Turning up the lights
Lighting cos. look to buck rising costs with innovative designs
By Cinde W. Ingram -- Home Accents Today, 3/1/2007
The lighting category is expected to stay on its growth track this year, but manufacturers say rising material costs are making it harder for them to hold prices.
Changing lifestyles with consumers seeking more fashionable lighting as well as aging and growing population trends continue to drive sales growth despite the long-anticipated housing slowdown. Most manufacturers described 2006 sales as good or level with the prior year, but a couple of them reported exceptional sales growth.
"Nationally in 2006, hard-wired sales of lighting were up because of the strength of the housing industry," said Kellee Hollenback, national sales manager, Savoy House. The Lawrenceville, Ga.-based manufacturer's sales were up 22% over 2005.
"Our company has grown by 500% over the last five years with the biggest growth coming from our hard-wired lighting and specifically our European-manufactured product category," Hollenback said. "I personally believe the lamp and lighting categories of sales will continue to be strong over the next several years as long as manufacturers are willing to allow their businesses to evolve and change along the way to fulfill the needs of the consumer and the ever-changing marketplace."
Dan Finley, national sales manager, Quoizel, said sales were basically flat in 2006, but Quoizel's portable sales saw the biggest increase in terms of percentage of the business in several years. Finley also described the health of the lighting category as good and its nature as ever-changing.
"The reason I say this is because our customers and the end-consumers are constantly looking at new materials and new uses for lamps, like task lighting and more accent type lighting," he said. "When I started 12 years ago at Quoizel, it was just a sea of white shades and really lighting didn't mean anything other than giving light. Now people want to do what it does for a room and it's much more fashion-oriented than it used to be."
Murray Feiss, a Bronx, N.Y.-based manufacturer and designer of interior and exterior lighting, also noted the fashion-driven movement and reported its 2006 sales were very successful. "We see it trending up, not in dramatic numbers but certainly in strong numbers," Feiss said. "There was a period of time where we had devaluation in pricing because of the move to China 10 to 12 years ago so the volume of units were moving up, but the dollars did not move up. Right now, because of the increased cost of raw materials, the pricing on the product is moving up. However, the volume is not changing so the dollars probably will go up."
Russ Barnes, vice president, Wildwood Lamps and Accents, agreed the market for lighting and lamps is changing. Wildwood had a good year in 2006 but Barnes reported sales were a mixed bag with dealers in the Northeast doing great while other parts of the country varied. "Sales should be heading up," Barnes said. "The stock market has gone up and home values are up dramatically. There's obviously some uncertainty on housing starts, and sales may take longer but values are up over what they were a few years ago. There's a lot of equity in the home and the high-end consumer is doing great. So for our niche of the market, we think 2007 will be up."
Christopher Mumford, president, Frederick Cooper, said 2006 was a challenging year, given the Chicago-based manufacturer's desire to broaden its high-end material content to include solid brass, marble, alabaster, ceramic, painted porcelain and bronze.
"I believe there is an enormous shakeout in the industry," Mumford said. "Several years ago, the mid market came with well-designed resin pieces and took market share from the high end. Today, the low end is offering interesting enough designs in resin so that the mid market is suffering as they are having difficulty in justifying their price points. The mid market is having difficulty moving into the high end because luxury is created by mixing authentic materials. This product requires a very sophisticated supply chain. I think the fascination with resin at a price point has faded in the premium segment. They are demanding authentic materials and will pay if the look is right."
Asked what he thinks are driving sales, Mumford said, "The luxury segment continues to prosper."
Only into its second year in lighting fixtures, Uttermost President and CEO Mac Cooper described its current growth as very strong. In lamps, Uttermost had low double-digit growth in 2006.
"The lighting category in general has enjoyed many good years of business as housing has been strong, interest rates low and the economy growing," Cooper said. "Falling prices of the past few years, however, created some challenges at retail. To make the same sales, it's taken more units sold. Now, costs are going up, which is actually good for the industry in many ways, but tough to hold margins without a price increase."
Like other manufacturers, Feiss noted costs have risen over the past two years for basic raw materials, such as copper and casting. "You're seeing a gradual increase in pricing," he said. "Because the units' volume is remaining constant, I think you'll see an increase in dollars. I don't think we're going to see a boom or bust, but I think we're going to see a nice slow gradual increase in dollars and maybe also in units."
Outlook aheadLamps and lighting sales should stay level with or above last year's, manufacturers said. When asked what factors are driving those sales, they gave various answers ranging from their own investment in licensed lines to their commitment to maintaining products in-stock to broader changes in consumer lifestyles.
Hollenback expects more licensed products to enter the niche. "Savoy House has had tremendous success with our Tracy Porter collection and specifically the portable lamp portion of her collection," she said. "Consumers are approaching lighting purchases much more emotionally than they have in the past and by offering 'celebrity' licensed product we are offering the consumer an emotional attachment to the product and a story to tell their friends."
