3.1 Market Size

Manufacturing USA estimated the national upholstered household furniture market to be $6 billion in 1992. According to the Research and Information Group of Texas Department of Commerce, the Texas upholstered household furniture market was $53.3 million in 1992 (SIC Code 2512).

Approximately 8.45 million households, or 13% of the 65+ million US households, are members of the company's target income group, earning over $75,000 per year. The upholstered furniture buying power of these affluent households is $2.0 billion annually. (US Bureau of Census, S&P Industry Surveys, November, 1992).

3.2 Upholstered Furniture Niche Markets

Novelty/Specialty Market

The novelty/specialty niche delivers new high-tech products to people who are willing to pay a premium for the latest items offering specialized functionality. Sharper Image is pioneering a new segment of products focused on living a healthier life. Like its competitors, Brookstone and Hammacher Schlemmer, Sharper Image sells styles of shiatsu. massage recliners ranging from $2,300 to $3,500 retail. These products are designed to offer relaxation and stress reduction.

The novelty/specialty customer base closely matches the profile of our target customer. The typical customer, 65% of whom are male professionals, is between the ages of 35 and 54. High-tech, high-end merchandise is especially popular. Retail centers located in urban and financial districts provide convenient access to professional men and their families. Families in this market typically have an income of $75,000 or greater and tend to be city dwellers.

Ultra-Contemporary Furnishings Market

The ultra-contemporary furniture market is positioned at the high-end of furnishings in terms of quality, modem style, price, and margins. Ultra-contemporary retail stores are looking for the latest, cutting edge designs to place in their showrooms. Ultra-contemporary upholstered furniture sales represent 6% of the upholstered furniture market ($360 million in annual sales). (HFD Home Furnishings Weekly Newspaper, October, 1994).

Retailers in this market often require exclusivity for a product in a given geographic region or city. They are able to charge higher prices due to their exclusivity, higher perceived quality, and unique styling. Almost 500 retail outlets serve the US ultra-contemporary furniture market with most upholstered products on their showroom floors turning 4 to 12 times per year.

Interior Design Market

Interior designers and architects assist affluent homeowners in furnishing a new home or remodeling an existing home, offering the highest level of personalized service. They are entrusted with the responsibility of creating the desired image, specifying products and finishes that meet their sophisticated clients' decorative and functional needs within a defined budget. The design and architect professions are an attractive channel, because they have direct links to affluent customer bases that purchase high-end furnishings. They are considered the industry trend setters.

Home Entertainment Market

Affluent households spend an increasing portion of their furniture budgets in a single dedicated entertainment and relaxation room. This room often contains a wide screen television, a surround- sound stereo system, and video game or other interactive television technologies. The nucleus of the home is the one area in which every effort is made to create an environment conducive to relaxation.

Today, most seating used for home entertainment is in the traditional form of sofas, love seats, and recliners. Furniture used in this segment of the market must match the evolution of two separate trends: home furnishings style and home theatre technology. Few seating products have been designed specifically for the evolving home theatre market. Most furniture manufacturers fail to consider this as a viable market, because their products do not meet the functionality required by this market.

3.3 Future Niche Markets

True Dimensions is currently evaluating the long term potential opportunity in three emerging upholstered furniture markets. The company is positioning itself to enter the following niches:

Psychotherapy and Chronic Pain Treatment Markets

A survey was mailed to selected specialists at the Tulane Pain Clinic in New Orleans, one of the premiere clinics for chronic pain research. Preliminary survey results indicate that the Flogiston^TM Chair would be best used for treatment of psychiatric problems. Specialists in psychiatry, occupational therapy, and clinical psychology found the chair to be appropriate for relaxing apprehensive patients, stress management, hypnosis, bio-feedback, and other treatments requiring a stress-free relaxed environment.

While these results seem promising, a look at overall medical trends shows that the Flogiston^TM Chair may be ideally positioned to take advantage of one of the newer medical applications, the treatment of chronic pain. Still relatively new, the treatment of chronic pain takes a holistic approach to treating a combination of both physical and psychological causes of pain. Since the Flogiston^TM Chair puts the patient in a position which reduces external forces on the body, it would be ideal for helping doctors isolate the physical and non-physical sources of a patient's pain. Properly marketed, the chair could become the treatment chair of choice for this and other mental health related fields.

Office Market

The Occupational Safety and Health Administration (OSHA) has drafted a proposed national ergonomic protection standard intended to reduce the occurrences of "cumulative trauma disorders" in the workplace. According to the Bureau of Labor statistics, 280,000 employees filed workers' compensation claims for carpal tunnel syndrome in 1992, resulting in costs of approximately $30 billion. Ergonomists believe the new federal standard will force many employers to replace outdated office equipment and furniture and rethink the way jobs requiring repetitive motions and long periods behind desks are done.

Industry experts believe the new OSHA regulations will cause a boom in the office furniture and equipment industry and short term price increases. True Dimensions will evaluate how it can participate in the evolution of new workplace furnishings that emphasize comfortable, ergonomically supportive environments over traditional desktops to improve productivity.

