The Internet: Not a Gimmick but a Tool to Control

September 3, 2019  by HFBusiness Staff in Business Strategy, Industry   

While digital advertising has continued to be a component of most major newspaper’s revenue streams, it is not a major influencer for the consumer for durable purchases. The consumer has achieved, to a certain extent, freedom from being “sold to” until they are ready to consider purchasing.

Consumers today are well versed in the ways of the Internet, casually entering the name of the retailer and going directly to the retailer’s website, bypassing Google search. For an established retailer, 20-25% of a retailer’s unique visitors are direct.

Another 25-30% are captured via organic search, which is facilitated by basic SEO, by satisfying an ever-changing algorithm of Google — a topic that could be a feature article by itself.

Another 20-25% can be achieved by paid search at a cost of $1.25-$1.50 per click through either Google, social media, or another digital source.

Obviously, there are other sources, such as direct email, referrals, display, and others. Compared to newspaper, a retailer’s website can tell you a measure of “Is your message getting through?” A weekly/monthly analysis of Google Analytics is a must. The simplified snapshot is shown above from Impact Consulting’s (parent to Home Furnishings Business) FurnitureCore.com application.

Obviously, comparing costs each month is facilitated by this type of analysis. But this still leaves the question: Is my web presence delivering? Comparing your unique visitors to your site compared to traffic to your store provides that measure. The graphic below illustrates.

The dream of every retailer is having a place where consumers could be directed to view their merchandise and be exposed to their unique selling proposition. Depending upon the merchandise price point, 62-74% of all consumers visit the Internet before purchasing. Unfortunately, the consumer is exposed to the traditional furniture retailer’s major competitor – the etailer – and purchases 12-18% of the time. Don’t be surprised by the difference between unique visitors and store visitors. A 60-80% difference is most typical. Monitoring this difference between store traffic and web traffic is essential. Equally as important is knowing what is your cost for the web “Up” compared to the in-store occurrence.

For retailers, the major decision is when to let go of the old and fully embrace the new. The cost of advertising midyear is 5.91% of revenue with the Internet being a little more than 10%, which is in line with print. The table above breaks down advertising expense from FurnitureCore’s Best Practices application.

The next to decline is television. The popularity of streaming with the Millennials, and to some extent Generation X, is decreasing the importance of television. With the increasing scope of OTT (over the top) and CTV (television connected to the internet) traditional television will decline as an advertising medium.

There will always be brick-and-mortar furniture retailers. That seems to be the consensus in the industry. But as ecommerce continues to grow, just how many will be around in five, 10 or 20 years is the subject of much conjecture. Opinions vary widely. Some say the percentage of online purchases will level out at about 20%, while other say it could reach 50% or higher.

Research by consultancy Magid shows there is a definite generation gap when it comes to online furniture shopping preferences. Magid’s research shows 39% of Millennials buy furniture online, compared to 20% of baby boomers. Magid also found that 73% of consumers are likely to research furniture products online, second only to the consumer electronics category. Matt Sargent, Magid’s senior vice president of retail says, even when consumers do their digital research, most still want to come into the store and touch and feel products. “It’s important to see the product and how it will fit,” Sargent says. “That’s good for traditional furniture players. Many customers find a disconnect between the physical and digital experience.” There is a huge difference in numbers and shopping tendancies between Millennials, Baby Boomers and GenXers, Sargent notes. The millennial population is much larger than the GenX population. “Millennials are growing into the life stage where they are acquiring furniture. As Boomers, and to some degree GenXers, slow their acquisitions, Millennials become more important. Their size and the way they acquire things digitally will accelerate some of these issues for the furniture category.”

