From Home Furnishing Business
Just Because You Can Doesn’t Mean You Should!
For those of you who have had a travel itinerary as a major component of your career, you have experienced the small pleasures derived from the hassles of travel. One of these small pleasures comes in the form of that city’s iconic restaurant that you could savor as a reward.
The Rendezvous in Memphis, with their delicious barbeque ribs and mouthwatering fixings is a good example. The physical space is unremarkable, but it has an ambiance that is created by the anticipation of great food.
There is a long list of such restaurants: Joe’s Stone Crab in Miami; Morton’s in Chicago; and Lusco’s in Greenville, MS. Some are still owned by the same families, others sold. Some have continued to deserve their acclaim; others have declined with only a past reputation to support their demand.
However, today’s technology has permitted patrons to gain immediate access to the food of their choice, eliminating the sense of anticipation. Yes, you can enjoy Rendezvous’ ribs the very next day simply by navigating to hogsfly.com placing your order and entering your credit card.
The foil packaging, with its space-age design, fails to visually excite. Even in my Viking oven, the warming of the ribs cannot compete with the mouthwatering thought of the blackened ribs straight from the flames of the grill. No matter how hard you imagine you are not in the alley downstairs behind South Second, in Down Town Memphis.
Despite all of this, the convenience and experience of this instantaneous delivery process has caused a ripple effect throughout our digital age. The delivery process is changing right before our eyes.
Now, let’s get back to furniture and specifically, back to delivery After the Sale.
The furniture retailer, regardless of their distribution channel, is faced with an important question each time they pursue their delivery strategy: what is the perspective of the industry consumers?
In the last 25 years, the furniture industry at retail has deviated from the dominance of national chains (JC Penny, Montgomery Wards, Sears); department stores (Macy’s, Bloomingdale’s, Rich’s); and independent furniture stores (mom and pop’s). Instead, lifestyle stores (Pottery Barn, Restoration Hardware), mass merchants (Ikea, Wal-Mart), and e-commerce distributors (Wayfair, Amazon) have emerged.
Each of these distribution channels has purveyed products at price points to its targeted consumers, with the final step being the delivery into the customer’s home. For the most part, even though traditional retailers may have transitioned from “mom and pop” stores to multi-store regional chains, they have maintained their own delivery operations.
The other distribution channels have migrated to third-party delivery services. In the case of the lifestyle retailers and department stores, their national distribution networks serving multiple stores, have made this a necessary strategy.
With the e-tailers, delivery has become the key strategic function. Successful e-tailers understand the customer’s journey as a result of replacing “brick and mortar” with a web presence and delivery. When it comes to shipping, customers want affordable prices, flexible shipping options and fast delivery. The long-term success of e-tailers depends upon the efficiency of their delivery in terms of costs, returns and damages.
The consumers’ satisfaction with this last step in the buying process is critical in maintaining the loyalty of the customer. The lifestyle value of the furniture customer (net revenue attributed to the entire future relationship with a customer) is $45,000+ for consumer households greater than $50k.
Traditional retailers have used the delivery process as a strategic strength to differentiate themselves from other traditional retailers and other distribution channels.
According to a survey conducted for this article by FurnitureCore LLC, the research arm of Home Furnishings Business, 78% of traditional retailers consider delivery as a major part of their strategy. More specifically, 11% focus on next day and 18% on “white glove” with product placement. (Graphic A)
In fact, according to Keith Koenig, CEO of the powerhouse retail chain City Furniture in Florida, “We started same day delivery seven days a week in 2002 and it has been a cornerstone for us since then.”
The consumer is not as demanding. The accompanying graph shows only 25% wanted immediate delivery and 41% expected less than a week. (Graphic B)
To accomplish immediate delivery the retailer is required to have product in stock. From a consumer’s perspective, for the product they purchased, it was in stock 73% of the time. (Graphic C)
Of course, having product in stock on the wide selection of furniture in a typical retailers’ store results in poor inventory turns, resulting in poor return on investment. Typical inventory turns are shown in the graph below. (Graphic D)
In addition to being an important element in a traditional retailer’s marketing strategy, delivery can be an important contributor to profitability. The graphic below provides an important key performance indicator (KPI) — delivery revenue per sale. (Graphic D)
In the aforementioned survey conducted for this article a sample of small (<$5m) and large retailers (>$100m), showed 46% of delivery charges were above $50. (Graphic D)
Of course, not all products are delivered by the retailer. According to the consumer survey, 32% of purchases were picked up by the consumer. (Graphic E)
Trucking today is not an easy, functional area to manage. In our survey of retailers, two challenges broke down almost equally between personnel and scheduling. (Graphic F)
The loss of key dispatchers or senior drivers is often the reason traditional retailers consider third party delivery.