Virtual Reality Market

As virtual reality technologies are being developed for both commercial and entertainment uses, the user environment has become the key factor in differentiating the degree of "reality" experienced by the user. Today, virtual reality theme parks, such as Virtual World. are appearing across the globe in which "travelers" interact with other travelers in virtual reality adventure games. Wait Disney Imagineering, through its Epcot Innovations Pavilion, is developing virtual reality applications for its guests to enjoy. Disney has contacted the designer with interest in using the chair for this application. Richard Crane Productions, a theme park developer, has expressed interest in creating an immersive cyberspace facility utilizing the Flogiston^TM Chair.

The Geneva Research Group predicts that by 1999 business applications alone will create a $575 million market for these devices. Moreover, they predict this figure to top $1 billion by the year 2000.

3.4 Market Trends

Manufacturing Trends

The US furniture industry is experiencing a period of consolidation to larger, more capital intensive, production facilities. Between 1980 and 1990, the number of furniture manufacturers declined from 5,000 to 2,500. Industry changes include vertical integration between manufacturing and retailing operations to satisfy increasing demand for custom-built furniture, consumer preferences shifting to more comfortable casual furniture, rather than formal furniture, and enhanced manufacturing productivity.

Standardization for mass production by major manufacturers, along with the demise of many smaller manufacturers, has created new opportunities for the success of start up niche furniture manufacturers. Examples of young successful furniture manufacturing companies include:

• Viewpoint, a $30 million leather upholstery manufacturer, is currently growing at 42% per year.
• Uniqseat had sales of $1.5 million in 1994 and is experiencing an annual growth rate of 300%.
• Body Built Chair, a manufacturer which focuses on ergonomic office furniture, demonstrated 35% annual growth rate for three years, with more than $20 million sales in 1994.

Demographic Trends

Research shows that relaxation and stress management products have the greatest appeal to affluent baby boomers (ages 35-44). The future direction (sales levels and preferences) of the furniture market will most likely be determined by aging baby boomers. A recent Cincinnati Enquirer article, "How Retailers Are Changing To Meet Aging Baby Boomer's Needs," emphasizes that primary concerns of this group, such as comfort and safety, relate to the home and are providing forward thinking firms the opportunity to build businesses which meet these needs. The members of this large consumer segment will likely move to the higher end of the furniture market as they reach their prime earning years and replace worn furniture with lasting pieces.

3.5 Customer Need

"Exhausted: A Nation of the Quick and the Dead," the cover story for the March 6, 1995, edition of Newsweek describes a disturbing trend among working Americans. The fbilowing quotation best summarizes the article's main theme: "We're fried by work, frazzled by the lack of time. Technology hasn't made our lives better, just busier. No wonder one quarter of us say we're exhausted. We need to chill out before we hit the breaking point." Now more than ever people have a universal need to escape and experience true relaxation of the body, mind, and soul.

When relaxing, the human tendency is to lean back and elevate the feet. Capitalizing on this behavior, the typical product provided by residential mass marketers is a product comparable to the La-Z-BoyTm recliner. Rather than produce innovative and stylistic pieces of furniture, most manufacturers have simply incorporated the reclining motion into two and three-seat sofas. To date, ergonomics has not been a significant consideration in the design of lounge seating.

American National Standards Institute (ANSI) and Human Factors Society (HFS) define standards for ergonomic seating. ANSI HFS 100-1988 forms the cornerstone of the proposed OSHA legislation. The Flogiston^TM Chair meets the dimensions for comfort and lumbar support required by this standard.

The Business and Institutional Furniture Manufacturers Association (BIFMA) states that 40 million people now work primarily in home offices. As consumers become familiar with the OSHA standard and the increased level of comfort it provides, HFS predicts that a greater proportion of home furnishings will incorporate ergonomic features.

3.6 Competitive Analysis

Mass Market Manufacturers

Sufficient competition exists in mass production manufacturing due to the large size of this market. Competitors such as Masco, Thomasville, and La-Z-BoyTm dominate this market through low-cost, high volume manufacturing and high degrees of product standardization. True Dimensions will not compete directly with mass market producers, as we will approach the higher margin/lower volume niche markets.

Novelty/Specialty

Currently only two manufacturers offer competitive products to the novelty/specialty market. The marketing strategy of a young company in Florida, Somatron, most closely resembles that of True Dimensions, with an added fbcus on audio components and medical applications. Japanese giant Panasonic sells $5 to $7 million wholesale in shiatsu, massage chairs annually into this market segment. All of these products retail between $2,300 and $3,500.

Ultra-contemporary Furnishings

Leaders in this segment produce $25 to $75 million in revenues. Primarily European, this group of competitors includes Desede, Urbana, Weiman's, Jaymar, Westnofa, and Thayer Coggin. A number of small design firms compete in the most expensive and exclusive end of this market segment. Many of these smaller $1 to $5 million companies are located in Southeast Florida and in several California design centers.

Home Audio/Theatre

To date, this industry has focused on the sale of consumer electronic components and entertainment centers designed to house these products. At this time, only Thayer Coggin has developed an upholstered product line designed specifically for the home theatre. It is important to note that some crossover already exists between the novelty/specialty and home audio/theatre segments. Examples of this include NAD stereo components featured in the Sharper Image catalogue and Panasonic massage chairs with built-in speakers. For Stereo 2000, located in the Houston Galleria, the Panasonic chair is one of the best selling items.