is No. 1, with a bullet.
Blending domestic manufacturing, Asian sourcing and aggressive retailing, Ashley over the last few years has expanded or started – not closed – plants in Mississippi, Pennsylvania, California and Wisconsin.
While industry employment has shrunk, the number of U.S. jobs at Ashley since 1998 has tripled, to about 10,000.
In 2000, Ashley held about 3% of the country’s highly fragmented household-furniture market. Today, it claims an industry-leading 10%.
A few weeks ago, reporting a quarter and nine-month period marked by declining revenue, La-Z-Boy CEO Kurt Darrow cited “the challenging sales environment pervasive throughout our industry.”
But Ashley’s annual revenue since 1998 has grown more than 350%. Its $3 billion in sales last year outpaced second-place Furniture Brands International Inc. by 25%.
“Everybody in the industry is pretty much in awe of their performance,” said Art Raymond, president of a wood-products management and consulting firm in Raleigh, N.C., and the observer who provided the plant-closings estimate.
Ashley isn’t talking about all this. Chairman Ronald Wanek turned down a request for an interview, and then, through a spokeswoman, answered a few questions that had been submitted in writing earlier.
Quick to adapt
Information from available documents and interviews with industry analysts and others shows a fluid company that has adapted to change more quickly than many competitors.
The biggest change, by far, has been the rise of furniture making in China.
With Chinese factories paying employees an average of 67 cents an hour in 2004 – 5% of what American furniture makers earned – and lax environmental and safety standards, China manufactures furniture at a fraction of U.S. costs.
That fact has turned the domestic furniture business upside down – particularly the production of wooden furniture, or what the industry calls case goods.
Unlike bulky sofas and stuffed chairs, case goods can be shipped relatively cheaply, and it is case-goods manufacturing that’s been hit hardest by Chinese competition. Ashley saw the trend early and was among the first U.S. producers to begin importing, according to Jerry Epperson, a furniture industry analyst with Mann, Armistead & Epperson in Richmond, Va.
“They had decided that if you were going to be competitive, you needed to be global,” Epperson said.
Importing, in fact, has been “the secret to Ashley’s success,” said Laura Champine, managing director at the Memphis, Tenn.-based investment firm Morgan Keegan & Co. Inc.
About 45% of what Ashley sells in the United States is manufactured abroad, Wanek said through a spokeswoman. He said those were products “that cannot be competitively manufactured in the U.S.”
For Ashley, that’s a lot of tables and chairs. According to PIERS Global Intelligence Solutions, a Newark, N.J., business that tracks trade data, Ashley last year imported the equivalent of 103,544 20-foot containers of goods.
That much furniture could fill the Sears Tower – floor to ceiling on every story – roughly twice.
High volume of imports
Comparing the 2016 figures with data collected by PIERS in 2002 reveals some interesting changes. Total import volume more than doubled. Volume from China, the source of 80% of Ashley’s imports, nearly tripled.
In 2002, Ashley imported just three container loads from Vietnam. Last year, the firm brought in nearly 8,700.
The PIERS numbers also hint at the growth of Ashley’s huge “cut-and-sew” factory in Kunshan, China.
The tidal wave of Chinese production that has swept case goods hasn’t had the same effect on upholstery. But U.S. manufacturers such as Ashley have found it efficient to have fabric cut in China, then shipped to the United States to be put on the frames of chairs and sofas.
In 2002, Ashley imported three containers of fabric, textiles and such. Last year, it imported 3,487.
According to trade journal Furniture Today, Ashley’s six-year-old factory in Kunshan employs 5,000 workers, covers 1.2 million square feet and is being expanded.
Beyond Ashley’s own factory in Kunshan, the company farms out production to Chinese manufacturers and, according to Champine, bargains hard with them.
“They’re getting very good deals in China from plants that no other (U.S.) manufacturer knows about,” she said.
