Clock ticking on hot furniture deals

Bargain retailer thrives

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NEW YORK (CNNMoney.com) -- You might not be in the market for a house. But this is a good time to be shopping for what goes inside, with furniture at bargain prices - although only for the next few months.

"There are plenty of [furniture] deals to be had and consumers definitely hold the power right now," said John Gabriel, Morningstar analyst who tracks big national furniture chains and suppliers such as Ethan Allen (ETH), Pier 1 Imports (PIR) and Herman Miller.

Analysts say the collapse of the housing market amid an economic downturn chilled demand for new furniture and home furnishing items. As demand fell, retailers were stuck with excess inventory going into 2008.

Unable to sell their products, several furniture chains, including Wickes and Levitz Furniture, recently declared bankruptcy. Other dealers, such as Thomasville, are shutting some locations.

Nevertheless, this tough situation for retailers has created a buying opportunity for bargain-hungry consumers, said Gabriel.

"With their sales volumes so low, furniture retailers have to get very aggressive on prices to stay in business," he said.

Keith Koenig, co-founder and president of Florida-based furniture chain City Furniture, said his company has had a rough ride this past year. Combined revenue for the company's 21 South Florida stores fell 15% in 2007.

Koenig said all furniture sellers will "absolutely pull every trick out of the bag to garner revenue where they can."

While the housing downturn had proved catastrophic for his industry, Koenig said it could provide some positive impact by sparking a "redecorating trend."

"If more people are staying put, they might decide to reinvest in the upkeep of the home," he said. "That's an important revenue source for us."

He's hoping that this year's tax rebate checks will also spur spending on furniture in the coming weeks before prices start to normalize.

"I think prices have hit bottom and consumers will still get great deals over the next three months," he said. He estimated that merchants will offer discounts of between 5% to 15% on already reduced prices over the summer.

But, by year end, an $899 bedroom set is likely to cost $999, Koenig said. That's because overseas suppliers, especially in China and India, are complaining that their manufacturing costs are climbing due to higher wages and commodity prices, as well as the weakness in the dollar.

More than 50% of all furniture sold in the United States is imported from overseas, according to the trade publication Furniture Today.

"While we're squeezing more of our suppliers on their prices to us, they are screaming that their costs are going up too," Koenig said.

As these overseas manufacturers pass along the incremental production costs to U.S. retailers, retailers in turn will be forced to pass them along to consumers or else risk further profit erosion.

Tapan Singhvi, owner of India-based furniture manufacturer Kraft Creations, lists Costco (COST, Fortune 500) among his bigger U.S. clients.

Not only have his U.S. customers cut their orders by 30% this year but they also are negotiating prices for his products that are about 20% lower than last year, Singhvi said.

Avinash Jain, owner of another India-based furniture maker Preeti International that supplies to U.S.-based furniture wholesellers, said the decline in the dollar has pushed up his costs.

As a result, both Singhvi and Jain said they are seeking out new clients in Europe to take advantage of the gains in the euro.

"We are in a real conundrum with the dollar," Koenig said. "Our import costs are going up while [retail] prices have dropped dramatically."

"We've had to tighten our belts and we'll be very happy if we can stay even in 2008," he said.