IT’S TIME TO ENGAGE THE NEXT GEAR

June 7, 2016  by in Financial Reports, Industry   

From all indications the storm has passed in 2015.  Total furniture and bedding sales exceeded the 2007 peak. Financial performance has improved significantly from last year’s breakeven level to a much better 3-4% range for all traditional retailers. Is it time to breathe?  From my perspective as an observer of the industry for the past 35 years, the answer is unfortunately not. Furniture retailing is like riding a bicycle.  If you stop peddling, you slow down and eventually fall over.  Unlike other business sectors that consider long term strategies, the time frame for a furniture retailer is much, much shorter. Regrettably for many retailers, the consideration begins when the situation is critical.

From a financial perspective, in 2015 it was relatively straight forward. Furniture retailers were able to increase margins over two percentage points.   For the most part, this flowed to the bottom line. What gave retailers the impetus to increase margins? Was it better merchandise, improved consumer attitude, or was it the result of tighter margins at the supplier level? 

The question becomes, “Is this a permanent solution or a short term fix?” As business slowed in this year with the industry up only 2.2% from Quarter 1 last year, will we panic and sell “price” or sell “financing”? The independent furniture retailer is up against significant competition from other distribution channels. The most immediate are the etailers (Internet) that have gross margins in the 24% range, but have yet to make a profit. Understandably, it takes significant investment to pioneer a new distribution channel. However, how long will investors endure the losses?

Interestingly, Amazon, one for the pioneers in this space, recently announced that they plan to open 300-400 bookstores. Now that they have captured significant share in the product category and caused the demise of bookstores, they are returning to opening bookstores.  Maybe we can speed up the process of furniture and sell them the existing stores.

We recently completed some research that, contrary to popular belief, indicates more consumers visit the store before doing online research. Our take-away – we have an opportunity to sell the advantages of purchasing in a “real” store - the opportunity to see the product, to understand the quality and, most important, to be assisted in a major purchase by trained sales associates, associates who will work with the customer in creating the entire room. The final benefit is the delivery and installation by the company from whom the purchase was made.

We have the strategic advantage if we will use it not only with the Internet retailers, but also with the lifestyle stores who have limited selection and sales associates less skilled at selling the product.  Keep pedaling, but it’s time to engage the next gear.