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From Home Furnishing Business

Diminishing Returns

By: Lee Brown

One of the major challenges facing retailers and suppliers in the retail sector is the number of storefronts that are necessary to effectively serve a trading area.

Historically furniture retailers chose a compelling location and built a substantial building that could be converted to other uses. Once the building was complete and merchandised just so, the retailers would host a grand opening event.

In other words, build it and they will come. Many retailers took this concept and attracted consumers from one to two hours away.

Today, however, the dynamic has changed.

Time-starved consumers are not willing to spend the day on a shopping excursion for furniture. For most, 20 miles in a mid-sized market is pushing the travel limit. Recent research for a $400 million total market is shown in the accompanying pie chart.

 

 

Compounding this trend is the consumer expectation that the store be located within a major shopping area. Doing so means shopping for new furniture or bedding can be included on the Saturday shopping excursion for flea collars at PetSmart and groceries at the market on the return trip from the soccer field.

The importance of the traditional real estate strategy is disappearing and is being replaced by leases. We can have a good debate about the pros and cons of the strategy. The situation, however, is that the 100,000-square-foot furniture store is shrinking to 50,000 square feet because where one store was at one time acceptable, now four stores are required 10 to 15 miles apart depending on traffic patterns and congestion drivers face.

The density of bedding stores is even greater. These stores require 5 to 10 miles apart since 70 percent of purchases are conducted within that distance. Remember, the consumer does not have time.

“Two exits back I saw a sign on the freeway about a store. Let’s go back to see what they have.” With the Starbucks effect of a shop on every corner, what are the changes to the business model and, more important, what are the skill-set changes needed to manage the merchandising selection?

Now, what about the manufacturers who, in many cases, have become suppliers without strong consumer brand awareness? Without a doubt, the product line breadth will support multiple retailers within the market.

For most suppliers, the consumer who does not have brand preference will visit 2.2 stores before buying and this is after having done extensive research on the Internet. The supplier wants to be certain their product is presented to the consumer. Unlike the consumer searching for a cup of coffee, more storefront choices may not be better.

Based upon our research, an optimum number of doors per market exists. Our measurement of market penetration compared the number of doors or every 1,000 households. We found a point that maximized the manufacturer’s market share. In fact, we discovered that, after a certain point, there was a decline in sales. The following graphic illustrates for bedding stores in a middle-size market.

 

 

Why the decline? We believe oversaturation leads to a consumer perception that, “Everybody will have it.” It is important to understand consumers still want to be unique within a comfortable range of style.

There is also a practical reason for the sales decline. Retail sales associates hesitate to push a product if a competing retailer has the brand even if they don’t offer the same product.

The solution would be for retailers and manufacturers to work as partners in order to find the sweet spot of distribution and maximize the market’s potential.




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