From Home Furnishing Business
We feel strongly that creating and managing a professional Clientele Development Process is easily the weakest aspect of most home furnishings retailers selling efforts. So much so that it is part of every training program we conduct with both managers and sales staff. I’m not talking only about follow-up or sending thank you notes -- many stores do that -- but about a more fundamental paradigm of building long-term relationships with customers through truly caring about them and their needs and then making this a core part of the company culture. I have pulled a great deal of content from our training program manuals for this article to help drive the point home.
We often hear retailers say that there is no longer any customer loyalty like there was in the good old days. The fact is that loyalty still comes the old-fashioned way – you must earn it! In rare instances, we have encountered salespeople who, through true relationship building and caring for their customers’ needs, have developed a sufficient clientele to be totally self-sufficient in terms of traffic. These people work full-time hours and are always top producers in their stores, but do not take any UPS -- they are not part of the salesperson rotation system. In every case, these people maintain extensive customer files and always maintain a timebased file system. Most are built around index cards and some use automated calendar applications, which they have adapted to their needs. These systems tell the salesperson when to follow-up with each customer. Alphabetical files and lists can only tell them how to follow-up – mainly what the customer’s contact information is -- but not when. When is far more important than how.
In rare instances, we have encountered salespeople who, through true relationship building and caring for their customers’ needs, have developed a sufficient clientele to be totally self-sufficient in terms of traffic.
LTV is a concept that has driven the marketing efforts of the largest consumer goods manufacturers in the world for decades. It is completely missing from our industry’s thinking. That is a major cause of our disconnection from the customer’s purchasing power. Lifetime Value puts a dollar value on items such as how much detergent or toothpaste a family will use in a lifetime and what has to be done to tap into that huge lifetime expenditure.
What about lifetime value in the home furnishings business? These are large, seldom-made purchases. They are called highly considered purchases in marketing terms. The average American homeowner spends upwards of $60,000 on them in their lifetimes. If your store has an average sale of $1,500, how much of that $60,000 does the customer have left to spend when your order has been delivered? Of course, there is no way to tell. But we do know that people spend more on home furnishings as they become older. So there is no doubt that finding a way to tap into even half of that amount, would be extremely valuable. The top writers we spoke about know the way. It is called follow-up after the sale.
Customer versus Client Paradigms
A customer is someone who purchases merchandise from your store. The salesperson acts as a facilitator in the process, handling the details of the transaction. No relationship has been established. The next time the customer needs furniture the odds are that she will not seek out that same salesperson. There is, in fact, substantial research to indicate that more than 75% of these people will not even shop your store.
A client, on the other hand, has established a relationship with a salesperson based on the customer’s belief that the salesperson truly cares about her need to create a beautiful home environment and about her level of satisfaction with what she buys. These relationships take time to develop and involve active participation by both parties but mostly by the salesperson. When this customer is ready to make another purchase,she returns to that particular salesperson. It would not matter where the salesperson worked. - People do not build relationships with stores -- they build them with people.
A salesperson who builds a strong trusting customer relationship adds value to the purchase through the process. He or she seldom gets involved in price problems because the customer places high value on the relationship. They don’t have to worry about the customer asking for them when she comes in because the customer usually calls first to make sure the salesperson will be there. Friends and relatives are continually referred to the salesperson by the customer. These people in turn become part of the salesperson’s client base.
Your sales training program must teach the actions aimed at developing these kinds of relationships and how to use clientele development processes to maintain them. But it is leadership that will make it happen. Client development is management’s responsibility, not the salesperson’s option. Management has the responsibility for the growth and financial health of the company. Clientele development is mainly a management function and they must take ownership of it.
Share of Customer
Share of customer deals with getting more out of the customers who already come into the store. You already invested marketing dollars to do that and no new assets are required. Share of customer means tapping into that lifetime purchasing potential for your products and developing long-term relationships based on trust and caring for the customer’s needs. It means doing the right things to ensure that you help your customers use your products to enhance their quality of life and not just help them make purchases.
