Coach’s Corner: “Our Competitive Battlefield - the Enemies Are at Our Gate”

October 24, 2017  by Jane Chero in Business Strategy, Industry   

Since most markets are not growing much in size, the only way to increase business without expanding to another market, is to sell more within the existing market. We can accomplish this by selling more people in our current market, selling more to the people we already sell in the market or preferably doing both - thus gaining share. While most retailers think about this mainly in relation to the other furniture stores they see in their area, the reality is that much of their battle for market share is against distribution channels they don’t always consider in their analysis. In addition, the very nature of who we are and what distribution channel we belong to, also can make our job either easier or harder!

To put this in perspective, in 2015 there were 6,774 fewer furniture and home furnishings establishments in the U.S. than there were in 2009, roughly a 12.3% reduction. During the same period of time, the total (all channels) furniture and bedding industry sales grew from $74.17 to $93.39 billion, an increase of $18.83 billion or 25.4%. Given the reduction in retail locations and the healthy increase in volume, it would certainly indicate that the remaining furniture and home furnishings stores must have flourished, particularly since the industry grew another $3 billion in 2016.

Of course, we all know that it wasn’t quite that simple and while there was great growth for some, many others struggled just to maintain what they had. Let’s take a look at the share data from a sales performance trend standpoint so we have a better understanding of who the players really are and how we got here.

At their peak in the 60s, 70s and 80s these “traditional distribution channels” were so dominant that they accounted for as much as 95% of the furniture business in the USA. As the consumer revolution began to take hold in the 90s, the customer began to seek out other ways to buy our products and we saw the birth and eventually the dramatic growth of multiple new channels for them to choose from.

As the graph below shows, these new “alternative” distribution channels began to eat away at the market share of the original ones, to the point where they now account for just under 37% of the home furnishings sales. In other words, the traditional channels have lost over 60% of their share to the new comers. So, let’s take a look at them now. (Graphic 4)

Many of these “newcomers” were not actually new at all, having been around for many years. Their growth in the last couple of decades came for many different reasons. In some cases, existing alternative format retailers just began to put more emphasis on furniture. In other cases, more companies decided to jump onboard and do business in a retail format they had not done before.  In addition, consumers changed how they wanted to buy and what they wanted to get from the relationship with their retailer of choice. This helped grow some existing retail formats and also drove the development of new ones.

Of the traditional channels, only the regional chains enjoyed growth over the last five years, while the independent channel gave up over 50% of its already shrinking share. Some of this loss was actually the result of some large independents becoming regional chains through expansion and others converting to manufacturing verticals. Department stores continued to struggle, losing about 10% of their piece of the pie.  In fact, if you looked at the top 10 furniture and bedding retailers list from the 90s, most if not all of the companies on it would have been from the traditional channels. Today there are only two from those channels on the Top 10 list. That is a huge change.

As I have said before, data does not give you answers. It only helps you ask better questions. The main questions this data raises are centered on determining why the customer is choosing to take their business from one channel to another and what can you do to keep those customers and attract others?

As a sales coach, one of the things I find most interesting is how the consumer interacts with the retailer during their shopping/buying experience. If you think about it, the three channels that have gained the most share in the past two decades, Lifestyle Stores, Mass Merchants and the Internet, all have a significant difference from the other five channels – they don’t have sales people in a role like the others. Yes, recently Pottery Barn has added designers to most of their stores, but during their growth period they mainly provided clerks that had some product knowledge, but whose role was to help customers find things, not necessarily to sell them things. If you can find anyone to talk to at most Mass Merchants they have a similar clerk role, but normally with much less specific product knowledge. Of course, with the Internet the customer is for the most part on their own most of the time unless they request help.

The next fastest growing segment has been the Bedding Specialty stores. While they do have sales staff performing basically the same role as the traditional channels, they have been very successful in changing the consumer’s perception of that role. The very nature of being at a single category specialty store indicates that the staff are specialists in that area. Since getting a good night’s sleep is the main goal of a mattress purchase, having someone who they believe can help them do that is very important and these stores have done a good job of getting their customers to buy into that.

So what is the main take-away from this observation? As said in many previous articles, we are dealing with a much more educated and style-aware consumer now than we did before HGTV and the Internet. Because they are more aware and have taken the time to research their purchase, they are more confident in their ability to make a major decision for their home. Therefore, many do not feel that they need a sales person and perhaps they carry the same fears as previous generations about the quality of the help a traditional sales person will provide to them. So they shop at places that don’t make them deal with someone they don’t want involved in their shopping process, at least until they are ready.

This is certainly not the only reason that almost 50% share is going to these newer alternate channels. Price, convenience, selection and simplicity also play a major role. What I am saying is that if the customer felt they really needed a sales person, then that number would not be nearly as big. Of course, as we know, most customers actually DO need the assistance, either making the right product selection or putting the total room package together. The problem is they don’t believe that we can help them so they do not value the service we provide!

Therefore, the key thing we must do to be more successful with these potential customers is to help them understand all we can do for them to make the result of their efforts so much better. We are in an age of DIY and unless we can convince our audience that they will enjoy both the process and the result more if they let us partner with them, we will lose them to the newer, faster, simpler, cheaper, slicker and more “in” channels.

Product, selection and price are not the way to separate yourself from these “new competitors”. They can beat you with all of those. Make sure you use your website and marketing programs to drive the message of what you can do that they can’t. Sell your total package of benefits and the fact that you will be there after the sale to continue the relationship. Be part of your community and participate in as many local events and projects as you can.  Be the answer to your market’s needs, not just someone that sells product within the market.

It is not going to be easy, but the enemies are at your gate. You need to know who they are and how to fight them or they will continue to steal market share from you!