Cover Story: Nothing Happens Until You Sell Something

May 13, 2019  by HFBusiness Staff in Business Strategy, Industry   

Traditional retailers control 24.4% of the industry with sales on the uptick for regional chains. Unfortunately the Bureau of Labor Statistics is projecting 8,000 stores, which is about a third of the current count, to close. Mass merchants that absorbed the volume done by the national chains (Sears/Wards/JCP) has leveled out at 20%+/-. The internet continues to grow at 5.1%, but we believe this will level out at 20%+/- of furniture sold.

Our focus will be the total supply chain - not just the retailer to consumer - but also the supplier to the retailer. Facilitating the transfer of product from the designer’s sketch pad to the manufacturer to the retail buyer, forward to the retail sales associate, and finally to the consumer. A long communication channel to establish both knowledge and excitement about the product.

Step One: Selling the Retailer

Well, I guess I will touch the “third rail” and discuss the role of sales representatives in the furniture industry. Let me say before someone comes after us: we believe that sales representatives play an important role in the sales process. Our challenge is to better define that role.

While we believe the sales representative has an important role, we also believe that role is one of executing a sales strategy not defining the strategy.

Historically, the first step in launching a new company or a new product category was to line up the right sales team in every territory. Yes, there are still those individuals that can deliver the market. However, many are retiring along with the closing of many of the independent furniture retailers they served. A recent report by USB projects the loss of 8,000 stores by the end of 2020. Obviously, most of these are single store retailers.

However, the Regional Chains, those retailers that operate multiple stores in multiple states are expanding. There are sales representatives that have relationships with these retailers but more frequently, this relationship is the vendor’s vice president. Often, this is where the noise starts with the retailer “to give me the sales reps commission” and we will handle the training. Beware: this is a slippery slope.

                  But let’s return to the discussion of independent retailers served by independent sales representatives. The typical manufacturers develop additions to the merchandising lineup. Pricing is a function of maintaining a gross margin that satisfies the financial goals of the company, disregarding the significant value of the new design or more important, the merchandising price lineup in the industry.

The failure of many suppliers is pricing their product lineup above the market. The charge to the salesforce is to go forward and sell at least x% more because that is what we need. The “cat and mouse” game between sales managers and sales representatives is quite a kabuki dance.

For most manufacturers, there is no recognition of their marketshare in a particular market or for the most part, no recognition of those markets in which they have no presence.

What about those markets without sales — has the sales representative identified these opportunities? More important, has sales management? The point is: who is in charge of defining the strategy?

But most important, there is no expectation of service level. What is service level? Simply put, between major markets (High Point for most), how frequently do you want your sales representatives in front of the buyer? The most frequent response is “our sales rep knows.” It is the responsibility of the supplier to establish a specific strategy based upon performance or lack of performance of the retail account. If the account base performance is segmented into (3) segments: top performers, moderate performers, poor performers, it is the starting point of a sales strategy.  

The next retort is: why would they want to meet? They will not change their assortment until next market. Talk with seasoned reps and they will recount those orders that they received by going through the door at the right time — when their competition is not delivering or sales have been declining for weeks. But, besides that spontaneous purchase, the buyer is constantly evaluating their merchandise assortment. Should the sales representative be proactive in changes? Seasoned sales representatives of the past “gridded” the retailer’s merchandise lineup, identifying missing price points and styles. Without a doubt, a time consuming effort, but it created a retailer ready to meet with a sales rep that provides sound input. With today’s analytics, it’s possible to provide that merchandise intelligence. What powerful information.

More important than the time in front of the retail buyer is the more immediate influencer of sales — the time in the store with the retail sales associate (RSA). Typically referred to as “training” it is more than that- it is establishing a relationship between the supplier and the sales floor. The fact is that people sell for people. The impact of the sales representatives recognizing that the retail sales associate’s performance when they visit the store is immeasurable. There are firms that prepare, online, product training for manufacturers which is very effective if executed. If the sales representative encourages the interface with incentives from the manufacturer during the visit, the sales representative can cover the major selling points for each product on the floor. That is what is needed by the RSA. It is more exciting and less boring than the technical details available online. Len Burke, VP of marketing at Klaussner Furniture says, “I have seen the work from the Furniture Training Company have positive impact on RSA’s and their retail sales.”