Scheduling is an area that can be greatly assisted with technology. Dispatch Track, a dynamic routing and field service management company, has worked as a solution for many small to medium retailers. K.B. Madan, director of sales states, “Not only will number of deliveries daily improve 15-20% because of routing efficiencies, fuel cost will decrease 10-15%. An easy to install solution.”
Part of the scheduling issue, especially with the smaller to more middle-sized furniture retailers is the number of trucks. It is hard to schedule when you are limited to 1-2 trucks. An interesting KPI is the square feet of truck space per sales volume. (Graphic G)
Part of the issue is what is defined as delivery. From the consumer perspective, it is simple— you remove the box from the warehouse, put it on a truck, and bring it to my home.
It is natural for consumers to question the delivery charge—after all, they shelled out on average $1,400 for their purchase, and now you want another $100 bucks. This is exacerbated by the e-tailers screaming “big stuff ships for free” – but what does that mean? In a box, first dry space.
Surprisingly, only 54% don’t understand based on our survey. However, 42% of retailers say consumers accept this when explained. (Graphic H)
Only 7% push back when you charge for delivery, but a significant 64%, are ”somewhat” concerned. (Graphic I)
Again, what is delivery? An overwhelming majority (96%) of retailers in our survey had to deluxe the product (unpack/touch up/wrap) before delivery to the consumer. (Graphic J)
If “out of box” quality could be achieved, it would be a significant savings to the furniture retailer. Currently, on average for every sales dollar a handling employee is required.
For many of the new distribution channels, such as lifestyle stores, mass merchants, and especially e-commerce, poor quality at the consumers’ homes means a return—a financial cost, but as important, a dissatisfied customer.
While the opportunity to deluxe has not been part of the process for the new distribution channels, the consumer is demanding assembly. The recent acquisition of the small assembly company Jack Rabbit by Ikea is an attempt to satisfy that demand.
A major question is should a furniture retailer outsource delivery?
Third party providers’ perspective will challenge whether traditional retailers should continue to maintain that link with the customer. “Elevated consumer expectations”. “An evolving industry”. Those are just a couple of descriptions by third party logistic providers specializing in furniture delivery about the current furniture home delivery landscape. Consumers increasingly expect and demand more from retailers and from delivery companies. Many are willing to pay for the soft touch of white-glove delivery. Waiting more than a few days for delivery is no longer tolerable to many consumers.
Buying mechanisms have changed, and so have delivery processes. Omni-channel retailing has given consumers many more options for purchasing furniture. White glove delivery service is trending upward for delivery companies. Many consumers don’t mind paying extra to avoid the hassle of unpacking, assembling (if required), and disposing of old furniture and packaging.
Buying furniture is sometimes described as a controlled process. The consumer and retailer both have control over what happens up until the purchase is made. But what comes after the sale cannot always be controlled. There are too many variables, and delivery scenarios can be entirely unpredictable. Many factors can affect and disrupt a delivery. Perhaps it’s the weather, or maybe there is a terrible traffic problem en route to a consumer. Barking, and potentially dangerous, dogs may be a hindrance. Sometimes an adult is not home when furniture is delivered. Perhaps a door is too narrow to squeeze large furniture through. All potentially can cause delays.
There’s also the seemingly ubiquitous millennial factor. All industries, including logistics, are developing strategies to solve this puzzle. Millennials demand transparency in their transactions. They want all the details of their delivery, including the day and the time, and they typically want this information available on their smartphone. Millennials are also less willing to wait on deliveries than older generations.
Tossed into this mix is the nationwide challenge of finding qualified truck drivers. That shortage affects every industry, and furniture is no exception. Many veteran drivers are at or near retirement age. The driver shortage has become acute in recent years, and trucking companies have yet to find a solution. That further complicates the process.
For the past two years, studies by the American Transportation Research Institute (ATRI) have placed the driver shortage as the top critical issue for the trucking industry. An aging workforce increases pressure on carriers to recruit and retain the best talent, ATRI says. That’s true whether the haul is long or short. Those figures support the findings of a recent FurnitureCore survey of retailers. Many cite personnel as their top challenge for a successful delivery.
That’s especially true for companies specializing in the final mile. Not only do drivers have to possess the brawn to carry furniture where it needs to go, they also must possess the prerequisite people skills needed to keep consumers happy with delivery. That’s the biggest challenge for many logistics providers. “Soft” skills have been a buzz word in relation to delivery personnel for a few years, but those highly sought-after attributes continue to gain importance. Logistics companies say these skills are absolutely necessary for drivers who enter homes and set up furniture in bedrooms and living rooms.
