September 2020 PreMarket

September 2020 High Point PreMarket

Masked and temperature checked (and with hand-sanitizer in pockets), our team spent two very upbeat days in High Point for PreMarket. Furniture Today called it the “mother of all PreMarkets” - we agree. Over 300 exhibitors officially participated with another 100+ exhibitors quietly open to customers by appointment. General consensus was that any attendee in town was there to write meaningful business. The attitudes of our clients and friends were incredibly positive given the current wave of consumer spend in the home, which is directly fueling the residential home furnishing industry. Our customers shared stats of record sales (and corresponding backlogs & lead times) after a grueling spring. 

“It’s so good it’s bad,” shared one industry CEO. “Backlog orders are astronomical and have stretched to May 21’. Are the orders real? It’s like ordering yourself dinner for May… how do you know what and how much you are going to want?” Others took a more cautious approach: “What’s next? It can’t last.”– questioned one long-time friend and industry executive. 

During our time in High Point, we met with 25 industry CEOs. The following themes were top of mind:

  • Backlogs – as indicated above, pent up demand for home furnishing products has reached an industry peak. The government-mandated shutdowns in March and April helped stoke this fire as consumers spent more time living and working from the home and with fewer outlets for discretionary spending than ever before. As demand rose for improved living, dining, outdoor, and home office goods, manufacturers struggled to rebound from “0 to 110” to meet the demand. Retailers are experiencing record sales numbers and in search of additional inventory. This allows those manufacturers and wholesalers with older and/or deeper inventory positions to have a leg up on the competition and the opportunity to quickly move product and continue to improve their balance sheets. 
  • Supply Chain Concerns – As manufacturers work hard to ramp up their production to meet demand, they have been met by rising material prices (we heard a lot of complaints around lumber), as well as rationing on foam, an obviously critical component in upholstery. Overseas container costs have increased with less ships in operation, and domestic freight costs are likewise rising. Meeting the challenges of this supply chain are increasingly the priority for executives, while sales growth shows no sign of abatement. 
  • High Point Fall Market – There seemed to be an optimistic consensus that the October market would go ahead as planned, though with fewer attendees than usual. We heard estimates ranging from 20-50% attendance of the typical market. Given the high attendance and scale of this PreMarket, many exhibitors believe that those attendees who came for pre-market may not return in October, which should help with keeping crowds down and allowing exhibitors to focus on key customers on an appointment-basis. 
  • Creative COVID business opportunities – we heard from several CEOs that they briefly went into the masks, gloves, and washable gowns business as a way to maintain their labor force and generate some cash flow. We were encouraged to hear of the creative and entrepreneurial steps many took to keep the wheels moving and providing an invaluable service to our healthcare personnel and other key frontline workers across the nation. 

Our work in Mergers & Acquisitions continues at a record clip. After a 45-60 day pause in the spring due to the novelty of the COVID-19 crisis, there is now a great deal of activity in the marketplace. We anticipate announcing several exciting deals that are closing in the next 2-3 months. 

We have observed three key categories in this market: 

  1. The Strong - growing companies that are looking for growth and moving forward to facilitate ambitious strategic objectives
  2. The Steady – companies that are putting their head down and conserving cash to effectively ride the waves of this volatile economy, and 
  3. The Struggling – there will be plenty of distress sales and companies that will not survive the coming months. The number of struggling companies is leading to a lot of M&A opportunity. As one prospective buyer framed it, “I’m coming in as Luke Skywalker, not Darth Vader.” There is great opportunity in the coming years for new life to be breathed into struggling companies under new ownership.

Are you interested in buying a company or selling? Give us a call, we are here to help you navigate these ever-changing times!

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The Stump Corporation
Specialists in industrial real estate brokerage in the Carolinas, Virginia and Tennessee.
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Stump & Company
Specialist in mergers and acquisitions, and investment banking.
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