Harden Furniture completes phase two of its investment strategy

McCONNELLSVILLE — While Santa was busy checking his list to see who was naughty and nice, a team at Harden Furniture, Inc. was busy preparing to install a new head saw at the McConnellsville sawmill. The installation completes phase two of a multi-year, four-phase commitment to upgrade both the technology and workflow at the facility.

“The feedworks, carriage, scanning system, and saw cost $370,000,” says Andy Clark, Harden’s VP of operations, as he takes a reporter on a tour of the 500,000-square-foot plant. “The software costs another $140,000. The new unit ‘debarks’ the trees and cuts them into usable lumber. We net about 50 percent of each log; the other 50 percent is turned into chips to heat our boilers or sold to agricultural, commercial, and industrial customers. It’s been 12 years since we replaced the old unit; the new equipment speeds up the process and gives us a good return on our investment.”

According to Clark, phase one involved another $500,000 investment in a new, automated router and in tooling. “The router is capable of not only multiple configurations, but it also is designed to change its own tools automatically. Phase three is planned for a major investment in more CNC (computer-numerical control) machining; I want to turn the woodshop into a CNC operation with more sophisticated capabilities and ease of use,” he says.

The final phase includes building an 18,000-square-foot addition to the sawmill, according to Greg Harden, president and CEO of the company. “We have been using some production and kiln space for dry-lumber storage, and the ‘green chain’ currently has to double as a grade-and-trim line. That restricts our operation of the sawmill to only 30 hours a week. We can generate a lot more production once we provide a separate line to grade and trim. The financing for the capital investments comes from profits, which is why the process is being done in phases,” he says.

Harden Furniture is riding a national wave in home furnishings, which is outpacing the U.S. economy, due in part to the strong performance of bedroom and dining-room furniture purchases. According to CIT Commercial Services, citing the Smith Leonard Accounting Firm, the furniture sector grew at a 6 percent to 7 percent rate in 2015 and is projected to continue at the same pace this year. 

Challenges
Despite the current optimism among furniture manufacturers and dealers, however, Greg Harden says he faces a number of simultaneous challenges.

“Furniture is the epitome of an industry driven by discretionary spending,” affirms Harden, “and it’s truly an emotional purchase, usually made when the consumer experiences a significant life change, such as getting married, purchasing a home, and having children. The purchase is not just utilitarian; it’s also viewed as an extension of the consumer, a reflection of his or her values. At any moment, however, consumer sentiment can shift based on events over which we have no control: the stock market, politics, and world events — just to name a few. Whether it’s an economic slowdown coupled with a currency-devaluation in China, Vladimir Putin’s actions in Ukraine, millions of refugees from the Middle East, or the economic collapse in Brazil, any of these can cause discomfort and have the potential for putting the brakes on consumer spending.

“Add to this a long-term problem of finding skilled labor. The shortage isn’t a crisis yet. But, to be sure it doesn’t … [crimp] our growth, we are actively recruiting to attract and train those who will replace an aging workforce. The capital investments we are making in automation are another example of meeting the skills-gap problem as well as controlling rising labor costs,” Harden says.

The U.S. Federal Reserve Board in December raised the benchmark interest rate for the first time in almost a decade. “Will this slow down the housing market,” Harden asks rhetorically, “because mortgage rates are rising? If the dollar remains strong, will it continue to suck money out of emerging markets? How will those foreign countries, whose currencies are tied to the U.S. dollar, cope? Has the stock market already built the [interest-rate] increase into its pricing or will there be even more volatility than we see today? And speaking of the strong American dollar, 75 percent of our sawmill lumber is sold to customers other than Harden Furniture. Many of them are just across the border in Canada or in the Far East. The strong dollar is making it difficult for us to sell into the Canadian market, and Canadian mills have a significant price advantage globally.” (On Jan. 12, one Canadian dollar was worth just under 70 cents U.S., down from nearly 84 cents a year ago.)

Harden reflects on another major challenge to his business. “Our industry has always had different product levels in terms of quality and price. Those who produced and sold high-end furniture recognized that quality should also carry a commensurate price. They spent a lot of money on branding to reinforce the point. In the last decade, however, there has been a race to the bottom by furniture manufacturers and retailers who are focused [only] on price. I don’t understand this. Other high-end industries, such as autos, electronics, clothing, and jewelry, have maintained brand recognition and their pricing structure. They continue to have successful and growing high-end brands.”