It means using the valuable information you gather about a customer’s lifestyle, likes, dislikes and needs to become proactive in offering her new ideas and products to help her achieve the final goal -- a beautiful home. Increasing your share of customer is what your selling and management processes should be all about.
It Starts with the Sale
Customers want you to track and follow-up on their orders and delivery. One of the issues that surfaces in all of the research we see, is that customers don’t think a sales person cares about them at all after the sale is made. For most furniture salespeople, there is ample evidence that this is true. Few send thank you notes, even to their biggest customers. Even fewer maintain contact with customers prior to delivery. In cases where there is contact, it is usually initiated by the customer. Professional salespeople act differently and the results show in higher incomes and more satisfied, repeat customers. For them, following up with the client after the sale is the critical point where the relationship is cemented and the consumer’s trust is verified.
Key Contact Points After the Sale There are seven times when follow-up is required with customers who purchase from you:
1. Immediately after writing up the sale – thank you note or message
2. When special orders are acknowledged or a ship date changes
3. During long order cycles, to let them know you are watching
4. Prior to delivery to tell them how excited you are for them
5. Immediately after delivery to see how it went and congratulate them
6. Within six months after purchase, just to check in and see how it is going
7. Prior to the customer’s anticipated next purchase, which you should already know from your selling process in the store
All of the contact points listed above should be part of a professional salesperson’s follow-up program. These contacts yield handsome returns even in the short term. The most important contact is the call after delivery. It is difficult to imagine building a strong, trusting relationship with a customer (and helping her use your products to enhance her quality of life) by not calling her immediately after her delivery to be sure the promise has been delivered. Yet, this is just what happens to thousands of customers every day. Then we wonder why there is no customer loyalty
We believe this is the most important call a salesperson can make. This is when the real satisfaction occurs -- when the furniture gets there. This is when other needs such as accessories or additional pieces come to the surface vividly. So, this is when your salespeople need to be talking to their customers.
The most often-heard reason for not calling is that something may be wrong and the salesperson does not want to hear it. What backwards thinking. This is an opportunity to satisfy the customer again! However, if your store’s culture and systems do not allow the salespeople to solve customer problems rather than just kick them somewhere else, we suggest that you re-think your systems.
If you do not already have one, you should develop a system for notifying the salespeople of all deliveries. In addition, develop a reporting system so that you know that post-delivery calls are being made.
Customer loyalty must be earned. Your salesperson’s caring will earn high returns in loyalty despite problems. If they do their best and keep the customer informed, the loyalty will be to them. The selling cycle is completed when a customer returns as the result of this follow-up and makes another purchase. Now the customer is indeed a client that your salesperson developed. Our data indicates that there can be as much as 15% - 20% in additional business each year created by proper and consistent follow-up after the sale. Much of this business would have gone to another competing store except for the efforts of your salesperson.
It is difficult to change how things are done when the process is ongoing. If the industry has the ability to have a “do over” how would the supply chain be changed to reflect the realities of today’s world?
The discussion of how we move raw material and products around the world to end up finally in the homes of the consumer presents a chain of events that must be executed precisely in order to avoid either losing profit or disappointing the stakeholders, suppliers, retailers, or consumers along the chain. What would we change?
While the future may be 3D printers that produce that piece of furniture of your dreams, reality must contend with the economics. The most efficient supply chain minimizes the number of nodes (handlings) of the product. This would dictate a collapse of the distribution channel. In other words the producer would supply directly to the consumer. This would require, at least initially, the move from mass marketing – everything for everybody – to a more focused strategy of designing, producing, and retailing product for a specific consumer type.
At the manufacturing level, with the introduction of offshore production which removed the restraint of needing to own the plant, manufacturers became suppliers. The result was a proliferation of product categories offered. What was at one time a focus on a single product or product category that was manufactured, has now become a pursuit of volume. With this change we added an additional cost as well as a loss in control of quality.
