Having spent almost fifty years trying to understand trends and how they will impact the Home Furnishing Industry, I have watched many changes that have impacted the industry, both positive and negative. This will not be a nostalgic trip down memory lane with commentary on the good old days however it will be a cautious commentary on the speed of change.
We are in a “disruptor” economy, whatever that means. But that has always been true in business. Entrepreneurs seize upon a concept and push forward to satisfy the perceived needs of the consumer. The industry has experienced “category killers,” blockbuster retailers that through volume reduced prices along with services, captured significant market share. The remnant of these retailers, such as Babies-R-Us, a division of Toys-R-Us, have been liquidated, leaving in its wake thousands of small independent retailers that help expectant parents create that special nursery. But beneath that disruption are the lives of many individuals who built those businesses over a lifetime. Disruption, but at what cost?
I know the reaction of many at this point is, “But that is ‘capitalism’.” Don’t take this wrong, I am not saying change is bad. Do the math. I am a product of the sixties (the ultimate disruptors) and an early business career in the heady days of the LBOs (Leverage Buy Out). In our industry, the cry to put that capital required on the balance sheet to work to create shareholder value resulted in the industry manufacturing sector, losing the capital to automating manufacturing. The consequence was the loss of production to offshore. Yes, this was disruption, but at what cost?
As a young business school graduate, it was hammered into my mind that the capitalist system was efficient and would “punish” new ideas with failure. However, it was always with the caveat that a company has to contend with a competitor’s bad strategy until they went out of business. Today, the environment is slow to correct. Weekly, retailers question how etailers continue to increase market share by continuing to accumulate substantial losses. When will there be a correction? In the interim, independent retailers will fail. The latest projection is that we will lose a third of the stores in the next downturn.
The pace of change is increasing. A test by Ikea to rent furniture has become the buzz that will be a disruptor. At times, I believe change is attempted just because we can. Give the consumer their “Big Mac” at any hour, delivered at any hour by Uber Eats at twice the price. Should we? When the cost of the service exceeds the cost of the product, should we take caution?
Venture capital should be a positive contributor to improving society. But with cash pursuing ideas (good or bad) what is the result? I realize I will get incoming flack on this article saying that I am negative on capitalism, but maybe we need an adjustment to more positive, not disruptive, capitalism. The graph below is real. I have experienced each of these cycles. Even though the consumer is confident, should we be cautious?
Traditional retailers control 24.4% of the industry with sales on the uptick for regional chains. Unfortunately the Bureau of Labor Statistics is projecting 8,000 stores, which is about a third of the current count, to close. Mass merchants that absorbed the volume done by the national chains (Sears/Wards/JCP) has leveled out at 20%+/-. The internet continues to grow at 5.1%, but we believe this will level out at 20%+/- of furniture sold.
Our focus will be the total supply chain - not just the retailer to consumer - but also the supplier to the retailer. Facilitating the transfer of product from the designer’s sketch pad to the manufacturer to the retail buyer, forward to the retail sales associate, and finally to the consumer. A long communication channel to establish both knowledge and excitement about the product.
Step One: Selling the Retailer
Well, I guess I will touch the “third rail” and discuss the role of sales representatives in the furniture industry. Let me say before someone comes after us: we believe that sales representatives play an important role in the sales process. Our challenge is to better define that role.
While we believe the sales representative has an important role, we also believe that role is one of executing a sales strategy not defining the strategy.
Historically, the first step in launching a new company or a new product category was to line up the right sales team in every territory. Yes, there are still those individuals that can deliver the market. However, many are retiring along with the closing of many of the independent furniture retailers they served. A recent report by USB projects the loss of 8,000 stores by the end of 2020. Obviously, most of these are single store retailers.
However, the Regional Chains, those retailers that operate multiple stores in multiple states are expanding. There are sales representatives that have relationships with these retailers but more frequently, this relationship is the vendor’s vice president. Often, this is where the noise starts with the retailer “to give me the sales reps commission” and we will handle the training. Beware: this is a slippery slope.
But let’s return to the discussion of independent retailers served by independent sales representatives. The typical manufacturers develop additions to the merchandising lineup. Pricing is a function of maintaining a gross margin that satisfies the financial goals of the company, disregarding the significant value of the new design or more important, the merchandising price lineup in the industry.