Feiss predicted an increase in sales for 2007, primarily because of strategic moves his company has made. "Licensing programs are going to be extremely strong," Feiss said. "We have a Martha Stewart licensing program and the first portable lamps will be shown this June and that's certainly going to give us a very strong sales increase. In addition to that, we've got other initiatives going, not just in licensing but in design as well.
"The other thing you have to look at is the population growth in this country," Feiss said. "More people buy more product so just the natural population growth, both of the birth rate and immigration, has an effect on this. Also, the other factor is, as the population gets older, more light is required. And so there are more floor lamps, torchieres and more lamps in the room to be able to provide brighter light for people as they get older."
Finley noted another lifestyle change, reflecting consumers' attempt to escape their work environment. "One reason consumers like Tiffany so much is because it adds warmth to a home and it gets them away from the lighting they encounter all day in an office. Tiffany lighting is not bright; it's more mood or lifestyle lighting that actually just enhances your furniture or your surroundings and also makes it a much warmer feeling."
Having the ability to bring good products to market and then deliver it quickly is what retail customers are demanding more, Finley said. "And we're primed to do that. So our business will increase in 2007 because I've seen our designs for High Point, they are strong, and I've seen what's coming out later in the year, and our company has committed that we will not introduce anything unless we have it on the shelf. I know we had pieces of it last year in our fourth quarter with our promotion at High Point and afterwards so that's why we finished the year so strongly. In Dallas, Quoizel debuted 250 pieces and unlike any other market, all 250 pieces were in stock in our warehouse. We also had a very good market in Las Vegas, where 50 pieces debuted.
"You know what's going to be the difference? If you're in stock and you're shipping, you're going to get the reorders," Finley said.
For Uttermost, the 2007 winter markets all set new sales records, Cooper said. As a result, he predicts modest growth in the year's first half, to be followed by substantial growth in the second half. Fashion-forward designs and strong values are driving those sales. "With so many good options in the marketplace that are well made, in stock and well coordinated, the differentiating factor more and more is design. Our design team includes four of the top designers in the industry."
Styling and better designs are as important as ever.
"The bottom line is consumers are getting a better value than they did 10 years ago," Barnes said. "We've been able to cut costs and that cost-savings has been passed on directly to the retail customer and the consumer. While I wish the copper prices and raw material costs wouldn't have gone up, the product is still an incredible value."
Looking ahead, Mumford forecast this year will bring significant consolidation in the low and mid market of the lighting niche. "The big boxes will completely take over the low end." He predicted "reasonable growth in the luxury segment if you present good value to the customers, namely a great design in authentic materials at a sensible price."
Challenges forecastIncreasing costs continue to present a major challenge, manufacturers said.
"Nearly all material costs increased substantially in 2006, creating a very challenging situation," Cooper said. "Manufacturers are trying to absorb many of these cost increases. It's more than most can handle and stay profitable."
Barnes noted a fair number of better retail accounts have gone out of business. "The key is to pick up new accounts that take their place in the market," he said. "We have to make sure we're there with the up-and-coming new dealers. Another challenge is to stay ahead with designing great things."
Feiss divided challenges into different areas. "From my point of view, the first is being able to design product the consumer is looking for in today's market. It has to be able to fit in with today's furniture and with today's lifestyle because lifestyles are changing," he said. "Challenge No. 2 is to be able to keep control on cost because overseas' cost, particularly in China where most of our product comes from, is creeping up.
"I think we need to look at all of the various categories of retail outlets for products that we sell," Feiss said. "We have to be able to come up with a good balance between the furniture stores, the lighting showrooms, the discounters, the big boxes and the Internet. I think that's also a challenge for a lot of manufacturers to know where they are going to put their emphasis and what field they're going to play in."
Supply chain management and distribution are the two measures for any manufacturer's success, Mumford said. Seeing the lighting niche at a critical point, he wonders whether high-end manufacturers and retailers are doing enough to differentiate their offerings from the middle. He advised the high-end to be clear what it stands for and what its distinctive product offer is. "In our case, Frederick Cooper offers fresh designs in absolutely authentic materials. We have also committed to fast product delivery because luxury does not mean having to wait until forever."
Finley agreed material costs and supply chain are huge challenges. "Things are becoming more expensive on almost a weekly basis," he said. Like Feiss, he divided the challenges and added in opportunities. "Which really lends itself to three things: No. 1 is design; No. 2 is our customer base is ever changing from traditional retailers to Internet retailers to the strength of catalogs and now, TV. Thirdly, is being in stock." Quoizel's commitment to being in stock, ready to ship was a huge end-of-the-year factor and a large part of its strong start in 2007, he said.
Hollenback perceives the biggest challenge facing manufacturers as "not taking ourselves too seriously and learning how to think outside the box. We need to continually come up with innovative ways to market our products to our customers by giving them retail sales value, not just consumer perceived value. We need to understand that we are truly in a partnership with our lighting showroom owners and when business is flat or slowing we have to pool our resources. If manufacturers can drive consumers and designers into a lighting showroom through great product, great marketing and great branding everybody wins."
Dan Finley
Kellee Hollenback
Mac Cooper
Murray Feiss
Russ Barnes
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