Rob Davis, chief client officer for Diakon Logistics, is in a good position to observe the evolution of furniture ecommerce. His firm plays an integral role in the success of the delivery of furniture purchased online. He notes that to be competitive, furniture retailers must meet consumers where they are. He offers a recent personal shopping experience as an example. “This summer my family and I were vacationing in Lake Winnipesaukee, New Hampshire,” Davis says. “During our trip we were planning for my daughter’s birthday party at our house, which was scheduled to take place the day after our return. While we were away, we decided that we really wanted to purchase new barstools, a chandelier, and a table to have in time for the party. Fortunately, we had already done the shopping, so it was just a matter of placing the order in time for it to arrive before the party. We ended up buying some items from a national retailer and some from a local retailer and both were able to complete the transaction with little effort. The order was placed from our mobile device, merchandise was delivered just in time for the party, our home looked beautiful, the party was amazing, guests were comfortable, our daughter created wonderful memories, and my wife was over the moon.” Davis says it is all about making it easy for customers to finalize and receive a sale. Retailers can’t be everything to everyone, but they have to be everything to customers in their market.

“I don’t ever see brick and mortar going away in our industry,” he says. “Customers will always come in to touch, feel, and experience. But if you don’t make it easy for them to complete and receive an order then they will end up at their second choice or not purchasing anything at all. Implementing an omnichannel solution that gives your customers options doesn’t have to be difficult.”

RETAIL SPACE DEMAND IS BRISK
While growth of furniture ecommerce business is robust, so too is the demand for retail space. America’s heartland offers a prime example, as furniture retailers have been filling up space vacated by big box retailers. Terry Ohnmeis, a director in the Cincinnati office of commercial real estate services firm Cushman & Wakefield, says demand is strong in Ohio for furniture retail space. He says the two largest categories seeking vacant back space are furniture and fitness. “We are seeing a connection in how people shop, as retailers are integrating how they design their stores and the number of stores.” He says it makes sense for furniture retailers to congregate in real estate markets because it makes it easier for shoppers to hit several locations on one trip. According to Ohnmeis this holds true whether the retailers sell high-end or discount-oriented products. Shopping convenience is the driver for consumers, he says. “We’ve noticed in Cincinnati a consolidation in its submarkets where furniture retailers tend to gravitate around each other. Although there has been a huge increase in online sales with companies like Wayfair, there is still a demand to see furniture in person. It’s also difficult to return those items purchased online. It’s still important to have a retail presence for customers to go try out furniture, double check the color and return it if they need to.”

A VARIETY OF APPROACHES
Retailers are taking a variety of approaches to ecommerce. What follows is a look at the strategies of some internet-savvy companies. Fort Lauderdale, Fla.-headquartered City Furniture has sold furniture online for about 10 years, but kicked that effort into high gear about three or four years ago, according to Andrew Koenig, president. He says City’s objective is to grow top-line sales, whether it’s online or in one of the firm’s stores. City is on track for another year of double-digit sales growth, which makes Koenig happy. He attributes much of the growth to City’s significant investment in technology.

Koenig’s perspective is that City is a retailer.

It doesn’t identify as an online store and it doesn’t identify as a traditional brick-andmortar store. He says retailers must sell where the customer wants to buy and City is trying to grow its top line, both in its stores and online. “Our website is the first showroom our customers shop before they go into the store,” Koenig says. “We still believe a lot of the customers want to touch and feel what they buy. These are $1,700 to $1,800 average tickets, and customers want to touch those kinds of orders. That’s real important.” Koenig praises City’s website team. They are pushed to grow top line sales first and website sales second. He says this helps align the customer’s shopping experience with what they see and feel in the story matching up with what they see online. He attributes City’s recent online success to its “absolute commitment” to being best in class online. “We want to give a fantastic shopping experience, whether it’s online or in the store,” Koenig says. Wherever they want to shop, that’s great. That requires all-in commitment, whether it’s resources, budget, technology, people—we’ve really put our money where our mouth is and it continues to produce major results for both the online customer and the omnichannel customer. It’s been a big win for our business.”