The failure of many suppliers is pricing their product lineup above the market. The charge to the salesforce is to go forward and sell at least x% more because that is what we need. The “cat and mouse” game between sales managers and sales representatives is quite a kabuki dance.
For most manufacturers, there is no recognition of their marketshare in a particular market or for the most part, no recognition of those markets in which they have no presence.
What about those markets without sales — has the sales representative identified these opportunities? More important, has sales management? The point is: who is in charge of defining the strategy?
But most important, there is no expectation of service level. What is service level? Simply put, between major markets (High Point for most), how frequently do you want your sales representatives in front of the buyer? The most frequent response is “our sales rep knows.” It is the responsibility of the supplier to establish a specific strategy based upon performance or lack of performance of the retail account. If the account base performance is segmented into (3) segments: top performers, moderate performers, poor performers, it is the starting point of a sales strategy.
The next retort is: why would they want to meet? They will not change their assortment until next market. Talk with seasoned reps and they will recount those orders that they received by going through the door at the right time — when their competition is not delivering or sales have been declining for weeks. But, besides that spontaneous purchase, the buyer is constantly evaluating their merchandise assortment. Should the sales representative be proactive in changes? Seasoned sales representatives of the past “gridded” the retailer’s merchandise lineup, identifying missing price points and styles. Without a doubt, a time consuming effort, but it created a retailer ready to meet with a sales rep that provides sound input. With today’s analytics, it’s possible to provide that merchandise intelligence. What powerful information.
More important than the time in front of the retail buyer is the more immediate influencer of sales — the time in the store with the retail sales associate (RSA). Typically referred to as “training” it is more than that- it is establishing a relationship between the supplier and the sales floor. The fact is that people sell for people. The impact of the sales representatives recognizing that the retail sales associate’s performance when they visit the store is immeasurable. There are firms that prepare, online, product training for manufacturers which is very effective if executed. If the sales representative encourages the interface with incentives from the manufacturer during the visit, the sales representative can cover the major selling points for each product on the floor. That is what is needed by the RSA. It is more exciting and less boring than the technical details available online. Len Burke, VP of marketing at Klaussner Furniture says, “I have seen the work from the Furniture Training Company have positive impact on RSA’s and their retail sales.”
How often should they train? What should your training service level be? According to Impact Consulting Services (parent company to Home Furnishings Business), a firm that trains retail sales associates, the answer is at least every four to six weeks, and the focus should be on the newer associates. However, according to Mike Kua, senior consultant with the firm, the experienced sales associate should be encouraged to mentor the new associates, communicating the key selling points.
Does the sales representative have time to accomplish both meeting with the buyer and visiting the stores? Simply put, they cannot afford not to have the time. Based on experience shared by Kua, there is a direct correlation between time in the store and market share.
For a national salesforce with 19 to 20 sales representatives, travel time absorbs 50-60% of the sales representative’s day with the service levels defined below.
The salesforce is overbooked by 30% if they allocate 50 hours per week. This does not leave time for prospecting to cover the 70 markets in which the company does not have a dealer. What is the solution?
The first reaction is to rationalize the thought that “we don’t need to be in front of the buyer and in the store with that frequency.” You can make that decision, but with what impact on sales? Based on Kua’s experience, frequency of visit is a direct correlation to revenue. However, the major problem is that it is not the company management making that decision, but the sales representatives. The fear of territories being cut is what causes the sales rep to never mention lack of time.
What is the solution to reversing this dependence on the salesforce to determine strategy? The vendor needs to seize the responsibility by establishing some measures of performance.
Unlike the retailer, the typical vendor has no measure of performance other than volume produced. The equivalent of retailer close rate and average ticket is market share. What share of the potential market is your sales rep achieving? The table below illustrates.
The variance indicates the opportunity. The opportunity is achieved by more interaction with the buyer and more training time on the floor with the retail sales associates.
To begin the process requires an understanding of the territory performance by Geographic area (market) and dealers within that market. Sales management defines a service level. The computer establishes a detailed schedule for every day.
The immediate reaction is that it is impossible to have a strict schedule – which is true. However, the intent of the analysis is to confirm that it is possible to accomplish that level of service. If not possible, the alternative is to realign on sales territories and change the expectation. It can be the beginning of vendors reclaiming responsibility for sales strategy.