Harden sits back in his chair as he shares his biggest challenge — shifting consumer purchasing patterns. “Five generations of Hardens have built their reputation on quality,” he explains, “and I’m not planning to change. That means the company has to understand and respond to the marketplace. Our [target] customers earn more than $125,000, and they tend to be very busy. That means they don’t have a lot of disposable time, and we know they prefer to spend it with family and friends. So when they shop, they do it on their schedules. Harden needs to be sure we provide easy and multiple access to our product information, because 80 percent of consumers conduct research online before making in-store purchases. That’s why the company focuses on updating our website and making it navigable. We also utilize social media, because this is how people network today sharing content, links, and pictures. Consumers are becoming much more confident in their ability to research, investigate, and negotiate furniture purchases even though it’s not something they do frequently. The majority seems to know what they want even before making contact with a sales person, and they are relying less on brand messaging. This presents a real challenge to communicate the value of our brand, especially to the [Millennials].”

Research
Greg Harden’s decision not to change course and join his peers’ myopic rush to sell on price is confirmed by a 2013 study on consumer attitudes and buying behavior authored by Nicole Ponder, a professor of marketing at Mississippi State University. Of the five criteria surveyed for the study — quality, price, “Made in USA,” environmentally friendly, and brand loyalty — quality was chosen by the 2,007 respondents as number one (53.2 percent). The ranking of quality did not vary by gender or generational group. Respondents placed price second (31.2 percent), Made in USA third, and environmentally friendly fourth. The third and fourth preferences were reversed for Millennials. The survey also indicated that 77.9 percent of those who were surveyed expressed no brand preference or were neutral on the subject. The survey also noted that more than 20 percent of respondents had already purchased furniture online and half said they would buy furniture online.

“The change in consumer preference has had a huge impact on the size of our industry,” avers Harden. “The domestic furniture market generates around $80 billion a year. One consumer-electronics company — Apple — has annual sales in excess of $180 billion. Starting with the Baby Boomers, fewer people want formal dining rooms with China cabinets. We need to adapt by being responsive and innovative.”

Harden Furniture began making furniture in 1844. Today, the company employs 225 at its McConnellsville location. Annual sales for this fiscal year are projected at $35 million. The company is vertically integrated, except for owning its own forests. Greg Harden is the sole stockholder.

The need to invest
The company president continues to wrestle with the need for more capital investment. “To compete in this business, we must continue to invest in new technology,” affirms Harden. “Unfortunately, the banking industry does not look favorably on our sector, which makes it difficult to borrow money. Recently, I had a commitment from a Taiwanese retailer to buy the company and make a major upgrade in the plant and equipment. He couldn’t secure his financing, so I continue to talk with private-equity groups and an insurance company looking for a minority position. I am also considering the potential of a merger or joint-venture. My goal is to keep the business in the family as long as I can and to make the necessary investments as expeditiously as we can. We have perhaps the strongest brand position in the business, but need to turn that advantage into growth.”

Despite the challenges, Harden continues to be optimistic. “In December, we made a deal with a Japanese partner to be a distributor in Japan,” says Doug Cleveland, Harden Furniture’s national sales manager. “The three owners will maintain a showroom and sell to independent, retail stores and to designers. The business is called Harden Japan. The Japanese distributor projects sales in the first year of $500,000 and double that in year two. The showroom will open April 1, 2016.”

Exports have been a bright spot in Harden Furniture’s sales. “Exports represent about 10 percent of our consolidated sales and 20 percent of the revenue generated by the sawmill,” affirms Harden, “and this segment is growing rapidly. The addition of the Japanese distributor strengthens our international network which serves Russia, Turkey, Kuwait, Canada, Indonesia, and China. Our contract manufacturing is also doing well, and signs indicate that our residential sales are finally picking up. The growing middle class in developing companies not only prefers quality but also the ‘Made in America’ label. We really are well-positioned to attract buyers everywhere who are looking for quality, Made in America, and ecologically friendly products. We just need to do a better job getting our message out.”