At the retail level smaller retailers expanded stores to present more products in a wide range of price points. While increasing the revenue to allow a more specialized management process and more potential profit, there was a loss of focus on the consumer that was sold.
Filling this void has been the lifestyle retailers who focus on their consumers. These retailers are curating their product, their advertising, and their services to satisfy their customers. To accomplish this, the lifestyle retailers source their own product from the offshore producers.
The etailers have established the ability to communicate effectively to “their” consumers across the nation. The largest of these etailers are establishing their own transportation system including distribution centers. According to Wayfair, 69% of U.S. households will be covered by their distribution centers by year end. Couple this with their agreement with their “Premier” suppliers to ship containers directly to their distribution centers without branding, is a major step toward consolidation.
The threat of tariffs is the next storm cloud. What would a 35% tariff do to the economics of importing?
I could go on, but the point is that it is difficult to change. However, the entrepreneurs will always probe the status quo looking for a better way. Existing manufacturers and retailers must be open to the possibilities.
Patrick Cory is no stranger to going the last mile. In fact, he’s at the helm of a company that goes the last mile thousands of times a year, delivering large pieces of furniture, electronics and appliances that are too big and too heavy for the UPS or FedEx delivery systems.
Cory, the president of family-owned Cory 1st Choice Home Delivery, recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about the challenges and growth opportunities facing his company and the entire last-mile delivery segment in the Internet age.
Home Furnishings Business: Is your growth coming largely from e-commerce or brick-and-mortar retailers?
Patrick Cory: We see both. It’s sort of a hybrid model. We’re seeing a lot of growth with internet, and we’re seeing a lot of growth with brick-and-mortars. A lot of growth is being driven by traditional brick and mortars getting into internet deliveries. We also are seeing growth being driven by retailers who are going outside of their (home) regions. We’re still doing a lot of internet-only deliveries, of course, and that’s growing very rapidly, but we’re also seeing a lot of retailers who are getting better and better at having an internet store.
The smartest retailers look at the internet business entirely differently. They don’t just try and take the same product and put it online and sell it that way. Those (retailers) who create a separate company that does just internet deliveries … are very successful, and that division of their company is growing much more rapidly than their traditional brick and mortar business.
People talk about how soft the furniture business has been, but I have to tell you, from a delivery standpoint, we’re moving a lot of product.
HFB: Has your menu of services expanded because of this trend?
PC: Yes. As retailers are looking to become omnichannel, they are desperate to find what I call end-to-end solutions. Retailers are telling us, ‘Once we get the product, we want you to figure out how to get the product from our dock to the closest point where you have a building. We want you to handle the LTL. We want you to handle the warehousing, the cross-docking, the deluxing, and then contacting the customer and executing the delivery. And we just want one bill.’ That type of service has grown very rapidly because these retailers are desperate to figure out how to compete with Wayfair, how to compete with Amazon, how to be a true omnichannel retailer.
Because of that, we have to offer a wider array of services, including at some point, actually picking up the product at the port. Some retailers are saying ‘We don’t want to even touch the product.’
HFB: How has your business been affected by the popularity of same day and next day delivery?
PC: It’s not as large a percentage of sales as people would lead you to believe. Some customers take advantage of that, but the vast majority of them don’t. It’s something that a retailer can sell that maybe a competitor doesn’t offer.
For a large retailer who has a distribution center in or near a major metropolitan area, and has a lot of inventory, it’s fairly simple for them to turn around and offer same-day or next day (delivery). They have the product very close to the market. Now, when you talk about an internet-only company, that’s a little bit different. If you want to order a lamp and want it delivered next day, you could probably do that. But if you’re ordering furniture, that’s another story. They can do it within two or three days, but realistically then don’t have the capability to do same day/next day -- even Amazon.