Passing the Baton to the Retailer
The pulse of the furniture retailer is the front door of the store. When the consumer breaks the counter beam… its game on. The culmination of the supplier’s effort to create product that excites the consumer’s imagination via advertising has brought the consumer through the door, and finally, the retailer’s presentation that created the best retail experience, all to create an opportunity to make a sale. So sell something! This is the frustration of the retailers. What are the barriers to securing the sale?
The most discussed factor for brick and mortar retailers is traffic or the lack thereof. The fact is that traffic was down slightly in 2018, leveling off from the trend of the past five years. According to data from (FurnitureCore, the research arm of Home Furnishings Business) it is not the same for all retailers. Smaller, independent retailers under $5M experienced a 6.2% decline while retailers over $50M experienced a 4% increase. While the popular reason for the decline in traffic has been ecommerce, which has contributed, the major reason is the reduction in stores shopped by the time-starved consumer. The major factor is the % of consumers that considered, not shopped. The graphic illustrates the results of a recent consumer survey documenting the results of their most recent purchase.
Obviously, this is a very competitive market with an average of 55% considering a retailer but 26% fail to shop. The decision by the consumer as to which retailers will be shopped illustrates the challenge. These seven retailers are the major traditional retailers of the total 88 traditional furniture retailers in this market.
If there is a positive in the decline in traffic it is that the consumer coming through the door has done their research and is ready to buy. In fact, in the past year our research shows that some consumers are shopping only one store. The attitude is, “If I had a good experience with my past purchase and the product is as represented on the website, why shop around?” This puts pressure on not only the retailer’s website, but the “final mile” in executing after the sale.
This well informed consumer coming through the door can be impatient. The expectation is that your retail sales associate can be as effective as the search function on your website in getting them to the product for which they are shopping.
Entering many of the furniture industry’s mammoth 100,000+ square foot stores can be daunting. The skill of the retail sales associates during the initial needs assessment step in the sales process is critical. Moving beyond product to style and then to price — while establishing rapport and understanding their unique household needs— while moving them to their lifestyle preference can be a challenge. This is especially true for Generation Xers (35-45) who are more attuned to lifestyle specialty stores that curate their merchandise assortment to a narrow target market. The lifestyle stores, such as Pottery Barn and RH (Restoration Hardware) have a distinct advantage with this consumer demographic. Ashley Home, which is a hybrid between a traditional furniture store and a lifestyle store, is very effective, serving a narrow (age) and deep (income range) target customer.
This more focused consumer is leading several retailers to experiment with stores with lifestyle store layouts. This allows the retail sales associate to get the consumer to the right area to begin the product presentation.
While in concept a good solution, it requires that the consumer with the retail sales associate identify their lifestyle. An assist that has been in use for several years is DesignCliq. It is a fun, picture driven quiz requiring only minutes on an iPad or screen to determine the users style preference. Analysis shows 89.1% agreement of “that’s my style.” The graphic illustrates the diversity of style today.
This well informed consumer has resulted in improved close rates and average tickets. For all retailers, the average close rate is 26%+/-. However, the larger retailers (100+) are achieving a more consistent 40% as can be seen from the graphic below.
Average tickets ($1,700+/-) with significant monthly variations can be seen from the graphic above.
Unfortunately, the cost to generate the opportunity (Ups) continues to increase. The challenge is to identify the best medium to attract the consumer. With the appeal of television declining among the emerging target consumer (Generation X), the industry is searching for alternative communication. But now the cost is averaging $27/Up. Unfortunately, the smaller the retailer the higher the cost. The graphic presents the performance for 2018.
Sales cost continues to increase approaching 10%, which will cause traditional retailers to consider other sales models besides the commission structure. Other distribution channels rely on hourly staffing with cost as a percentage of sales in the 4-5% range. The impact on sales revenue moving from a commission salesforce to a salary with bonus is the great unknown. There are $1M+ writers but the mode revenue level is less than half that amount. This consideration must be viewed in light of the ever increasing financing cost at the 3.0%+ level. What is motivating: the sale, lower prices, financing, or selling skills?
