Are You Winning or Losing Your Market War?

April 11, 2018  by HFBusiness Staff in Business Strategy, Economic News, Industry   

As a magazine dedicated to helping our readers succeed by providing strategy for the furniture industry, literally everything we present deals with providing data, analysis, ideas and advice about surviving and prospering in our highly competitive marketplaces. To that end, last April we updated the numbers about the shifting market shares of the major distribution channels to indicate who is taking business and who is losing it.

Since then, Coach’s Corner defined the impact of these market changes on furniture stores and why this might be happening. Over the last few months we talked about what furniture stores might consider doing to stop the share erosion by getting more from the opportunities that they already had, which is the low hanging fruit so to speak. We also discussed how to fight back against some of the tactics that the fastest growing channel has used to scare consumers away from our stores and how to choose the right words to use with our staff and guests, in order to deliver the message that each one wants to hear.  

All of these efforts are indeed focused on helping us deal with the various aspects of the war going on in our individual and collective competitive battlefields. There are daily scrimmages, monthly battles and endless minefields to get through in order to survive, let alone win the campaign. We must understand that some of it is out of our control, but a good deal of it is within our grasp. We just need to have the right focus and develop strategies aimed at the day-to-day battles we can win and not waste time on those where we cannot triumph. What I am talking about is concentrating on the one thing we can control and impact daily in our stores, “share of customers”, instead of worrying so much about “share of traffic”. Let’s put that in perspective.

We have been talking a lot about market share over the last few months, which is a very important thing to know, not as a single number, but as a quarterly trend. Where were you two years ago and what has happened each quarter since? Are you winning or losing your competitive battle for share of the business done in your market? Every business needs to determine and understand this critical number because it is indeed the only true indicator of how you are performing in your market war. However, to a large degree, market share is heavily influenced by share of traffic. The number of people in your market that decide to visit your store is the main driver of total volume. In fact, to a great extent, it has been the shifts in traffic that have caused the distribution channel share changes we have been discussing. To survive, you still must do all you can to drive people in your doors, but in most markets, traffic is going to be static or slightly down for most furniture stores.

Obviously, this is due to many factors including the share shifts we have previously discussed. But a main cause we don’t often think of is the impact of the pre-shopping today’s customers do on the Internet. We all understand that roughly 20% end up buying online and never enter a store, so that reduces traffic. However, an even bigger impact is caused by the fact that the research they are doing on the Internet is helping the consumer narrow down the stores they want to visit. Our surveys indicate that almost 80 percent of people that recently purchased furniture visited fewer than three stores, with 50 percent of the total going to two or less locations before buying. Before the Internet the average number of stores visited was around five. Do the math: 100 consumers in a market visiting five stores each, generates 500 Ups in that market. If they only visit two each, then only 200 UPS are created – in less than twenty years we have seen as much as a 50 percent decline in potential traffic due to fewer stores being shopped and internet sales. That is not going to change in the future.

Therefore, let’s go back to the basics like we did in November and December, but from a slightly different point of view. What do we need to focus on to drive performance improvement in our stores that will deliver a higher share of the most important asset every retailer has – their customers. Senior management’s primary focus must be on what happens with the ones that do end up visiting the store. So let’s discuss ways to better understand and improve our share of customers.

In order to have any hope of improving a performance, we first must to find a way to measure it. We believe that the best sales metric we have to measure share of customers is revenue per UPS, also referred to as performance index. This number provides a clear and concise picture of how the store and each individual performs with the opportunities we give them. Since revenue per UPS can also be calculated by multiplying Close Rate X Average Sale, it is truly capturing the two most important elements of our interaction with potential customers on the sales floor. It actually reports the ultimate sales contribution that results from staff interactions with each person. Simply put, the higher the number, the more share of customers is being achieved.

As with all prime indicators, revenue per UPS only helps us track what is happening, it does not give us any answers. Similar to GMROI, it points out where we may have issues, so we can ask better questions and know where we need to dig deeper to find answers. For them we need to look closely at the two major factors that determine share of customers - How many of the people we saw did we actually sell and how much did we sell each one - close rate and average sale. So here is a brief update on where we think these numbers should be going for furniture retailers in general.

Close Rate - Remember when someone enters your store they are not yet a customer, only a guest or visitor. They must buy something from you in order to become a customer of your store. So, the first thing we should focus on is closing rate. The good news is that these people who narrow down their store visits to two or less are much more likely to buy in one of those locations than those who shop more places. The raw odds of closing someone visiting five places, is one in five or 20 percent. If they only go to two, then the odds go up to 50 percent for those visitors. Therefore, since about half of our traffic now shops less than two retailers, our chances of selling those people should have greatly increased. We can calculate that if your close rate potential on those visiting more stores is say 20 percent and it is 50 percent for those seeing less than two, then your overall potential for the store is between 30 percent and 35 percent. Based on what we have been seeing over the last decade, this scenario holds true. Those stores that were previously closing in the low twenties are now climbing up into the low thirties and those that were doing in the mid-twenties are now achieving results at or above the mid-thirties. Our advice is to look at this number. If you have not seen it increase dramatically in the last few years, you need to take a hard look at your hiring, training and sales management programs, because you have lost share of customers by not achieving the potential increases others have enjoyed.

Average Sale – Once you know you are creating customers at an acceptable rate, you need to focus on how much you sell each one. Let us note that historically many have looked at this number as a reflection of share of customer and we can understand that since it does directly indicate how you did with those customers you created. As such, it is possibly a more critical number to your success or failure than close rate, but we cannot forget that first you must sell someone, before you can sell that person more.

Average sale is also a statistic that is heavily influenced by your store’s advertising, merchandising and selling strategy. Obviously stores that sell higher end goods should have a higher average sale than those selling more promotional price points, However, I have often seen stores that heavily promote financing on lower priced goods build higher tickets, rivaling those carrying better goods. In addition, those stores that have a well-managed and successful in-home program will always have higher average sales than those that don’t, no matter what price level they carry. 

With that in mind, we have seen a great deal of change in this statistic over the past two decades. It shrank a bit during the down turn, but ever since the consumer came out of the recession, we have seen steady and, in some cases, rather dramatic growth in average sale at all levels. The consumer today wants what they want and seem more willing to pay for it than a few years ago. Those lines that have custom order capability and particularly those that can deliver product quickly are doing quite well. Many promotional companies have successfully added better goods to their assortment. Others have added options such as upgraded cushions and power or functional features that have raised price points. The growth in premium mattress and adjustable base sales has also contributed to this trend in many stores.

Therefore, similar to close rate, but to an even greater extent, if you have not seen a fairly dramatic increase in your average sale over the past few years, you are missing the boat and need to take a hard look at your advertising, merchandising and selling efforts, because you are not getting your fair share of the business that is available to you.  

In summary, if you have not been moving these last two numbers higher over the past few years, chances are that you are losing your war for share of customer and market. Driving improvement in these metrics and as a result the all-important revenue per UPS figure, is the only way to combat against decreasing share of traffic and increase your share of customers.