Dive Brief:

• Raw material shortages have led to a "record backlog and extended lead times" for furniture manufacturer La-Z-Boy, CEO Kurt Darrow said on a Wednesday earnings call. The CEO credited the shortage with a 2% reduction in sales in the quarter ending Oct. 24, and said a similar hit could recur in the current quarter.
• An essential chemical component in the foam used to make upholstered furniture was in very low supply, affecting the entire furniture industry. The CEO said the chemical is now scant again and will likely limit production in the current quarter.
• A shortage of containers may also slow La-Z-Boy's comeback and raise costs, said Darrow.

Dive Insight:

La-Z-Boy has spent the last several months bringing manufacturing facilities back online after shutting down all manufacturing and furloughing 70% of workers in April due to COVID-19.

Furniture demand is up as consumers spend more time at home, and La-Z-Boy has added shifts at its three remaining U.S.-based upholstery factories after permanently closing the fourth and laying off 300 workers in June. The company "reactivated a portion" of that facility last quarter to meet the demand.

The company is also adding a 200,000-square-foot factory in Mexico to its fleet, set to ramp up in the first half of 2021. But the foam shortage hampered the company's ability to use some of this added capacity.

"As a result, we were limited in our ability to fully utilize our existing capacity for almost two weeks during the quarter," Darrow said.

Upstream sourcing issues were a hallmark of the early months of the pandemic, but by November in many industries, these uncertainties waned. This has not been the case for furniture manufacturers.

The Home Furnishings Association reported this month that prices for foam, metal, steel and lumbar have all been elevated this year and likely will continue to be so into next year.

The British Furniture Manufacturer, an industry group, called raw material price hikes generated as a result of the shortage "unprecedented." The organization is investigating the cause so that it might be able to tell members when consistent supply may return, according to an October press release.

Mattress company Casper also took a hit to its sales due to stockouts caused by the shortages.

"Significant challenges in our supply chain including industry-wide shortages in textiles and chemicals critical to foam production led to outsized levels of out-of-stock items both in our DTC and retail partnership channels," said CEO Philip Krim on a Monday earnings call.

Krim said the company has since recovered from a period of delays and canceled orders, with all items in stock and shipping in normal timeframes. He credited the company's third-party manufacturing model with the recovery since it means Casper is not dependent on a few direct supplier relationships, but rather many indirect ones through its manufacturer network — leading to wider supplier base.

La-Z-Boy, which does operate it's own factories, may feel the effects of the foam shortage may stretch on through the end of the year. The company projected flat to 4% sales growth in the current quarter, but only provided there are no further supply chain issues, which the CEO said had already begun in November.

"While we believe these disruptions are temporary in nature, they affect the entire industry and other industries that use foam, and they highlight the volatility of the global supply chain in these unusual times," Darrow said.