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Three analysts and top management from seven sector firms examine the sector in this special 41-page Home Furnishing issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info450.htm

TWST: What percentage of total furniture sales is generated by the top 10 manufacturers?

Ms. Whelan: Given low barriers to entry, the industry has always been extremely fragmented. The top 10 manufacturers in the US, combined, have a 40% share, while the top 10 retailers have a 16% share. Most of the successful players are posting organic growth ahead of the industry average. Also, they are supplementing this growth through acquisitions.

TWST: Moving to another topic, what are some of the trends that showed up at High Point this year?

Ms. Whelan: At the last market, in the second week of October, the most notable trend was the significant increase in the value associated with mid-priced furniture. The manufacturers in Asia used the recent lull in demand to improve their design, manufacturing and finishing techniques. I was surprised that the quality of the imports had improved dramatically. On top of this, the US manufacturers that are leveraging domestic manufacturing capability with more ornate and labor-intensive imported components have increased the scope and value of their product breadth. The result is higher value product for the consumer, but for the same price and as such at the expense of the manufacturer. The retailers I talk to estimate enhanced value inherent in imported product at 15%-20%. In other words, consumers can now buy product from a higher price point, but without any increase in their cost. Typically, higher-priced furniture carries a higher margin, so US manufacturers lose out twice. First, oversupply is forcing them to pass cost savings associated with their imports to the consumer. Second, the higher value imports are cannibalizing sales of their better-priced, and more profitable product lines. I expect fierce pricing pressure and further margin erosion as a result. Another surprise was that so much of the foreign product, in various showrooms, looked exactly the same — mainly because it is the same. It means that the price points are merging and that manufacturers won’t be able to charge as much for the better-priced product. Even the best manufacturers, such as Furniture Brands (NYSE:FBN), that have been way ahead of the curve in developing import strategies, are going to be challenged to make money on imports now. The bar has been raised on quality. Eventually I believe that the value-added role the US manufacturer provides now, by checking quality and delivery, will be offset by import agents and at a lower cost for the retailer. Any savings on imported product will need to be passed along to the consumer.

TWST: What are some of the questions that investors ask you about the furniture sector?

Ms. Whelan: More than anything else, they want to know why is demand so low, and when is it going to come back? I think the reason why it’s so low is because it’s a big-ticket deferrable purchase, so people are waiting. And then they’ll say, well, housing is growing and furniture isn’t, so what’s the disconnect? I think the disconnect pertains to the fact that it is big ticket, that is deferrable, and also that there’s pressure on pricing. So the revenue number I see is not necessarily true in the case of how many units are being shipped.

This special issue includes:

1) Furniture & Floor Covering Stocks - In an in-depth (4,600 words) Analyst Interview, John A. Baugh, Managing Director at First Union Securities, Inc., examines the outlook for the sector and shares specific stock recommendations.

2) Furniture & Home Furnishing Companies - In an in-depth (4,300 words) Analyst Interview, Keith Hughes, a Vice President at SunTrust Robinson Humphrey Capital Markets, examines the outlook for the sector and shares specific stock recommendations.

3) Outlook for US Residential Furniture Stocks - In an in-depth (3,500 words) Analyst Interview, Margaret M. Whelan, Associate Director at UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of seven sector firms examine the outlook for their firm and the sector.