From Home Furnishing Business
Cover Story: Advertising- How is that Working for You?
After moderate growth in 2017, furniture surged forward last year, achieving a 3.5% growth in Q3/2018 over the previous year. Quarter four appears to be a similar result.
This growth, while positive for the industry, indicated performance was outstanding when compared to other retail sectors. Achieving the status of outstanding growth has caused the financial community to focus on what is happening in home furnishings. This has brought attention to the potential investment opportunities in the industry.
While much attention has been focused on the e-commerce sector of the industry, this juggernaut is slowing, achieving only a 13.1% growth in 2018.
This growth has been in total home furnishing and initially improved the performance of home furnishing stores (those that merchandise the total product) as compared to furniture stores that primarily sell furniture and bedding (70% by definition). However, this comparison has changed with furniture stores regaining the momentum.
But with all this clamoring, many furniture retailers are facing declining traffic and the resulting sales decline. The result is owners challenging their advertising strategy.
Let’s focus on what is the right advertising strategy. By definition, advertising is the attempt to influence the behavior of customers with a persuasive selling message about the product.
First, we must have receptive consumers. Based upon research, the industry has that. As is typical in a good economy, a quarter (29.74%) of the prime furniture purchases are on the sideline. Another 15% have just made a purchase. The remaining fifty percent plus are our targets.
Furniture is on the fringe of satisfying a basic human need. Home furnishings is not a necessity in terms of basic needs, but instead provides comfort and for some consumers, a sense of presence. Insight form FurnitureCore, the research arm of Home Furnishings Business provided some perspective.
From the research, we see that our advertising effort must be a dual focus, communicating prestige as well as practical need. Considering the current advertising effort by the traditional retailers, we skipped these messages and are addressing price and the ability to finance. In fairness to the industry, the manufacturer sector is typically involved in communicating prestige/need in the process of establishing brand. In today’s residential furniture arena there is a lack of established brands. The Broyhill, Thomasville, and Lane brands have been allowed to deteriorate. With consumers under 50 (Generation X) and definitely under 35 (Millennials), there is little brand awareness. There are some exceptions with Brown Jordan, Eckornes, and Stickley who have presence with the more affluent consumer.
Why are brands missing from today’s communication with the consumer? First and most immediate, there is little brand advertising. As an example, in the most recent issue of Southern Living (Feb 2019), there was no furniture advertised even though there were several home decorating articles. In fact, there were few “call outs” to the product shown—a true indication of the magazine publisher’s perspective of industry support. If we go past the immediate and ask manufacturers why the immediate response is lack of margin to support consumer advertising. This addresses a decades old question: Can the industry afford not to advertise directly to the consumers the reasons to buy furniture? Are we destined to race to the bottom in terms of price? When we compare the consumer price index of furniture to all other consumer products, we get the answer as illustrated in the graphic.
Even with bedding included, the industry is declining even in the good economy we have enjoyed since the 2008/2009 comeback. In fact, we are 12 basis points below where we were in 2008.
Should we consider again an industry program to promote furniture as was done in the 80s/90s with Haven Magazine? Where would the industry be if we had cooperated—manufacturers and retailers—in the effort? Only the manufacturer-verticals, such as Ashley and La-Z-Boy, have created a brand presence at the consumer level. Was that the strategy that should have been executed in the manufacturing sector?
It is not to say that the industry does not spend to attract/motivate the consumer. In fact, 56% of the gross margin dollars are spent doing so. However, only a portion is spent in pure advertising. The graphic illustrates.
The statistics shown in the Expenditures graphic is for traditional furniture stores. Obviously, these percentages vary by volume level and individual retailer strategy.
In the last decade, retailers have abandoned a real estate strategy (owned) and leased buildings within established shopping areas with higher occupancy costs. The assumption is that traffic would increase and therefore lower advertising costs. The result is where advertising in total would be 5-6%, now occupancy and advertising combined with the goal being 12-14%. Interestingly, Julius M. Feinblum, president of JMS Real Estate, Inc., a firm that specializes in real estate for the home furnishing industry, cautioned against the use of rigid guidelines, saying each situation is different. The decision to open an additional store should take into consideration the incremental revenue that would absorb existing fixed costs.
New distribution channels into furniture retailing take a different perspective. Lifestyle stores, such as Pottery Barn and Restoration Hardware, while selling all home furnishing products, relies on stores in proximity to the consumer and less on advertising. For this distribution channel, reliance is on more stores and targeted direct mail campaigns and catalogs. The table presents some statistics.
As can be seen from the table, lifestyle stores have 353 stores per thousand households. This compares to a third of that for FurnitureCore’s Top 100 regional chains/large independents/independents. Another approach is the fast growing e-commerce channels. E-tailers, for the most part, eliminated occupancy and minimal expenditure in presentation (except for online chat), a new financial model was created. However, this model has not been successful to date. Even with competitive pricing, the savings are not enough to offset increased delivery/returns expenses. While still less than 20% of total industry sales, the growth rate is significant. Recently, many of the e-commerce major players are exploring brick and mortar.