But even with its China strategy, Ashley has expanded its U.S. operations significantly. “We do more manufacturing in the U.S. than any other furniture company,” Wanek said through a spokeswoman.
Since 1998, employment at Ashley’s Wisconsin plants, in Arcadia and nearby Whitehall, has nearly doubled, to about 4,000.
In 1994, when the firm bought a furniture plant in Ecru, Miss., the place covered less than 300,000 square feet and employed maybe 225 people, Mayor Tom Todd said. Today, he said, the 2.5-million-square-foot factory and warehouse complex employs 3,700 people and is being expanded for about the 10th time.
Thirty miles away, in Ripley, Miss., a motion-furniture plant Ashley bought in 1999 has increased employment from 300 or 400 people to 1,100 people, said Duane Bullard of the Tippah County Development Foundation.
In Leesport, Pa., a factory Ashley bought in 2004 now employs 800, with plans to add another 500 in the next few years, a local development official said.
On the West Coast, Ashley built an upholstery factory and warehouse in Colton, Calif., in 2003 and expanded it the following year, to 856,000 square feet. Nearly 1,200 people work there.
The company is thinking about opening another factory in the Southeast.
Competitors see closings
Meanwhile, No. 2 manufacturer Furniture Brands International said a year ago that it had closed or announced the closing of 31 U.S. case-goods and upholstery plants since 2001.
No. 3 La-Z-Boy since 2001 has shut down 13 factories – nine for case goods and four for upholstered furniture.
A Furniture Brands spokesman didn’t return calls seeking comment. La-Z-Boy spokeswoman Kathy Liebmann said only that La-Z-Boy sells mid-priced goods, while Ashley focuses on less-expensive furniture, and that the Wisconsin firm has “done a good job in growing that category.”
Ashley has invested in technology and developed strong logistics systems that help the firm deliver furniture rapidly, Epperson said.
Where many companies might need three weeks to deliver to customers after they order at a dealer, Ashley takes about a week, competitor Doug Bassett said.
Originally at a transportation disadvantage because of its remote home base in western Wisconsin, Ashley turned that around by building up its own truck fleet, said Bassett, executive vice president of Vaughan-Bassett Furniture Co. in Galax, Va. “They now have the reputation of delivering extremely quickly,” he said.
Bassett, whose firm emphasizes that it makes most of its furniture from home-grown solid wood and wood veneers, also paid Ashley what might be interpreted as a backhanded compliment: The Wisconsin company, he said, is good at manufacturing low-priced furniture in the U.S. using medium-density fiberboard covered with laminates.
Ashley has generated its share of controversy. The firm has wrestled with the Wisconsin Department of Natural Resources over environmental issues and last year was accused in two separate civil lawsuits of illegally copying fabric designs. Ashley denies the allegations. Both suits are pending. One plaintiff has set up a Web page comparing its products with Ashley’s at www.z5k.net.
Ashley is a big name at rent-to-own stores, and in 2004 – when Ashley said it sold more than $100 million worth of furniture to such outlets – the industry’s trade group honored Wanek as vendor of the year. Ashley is the largest supplier to the industry’s biggest company, Rent-A-Center Inc.
More significantly, Ashley over the last 10 years has built a 300-outlet chain of Ashley Furniture HomeStores that sell the company’s goods nationwide.
Most of the stores are independently owned, but at least a few in Wisconsin are owned by Rockledge Furniture LLC, a company with offices at Ashley’s headquarters and whose registered agent is Wanek’s son, Todd.
With $1.6 billion in sales, the Ashley chain was the country’s No. 2 group of furniture stores in 2016, just $20 million behind leader Rooms To Go, according to Furniture Today.
But given its growth trajectory, Ashley is now almost certainly the top furniture store. It has added about 80 outlets since 2016. Rooms To Go has added five.
Ashley, meanwhile, continues to think about adding stores – one more path toward further expansion.
“They are the success story in the industry right now, without a doubt,” Bassett said.