Furniture retailers slammed with more product than they can handle

And it’s coming on the heels of a consumer slowdown. Jerome’s CEO explains the problem and what the retailer is doing about it. Jerry Epperson outlines the potential longer-term impact

SAN DIEGO — In a recent letter to suppliers, Jerome’s Furniture CEO Brian Woods spelled out a big problem facing promotional to midpriced retailers across the country. They’ve gone from being desperate for inventory to having so much furniture at their backdoors that there is nowhere to store it.

“An analogy would be if you didn’t eat for several days and were starving, begging for something to eat, and all of a sudden you received three weeks worth of food,” Woods wrote about a week ago. “Not only would you not be able to eat it all at once, but it wouldn’t fit in your refrigerator.”

His letter to Jerome’s overseas resources was meant to provide context to recent actions by the HNN 125 retailer to temporarily hold off on booking finished goods for transport. He wanted to explain the decision but also to reassure supplier partners that the San Diego-based retailer has every intention of taking all finished goods. It just needs a month or so to work through the latest, and hopefully last, major kink in the furniture supply chain.

“We needed to pause the inflow to give us an opportunity to pull what is at port, find the best backlog matches, reduce inventory in the warehouse and create capacity to get the product in our warehouse and yard,” he wrote. The retailer, he added, is currently sending “huge quantities of cans to offsite warehouses until we create capacity.”

To be sure, this is not just a Jerome’s problem. It’s an industry problem, and it’s the most unusual situation analyst Jerry Epperson said he has seen in more than 50 years covering furniture.

“We’ve gone from having dramatic shortages of inventory before the High Point Market to now — just a matter of weeks later — we’re seeing where the ports are getting caught up,” said the managing director of Richmond, Virginia-based Mann, Armistead & Eppterson. “A lot of product has come over from Asia because (suppliers) were trying to get everything out the door before the Lunar New Year. And we’re seeing a lot of our domestic manufacturers have been catching up on their deliveries as well. So the retailers, who have been desperate for product for 15, 18 months all of a sudden some of them have too much  product … and don’t have a place to put it.”

He added that this appears to be tied only to the promotional and midpriced segments of the industry. He has yet to hear of a high-end retailer or supplier facing this overflow problem.

Epperson said many domestic upholstery producers are reporting cancellations, as some retailers have moved a step beyond delaying shipments. “And it’s getting back to the Asian manufacturers that the product isn’t needed like it was earlier,” he said. “I think we’ve got a real situation on our hands.”

It hasn’t quite gotten to that point for Jerome’s as it remains committed to all finished goods, but here’s how it has been playing out for the retailer and why Woods sent the letter to “calm down anxiety and set some expectations.”

One warehouse, no room to spare

The Southern California retailer with a mix of 25 full-line and sleep specialty stores has only one point of distribution, albeit a big one with 450,000 square feet. Until recently, it has been a challenge trying to fill the warehouse. Throughout the pandemic, vendors had been pushing back their delivery dates, first by a couple of weeks, then by a few more until delivery delays had grown to months. With each new delay, Jerome’s has had to go back to its customers to explain what was happening.

In the letter, he noted Jerome’s has been “starved of product with mounting backlogs” and has been “without much of our assortment for well over a year. In the meantime, we have worked with each of you to manage our customer expectations while factories restarted and got production moving again.” 

Woods told Home News Now, vendors also stretched their lead time requirements during the pandemic. Most overseas sources went from requiring a six-month lead to 12 months. That’s the window they wanted from the time of the retailer’s order to the time it was ready to go. They needed extra time during this period of disruption to secure raw materials, get things into production and finished. It was the first time Jerome’s was ever forced to forecast what business would be like 12 months out. 

Still, Jerome’s complied with the unprecedented request while spacing out its orders “to manage the incoming in anticipation of product and flow,” Woods noted in the letter. 

But as Epperson and Woods point out, the incoming flow didn’t quite work out the way any retailer would have planned. Instead, the bulk of items they were waiting on for months or, sometimes, more than a year, was suddenly at their backdoor in a matter of a few weeks.

“In the last few months, the supply chain evolved from no inventory available, to massive loads hitting the water, then stuck at ports and now becoming available,” Woods wrote.

And still, retailers aren’t seeing everything they need. Woods talked about how Jerome’s is seeing “depth of goods” but not necessarily breadth. He explained it to HNN this way:

Say a retailer has 100 items and 50 of them are out of stock. Then it receives half of the out-of-stock items — enough to cover its backlogs and more going forward because one particular vendor was able to ship. Meanwhile, another vendor hasn’t shipped anything yet so the other half of the out-of-stocks are still missing.

This becomes a real problem for the retailer when it has a customer that has one of each on order — one item newly in-stock and one still out of stock. That causes the retailer to hold the existing inventory for the customer until that out-of-stock item arrives. That keeps sold goods (and the rest of the newly in-stock goods) in the warehouse, and that’s what Woods means by depth, not breadth.

It’s a puzzle with more pieces than places, and just as Jerome’s has had to be patient with vendors as they worked out their own supply chain kinks, now he’s asking for the same consideration.

