Cover Story: Innovation … or Disruption?

July 24, 2018  by HFBusiness Staff in Business Strategy, Industry   

Home furnishings isn’t in the first tier of essentials for us—that space is reserved for the basics of food, shelter, and safety—but once those needs are satisfied, we can turn to the second tier of making our surroundings comfortable.

While most established countries have the basic necessities covered, some segments of the population still struggle with obtaining the most basic element, safety; safety is, for all of us, an increasing concern. But this article is about the furniture industry, not the challenges of society.

It’s within the second tier that the furniture industry struggles for the attention of consumers. What’s included in this tier has changed over the decades, but for centuries, making our home environment more comfortable and entertaining was a high priority.

Could the key be that, as consumers spent less time in their homes, with working spouses spending much of the day in the workplace, the perceived need for home décor also diminished?

After the first tier of essentials, on what do consumers plan to spend their disposable income? According to FurnitureCore research, their next travel destination tops the list.

As the data shows, furniture has moved down the list—but at least the latest widescreen television has lost its attraction.

The furniture industry for the past four decades, has grown from $19B to $110B, weathering financial downturns with a major disruption during the Great Recession.

The recession in 2008 and 2009 was a major disruptor, resulting in a significant loss of furniture retailers.

The furniture industry has grown; but compared to other consumer products, furniture has been a deal for the consumer. The graphic illustrates that in terms of 2009 a $1,000 furniture purchase would be $899. However, for all other products excluding food and energy it would be $2,710.

While the industry has grown, the growth has not been as significant when adjusted for the CPI:

In fact, if the CPI had kept pace with all products, furniture/bedding would be a $211B industry.

The fact is that the expenditure for furniture/bedding at $924 per household annually has not kept pace with the cost of housing.

The fact is that the consumer’s expenditure for furniture has declined as compared to overall total consumer price indicies (CPI).

Even though furniture has been a good value for consumers, their expenditure has not significantly increased.

The major question is why. An often-touted reason is lack of innovation; there could be a case for that. Take food, for example—it has exploded in terms of choices. Just go to a grocery store and take a look at its endless aisles.

Innovation can be more than product, but the buying process—transferring product to a consumer—can be innovative as well.

Innovation in Product

For a discussion of innovation in product, we need to separate aesthetic design from functional design.

Without a doubt, the introduction of the farmhouse style (and its many iterations) was fueled by Bob Timberlake’s introduction and how it caught the imagination of the consumer.

“In upholstery, I think the introduction of the first close-to-the-wall recliner by Berkline in the mid-1970s was extremely important,” says Jerry Epperson, managing director of Richmond, Va.-based investment banking and research firm Mann, Armistead & Epperson, Ltd. “Not just for letting recliners go into more rooms, but because it allowed, in the 1980s, great advances in motion sofas and sectionals that would not have been possible without Berkline’s innovation. More recently, the addition of the second stage of power to motion has been extremely important (the first stage was in 1986-88 and failed).”

Innovation in mattresses has been the introduction (or reintroduction) of more complex foam mattresses, which led the way for gels, inflatables, hybrids, and now, the reintroduction of waterbeds, notes Epperson. “Change and innovation are critical in the mattress sector or we run the risk of it being a commodity,” he adds.

 “In wood furniture, we have seen great modifications to adapt to the new technological wonders of our age, whether huge flat screen televisions, desks specially made for laptop or desktop computers, or the addition of plugs for power or USB ports,” says Epperson. He adds that finishes are more durable and attractive, the addition of engineered wood has given flexibility and saved costs, and RTA has made advances to keep up with the demands created by internet retailers.

“I believe logistics will play an increasingly important role in furniture and mattresses, and that the requirements of shipping may have a much larger impact on wood furniture of the future,” he says. “Our industry is in a race to see who can transport the merchandise from the factory where it is made to inside the consumers’ homes with the fewest intermediate steps, all of which cost time and money. In many ways, we believe logistics may prove who are the winners, and may be a major factor in profitability in the future.”

Innovation in Disruption

Before the 1980s, there were fewer distribution channels. Better goods were the go-to source for the upper end and mass merchants—such as the almost-forgotten Montgomery Ward—and the struggling JCPenney and Sears served the growing middle market.

In the shadow of these giants were the mom-and-pop retailers suffering through being referred to as “dirty window stores” to become regional and national powerhouses.

There have been challenges in the past four decades. The Levitz stores conveyed value with their warehouse environment—product stored above the display. Within a decade, Levitz was a national threat in every market.

A significant local retailer in New York created the concept of Rooms To Go, appealing to the insecure consumer who wanted a complete room, decorated, at a great value. It expanded nationally and is still a dominant presence in the market.

From the hills of North Carolina appeared the 1-800 retailer. Blackwelders was followed by Roses Furniture and Furnitureland South.

Growth was fueled with small ads in shelter magazines such as Southern Living, but more importantly through word of mouth by satisfied customers. Many have gone by the wayside, but not before capturing 20% of industry sales. There are some survivors, such as Furnitureland South, a significant furniture retailer.

The manufacturer-direct store was an important innovation that disrupted the furniture industry. Furniture brands expanding upon the concept but failed. Only Ashley Home has successfully executed the concept and is now the number one retailer and manufacturer of furniture.

Advances in internet retailing are most visible with the creation of viable brands, with Wayfair topping the list for creating brand recognition, says Epperson. “Also, constant improvement in both communications and logistics have allowed the internet retailers to experience rapid growth without having stores, or even carrying inventory,” he adds. 

The growth in imports has allowed larger retailers to leverage their size to their advantage by purchasing globally and in huge quantities at the most efficient sources, says Epperson. “Consumers have never had more choices of where to purchase home furnishings and how to finance the items bought,” he says.

Reaching the Consumer

Do retailers today have too many methods to reach the consumer?

In the large view, messages can be broadcast to a huge audience via newspapers, television, and radio, in the hopes that the people who have an interest receive the message; on the other hand, having data on each household in your territory and targeting specific individuals with certain promotions might work best.

                  “Social media by itself is both an opportunity and a confusing mess,” says Epperson. “The brick-and-mortar furniture and mattress retailers have an advantage in name recognition, stability, and high visibility over long periods of time, whereas, generally speaking, few consumers know anything about most of the internet vendors, who could disappear overnight.”

All retailers have three important customer bases to appeal to:  baby boomers, Generation X, and millennials (with Generation Z right behind).