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The Business Buzzword
Publishers Forum
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Joe Tatulli   Part 1

Consolidation And The Road Ahead

 

 

At present we are all basking in the glow of bright economic times, with no appreciable change in sight. As I listened to Alan Greenspan, in his most recent address to Congress in early June, he was communicating with more encouraging words than I'd ever heard him use before. He described an economy that is experiencing considerable growth without any substantial inflation, and he seemed genuinely amazed that his report was as positive as it was. All this upbeat economic news was mirrored with a reported 15 percent increase in shipments of residential furniture for the first quarter of 1998 as compared with first quarter numbers from 1997, an increase of almost a billion dollars. New orders were up 17 percent in 1998 (over 1997) as well. (Stats from Furniture Insights, May 1998, © 1998 BDO Seidman, LLC) The futon furniture business is back on track, but is it back to "business as usual"?
Last year, in our segment's little world, we saw the closure of two of the largest and best known marketers in the futon furniture industry. Each had its own set of problems and reasons for falling off the edge of the futon furniture world. I won't speculate on the whys or the politics involved but I will say this: I don't think anyone outside the futon nucleus really noticed. Okay, I heard a few complaints about "crummy tactics," and "what about those warranties?" But as soon as the blip had passed and everyone jumped back on the now faster moving train, nothing had really changed. Stronger companies had simply picked up where our fallen comrades had left off, consolidating the business within a smaller number of players, and off they went-"business as usual".

Consolidation: The Business Buzzword For The New Millennium.

Consolidation can happen by accident or by design. From several conversations I've had and some serious reading of the financial and business press, I've concluded that consolidation by design will probably help define the landscape of survivors in almost every market. In the May 1998 issue of Furniture Insights, editor Ivan Saul Cutler says, "The same economic forces advancing efficiency and market strength driving the consolidation of Chrysler Corporation and Daimler-Benz into a vehicular manufacturing-marketing juggernaut also are at work in the futon furniture industry."
Cutler goes on to explain the concept in greater detail. "Primarily, larger, better managed and financed manufacturing and retailing groups will continue to grow, seeking greater influence, presence and positioning. A likely outcome may be fewer, larger producers and retailers," he writes. Bottom line: Cutler is saying that a substantial distillation will take place. The new paradigm will see consolidation take place for different reasons and in different ways, but the end result will be fewer manufacturers "aligned with a smaller constellation of stronger retailers," said Cutler.
In a scenario that hits very close to home, the Futon Association International and the Specialty Sleep Association are going through a consolidation of sorts. This effort, which presently focuses on the annual trade show, will continue to play out during this year as the two groups work together for the first time on a co-location theme at the Futon Expo which takes place next March in Las Vegas. The stated purpose of this consolidation is to produce a futon and specialty sleep products show that will allow a larger number of retailers to see a broader scope of new products under the umbrella of "an alternative" to the more traditional themes one would find at the High Point market. In theory the show should be a huge success. But should the consolidation go beyond the trade show? I've heard opinions on both sides of the discussion concerning a possible consolidation of the two associations into one, single group. The "yes we should" side says a single group will allow for a more powerful lobbying force, and will afford members a more cost effective way to get the benefits they join associations for in the first place. The "no we should not" side says the agendas and hot issues of each respective group are too specialized and do not correlate well enough for a consolidation beyond the obvious benefits of the already agreed upon or future trade show deals.
Framing the opposing views is easy. Solving the complex financial and political issues of a true consolidation of the two groups may take longer, if that path prevails. But an even more fundamental question may also be asked at this point. If this consolidation is a good idea, may it not also be a good idea for an even broader based consolidation of trade associations in the entire home furnishings industry? People who look at the big picture have always said that our competitors for consumers' dollars are the auto and computer/home electronics industries, not the furniture store down the street.
In tomorrow's global economy where survival will depend on being a larger link in a shorter chain, bigger is better.

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