Also complicating the process is the ongoing consolidation of the logistics sector. The industry has been in flux for several years, and mergers and acquisitions are likely to continue. Big companies are getting bigger and smaller ones are searching for their niche.
Playing no small role in the driver shortage conundrum is the difficulty in finding driver applicants who can pass a drug test. Exacerbating the drug issue is the fact that many applicants also have poor driving records, making it difficult to find qualified delivery teams.
“Lots of companies take the risk of not properly qualifying them, but as a national 3PL we can’t take that risk,” says Rob Davis, chief client officer for Warrenton, Va.-based third-party logistics provider Diakon Logistics.
Rick Lee, chief operating officer for Seko Logistics, says the shortage has definitely had an impact, and it has affected some markets more than others. Illinois-based Seko has 120 offices in 40 countries. “We are working to come up with programs and working with our partners,” Lee says. “We try to get out in front of it if we see markets that are growing. We have a diverse number of trucking companies we can work with. We pay and we are well-known for paying well. We pay fast and we pay well.” Lee says the challenge is especially acute with regard to putting together local final-mile teams. This isn’t because the percentage of failed drug tests is growing, but rather the supply and demand dynamic has grown and any failed drug test delays scaling.
Most of Seko’s drivers are not doing long haul, cross-country trips, but are driving box trucks or sprinter vans, performing final mile and white glove deliveries in a single market. “We are able to retain these drivers because they are home every night,” says Brian Bourke, Seko’s vice president of marketing.
Davis says the backend is where furniture retailers, and their logistics partners make or break their business. “Retailers are predominantly family and their business is predominately regionalized,” he says. “They usually work out of just one distribution center. They have gotten really good at advertising and they have gotten really good at merchandising. They have figured out their business model and the thing they are passionate about.” Davis says the difference between businesses that make it and those that don’t is the ones that do know how to manage the backend of their operation. “The more you are able to understand the backend and get involved and the more you invest in it, the more you can make in it. I want to impress upon people the need to really look into the back end of their operations, and understand that if you can develop really good delivery teams, you are going to improve your experience and you will be able to take care of your customers, and if you take care of your customers they will come back.”
Diakon, at 95 percent, is almost exclusively a white-glove service. According to Davis successful retailers are still able to differentiate themselves by helping consumers understand the value of having furniture delivered and set up. Fully integrated technology solutions offer the best hope for overcoming delivery challenges. “If you don’t have the right solution then you pay a premium to manage the process and inefficiencies occur with product throughput. Matching workforce supply with volume demand has a direct impact on cost, service levels and speed.”
Seko, which serves a core group of about 50 furniture retailers and brands, but mostly non-traditional retailers, has deployed several technologies aimed at improving the final mile experience. This includes its Interactive Voice Response System (IVR), which generates a call to consumers to inform them their goods have arrived at the Seko destination station and they can schedule a delivery appointment. Seko says this helps reduce the window for “buyer’s remorse,” lowering the number of returns. The company also offers online scheduling in most major U.S. markets, enabling consumers to schedule a delivery appointment online based on their zip code.
Diakon’s technology includes proprietary web-based software called Trak-R, which is used to measure, monitor and manage delivery data from the time an order is received through processing of contractor settlement.
Consumer confusion about the delivery side of buying furniture online notwithstanding, e-commerce furniture sales continue to propel business for logistics specialists.
“Online furniture sales are making up a larger part of the furniture retail industry and because of that, more 3PLs are offering services to this industry,” says Cathy Morrow Roberson, an Atlanta-based logistics consultant. “XPO Logistics, for example, has built a network of 85 XPO last-mile hubs in North America that are close to approximately 99 percent of the U.S. population.” Roberson says fast delivery and technology tools that provide visibility throughout the delivery or return are necessary to meet the needs of consumers as well as the retailer – scheduling of delivery, tracking the shipment, and follow-up to ensure the customer is satisfied are the basics of many of the technology capabilities that are used.
Diakon delivers more than $2 billion in furniture annually and focuses on the top 100 retailers. Less than 5 percent of deliveries come from e-commerce sales, but there are many traditional brick-and-mortar retailers who also sell online. “Some retailers, like Bob’s Discount Furniture, for example, sell online and a customer may never go into the store,” Davis says. “They have the option of going into a store, but we just happen to deliver to someone who didn’t. E-commerce is growing significantly, but it’s still a small percentage of the overall business that’s out there.”
