High Point Market Newsletter

April 2010

"Musical Chairs"

High Point was much better this April than the past several Markets, with streets vibrant, elevators full and attitudes upbeat. Almost universally we heard good stories of increased sales and improving consumer sentiment. While many companies are still digging out of their holes from the past 18 months, 2010 and beyond should offer better economic times and a chance for some consistent financial performance. Below are some highlights from a week of walking the halls and streets of High Point:

• Who’s dancing with whom?: Quite a few high profile companies are struggling and publicly announcing their closure or bankruptcy filing. Many more firms are nearing this unfortunate predicament due to the lack of capital availability and the heavy debt burden incurred from too many years of losses or ill-advised buy-outs. Senior management and sales reps from these firms are scattering to the healthier companies, and major chunks of market share are up for grabs in the wake of the demise of the weak. This trend is a classic Economics 101 evolution, with a survival of the fittest mentality hard at work. Predatory marketing is alive and well in our industry.
• Human Capital: We are still in an illiquid world, with banks and factors not willing to extend much credit. To offset this resource deficit, we see many smart companies investing in talented people to bolster sales, operations, logistics and sourcing capabilities. There are some excellent executives “on the bench” or itchy to jump ship from their weak companies, and we encourage all our clients to carefully assess their human capital needs and make strategic hires now. We believe good people make a difference.
• China Issues: As one friend told me, “if we had told retailers 15 years ago that all furniture would be made in China and that we have to go over there 2-3 times a year, and the factories shut down every February, and the quality is a mess sometimes, and the currency fluctuates and ocean freight is unpredictable, this Asian onslaught would have never happened.” But it crept up on us and now is a permanent part of our industry. We expect the RMB currency to rise starting this fall, and ocean freight rates will rise as ship supply decreases. And a major battle between the duty/tariff participants will emerge this year. Hold on for more turbulence in the offshore sourcing wars.
• Deals: With some ability to see the future and some consistency in the marketplace, we are now busy again with merger and acquisition discussions. Strong companies with cash see a buying opportunity. Weak companies are being forced to sell to survive. We see strong interest by some to acquire good companies at healthy multiples as a way to jump-start their own growth, but this is a limited group and only a lucky few will be able to sell at historical EBITDA multiples.

In 12-24 months, our industry will look much different, with new emerging winners, many losers, and a more complicated global landscape. These movements are fascinating to watch, and we’ll see who is properly seated when the music stops (hence our newsletter title “Musical Chairs”!). We look forward to having confidential conversations with you soon. Please call or email as you have comments or questions.”