Going to Battle

April 4, 2016  by in Industry   

With the upcoming High Point Market, the furniture industry will focus on new products and services that will propel it forward into 2016.

As strategies are developed, it’s crucial that care is taken to understand we are subject to the echo-chamber effect. In other words, participants at the Market reinforce each other’s perceptions thus reinforcing the decisions that will guide retailers and vendors moving forward.

The danger lies in the fact that the majority of those attending Market represent less than 40 percent of the industry volume. As is illustrated in Graphic A, traditional channels that represented 85 percent of furniture sold 30 years ago have now diminished.

 

For the most part the traditional industry is focused on competition from each other—regional chains or the independent retailers and vice versa with department stores as the sleeping giant always holding the potential to impact. However, what about the alternative channels, such as the Internet and lifestyle stores? It is not that the traditional industry is oblivious to those channels’ existence, but they are not perceived to be the immediate competition. From the consumer’s perspective, however, they are.

We should note that the suppliers, without much fanfare, are serving alternative channels and obtaining significant volume from the Internet and, to some extent, lifestyle stores. However, these suppliers are inclined to ignore the fact that much of the products are sourced by the retailers themselves. This raises the question of a need for a more robust partnership between the traditional suppliers and the traditional retailers.

When the industry slid into the Great Recession, there was significant concern that this was the end of traditional furniture retailing, especially the Independent channel. The industry did lose a significant number of retailers between 2007 and the end of 2015. Graphic B illustrates.

 

The downturn ended in 2009, and this year the industry has climbed back to its peak of 2007, as noted in Graphic C.

 

The question is whether or not the traditional channels of distribution will continue to decline. This decline has impacted not only the furniture stores, but also the broader category of home furnishings stores that include more of the decorative categories. Graphic D illustrates this decline by region.

 

We have included the floor covering stores to illustrate the impact across all of the home furnishings categories, as well as to identify an opportunity for traditional furniture stores. As can be seen from the graphic the West was, in total, hit harder than the Northeast. This was influenced by the percentage of smaller markets in the West. Graphic E analyzes the impact of the downturn on size of the market.

 

These are the facts.

However, there were several underlying trends other than the economy that contributed to the industry’s decline. As is always the case, consumers rule and as his or her buying habits shift, retailers need to make adjustments to their game plan to remain competitive and relevant. In a national survey conducted by FurnitureCore, a sister company of Home Furnishings Business, consumers purchased from the channels shown in Graphic F. These statistics closely match the previous chart on sales by distribution channel, but it should be emphasized that this is percentage of purchasers, not purchases.

 

While much was gleaned from the study, the demographics were most interesting. As can be seen in Graphic G, the older the consumers, the more they preferred the independent furniture retailers. When we inquired as to the reason for this preference, we found that it was not price. It was service and reputation.

 

Analyzing the same data for those consumers who had purchased in regional chains, we found the retail segment had captured the prime furniture buying segment—the 35 to 44 age set. Graphic H illustrates. Selection and price were most important factors in why the bought where they bought.

 

If we look at the current enemy of the traditional retailer, the Internet, we find prime furniture buyers (35-44) in age as can be seen in Graphic I. The reasons for the Internet purchase were convenience and selection, especially in the smaller markets.

 

These findings could be the topic of a total article, but the point is that if the traditional channels are to survive, they must satisfy the needs of their customers.

The next trend is the expansion of the regional chains. As discussed in the October 2015 issue, the introduction of a regional chain into a market impacts the established local dominant furniture retailer capturing between 8 percent and 10 percent market share. This is not enough to destroy the retailer, but it is enough to impact significantly its financial performance. In the promotional to middle price points Rooms to Go and Bob’s Furniture continue to expand, especially Bob’s expansion into the Midwest. Likewise, Havertys Furniture and Raymour & Flanigan are expanding and competing in the middle to upper price segments. With consumers shopping fewer stores—two nationally last year—regional chains in the market usually secure a place on the short list.

The most important statistics for a retailer are illustrated in Graphic J. Was the retailer considered? If considered was the retailer shopped? If shopped, did the consumer make a purchase? The measurement can easily be accomplished.

 

The third point centers on the industry in total. Graphic K presents the industry’s share of the three consumer household durables. We should question ourselves as to why we have lost a significant amount of our position in the consumer expenditures race.

 

The Conclusion

Will traditional furniture retailers survive? The answer is yes, but we may not recognize them a decade from now. We are going through a watershed in our populations as can be seen in Graphic L. Embracing change has been and will always be required. However, the pace has tripled in the past 10 years. Is your organization ready for change?