It’s not so easy to deliver quality assembled furniture to a consumer in that manner. Every internet company has trouble doing same day/next day with large products. It’s very difficult for them to do, and it’s incredibly expensive because of the inefficiencies you have with the loss of productivity on a truck and loss of density on a route. It creates a huge cost increase that most consumers are not willing to pay.
HFB: How has your business been affected by recent legal disputes involving trucking companies that use owner/operators – independent contractors – instead of employees.
PC: It was really a policy shift where the National Labor Relations board started to come down with these rulings … basically saying if you’re a contractor in a third-party situation like home delivery, and you are being directly controlled, you’re an employee, in their view. Trucking firms much bigger than Cory started losing these cases and they were forced into settlements. It didn’t change the model, but it forced these companies to settle with significant dollars. So, interesting things started to happen (because) retailers didn’t want to get accused to being an employer of these third-party drivers.
In some rare cases, they started setting up a requirement that you had to have employee drivers. And in other cases, they said if you’re going to use contractors, we need to know that you are doing everything that you can to protect us legally. So, the burden of proof is on the third-party companies.
That threw an element of uncertainty into the business model. But the dominant model among large and small retailers is still this third-party model. It kind of forced a little more careful approach, but it did not change the model, and it has not kept retailers from reaching out to companies like Cory to outsource.
HFB: You recently have expanded your business on the West Coast and are aggressively courting new clients there. How is that going?
PC: It provides a lot of opportunity for us. It reminds me of Florida about 20 years ago, when Florida was growing into the very competitive market that it is today. That’s what Los Angeles is right now.
Right now, we don’t have a (West Coast) distribution center, but we’re actively looking to put one up. And for us to put up a distribution center, we need an anchor client. Until we secure that client, it doesn’t make sense for us to invest in a building. But we’re actively searching for that partnership right now. And I think within this year (2017), that will happen.
HFB: Now that the economy is improving and unemployment is down, is it still difficult to find qualified drivers?
PC: I’ve been in this business since 1982, and since 1982 we’ve had trouble finding qualified drivers. (laughs). It’s a never-ending challenge.
But I will say something interesting … and I’m not trying to make a political statement here. But when you have policies that restrict immigration, there is a cascading effect. That effect may not be felt right now, but immigrants are a big portion of our labor pool -- not just Cory, but four our entire industry.
And when you have policies that restrict them coming here … the cost of labor is only going to go up. When the labor force dries up, and the cost of labor increases, that cost gets passed onto the retailer and ultimately to consumers. In a couple of years, they will feel it.
By Larry Thomas
Whatever the occasion, occasional furniture is continuing to move steadily from manufacturers’ warehouses to consumers’ homes as the Millennial generation increasingly drives the category’s style and design directions.
Vendors say sales have remained strong despite weaker demand in the second half of last year, noting that occasional pieces can be popular even in the toughest of business conditions because they represent an easy and inexpensive redecorating option. Plus, it’s a low-risk way for consumers to experiment with a style change. If they decide they don’t like the new look, they aren’t stuck with a complete room makeover that may have cost thousands.
“By replacing an occasional chair or coffee table and updating the pillows and rugs, a consumer can get a brand-new look with the same core pieces and hasn’t made a huge investment,” said Rodd Rafieha, senior vice president at Abbyson Living.
That can make occasional pieces trendy stand-alone purchases, given that consumers increasingly are turning away from buying large numbers of items from matched collections.
“We don’t do short collections … everything is very eclectic,” said John Michaelides, senior vice president of sales at Linon Furniture. “But if a consumer wants to build a room around them, they certainly can.”
Michaelides and other executives said that, while coffee tables, end tables and sofa tables still make up the vast majority of occasional furniture purchases, items such as serving carts, bar stools, magazine racks, jewelry armoires, and even small writing desks are now classified as occasional furniture on many retail sales floors.
“Each item stands alone,” Michaelides said. “The value and the look must resonate with the consumer.”