Jerome’s flow team has been prioritizing containers that are most needed to make the biggest dent in its backlogs, he said. The retailer is pausing inflow to pull what’s already at the port, find the best backlog matches and ultimately create more capacity in its warehouse by getting the backlogs out the door. Woods also said Jerome’s will “continue updating or canceling (purchase orders) at the tail end of our lead times until we have a better handle on what will match with a backlog and what is left for stock and current sales rates.” If there are going to be cancellations, he said later, the low hanging fruit is in these later orders that have yet to go into production.

But he reiterated Jerome’s commitment to finished goods, noting it expects to work through this process over the next 30 day and “we have every expectation of booking and accepting all finished goods.”

He told HNN that the vendors who responded back to the communication have been “very positive.” They thanked him, told him that they understood and indicated that they believe these are fair moves.

Woods said he believes the industry is at the tail end of the supply chain normalizing. Early on, the disruption was caused largely by overseas factories shutting down, then reopening, then shutting down again, he said. When they reopened again and started producing, a wave of goods — and the disruption — moved from the factories to the ports and the industry started seeing big jumps in inflation and freight rates. At the ports such as Long Beach, California, which feeds Jerome’s, container ships floated offshore for weeks, then months before anchoring to unload. 

“Now it’s at the retailer’s backdoor,” he said (though, according to many news reports, the port congestion isn’t a thing of the past just yet, at least not for other retail segments still waiting on goods). 

“There’s a wave of inventory that finally hit the states and the retailer, and it’s converging at the exact time we’re experiencing softening (in consumer demand) that we haven’t experienced in two years,” Woods said. He’s hearing similar reports from his furniture retailer contacts across the country — the first quarter was soft, closer to 2019 levels, before things picked up a bit in late April and early May. It’s difficult to predict where consumer demand goes from here, but Woods said he doesn think the slowdown to date has too much to do with this sudden backup in retailer inventory. The sudden glut has more to do with all that was going on during the long pandemic.

“For two years, business was great, and we were ordering,” he said. “We knew it would slow down at some point. I think it lasted longer that we all thought it would.

“Consumer demand is normalizing. The options for (spending) disposable income are normalizing. The only thing that hasn’t normalized is pricing and inflation.”

Industry cash flow troubles down the road?

Regardless of cause and effect, the confluence of a slowdown in demand with the overflow of product arriving everyday has Epperson concerned. 

“With the consumer slowing down their buying, the retailers don’t need that much more inventory. It’s a bad situation,” he said, adding that he’s heard from one retail source that it won’t be long before some stores face a cash flow crunch and start having trouble paying their bills. The same goes for the manufacturers, likely to face similar liquidity problems as a result of cancellations and delays. 

“A full warehouse is good to have,” Epperson said. “But the bad news is that’s a lot of your money you’ve tied up.

Here’s Woods’ full letter to vendors edited slightly:

Vendor partners –

We have received several inquiries over the past few days related to Jerome’s canceling bookings. I want to give some context, calm down anxiety, and set some expectations.

We are a single point of distribution warehouse that supplies all stores. It is limited by capacity (space and resources).

As you know, over the past year we have been starved of product with mounting backlogs. In most cases, we have been without much of our assortment for well over a year. In the meantime, we have worked with each of you to manage our customer expectations while factories restarted and got production moving again. 

Over the past year and a half we worked with our partners to comply with your requests of longer lead times. We also spaced out our orders to manage the incoming in anticipation of the production and flow.

In the last few months the supply chain evolved from no inventory available, to massive loads hitting the water, then stuck at ports, and now becoming available. Still, our expectation was that flow would follow spacing of order dates. An analogy would be if you didn’t eat for several days and were starving, begging for something to eat, and all of a sudden you received 3 weeks worth of food; not only would you not be able to eat it all at once but it wouldn’t fit in your refrigerator.

We have been receiving waves of goods. The problem is:

1. Many bookings are depth of goods, but not breadth to fill all orders. This is causing a mounting of inventory because we’re not reducing the backlog at the same rate that goods (depth) is being received.

2. We are receiving goods all at once even though they were planned and ordered weeks or months apart. Although many are for back orders, we can’t get them out until other corresponding goods are received. Some of this is caused by the factories shipping all at once regardless of order space dates, and some are a result of vessels that were backed up finally becoming available at the same time.

3. Many orders were placed expecting receipts for Q4 or Q1 (high seasonality), and not received with slower sell-through expectations.

4. Our flow team is prioritizing cans that are most needed to make the biggest reduction to our backlogs.

What is being done and expectations:

1. We needed to pause the inflow to give us an opportunity to pull what is at port, find the best backlog matches, reduce inventory in the warehouse, and create capacity to get the product in our warehouse and yard. We are currently sending huge quantities of cans to offsite warehouses until we create capacity.
2. We have been and will continue updating or cancelling PO’s at the tail end of our lead times until we have a better handle on what will match with a backlog and what is left for stock and current sales rates.
3. We expect to work through this in the next 30 days.
4. We COMMIT to taking all finished goods. It’s a timing issue of managing what we have, what matches back orders, and what’s left over.

This has not been easy for anyone. It wasn’t easy on Jerome’s when we were selling tons of product with missed commitments and continual pushes. I think it’s fair to say that we worked with all our partners during these trying times for us. We are now asking for your help and patience as the supply chain has now bottlenecked at our back door.

Again, we expect this to be an approximate 30-day activity, and most importantly, we have every expectation of booking and accepting all finished goods.

If you have questions or concerns, please reach out to the flow team … or myself.

Thanks for your understanding and help,

Brian