Say It Isn’t So

April 4, 2016  by in Industry   

This issue continues our annual focus on the competitive battleground within the furniture industry. In the October 2014 issue, we explored the impact of the expansion of regional furniture chains. Many were moving beyond their state boundaries and challenging other large independent retailers.

Last year, we addressed the larger regional chains that were marching westward in a move to establish a national presence. This month, we focus more closely on the independent dealers—those mom-and-pop stores that have been the backbone of the industry. Today, however, independent retailers represent less than 10 percent of all furniture sold.

The Great Recession led to the demise of many stores; many of them impacted by family succession. There is no one to pick up the reins of the store. The strategy for many of these family businesses was to let the store support the family and the real estate provide for retirement. Unfortunately, today the promise of retirement has not been fulfilled when much of the retail has moved to creating shopping experiences close to the malls.  Many family-owned retailers have the burden of high lease rates to support the first generation. The result is an unprofitable financial model. The struggle is similar to agriculture in the early 1900s when the family farm could no longer support two families.

The refrain I hear most often is—say it isn’t so. Folks are curious whether small, independent furniture stores will disappear. 

Not necessarily so. The hope may lie in with manufacturer’s retail verticals. We are talking specifically about Ashley HomeStores, Ethan Allen, and Thomasville stores. Yes, many are corporate stores, but there are also multiple units owned by individuals. 

I am not pushing any of these, but it is time to redefine the business model. Perhaps, suppliers should assume responsibility for delivery to the consumer after the sale similar La-Z-Boy’s current strategy. Yes, this does mean more of the margin goes to the suppliers’ side, but perhaps they can be more efficient. One-source product supply, another alternative, is like an Ashley store with virtually no inventory at retail. This means significant risk for the supplier, but less markdown loss for the retailer. Assuming responsibility for consumer advertising on a national basis for the retailer is another change that could be considered.

I could go on, but the bottom line is that there is a 60 percent to 70 percent gross margin in the distribution channel. Which entity can accomplish the transfer from the end of the production line to the consumer’s home?  It is time to think in a different way.  Who is ready to sit down with a whiteboard and diagram the process?