According to research by Impact Consulting Services, parent company of Home Furnishings Business, sales of occasional tables at retail grew slightly faster than overall retail furniture sales in 2016. The research estimated occasional sales at $14.95 billion last year, an increase of 4.06% from 2016. Total furniture sales, meanwhile, were an estimated $82.47 billion, up 3.65% from 2016.
The 2016 figures represented a reversal from 2015 and 2014, when the growth of overall retail furniture sales easily outdistanced the growth in occasional sales.
The research showed that occasional sales were up 5.19% in 2015, compared with a 6.22% jump in retail furniture sales. And the gap was even larger in 2014, when occasional grew only 2.53% while retail furniture sales jumped 6.37%.
Rafieha and John Lannertone, vice president of sales at Modus Furniture, attributed at least some of the most recent growth to Millennials, who increasingly are driving sales and steering style and design trends.
“The demographics that buy furniture are shifting from the Baby Boomers to the Millennials,” Rafieha said. “They love color and the clean lines of the mid-century style, and the glamorous metallic and opulence of modern glam. Metallics have been a huge trend in fashion for several years, and it is natural for these trends to migrate to the home furnishings world.”
Lannertone said the recent uptick has supported the timing of his company’s renewed emphasis on occasional.
“We’ve always had occasional to go with our bedroom furniture and other offerings, but we were not a big player,” said Lannertone. “We put more emphasis on occasional the last three years, and our larger program has been a great addition for us. We seem to be getting a lot of slots – a lot more than we thought we would get. It has been pretty wild.”
He said the company’s focus on solid wood construction – the same material used in its other wood furniture collections -- also has helped boost its occasional business. “We’re not using inexpensive materials, so we’re not competing against promotionally driven wholesalers,” said Lannertone. “That has gotten us a lot of attention from some very major retailers.”
Style-wise, he said rustic contemporary has been the leader, which is not surprising given Modus’ focus on solid wood and middle to upper-middle price points.
At Abbyson Living, Rafieha sees no slowdown in the mid-century and modern glam styles that are powering that company’s occasional sales.
“The mid-century trend, with its brighter upholstered pieces and clean lines appeal to a broad range of demographics,” he said. “Modern glam is characterized by metallic finishes, mirrored surfaces, tufting, and luxurious fabrics. We have seen great success here and continue to expand our assortment.”
A survey of consumers who recently purchased occasional tables showed that traditional and contemporary were the two most popular styles, by far, according to Impact Consulting. They were favored by 32.9% and 35.1% of those surveyed, respectively. Country/rustic was third at 16.2%, and no other style was favored by more than 7%.
Regarding price, the survey results were much more evenly divided. When asked what they would expect to pay for an occasional table grouping, 36.2% said $250 or less, while 32% said $250 to $499, and 28.5% said $500 to $999.
And not surprisingly, end tables and coffee tables were the most frequently purchased occasional tables. The survey showed that end tables were named by 41.5% of those who had made a recent purchase, while a coffee table was purchased by 31.9%. A sofa or console table was purchased by 17.9% of those surveyed, while nesting tables were purchased by only 8.6%.
Michaelides, for one, believes that the percentage of those buying a sofa or console table will increase significantly in the next few years, and noted that the item is now Linon’s fastest-growing occasional furniture piece.
“It’s really the hidden gem among occasional tables,” he said. “It can go in a hallway. It can go in a bedroom. You can put a flat-screen TV on top of it. You can put it in a game room to hold all the Xboxes and that kind of stuff. And you can even put it in a home office.”
And it’s that versatility, he said, that’s driving the product’s growth, noting that in several of Linon’s collections, the console table is outselling the coffee table.
“The more rooms where that item fits, the more opportunities we have to sell it,” he said.
Many home furnishings advertising and sales events throughout the year focus either on a national holiday or “end of season” promotion. National holidays presumably give consumers an extra day to get out and shop and “end of season” events help retailers clear inventory off floors to make room for new merchandise. Only recently taking form across all consumer products is a sales event that focuses on when consumers actually have extra money to spend – Tax Refund season.
