The Rise of E-Commerce in Furniture Manufacturing and the Merchant Wholesale Trade

September 9, 2016  by Jane Chero in Business Strategy, Industry, Internet   

Mention furniture and home furnishings sales sold via the internet, and the focus immediately turns to B2C retailing (business-to-consumer). So it may be surprising to learn that it’s the e-commerce (e-shipments) B2B platform (business-to-business) that has been exploding and generating buzz in the furniture industry.

A recently released report from the Census Bureau shows B2B e-shipments within the furniture and related products manufacturing segment (NAICS code 337) is now approaching 51 percent of the value of total shipments or $35.2 billion dollars in 2014. (Source: U.S. Census Bureau E-Commerce Report 2002 to 2014, June 7, 2016). The Census Bureau defines manufacturers’ shipments to include “orders accepted for manufactured products from customers, including shipments to other domestic plants”. While this appears to be double counting in some instances, it does little to diminish e-commerce’s impact on the wholesale furniture industry. (See Methodology and Definitions box for additional information). B2B e-commerce is changing the way manufacturers market and sell their products to both retail brick and mortar customers and online furniture retailers creating increased sales on one hand and distribution channel crises on the other.

E-Commerce across Vertical Furniture Industry Segments

The product categories included in data published by the Census Bureau may differ somewhat between furniture manufacturing shipments, merchant wholesaler shipments, and retail sales; however, the trend in e-commerce is the same. (See Methodology and Definitions box.) As of 2014, e-commerce accounts for over half (50.6 percent) of all furniture and related product shipments – up from 14.4 percent in 2004 (Table A). During the same time period, e-commerce sales of furniture and home furnishings within the retail trade sector increased 503 percent – representing 15.3 percent of total retail dollars. While e-commerce among the merchant wholesale trade of furniture and home furnishings increased steadily since 2004, the share of overall sales have remained stagnant since 2009 – increasing from 14.3 to 14.4 percent.

Manufacturing Shipments

As Table B shows, the total value of manufacturing shipments in the furniture industry took a downturn alongside the economy during the recession. The 2014 value at $69.6 is still 9.9 percent below 2002. E-commerce shipments on the other hand kept an upward trajectory through the recession – increasing a total of 335.9 percent over 12 years. While total furniture and related products manufacturing increased by 15.4 percent since 2009, e-commerce shipments jumped another 70.3 percent to finish 2014 at $35.2 billion.

The percentage of total dollar shipments via e-commerce has climbed from 10.5 percent in 2002 to 50.6 percent in 2014 with the vast majority of growth (313 percent) occurring between 2002 and 2011 (Table C). From 2011 to 2013, increases of e-commerce as a percentage of total shipments tapered off. However, an 11 percent jump in 2014 pushed e-commerce to over half of furniture and related products shipment dollars.

E-Shipments: Furniture Manufacturing vs. Total Manufacturing

While e-shipments have grown at a rapid pace, furniture and related products manufacturers are still lagging slightly behind all manufacturing in the percentage of e-commerce shipments to total (Table D). In 2014, total e-shipments in all industries were 60.9 percent of total manufacturing compared to furniture e-shipments at 50.6 percent. Both total manufacturing e-shipment dollars and furniture e-shipment dollars increased an annual average of 14 percent from 2004 to 2014.

Merchant Wholesalers and MSBO’s

Merchant Wholesalers are wholesalers who sell goods on their own account such as distributors, jobbers, drop shippers, import/export merchants, and MSBOs. Manufacturers’ Sales Branches and Offices (MSBOs) are establishments maintained by manufacturing, refining, or mining enterprises apart from their plants or mines for the purpose of marketing their products. Sales branches will typically carry inventories, while sales offices typically do not. – U.S. Census Bureau

Since the turn of the century, e-commerce has slowly climbed its way into the furniture and home furnishings merchant wholesale trade. Merchant wholesalers weathered the recession well growing 43.8 percent in sales 2002 to 2014 to $76.9 billion while the e-commerce portion of those sales jumped 113 percent to $11.1 billion.  MSBOs total shipments at $21.0 billion in 2014 grew more slowly -- 17.3 percent 2002 to 2014. E-commerce shipments from merchant wholesalers alone have increased a yearly average of 7 percent, while furniture MSBO’s have increased by 3 percent.

Although increasing just 30 percent in e-commerce sales from furniture MSBOs over 12 years, e-commerce accounts for 21 percent of furniture and home furnishings MSBOs (Table F) compared to other merchant wholesalers at 14 percent. As a percent of total shipments, e-shipment sales of both merchant wholesalers and MSBO’s have declined since 2011.

With more advanced websites and ordering portals that make it easier for a business to make purchases online, e-commerce should continue to grow as a key part of the furniture industry.  Manufacturers look to e-commerce to increase sales and broaden its customer base.  This approach, however, presents a challenge to manufacturers in terms of personalized customer service and maintaining that sales rep relationship.