Koenig says City’s challenge is to prioritize its opportunities and to focus on continually improving its one-on-on experience, whether it’s on the site, or email marketing to direct the customer back to the site, or in the store. “The sales associates in the store can pull up the customer’s profile and see what they shopped for online, so that essentially we can continue that cart or wish list that they built online, right there in the store,” he says. “For example, they may have looked at mattresses and selected one, but want to come in and try it out, lie on it to see if it’s right. It might be a two-minute transaction, once they have tried it, just click purchase and they are good to go. All our sales associates have iPads to make this easier.”

What direction will City go in the future? Koenig says the way City is approaching is that its website and its stores will not compete with each other, but will become one. “The experiences that tie the two together will be very important,” he says. “Technology will continue to play a big role to make that happen. It will become a more personalized customer journey. The website will adapt itself to your personal experience. All of us retailers need to continue to invest in technology to automate more of the process, eventually incorporating artificial intelligence. We are just trying to improve the overall experience, not getting too caught up in one channel versus another.”

Koenig says City will continue to expand its technology team in its ongoing effort to become a technologically advanced company. “We want our ecommerce team and our IT team to respond to our customers’ demands of what they want in their shopping experience, both online and in store, so that we can develop that as fast as humanly possible, rather than be at the mercy of a third-party vendor. We have to control that experience. We are going to both buy technology and develop technology. If we see something that the customer needs that hasn’t been developed yet, we will develop it. If we see a great vendor that has a fantastic tool, we will buy it and integrate it as soon as possible.”

Koenig says he thinks customers do not see any difference today between online and in-store shopping. Retailers still need to offer both. He says online furniture sales will continue to grow, and brick-and-mortar retailers have to step up their online skills. “Furniture can be a very exciting purchase in the customer’s life, whether buying their first child’s crib, or furnishing a new home, or updating an older home, he says. “Whether you go online or to a store depends on the timing and the situation. That’s why you have to have a both a great website and a great store, to capture a greater market share.” Koenig says City’s sales team will have the ability to see what customers do online in-store on their iPads later this year.

Tony Mitchell, ecommerce director for Englewood, Colo.- based American Furniture Warehouse (AFW) says the retailer’s online presence has been an extension of its stores. Growth has been incremental. “It is meant to be an extension of our brand and an education for our customers before they come in,” he says. “I call it pre-commerce. It’s not like we are going to close all our stores and just go online and become Wayfair or something like that. It’s helping educate our customers before they come in, and getting them closer to buying decisions and also giving them the option to buy online. They can finance online or come into the store and shop and then go home and buy online. We are offering them the online shopping experience because customers are spending more and more there.” Mitchell says AFW’s online presence has somewhat contributed to its brick-andmortar growth. Simply selling furniture has never been the company’s goal. It’s more about selling it and executing it so the customer is happy with their purchase after they take delivery.

What’s next in furniture’s ecommerce evolution? Mitchell says there will be more acceptance of online purchases. He says there is a growing acceptance for buying things sight unseen. He predicts there will be more pure-play online furniture retailers. “I do see it evolving as a growing segment, and also the customer with the right tools can get better visuals of what the product will look like and how it will fit in their home. It’s fashion first—we want to make sure they get an idea of how it is going to fit in their lifestyle and with their personal style, and the fashion of their home.”

Mitchell says there will be an evolution in the speed of delivery, survivable delivery, and execution. “Technology will play a role in augmented reality, which we are working on now, and virtual reality which will have to be usable on every device. Technology is helping customers make visual decisions about making a large purchase, either sight unseen or to inspire them to go into the store, feel it, touch it, and then hopefully buy more than they intended to while they are here.”

Mitchell says AFW’s technical team is growing with staff who have worked in the company’s stores. They know the products and how to explain to customers the execution and delivery process. “We explain the inherent flaws of furniture, which doesn’t really get touched on in most websites and that overcomes some of the buyer’s remorse where people didn’t know what they were getting. We don’t take cheap items and photograph them so that they look better than they are. Educating customers is at our core, so there is nothing misunderstood.” He continues, “It does happen that customers will shop in the store and then purchase online, but it is more common for folks to research or browse online and start their purchase journey on our site, and then come in and shop in the store. It speeds up the process if they have already seen the item online. Then we can show them other lateral products in their price range, but they know where to start stylistically and price point. The customers are more prequalified to make a decision in the store when they have done their online research. They know our stock level, so it takes a lot of the sales questions out of the way.”