How often should they train? What should your training service level be? According to Impact Consulting Services (parent company to Home Furnishings Business), a firm that trains retail sales associates, the answer is at least every four to six weeks, and the focus should be on the newer associates. However, according to Mike Kua, senior consultant with the firm, the experienced sales associate should be encouraged to mentor the new associates, communicating the key selling points.

Does the sales representative have time to accomplish both meeting with the buyer and visiting the stores? Simply put, they cannot afford not to have the time. Based on experience shared by Kua, there is a direct correlation between time in the store and market share.

For a national salesforce with 19 to 20 sales representatives, travel time absorbs 50-60% of the sales representative’s day with the service levels defined below.

The salesforce is overbooked by 30% if they allocate 50 hours per week. This does not leave time for prospecting to cover the 70 markets in which the company does not have a dealer. What is the solution?

The first reaction is to rationalize the thought that “we don’t need to be in front of the buyer and in the store with that frequency.” You can make that decision, but with what impact on sales? Based on Kua’s experience, frequency of visit is a direct correlation to revenue. However, the major problem is that it is not the company management making that decision, but the sales representatives. The fear of territories being cut is what causes the sales rep to never mention lack of time.

What is the solution to reversing this dependence on the salesforce to determine strategy? The vendor needs to seize the responsibility by establishing some measures of performance.

Unlike the retailer, the typical vendor has no measure of performance other than volume produced. The equivalent of retailer close rate and average ticket is market share. What share of the potential market is your sales rep achieving? The table below illustrates.

The variance indicates the opportunity. The opportunity is achieved by more interaction with the buyer and more training time on the floor with the retail sales associates.

To begin the process requires an understanding of the territory performance by Geographic area (market) and dealers within that market. Sales management defines a service level. The computer establishes a detailed schedule for every day.

The immediate reaction is that it is impossible to have a strict schedule – which is true. However, the intent of the analysis is to confirm that it is possible to accomplish that level of service. If not possible, the alternative is to realign on sales territories and change the expectation. It can be the beginning of vendors reclaiming responsibility for sales strategy.

Passing the Baton to the Retailer

The pulse of the furniture retailer is the front door of the store. When the consumer breaks the counter beam… its game on. The culmination of the supplier’s effort to create product that excites the consumer’s imagination via advertising has brought the consumer through the door, and finally, the retailer’s presentation that created the best retail experience, all to create an opportunity to make a sale. So sell something! This is the frustration of the retailers. What are the barriers to securing the sale?

The most discussed factor for brick and mortar retailers is traffic or the lack thereof. The fact is that traffic was down slightly in 2018, leveling off from the trend of the past five years. According to data from (FurnitureCore, the research arm of Home Furnishings Business) it is not the same for all retailers. Smaller, independent retailers under $5M experienced a 6.2% decline while retailers over $50M experienced a 4% increase. While the popular reason for the decline in traffic has been ecommerce, which has contributed, the major reason is the reduction in stores shopped by the time-starved consumer. The major factor is the % of consumers that considered, not shopped. The graphic illustrates the results of a recent consumer survey documenting the results of their most recent purchase.

Obviously, this is a very competitive market with an average of 55% considering a retailer but 26% fail to shop. The decision by the consumer as to which retailers will be shopped illustrates the challenge. These seven retailers are the major traditional retailers of the total 88 traditional furniture retailers in this market.

If there is a positive in the decline in traffic it is that the consumer coming through the door has done their research and is ready to buy. In fact, in the past year our research shows that some consumers are shopping only one store. The attitude is, “If I had a good experience with my past purchase and the product is as represented on the website, why shop around?” This puts pressure on not only the retailer’s website, but the “final mile” in executing after the sale.

This well informed consumer coming through the door can be impatient. The expectation is that your retail sales associate can be as effective as the search function on your website in getting them to the product for which they are shopping.

Entering many of the furniture industry’s mammoth 100,000+ square foot stores can be daunting. The skill of the retail sales associates during the initial needs assessment step in the sales process is critical. Moving beyond product to style and then to price — while establishing rapport and understanding their unique household needs— while moving them to their lifestyle preference can be a challenge. This is especially true for Generation Xers (35-45) who are more attuned to lifestyle specialty stores that curate their merchandise assortment to a narrow target market. The lifestyle stores, such as Pottery Barn and RH (Restoration Hardware) have a distinct advantage with this consumer demographic. Ashley Home, which is a hybrid between a traditional furniture store and a lifestyle store, is very effective, serving a narrow (age) and deep (income range) target customer.

