Growing problems in the furniture industry raise concerns about the future of Polish enterprises. Furniture production can be considered a kind of national specialty, as Poland is one of the leading furniture suppliers on global markets, just behind China. The second decade of the 21st century can undoubtedly be considered a period of prosperity in the furniture industry. Polish enterprises maintained a high level of production, which allowed them to sell a lot both at home and abroad. It is worth emphasizing that domestic sales accounted for a relatively small share in the activity of Polish furniture makers – about 90% of production was intended for export. This allowed Poland to consolidate its position on the market and become an important player in the international arena.
The beginning of problems
Until recently, the furniture industry was doing very well. At the beginning of the pandemic, the demand for furniture increased as restrictions forced people to stay at home and people began to invest in home furnishings. The increased demand also resulted from the need to remodel apartments, as they often became home offices. The demand for furniture products was so great then that manufacturers had trouble keeping up with production. The situation began to deteriorate after the outbreak of the war in Ukraine. Previously, the most important suppliers of materials for furniture production included countries such as Ukraine, Russia and Belarus. The imposition of sanctions meant that Poland lost access to cheaper markets and there was a problem with access to plywood and boards. It is worth adding that the sanctions imposed on Belarus are considered inconsistent because they cover the raw material itself, while furniture can still be imported without any problems. They are 30-40% cheaper than Polish furniture, which makes it difficult for domestic producers to compete with their products. Customers do not tolerate any price increases and expect their levels to correspond to those before the war. The President of the Polish Chamber of Commerce of Furniture Manufacturers even sent a special letter to the Prime Minister in which he appealed for help for the furniture industry and the introduction of a ban on the import of furniture from Russia and Belarus. He also pointed out that the problems of the entire sector were being ignored, as letters sent by industry organizations remained unanswered. The government did not propose any solutions that could support the sector that is crucial for Polish exports in such difficult circumstances.
Rising prices of energy, materials and wages additionally burden entrepreneurs and they are unable to maintain pre-war prices. There is also noticeable market saturation after increased shopping during the pandemic – much fewer orders are observed. The difficult situation does not occur only in Poland. Even the German Furniture Association is complaining about the collapse in demand, and unsold stocks are lying in warehouses.
High wood prices
Industry representatives agree that the wood sales process conducted by the State Forests is harmful to the Polish furniture sector because it drives up prices, leading to increases of up to 40%. Foreign companies are especially encouraged to buy the raw material, even though there is huge demand in the country. There is no system of priority in purchasing wood for local companies, although such a model exists in many European countries. It would provide better conditions for domestic processors and meet their demand for raw materials at lower prices. The starting prices of wood are still 40% higher compared to last year, and there are no signs of any reductions. Forest raw material is often used as biomass for fuel. Intermediaries who obtain wood for energy use state subsidies, subsidies, or “green certificates”, which leaves even less wood typically intended for processing into furniture. Abuses are quite popular in this segment and result from the lack of a precise definition of energy wood. Even chipping wood to mix it with biomass and supply it as fuel to producers is tolerated. Also, by-products such as wood chips and sawdust that could be used to make boards were used for fuel due to the energy crisis. The accumulation of accessibility problems has resulted in a “fight for wood”. Searching for other, new sources of raw material is also difficult, because the Chief Inspectorate of Environmental Protection does not grant permission to obtain post-consumer wood that would be suitable for processing and production of boards. However, the use of recycling to obtain wood is widely used all over the world because it allows to significantly save natural resources and at the same time reduce the amount of waste.
Withdrawal from FSC certification
The described situation is further aggravated by the decision of the State Forests to abandon the certification of wood according to the FSC standard. Certification made it possible to demonstrate that the wood was obtained in accordance with the principles of responsible forest management. Therefore, it was a certain confirmation of commitment to sustainable development. Currently, more than half of the regional directorates of state forests no longer have certification, and it is important for customers on export markets – giving up certification significantly affects the competitiveness of Polish enterprises. At a time when the approach to ESG factors plays an increasingly important role, FSC is a kind of guarantor of international cooperation.
Debt of the furniture industry in Poland
Currently, the furniture industry is facing huge debt, which results from the deteriorated economic situation, high prices of energy, materials and wages. Almost ¾ of the debt is owed to furniture manufacturers, while the rest concerns stores and wholesalers. About PLN 50 million of overdue debt is due to sole proprietorships, so small enterprises are mainly having problems coping with the current situation.
A remedy for existing problems
Problems in companies often arise due to long-term contracts that lose their beneficial nature over time in the face of changing market dynamics. The contracts, while appearing to be profitable at first, over time make it impossible for the company to adjust and increase prices accordingly to maintain profitable sales. In the light of such demanding conditions for the entire industry, it may be necessary to use certain mechanisms from the area of restructuring tools. One of such procedures is the opening of restructuring proceedings, under which you can withdraw from contracts concluded unfavorably for a given manufacturer. In addition, it is worth using certain financial solutions, such as factoring or leaseback. Under the second of these solutions, entrepreneurs can sell a fixed asset (e.g. a production machine) to a leasing company, while maintaining the possibility of using it provided that leasing installments are paid. In difficult financial conditions, this method allows you to release funds frozen in fixed assets and use them to repay debts or settle employee liabilities. The company can therefore continue to function without major problems, maintaining operational continuity and preventing downtime, while avoiding taking out loans and credits at the same time.
Summary
Enterprises facing challenges related to high costs of raw materials, energy or labor must look for competitive advantages and new opportunities that will save resources. The greatest emphasis should be placed on process optimization and implementation of production automation in order to keep the company on the market in the face of growing industry problems. It is also necessary to look for new sources of cheaper raw materials, e.g. recycled.
We can only hope that the situation in the furniture industry will soon improve, which may be facilitated by the revival in the real estate market caused by the 2% safe loan program. However, we cannot forget that foreign sales are crucial for the Polish furniture industry.