South Florida-based El Dorado Furniture was one of the first furniture retailers to have a working website, says Jesus Capo, the company’s chief information officer. “We have always had a presence online,” he says. “We saw that this was something that was going to happen and so we started originally with basically an online brochure just to have a presence. We were one of the first furniture retailers to have a purchase site. It’s grown ever since we learned from that model, and we’ve grown ever since. We learned from our mistakes, where we had one person in charge of everything, and really if we wanted to have a real full blown ecommerce site and web presence, we realized eventually we would have to start pouring more money into that department.”

El Dorado created and developed its ecommerce department. It now has about eight employees, including a store manager and a product manager. Capo says El Dorado learned it had to treat the department just like a store. It’s not something separate. “The merchandise that is available there is available in the stores,” Capo says. “Any customer that buys online is automatically an El Dorado customer. If you walk into the store, we have your product history from what you have bought online, so it is all one system. It’s now a big chunk of our business. The store feeds the website, and the website feeds the store, which is very interesting, because you can observe spikes in sales of certain products on the website and then that weekend you will notice a spike of the product in the store. Also, customers will sometimes come in and shop the store, but not make a decision, then go home and purchase online. When you notice a spike online, you can then feature the item in the store because you know the interest is there. We try to learn from each side.” There is still the desire among many customers to come see the furniture and measure it to see if it will fit in their home. That’s difficult to ascertain online, Capo says, because shoppers cannot get a sense of the true size of a couch or table and chairs. “So, now we have a feature that allows people to click on the item and it will compare the size relative to other items,” Capo explains. “This type of feature helps on the sales side. A lot of people talk about the possibility that the future technology perhaps will include artificial intelligence, for example, transmitting sensory experiences such as being able to get a sense of the feel of the wood or the leather at home.”

Capo says that while it’s obvious that online shopping for furniture is here to stay, there is also a trend of the return to the value of the communal experience of coming into a store and being able to see and touch the items. “Years ago, many people thought furniture could never be sold online because of that in person factor,” he says. “But we see that there is going to continue to be a balance in the future where we have both the stores and the online experience. We want to make sure the customer has the same experience on both ends. Online, it should be easy, and there should be suggestions of items based on previous purchases. In the store, we should have the same thing, and we have made our store a very exciting place to go to, laid out in boulevards and avenues, not your usual furniture store. We create a very pleasant experience. We try to accomplish the same thing online.”

Accessibility on mobile devices such as smart phones and iPads is essential today, Capo says, as consumers want to be able to shop on those devices. He says this is the future of ecommerce and stores that do not offer that capability will be left by the wayside. Capo says brickand- mortar stores will never disappear, but he believes there will be a point where all will have to change their way of thinking and also offer their products online. “One of the things that held some companies back is the fear of competition. If you put your prices online, everyone is going to know what your prices are then there is the danger of being undercut. We crossed that hurdle years ago, but some may still think that way. Eventually it will likely be 50-50 and the two sides will feed off each other, and work together to make a happy family.”

As for future trends, Capo says there has been talk about using voice search to find products online, but he says furniture is not an impulse purchase and requires thought and research. Since it is an expensive item, he says it is difficult to see how that would work. However, he says there is potential for the use of artificial intelligence and augmented reality to be used on websites to suggest colors and patterns and how furniture might look in the home.

Brian Woods, CEO of San Diego-based Jerome’s, says online sales will eventually plateau, but that plateau could be much higher than some think. “Online sales will continue to grow to a point of plateauing,” he says. “But what is that plateau? It could go as high as 60-40 online or 70-30 retail. It will take years to get to that point.” Woods says, “Technology is evolving exponentially and more and more people are figuring out how to adapt those technologies. My adoption of those tools is totally dependent on whether customers tell me that technology is a driver in their decision-making. Something can be really cool and give customers a different perspective, but if it’s not leading to conversion…if you give customers too much information, they start second guessing themselves.”