This more focused consumer is leading several retailers to experiment with stores with lifestyle store layouts. This allows the retail sales associate to get the consumer to the right area to begin the product presentation.

While in concept a good solution, it requires that the consumer with the retail sales associate identify their lifestyle. An assist that has been in use for several years is DesignCliq. It is a fun, picture driven quiz requiring only minutes on an iPad or screen to determine the users style preference. Analysis shows 89.1% agreement of “that’s my style.” The graphic illustrates the diversity of style today.

This well informed consumer has resulted in improved close rates and average tickets. For all retailers, the average close rate is 26%+/-. However, the larger retailers (100+) are achieving a more consistent 40% as can be seen from the graphic below.

Average tickets ($1,700+/-) with significant monthly variations can be seen from the graphic above.

Unfortunately, the cost to generate the opportunity (Ups) continues to increase. The challenge is to identify the best medium to attract the consumer. With the appeal of television declining among the emerging target consumer (Generation X), the industry is searching for alternative communication. But now the cost is averaging $27/Up. Unfortunately, the smaller the retailer the higher the cost. The graphic presents the performance for 2018.

Sales cost continues to increase approaching 10%, which will cause traditional retailers to consider other sales models besides the commission structure. Other distribution channels rely on hourly staffing with cost as a percentage of sales in the 4-5% range. The impact on sales revenue moving from a commission salesforce to a salary with bonus is the great unknown. There are $1M+ writers but the mode revenue level is less than half that amount. This consideration must be viewed in light of the ever increasing financing cost at the 3.0%+ level. What is motivating: the sale, lower prices, financing, or selling skills?

One obvious solution to cost is to produce more revenue per sales associates. Decades ago, training consultants impacted the industry profitability. With training programs, each with their own process - no matter five steps or seven steps – the programs produced results. Many of these programs have been brought in house, and in many instances, reduced results. Impacting the results is the acceptance by the new, younger retail sales associates of classroom training. There are still industry veterans, such as Profitability Consulting, JRM Consulting, and Impact Consulting, which still produce significant results. Bobby Infinger of Infinger Furniture in Charleston, SC says, “We set performance goals at the end of the year and Impact Consulting works with my staff to make sure we stay on track to our goal… it’s that simple… The outside perspective keeps me focused.”

 Another alternative is online training from providers such as the Furniture Training Company. As with all processes, it requires constant follow up from management. However, if executed it will produce results. “We have been using the training for three years and it works!” said Sandy Howe, director of stores for Kittle’s Home Furnishings. “Not only has it been successful with our new hires, but it has been great for our veteran sales team. Because of FTC’s reporting services, I can easily manage the training in each of our 12 locations. I can’t think of training that has higher quality or is easier to use and manage than that of the Furniture Training Company.”

The most important element in improving sales performance is the sales manager. A full-time sales manager can more than justify the salary. For a $5M annual retailer with 12,500 Ups and a current close rate of 26%, an improvement of 1% would generate $200k in sales and $60k in contribution margin.

Many retailers make the store manager their part-time sales manager. This is a mistake. Where will the focus be? What about part-time for a senior RSA? It will not work. In the above example, the store should have six retail sales associates. The four to six hours per week of coaching will produce results.

There are retailers that have fully embraced sales management as an essential function. Many recognize that it is a profession, not just a job. To emphasize this recognition, they send their sales managers to a sales manager’s performance group where they share best ideas with other non-competing sales managers across the nation. When we interviewed several for this article, we received the following composite input:

• What is the single toughest part of your role?
  • Managing and motivating people to give every customer they meet the shopping experience they seek.
• What numbers are most important for you to track and coach in order to drive sales performance improvement and how do you use them to do that?
  • Close rate, average sale, revenue per Up, protection close rate, category mix, and house calls set up and sold are all important. These are used to drive improvement in total sales by coaching those that are below store average and/or performance agreement goal in each.
• How does or can your owner/GM support you and help you be more effective in your job?
  • They support and reinforce what I do on the floor and meet with me weekly/monthly so we can work together on improving individual performance. We are a team that sends the same message to the staff and share the same vision for the store.
• What do you enjoy most about your job?
  • The feeling of accomplishment I get when I help a staff member grow and develop into a successful professional sales person.
• What do you like least about your job?
  • Dealing with sales people and customers that have unreasonable expectations or demands for issues they face.