The purchasing industry has been subjected to all of the same challenges as the rest of the hospitality world over the last two years—stalled projects, lack of financing, price hikes and layoffs, to name a few—however, thankfully it is also now experiencing the beginnings of recovery.
As more renovations and new builds start to emerge on the lodging landscape, purchasing agents are being faced with trying to adapt to rising costs and tighter project budgets. Purchasing Management International (PMI) has been tracking the pricing of furniture, fixtures and equipment in a variety of categories to help offer a useful tool to the industry when sourcing product. Carl Long, vice president of PMI, reported that like many procurement companies, PMI is seeing more owners going forward with CapEx improvements and PIPs now that the worst of the recession appears to be behind us.
“In the first half of this year, we’ve definitely seen an increase in project volume. Our business is up 35% compared to last year and we’re seeing more acquisitions and new development—that means more activity on the FF&E side. The brands have waited long enough to enforce upgrades and now that has led to a rising tide of renovation work,” he said.
However, at the same time, with that rise in projects has come a significant amount of instability in terms of FF&E pricing. “There’s still a lot of uncertainty with the economy and because of that, vendors can’t hold pricing. There are supply shortages, rising oil prices and currency devaluations. All of those factors make pricing extremely volatile,” Long said. “We’re seeing many vendors unable to hold prices for more than 24 hours—that is a significant shift.”
But right now, in many cases pricing is lower than expected. “If you look at the trend line predicting where prices are going, we are still below average because the project volume is still quite depressed,” said William Langmade, president of PMI.
As more renovations and new builds start to emerge on the lodging landscape, purchasing agents are being faced with trying to adapt to rising costs and tighter project budgets. Purchasing Management International (PMI) has been tracking the pricing of furniture, fixtures and equipment in a variety of categories to help offer a useful tool to the industry when sourcing product. Carl Long, vice president of PMI, reported that like many procurement companies, PMI is seeing more owners going forward with CapEx improvements and PIPs now that the worst of the recession appears to be behind us.
“In the first half of this year, we’ve definitely seen an increase in project volume. Our business is up 35% compared to last year and we’re seeing more acquisitions and new development—that means more activity on the FF&E side. The brands have waited long enough to enforce upgrades and now that has led to a rising tide of renovation work,” he said.
However, at the same time, with that rise in projects has come a significant amount of instability in terms of FF&E pricing. “There’s still a lot of uncertainty with the economy and because of that, vendors can’t hold pricing. There are supply shortages, rising oil prices and currency devaluations. All of those factors make pricing extremely volatile,” Long said. “We’re seeing many vendors unable to hold prices for more than 24 hours—that is a significant shift.”
But right now, in many cases pricing is lower than expected. “If you look at the trend line predicting where prices are going, we are still below average because the project volume is still quite depressed,” said William Langmade, president of PMI.
Back to the U.S.A.
One positive effect of the recession has been the return of domestic manufacturing in a number of hospitality FF&E categories. Long noted the price discrepancy between overseas and domestic product is getting smaller so many owners are opting to buy American when given the choice.
“Over the last 10 years, we’ve seen case goods and soft goods production shift to overseas because of the significant price difference. That gap has now been reduced because of the high price of shipping from overseas and increased efficiencies in the U.S. That means more competitive pricing,” he said.
Time constraints are also impacting the rise in domestic sourcing, resulting in many owners being willing to pay a premium for U.S. products—as long as they get to the job site faster. “Many owners want product quick. They’ve been waiting for a long time to move forward with projects and now that occupancy is back up, they need to get things done even faster. So they may be willing to pay more for goods located closer to where the project is…the pendulum is swinging back to the U.S,” Langmade said.
Long commented that case goods in particular are seeing a resurgence in the U.S. “Vendors are being hit by increased competition right now, but that shouldn’t impact pricing that dramatically,” he said. “The price differential between manufacturers is minimal because the component costs are very similar. So if owners can save on freight, they’re choosing U.S. product.”