One obvious solution to cost is to produce more revenue per sales associates. Decades ago, training consultants impacted the industry profitability. With training programs, each with their own process - no matter five steps or seven steps – the programs produced results. Many of these programs have been brought in house, and in many instances, reduced results. Impacting the results is the acceptance by the new, younger retail sales associates of classroom training. There are still industry veterans, such as Profitability Consulting, JRM Consulting, and Impact Consulting, which still produce significant results. Bobby Infinger of Infinger Furniture in Charleston, SC says, “We set performance goals at the end of the year and Impact Consulting works with my staff to make sure we stay on track to our goal… it’s that simple… The outside perspective keeps me focused.”
Another alternative is online training from providers such as the Furniture Training Company. As with all processes, it requires constant follow up from management. However, if executed it will produce results. “We have been using the training for three years and it works!” said Sandy Howe, director of stores for Kittle’s Home Furnishings. “Not only has it been successful with our new hires, but it has been great for our veteran sales team. Because of FTC’s reporting services, I can easily manage the training in each of our 12 locations. I can’t think of training that has higher quality or is easier to use and manage than that of the Furniture Training Company.”
The most important element in improving sales performance is the sales manager. A full-time sales manager can more than justify the salary. For a $5M annual retailer with 12,500 Ups and a current close rate of 26%, an improvement of 1% would generate $200k in sales and $60k in contribution margin.
Many retailers make the store manager their part-time sales manager. This is a mistake. Where will the focus be? What about part-time for a senior RSA? It will not work. In the above example, the store should have six retail sales associates. The four to six hours per week of coaching will produce results.
There are retailers that have fully embraced sales management as an essential function. Many recognize that it is a profession, not just a job. To emphasize this recognition, they send their sales managers to a sales manager’s performance group where they share best ideas with other non-competing sales managers across the nation. When we interviewed several for this article, we received the following composite input:
- What is the single toughest part of your role?
- Managing and motivating people to give every customer they meet the shopping experience they seek.
- What numbers are most important for you to track and coach in order to drive sales performance improvement and how do you use them to do that?
- Close rate, average sale, revenue per Up, protection close rate, category mix, and house calls set up and sold are all important. These are used to drive improvement in total sales by coaching those that are below store average and/or performance agreement goal in each.
- How does or can your owner/GM support you and help you be more effective in your job?
- They support and reinforce what I do on the floor and meet with me weekly/monthly so we can work together on improving individual performance. We are a team that sends the same message to the staff and share the same vision for the store.
- What do you enjoy most about your job?
- The feeling of accomplishment I get when I help a staff member grow and develop into a successful professional sales person.
- What do you like least about your job?
- Dealing with sales people and customers that have unreasonable expectations or demands for issues they face.
Obviously, there are a lot of moving parts involved in the process of managing a sales staff and delivering the best results possible for a store. For the most part, the sales manager must develop and lead a group of dedicated professionals to make this happen, much like a coach or team manager functions in a sports team. While they deal with athletes skilled in various aspects of their game, we direct the efforts of sales people that must fulfill the needs of our customers. Much different end processes perhaps, but as we have said before, how the two managers guide their charges to success is actually very similar.
Before we get down to the things our sales managers should be doing, lets get an understanding of what their role in the organizations is really focused on. Here is an interesting way to look at it.
Sales Manager’s Role
In its essence, the sales manager’s job is about performance and the salesperson’s job is about selling. To put it another way: The sales manager’s job is about salespeople and the salesperson’s job is about customers.
The sales manager’s job should not be focused on selling, but rather, on the outcomes in terms of salesperson performance and goal achievement. How the sales manager uses the process to train salespeople is their main connection to selling. They do not apply these methods themselves normally, because they are not there to serve customers on a regular basis. So, to be effective, they must take on the role of teacher and coach where the act of selling is concerned.
Serving the Right Customer
Basically, the manager’s customer is the salesperson, because the manager’s have things they want (and need) the salesperson to “buy” and even though they often don’t know it, the salespeople need the things the sales manager has to sell. Once sales managers get their product (i.e.: selling skills, product knowledge and design skills) into the salesperson’s hands and heads, it is necessary to provide continued service and support for these products. This is what we refer to as coaching or sales management. The salesperson’s job should be clear to anyone by simply reading the store’s mission statement.
Part of the challenge for owners and upper management is to develop ways to help the sales manager sell their products to the salespeople. This can be done through consistent coaching and support on the issues of adequate staffing, goal setting/management, plus continued performance improvement in all the other areas of the store.