Woods says there is an incredible amount of ecommerce technology available, providing options to present a retailer’s products and experience, but it comes down to selection for which ones move the needle in terms of sales. Woods says his estimate of where ecommerce might plateau is about 30%. He based that on his study of data points and watching year-over-year trends in different categories. “The question is does that take five years or 30 years,” he says.

A MANUFACTURER’S PERSPECTIVE
Johne Albanese, marketing director for Martinsville, Va.-based Hooker Furniture says ecommerce continues to grow, but the overall pace is slowing. The biggest potential for growth continues to be with omnichannel retailers serving local markets. “Ultimately, the consumer is driving the process,” Albanese says. “Consumers still like to go to stores as long as it is an experience they enjoy. About 85% of them are still doing it that way, and the idea of the store declining is faulty logic.” Albanese says Hooker assists its retail customers by providing various types of data to make the process of getting products uploaded on multiple platforms easier. “Trying to get data in a managed way is the difficult part. We work to make that easier for our brands for our brick-and-mortar retailers. We can help with them consulting on the process with suppliers and digital advertising.”

Albanese believes there is a lot of “noise” in the technology space with retailers facing decisions about which providers to use, which ones not to use, and deciding if and how distribution should be limited. “We are of the belief that a locally-focused retailer has a true advantage if they have a store that people like to visit. Over the past few years, technology has gotten much more robust, and there are several good platforms available out there for people to add ecommerce to the mix, particularly if they are on some type of ERP system that has a module for it already. It’s definitely an investment, like adding another location.” He thinks that furniture ecommerce will probably top out at a plateau of 20 to 25% of overall sales, with the majority of that coming from omnichannel retailers rather than the pure play variety. “Ecommerce is another way for retailers to execute sales, but it’s a way that allows consumers to choose how they want to transact business.” According to Albanese, Hooker has been aggressively supporting its retailers in their ecommerce efforts for about six years. The greatest potential for ecommerce is in supporting local markets, he says. “We were pretty early adopters of what we thought was coming,” he says. “We have a staff of people who are experts at helping retailers doing that. The technology has gotten better over time.”

TECHNOLOGY EVOLUTION
MicroD’s chief product officer Richard Sexton says distribution issues are the primary impediments for ecommerce growth. He says marginal brickand- mortar retailers go out of business and pure play online will gain market share, but they will still have to solve the logistics issue. Sexton believes there will be incremental technological advances that will make online shopping a faster and easier experience. Perhaps farther down the road will be visualization advances as websites move to 3-D experiences with augmented reality. “That experiential technology will evolve, and other things will be different. There will be advances that facilitate convenience. It will be easier to purchase products with fewer clicks. The experience will be faster and device agnostic. There is still a problem moving between an Apple and an Android device, but we are seeing some convergence there. No one can absolutely say the difference maker will be artificial intelligence. It will help. A 3-D experience will also help, and standardization of browsers will help. What’s the next big thing? It could be a combination of those, but the changes will be subtle over time.”

Keystone Media International manages ad programs for home furnishings brands and retailers. Rick Harrison, sales director for home furnishings, says the firm’s banner ad technology offers a cost-effective method for firms to get their message out. He says the systems of running interactive banner ads across a network of designer sites offers an effective way of getting in front of highly desirable consumers. “What makes the ad technology special is that you can accomplish all of your brand’s goals at the point of contact and begin working a consumer through to the purchase funnel while they are still in the ad,” Harrison says. “It’s a much more efficient method of driving a consumer through to the purchase funnel.”Harrison says these types of banner ads allow the retailer or brand to tell their entire story and accomplish all of their ecommerce goals while the consumer is still in the ad. “We get more interaction with our ads, and it’s a much more efficient ad buy in terms of engagement levels. Consumers are being delivered through the product or purchase opportunity they already care about as opposed to clicking on the home page and starting the purchase funnel.”