Thanks to the proliferation of efiling and the increased sophistication of IRS processing, last year $318 billion in tax refund dollars poured into direct deposit accounts and home mailboxes of 111 million tax filers earlier than ever before (Figure 1).
The earliest the IRS begins direct deposits or mails returns is around February 1. About 45 percent of last year’s tax refunds arrived in the month of February and an additional 22 percent were received in March. In the last two months of the first quarter of the year, consumers had $202 billion dollars of extra cash in their bank accounts. For the furniture and home furnishings industry, the question becomes, are retailers doing the right kind of advertising to steer these tax refund dollars toward their stores and products?
The growth of efiling
Efiling has revolutionized the way people get refunds. In fact, mailing in tax forms is rapidly becoming a thing of the past. As shown in Table A, the percentage of tax filers efiling tax returns has grown from 30.7 percent in 2001 to 91.0% in 2016 - a climb of 60.3 percentage points. With the IRS currently issuing refunds within 9 to 14 days after receipt of a tax file, filers can receive direct deposits as early as the first week of February.
2016 Filing Season Statistics
In the 2016 tax filing season, over 111 million tax filers received refunds out of the 152 million tax returns processed. At 82.7 percent in 2016, the vast majority of people filing in February are receiving refunds. Table B shows that 41.9 percent of the year’s filers or 46.5 million returns received refunds in February. Another 21.8 percent of filers received refunds in March and 16.2 percent in April with the remaining 20 percent getting money between May and December.
Almost half of the money paid out in tax refunds (44.7 percent) for the entire year occurred in February – $142 billion out of $318 billion (Table C). March accounted for 19.1 percent and April for 13.2 percent of total refund dollars. Less than one-quarter of refund dollars were paid in months May through December.
With an average refund of $2,860 during 2016, those filing early in February received refunds 6.8 percent higher at an average of $3,053. Both March and April were less – averaging $2,506 and $2,327. Surprisingly, those waiting to file later (between May and December), received an average of $3,271 per refund (Table D).
How do Consumers plan to spend refunds?
In a study last year, GOBankingRates.com conducted a Google consumer survey asking consumers if they received a refund and if so, how they plan to spend it. Based on the survey, 70 percent of consumers expected to receive a refund. Table E shows how those 70 percent plan to spend their money. The majority plan to either pay off debts or put the refund into savings. Almost 13 percent want to use their extra money for a vacation and roughly 13 percent plan to either make a major purchase such as a car or home or splurge on smaller purchases.
Younger consumers are more likely to both receive refunds (Table F) and also spend those refunds on consumer purchases as opposed to paying off debt or sticking in a savings account (Table G). For the key target groups for the Furniture Industry, 81.0 percent of older Millennials (25 to 34) and 73.3 percent of 35 to 44 year olds expect to receive a refund.
While the 13 percent of tax filers receiving a refund expect to spend this money on major or splurge purchases, this number goes up significantly to 17.1 percent for younger Millennials and down to 7 percent or less for consumers ages 55 and over (Table G).
How do the 13 percent translate into possible dollars for the furniture industry? Combining IRS statistics with the survey, Table H shows that in 2016, $18.26 billion was available for use on major purchases and splurge spending in February alone – 44.7 percent of the $40.82 billion for the year. An additional $22.6 billion is spread out over the following months – 19.1 percent in March and 13.2 percent in April.
Based on the $26 billion plus dollars up for grabs each first quarter, is the Home Furnishings Industry advertising correctly and planning the best sales events to attract the dollars from tax refunds? With enticing deals and strategic advertising, can more dollars be lured away from vacation spending or other purchases and into home furnishings purchases? Now that efiling has streamlined income tax filing into an easy and fast turnaround for over 90 percent of consumers, a definitive purchasing season has emerged and advertisers should take notice.