What Next?

December 12, 2016  by Jane Chero in Business Strategy, Industry   

By Bob George

This will be a year of indecision, risks, opportunities, and crisis. When written in Chinese the word crisis is comprised of two characters, one representing danger and the other opportunity.

The traditional furniture industry is facing significant challenges with alternative channels, such as etailers and lifestyle stores encroaching on the middle and upper price points while the mass merchants with powerhouses like IKEA have an undeniable attraction to the consumer that is looking for lower price and more utilitarian furniture.   In 2017 furniture sold through the traditional channels will fall below 40% of the total industry.  Does this constitute a crisis?

The immediate unrest in the country will settle down.  However, as we progress through the year, for the individual manufacturer and retailer, crisis will emerge.  The way you approach that crisis will determine the long term survival of your company.

Retailers, secure with their position in the market, will be challenged by new competition.  What has happened in larger markets will now begin to occur in the middle markets as regional chains expand to maximize performance.  This challenge will require management to go back to the foundation of their business and examine what has made them successful and determine if the new competition is offering more.  Gut feeling will not suffice.  However, facts, such as what percentage of consumers considered their brand (brand awareness) before they made their purchase and how many consumers considered their brand, but didn’t shop are important.   It is a fact that the consumer shops fewer than two stores when making their purchase.  As always, just as important is the percentage of consumers who made a purchase after shopping (close rate).

The next level of understanding is how your target consumer perceives your brand in terms of price, service, selection, and all the many factors that influence their purchase decisions.  The first step in dealing with a crisis is to know yourself and your competition.  Then danger can become opportunity.

Manufacturers, challenged with distribution as new retailers enter a market, find their existing market share is being impacted.  Often complicating the situation is the new retailer who is a good partner in another market.  Historically shared distribution enabled by broad product lines was the solution.  Today, however, manufacturing economics often preclude that as a strategy.

Again manufacturers must challenge their basic distribution strategy.  There are 409 distinct markets in the United States in which 95% of all furniture is sold.  What is the combination of retail partners who will maximize their market share?

Again, it is a case of making a crisis an opportunity by defining a clear path to success.  The one thing that you can be assured of is that your competition is waiting to turn your crisis into their opportunity.