Here are a few of the main things we see in stores that get in the way or hold back sales performance and the manager’s ability to positively impact it:
- Staffing issues dominate most store problem lists. Until properly staffed, it is virtually impossible to maximize customer interaction and the resulting sales. Until the staff is almost forced to work each customer to the maximum extent, because there are so few to work with, most sales people do not feel the need to buy the sales manager’s products. Choosing instead to merely burn through Ups to make enough sales to hit their numbers. This is a great loss for both the store and its customers.
- When critical Measurements and tracking/reporting systems are not in place or are not properly maintained, the entire coaching effort is at risk. If your numbers are not accurate and consistently reported in a way the coach can use to drive performance improvement, all the training and other efforts are wasted. Without discipline and accountability, it is just not possible to create a highly motivated and effective team in any sales (or sports) organization. Knowing how they are doing and believing in the numbers, is key to getting your people to buy into training and any other help offered to them by the sales manager.
- When setting and achieving goals are not the most important thing to everyone nothing much happens in the way of feedback, one-on-one meetings or performance improvement. Most sales managers don’t know how important income goals are to their people, so turnover and mediocre performance continues. No one bursts out leading the pack to new heights and progress is snail-like. Goals drive growth and those that sales people buy into because they understand their direct link to resulting income increases, are key to driving sale performance improvement. They provide the answer to everyone’s all-important question: “What’s in it for ME?”
- When one-on-one meetings don’t happen (because without goals in place there is little reason to have them) the forum for relationship building and positive challenge is not in place. Without this connection, managers have no power over salespeople and can’t get them to do things the right way. Setting goals that the sales people own, meeting regularly about them and providing daily feedback gets it done. Even if it is just a pat on the back or a brief comment, keeping them aware that the manager cares about their success is one of the best ways to add power to your goals process.
- In-Home Sales are one of the biggest missed opportunities we see in many general furniture stores today. This is a service that they can provide to customers, which most of the big boxes, online retailers and other competitors do not. With a proper In-home selling process in place, the house call is the product initially being sold. The end result of “selling” this service to those that need or want it is of course that the customer will purchase products from the store. So, most stores have two kinds of businesses: In-store and In-home. Someone needs to drive both of them. Like any other selling effort in the store, the sales manager must direct it on a daily basis with training, tracking, goal setting and coaching. Often though, having an In-home design leader reporting to the sales manager to help this process is the best way to go.
Fixing these five issues would provide most of the sales improvement results owners seek and they are the first things we look at when trying to help a client grow their business. Obviously, your sales manager is the key person in all of this and having these ingredients in their effort will help make them successful.
Here is an overview of of the main things we think your sales manager should be doing for your organization followed by an example of a simple checklist of the tasks a typical store might hold them accountable for performing on a daily, weekly and monthly basis. The list will vary by store, but this should give you a starting point.
What The Sales Manager Should Be Doing
- Change the focus of sales from things in the store to rooms in the customer’s home
- Change the focus in the store from company goals to individual salespeople’s goals
- Team up with each sales associate to help them achieve their goals
- Make the goal the thing. Keep goals at the front-of-mind every day
- Measure the key factors. Traffic, close ratio and average sale. Improve the average sale.
- Keep score daily and give feedback to the salespeople
- Meet at least monthly with each person to review performance versus goal for the month and year-to-date, plus to establish future performance agreements
- Provide training and coaching when needed
- Be accountable for the performance of each individual and of the team as a whole
- Be accountable for building long-term customer relationships through the sales clientele development by the associates
Sample Task List
- Walk the showroom to check for cleanliness, order, holes, etc. for any review with the sales team. Review merchandising issues with buyer.