One positive effect of the recession has been the return of domestic manufacturing in a number of hospitality FF&E categories. Long noted the price discrepancy between overseas and domestic product is getting smaller so many owners are opting to buy American when given the choice.
“Over the last 10 years, we’ve seen case goods and soft goods production shift to overseas because of the significant price difference. That gap has now been reduced because of the high price of shipping from overseas and increased efficiencies in the U.S. That means more competitive pricing,” he said.
Time constraints are also impacting the rise in domestic sourcing, resulting in many owners being willing to pay a premium for U.S. products—as long as they get to the job site faster. “Many owners want product quick. They’ve been waiting for a long time to move forward with projects and now that occupancy is back up, they need to get things done even faster. So they may be willing to pay more for goods located closer to where the project is…the pendulum is swinging back to the U.S,” Langmade said.
Long commented that case goods in particular are seeing a resurgence in the U.S. “Vendors are being hit by increased competition right now, but that shouldn’t impact pricing that dramatically,” he said. “The price differential between manufacturers is minimal because the component costs are very similar. So if owners can save on freight, they’re choosing U.S. product.”
Competition is also impacting the upholstered seating category as the volume of projects has not yet rebounded significantly enough, which has kept prices from increasing. However, that is likely to change as the economy improves. “We thought pricing would stay similar to last year, but prices have actually dropped. Manufacturers are fighting for every single deal but as soon as the volume of projects increases, so will prices,” Long said.
Meanwhile, the fabrics category is being impacted by price increases on cotton. “Fabric is a segment that is really supply shocked right now. The global run on cotton has made prices go through the roof leaving manufacturers looking for alternatives, such as polyester—that’s when it started impacting the hospitality market,” Long explained. “Prices and lead times have caused significant challenges over the last six to nine months.”
As the cost of fuel continues to skyrocket, the role of the purchasing agent is increasingly important as the job of managing a project’s freight costs falls on their shoulders. “Right now, vendors are eating some of the cost. But where it’s impacting costs is transportation,” said Langmade. “The purchasing agent really needs to manage freight. It used to be 4% to 6% of the total cost of FF&E, now it’s closer to 7% or even 9%. Go out and bid freight to different carriers and you can keep the rate lower. If you ship and don’t pay attention, you can end up with a big bill for freight charges.”
Overall, with the price fluctuations and likely increases that will come in many FF&E categories as the amount of renovations, conversions and new builds grows, Long stressed that for owners considering a project, they should act fast, as categories including carpet and lighting are likely to increase due to rising fuel costs, currency fluctuations and shipping costs. “You need to act quickly or risk being on the wrong side of a pricing increase,” he said. “The best thing an owner or designer can do right now is get moving.”
Meanwhile, the fabrics category is being impacted by price increases on cotton. “Fabric is a segment that is really supply shocked right now. The global run on cotton has made prices go through the roof leaving manufacturers looking for alternatives, such as polyester—that’s when it started impacting the hospitality market,” Long explained. “Prices and lead times have caused significant challenges over the last six to nine months.”
As the cost of fuel continues to skyrocket, the role of the purchasing agent is increasingly important as the job of managing a project’s freight costs falls on their shoulders. “Right now, vendors are eating some of the cost. But where it’s impacting costs is transportation,” said Langmade. “The purchasing agent really needs to manage freight. It used to be 4% to 6% of the total cost of FF&E, now it’s closer to 7% or even 9%. Go out and bid freight to different carriers and you can keep the rate lower. If you ship and don’t pay attention, you can end up with a big bill for freight charges.”
Overall, with the price fluctuations and likely increases that will come in many FF&E categories as the amount of renovations, conversions and new builds grows, Long stressed that for owners considering a project, they should act fast, as categories including carpet and lighting are likely to increase due to rising fuel costs, currency fluctuations and shipping costs. “You need to act quickly or risk being on the wrong side of a pricing increase,” he said. “The best thing an owner or designer can do right now is get moving.”