The major question in furniture retail is what should the message be? The predominance of messaging in traditional retailers is low price – long term financing. Research by FurnitureCore indicates other ways to break through, including product information and humor. A good example of humor is represented in a recent television commercial created for Bernie & Phyl’s in Boston.
Bernie & Phyl’s advertising agency, DeVito/Verde, had to address the iconic advertising platform that had served the retailer for decades to increase awareness.
Ellis Verdi, president of DeVito/Verdi explains. “We do talk about value in the campaign, but we’re doing it in a way that is far more memorable, and doesn’t look like typical category advertising. Humor is effectively used as a means to increase recall in a cluttered environment because like any good joke, we want people to remember it. Otherwise it’s a total waste of money. Secondly, we’re actively seeing more younger people, those who are inclined to appreciate a smart, witty humorous approach. We understand not everyone has a sense of humor because we’ve already received a few letters. They’re affected by the humor, but it seems they all want to talk to someone, which is great because when you speak with them they end up being convinced to visit the store, or at least they’re no longer as upset with the advertising. Also, we picked up increased engagement and interest from those who did find these campaigns funny.”
Verdi continued, “One challenge we had was to convince the owners not to be in their own commercials. It’s extremely difficult to take owners out of their own commercials. But the proof is in the pudding; they have been extremely successful. There is a competitor in Boston called Jordan’s that suffers from the disease of wanting to be the star of the ads. We measure success on comp store sales. Prior to our new campaign we were seeing negatives. Post: we’ve seen significant positive comps for the past several years.” The swing has been “substantial”, according to Verdi, “What made it so effective is that all the campaigns are inexpensive to produce, and allow us to have flexibility in messaging and maintain the disposable quality of production that the rest of the industry has fallen in love with. “
As important as the message is, the media used to communicate. According to FurnitureCore research, television for traditional retailers represents the largest share of advertising expenditure. The graphic illustrates the breakdown.
From a consumer perspective, the internet/email has the most influence on their intent to purchase as can be seen from the following graphic.
While the Internet is important even Wayfair, has turned to print. Bob Sherwin, Wayfair’s head of North American marketing confirms, “The [Wayfair] catalog offers an incredible opportunity to deliver a rich, tactile shopping experience to our customers. We send it to high-value target customers, people who have moved to certain neighborhoods—it’s for targeting prospects as well as existing customers.”
Home Furnishings Business’ custom publishing division has had similar success with their hybrid magalogs (magazine/ catalog format) when combined with consumer targeting. According to Bob George, publisher of Home Furnishings Business, and president of Impact Consulting, the parent company of HFB, a documented purchase of over 9% of a retailer’s customers and 4.5% of profiled customers has been achieved with this high quality content rich piece.
We know the consumer is attracted to digital and there are many vendors jumping on the opportunity. The retail experiences can be classified as extended reality (XR), virtual reality (VR), and augmented reality (AR). Augmented reality in the furniture industry has advanced the furthest.
According to Richard Sexton, chief product officer at MicroD, the focus is AR. “For our industry, let’s settle on AR, since this is the most simplest application and is defined by the mixing of digitized assets and some reflection of reality, such as a customer’s home scene.” Sexton says the biggest challenge right now is the degree of realism not meeting expectations. “You need significant computing power to use high polygon models in a dynamic environment, let’s say, pacing a sofa in a customer’s living room. You can do this on a desktop effectively, but its certainly not mobile, its not dynamic, and its not convenient. You can’t walk around the sofa to see how it looks, but you can generate a high quality rendering of the room scene. If you want to make it a mobile or tablet application, then you sacrifice quality of the image and degree of realism, and end up with a somewhat cartoonish experience due to the low poly count of the models. However, it is dynamic and you don’t need the use of markers to define the room dimensions, this is determined through the application itself.”
While many furniture retailers have announced AR applications over the last year, most have not resonated with the consumer. What does the future hold? Sexton says, “…as computing power continues to escalate and the native AR capabilities continue to evolve with ARKit and arCOre, we will definitely see new apps that better reflect mixed reality, there is no question. Virtual reality will certainly become more meaningful once the hardware is streamlined and the experience less jarring. You can imagine the in-store applications that will evolve with VR.” In the meantime, Sexton says, “hybrid solutions, such as out 2D/3D experience (360 spin with 4k resolution on 2D models) are the ideal gateway experience to bring customers into the 3D world. We will be deploying this platform over the next few months.”
While exciting in concept, neither AR/VR will replace advertising in the short term as a motivator to purchase.