- 15-minute sales meeting huddle before opening - Use and follow agenda
- Insure numbers from day before are properly entered into tracking system
- Review sales and in-home results for yesterday and MTD
- Schedule observations for those below goal or store averages
- Be available on the floor for questions, sales and product assistance, closing sales
- Give immediate feedback from observations
- Review individual sales, Sketch Books and Client Records
- Review and update store goal progress with the sales team members
- Interview sales prospects (walk-ins)
- Track and monitor the Ups log and that all are filling in the information properly
- Review sales orders for clarity, two phone numbers, email address, delivery instructions, product numbers/descriptions and other necessary information
- Review special orders with the sales person
- Run the store goal report for review – MTD and YTD
- Meet with Owner
- Review goals of each salesperson and store goal
- Create and/or discuss action plans
- Create agenda for the week ‘s sales training meetings
- Maintain ongoing recruiting process, including going out of the store to find people, carrying recruiting cards and interviewing prospects
- Review time sheets or online attendance records (In/Out reports)
- Anyone choosing to do contract sales set an agenda for them with goals and a written report turned in daily of their contacts
- Formal one-on-one sales meetings scheduled third week of each month to review where each salesperson is to goal
- Follow an agenda format
- Schedule next month’s meeting date
- Schedule vendor product training
- Follow-up applications or résumé’s on file with a touch call
- Competitive shopping schedule set
- Create and post store monthly goal in break room
- Run monthly store reports for owner
- Set up and then rotate areas of responsibility for floor
- Meet with owner to discuss store monthly results and improvement plan for next month
Hopefully this brief attempt to give you some idea of what a sales manager should be doing for their company will help you focus on this critical position in your organization to determine if your effort can be improved in any way. As stated, it is not intended to provide a complete “how to” document, merely some of the points we have found important over the many years we have helped clients improve their store’s sales performance.
But while consumers are staying relatively optimistic, CEOs have been generally pessimistic over the last six months. According to the Conference Board’s March report, CEO confidence during the first quarter of 2019 was 43 – up 1 point from last year’s fourth quarter. Note that a reading of more than 50 points reflects more positive than negative responses. In the fourth quarter of 2018 the CEO confidence was at its lowest in six years. After years of recovery and huge Consumer Confidence Index (CCI) increases, current Consumer and CEO Confidence point to an overall perception of moderation in economic growth. This article picks up from Statistically Speaking’s November 2015 article Consumer Confidence Drives Furniture Spending.
As shown in Table B, the Consumer Confidence Index declined in March, after increasing in February. The Index in March stands at 124.1 (1985 = 100), down 7.3 points from 131.4 in February. Other indexes tracked by The Conference Board get less attention than the CCI, but nonetheless offer additional perspectives. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – declined 12.2 points, from 172.8 to 160.6. Though this index shows a decline, again indicating a possible moderation in growth, the numbers are still high. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – decreased from 103.8 last month to 99.8 this month.
Since the bottom of the Great Recession in 2009, the U.S. has experienced continuous and historic growth. Although year-to-date Consumer Confidence in 2019 has taken a dip from the high of 130.1 (average) in 2018, confidence continues to be high at 124.1 in March (Table C).
Table D shows the swings in consumer attitudes over a given year. Each year since 2013, the annual average index finished higher than the previous year. March of this year saw confidence dip slightly below March 2017 and March 2018.
Historically, consumers appear to be most confident in the third quarter of each year, and the least confident in the fourth quarter. The average confidence level from 1970 to 2018 was 94.1 in the third quarter, compared to 90.9 in the fourth quarter (E).
Consumer Confidence and Economic Indicators
In a sense, the CCI is a lagging indicator in response to several economic catalysts, among them the health of our jobs market, growth in wages, and the GDP. Confidence tends to fluctuate more strongly than actual economic data. As shown in Table F, after a kneejerk reaction 2007 to the bottom of the Recession in 2009, Consumer Confidence tended to mirror the growth in personal income and the rising value of goods and services with the CCI responding more sharply to economic downturns.
During the Great Recession, the number of employed U.S. workers peaked historically in 2007 at 138 million workers, but dipped 4.5 percent before bottoming out in 2010. Since then, the number of employed workers has risen by 14.4 percent – roughly 1.8 percent a year from 2010 to 2018, with growth continuing in the first quarter of this year to a total of 150 million employed workers in March.
Meanwhile personal income and the GDP fell only slightly during the recession but quickly gained momentum after 2009 – personal income increasing 46 percent and GDP by 42 percent.
Consumer Confidence and Goods and Services
Consumer Confidence is perhaps the prime external driver of consumer spending. Population and household formations form the base for growth in spending; however, Consumer Confidence drives demand, especially when it comes to durable goods. Table G shows the indexed growth of selected products. Note: Data for the first quarter of this year was not available at press time.