Davis says that while data shows that millennials want their merchandise in rapid order, he believes it’s more important to ensure the delivery is done right than to rush out with same-day delivery. “Millennials are also interesting because they want options,” he says. “Many are willing to do more when it comes to their delivery if they feel they are getting a good deal. They will accept a delivery to the door and then deal with unpackaging it and setting it up if they save money.”
Delivering furniture ordered from a computer or a smartphone puts added pressure on logistics teams. For consumers ordering furniture online, the delivery team is likely their only interaction with other humans during the process. They don’t meet a sales associate and they never see someone greeting them at the store’s door. Whatever the method of purchasing furniture, the best retailers are fully integrated with their logistics providers, according to Davis. “If there is a vendor-purchaser relationship, the results will suffer. Where true partnerships exist with transparency and understanding of challenges then better solutions will be available. There has to be a full understanding of what expansion looks like, what solutions are being sold, volume projections, etc. Then the right model can be built to support the business.”
Bourke says millennials may have kick-started the transparency and visibility movement a few years ago, but now all generations expect it. He says, “The rise of technology with Amazon and Uber have changed the game and raised expectations about transparency. Today, transparency means more than just a tracking number. It’s been integrated into your smartphone, through text messaging and notifications from the apps you have downloaded from retailers. You can now visualize exactly where the driver is and have ability to communicate with the driver regarding any changes. That’s what visibility and transparency mean today. There’s been an entire digital transformation. It’s not just about the millennials. Changes are being driven by the consumer, period.”
Seko is on the other end of the e-commerce spectrum with online sales accounting for 100 percent of its furniture delivery business. Like many delivery companies, Seko seeks consumer feedback. Lee says his company likes to do post-delivery surveys if clients allow it. Some don’t allow it, preferring to do their own surveys. But between those two methods, Seko brings all the data together to analyze what consumer are saying. “If it’s a complaint, we are absolutely all over it,” Lee says.
About 20 percent of Seko’s heavyweight home deliveries are the white glove variety and that percentage is steadily increasing. “Many clients don’t offer white glove service as an upsell option,” Lee says, “but when they do, consumers will usually request it. There is a high percentage of consumers who will pay for it.”
Bourke says offering white glove is an upsell opportunity for retailers and brands looking to differentiate themselves. He says it becomes a front-end e-commerce conversation just as much as it becomes a transportation conversation or a logistics conversation, and that is part of the changing dynamics.
Lee predicts that within a few years, final-mile service will account for 50 to 55 percent of Seko’s home delivery business. “I foresee that there will be more opportunities for us to be able to help our clients make deliveries from their regional distribution centers to a consumer’s home, either same day or next morning,” he says.
Seko instituted a “Save the Sale” program, which Bourke says has been transformative for retailers who take advantage of it. “When you have a $1000-plus item that weights 100 pounds, getting it to a consumer’s home is a costly and long process,” Bourke says. “If there is any damage to the box, a nick or a scrape on the leg of a couch, there is disappointment on the part of the consumer because they want their product in mint condition. For example, if a consumer receives a box and there is a hole in the box and the consumer refuses delivery, our Save the Sale program then kicks in. Our driver will initiate a call and connect the consumer directly to customer service and the driver will wait to have the consumer open the box, and view the item inside.”
Bourke says if everything in the box is fine, and the consumer is happy, that mitigates the return and the return process, which can be very costly. If there is a nick on the leg, they can schedule for an aftermarket delivery repairman to come by and fix the leg. “It may even involve offering a gift card, whatever it takes to make the consumer happy and prevent the return process from happening,” he says. “It’s been a differentiator for us, but it’s something smart that retailers are starting to ask for.”
Davis describes the logistics business as segmented. There are a handful of large publicly traded companies, a few dozen companies about the same size as Diakon and lots of “really small guys”. He says the only way to gain a competitive advantage in the industry is by being customer-centric and being able to understand them. “The bigger a company gets, the more difficult it is to understand the customer,” he says.
Davis describes Diakon as nimble enough to successfully react to moves made by other players in the industry. When Amazon announced they would increase their minimum wage, Diakon increased pay for its warehouse staff beyond Amazon’s new minimum wage of $15 per hour. “We are able to quickly react to some of those things and I consider that a big advantage. We are one of the largest 3PLs out there, but we act like a small business.”
In the end, just because you can (deliver), doesn’t mean you should. There are many factors to take into consideration. But, for the consumer, delivery is an important part of their purchase and the overall buying experience. We need to make it memorable in a positive way. We can’t afford to have them lose the savory experience of eating smoked ribs at Rendevouz as opposed to re-heating them at home. The taste may be similar but the experience isn’t.