New Motor Vehicles follows a similar trajectory as Consumer Confidence with personal consumption dropping dramatically from 2007 to 2009 (down 29 percent) before growing by 71 percent from 2009 to 2018. Also taking a nose dive of 15.8 percent in 2009, consumption of Furniture and Home Furnishings items has since continued an unwavering climb – up 44 percent by 2018. Since 2017, however, spending on Furniture and Home Furnishings has not kept pace with the rising confidence levels. After peaking in 2008, the Video and Audio Equipment industry has declined and remained flat with a slight increase from 2015 to 2018 of 5.9 percent.
Consumer Confidence has a lesser impact on non-durable goods, which tend to avoid the peaks and valleys of confidence swings more so than durable goods. As shown in Table H, consumers may slow non-durable purchases like food and clothing, but only significantly during periods of extremely low confidence. Gasoline and other motor fuels tend to follow a different pattern based on price, availability, and seasonal changes in demand.
Similar to non-durable goods, consumer spending on services did not show massive declines in consumption during the recession despite the plummet in Consumer Confidence (Table I). Since 2009, consumer spending on healthcare, eating out, and foreign travel has skyrocketed. Healthcare spending has increased by 60.7 percent since 2007.
Spending on eating out and foreign travel both dipped slightly in 2009, but have since grown by 53.9 percent and 85.2 percent, respectively.
Consumer Confidence and Housing
The other piece of the consumer spending pie is housing, especially new home sales. Economic conditions drive the homebuilding industry and once building slows, it takes a while for housing starts to catch up once the consumer starts to regain confidence. As shown in Table J, Consumer Confidence has well exceeded new home sales and housing starts – surpassing both in 2013. Due to low inventory across the housing industry, consumer spending on new homes cannot keep with demand and the positive economic outlook. Indications in the first quarter of this year show stronger new home sales, but a disappointing period for housing starts. Meanwhile, existing home sales for the first two months of this year are still down 3.9 percent compared to last year even though February sales are 11.8 percent over the previous January.
Consumer Confidence and the Future
How high can Consumer Confidence go before a downturn in the economy? Ten years out from the last recession, many economists are predicting the next one. Figure 1 paints a daunting picture of the pattern of high Consumer Confidence followed by a recession. At an index of 140.1, 2000 was the most confident year on record before plummeting down to 78.6 by 2003. After climbing back up to 105 in 2006 and 2007, the U.S. experienced its least confident year on record with an index of 45.2 in 2009.
According to a February survey from the National Association for Business Economics, half of 280 business economists think a downturn in the economy will occur by the end of next year and 75 percent believe the U.S. will be in a recession by 2021.
There are many advantages that come along with solid wood products, like each product’s unique character or ease of maintenance to name a few. But most notably, wood is known for its longevity, which alone is a point of product differentiation from engineered wood alternative furniture, and places solid wood products in the high or premium quality category. Consumers have begun to rediscover their taste for these durable products and appreciate the quality and fine craftmanship. “Demand for American made hardwood furniture is on the rise,” says Ivan Keim, of Abner Henry Fine Furniture. “We enjoy providing designers with options to give their clients what they want. High end consumers want it the American way, which is quality that will last and is a one of a kind piece.”
Many solid wood manufacturers are quick to note another point that is ever important to today’s consumer: a fresh update. “Over the last few years,” says Luke Simpson, president and CEO of Durham Furniture, “our dealers have resoundingly shared with us that consumers are looking for solid wood furniture that has traditional bones, yet is updated for today.” Speaking on his featured product for the category, he notes that, “The Prominence [collection] hits the mark with its sophisticated silhouettes which are updated with contemporized finishes and hardware for today’s consumers.”
The thought is echoed by Charles Curry, vice president of sales and strategy for Simply Amish, “One of the biggest challenges of having the name Simply Amish is being stereotyped stylistically.” He says, “It’s fun to offer a collection [Elroy Bedroom] that hit a little design groove, that makes consumers smile, and that sells!”
With the rising demand for solid wood pieces, consumers were happy to chime in on their preferred tastes for a FurnitureCore survey (developed by Impact Consulting Services, parent company to Home Furnishings Business). When asked, “Based on your most recent bedroom purchase, why did you choose a wood bed over an upholstered bed?” an overwhelming majority (62.75%) of the consumers polled reported that they simply preferred the look of wood. This was followed by 21.57% noting their concern that an upholstered bed would become dated quickly, and 9.8% were concerned about the quality of an upholstered bed. These concerns are answered directly by what solid wood manufacturers have been offering all along— timeless, durable classics designed with the consumer in mind.