Cover Story: Will the Retail Experience Become the Advertising?

February 17, 2020  by HFBusiness Staff in Business Strategy, Industry   

Furniture retailers responded creating a web presence. Initially, many were placeholders as there was a “land stampede” for domain names. Now, those placeholders have transformed into signifi cant presentations of not only product, but also the variance in the retailer’s services that make them uniquely diff erent from their competitors. Today, depending upon the merchandise price point, 72% of consumers visit the Internet during the buying process for research.

This presents the obvious question, “of the consumers actively considering or shopping for furniture within my market footprint, how many are visiting my website and how many are visiting my store?” Current research updated quarterly via FurnitureCore, the research arm of Home Furnishings Business, measures the stage of shopping for consumers as shown in Graphic A. Obviously these percentages vary by age group with 39% of the 35-54 age group having begun the buying process compared to the other age groups at 30%.

Understanding how many unique visitors come to your website is provided by Google analytics and is well accepted as the most accurate source of this data. Combining this with your store traffi c counts will provide a good perspective of how your advertising is impacting your performance. Graphic B combines all of these statistics into one graphic.

For many retailers, this visual is often a shock when they see the diff erence between those visiting their site and those visiting their stores. However, considering that consumers may visit more than seven websites on average, but only shop 2-3 stores indicates the challenge of bringing customers into the physical store (Graphic C).

Obviously, this statistic varied by age / income reflecting the demographics and depending upon the advertising media used to convey product differences.

Comparing the unique visitors to the retailer’s website to the number of consumers actively engaged in shopping for furniture is just as important. A large defi cit indicates that consumers are not considering the retailer. This factor measures the brand awareness of the retailer. Considering recent fi nancial fi lings by Casper that indicated expenditures of $400M in advertising to achieve 31% added brand awareness emphasizes the challenge. Consumer research that asks which retailers were considered, shopped, and purchased from measures the retailer’s market position. Graphic D presents the findings in a typical market.

Advertising is the process of changing these statistics. Having more consumers considering your store and having more consumers visiting your store after viewing your website is the objective. The advertising strategy of the retailer should be influenced by the media that most influences the consumer target. The leading influencer, according to recent research, is the Internet, followed almost equally by television and magazines combined.

Graphic E presents the findings. Obviously these statistics would vary by age with the younger consumer < 45 years of age, indicating television as 13.25% compared to older consumers 45+ at 17.90%. Again, the retailer must select the advertising media for the consumer they are targeting. For that reason, lifestyle retailers, such as Pottery Barn and RH (Restoration Hardware), use direct mail and social media as these mediums are the preference of the 45 age segment.

Interestingly, from a financial perspective, traditional retailers (independents / regional chains) expend significantly more on television (broadcast). The breakdown as a percentage of sales is shown in graphic F. Beyond the how of advertising is the what? What is the specific message that will most motivate the consumer to select you as the retailer of choice? The messages must start with the why. Graphic G shows the consumer is purchasing replacement furniture (43.95%), and is based upon recent research that explores the most relevant reason for the consumer to make a purchase.

For industry veterans, this is an astonishing statistic as it has more than doubled in the past 20 years. In fact, there was a feeling then that we “built our furniture too well,” and, “should we consider an obsolescence factor?” Unfortunately, a frayed sofa doesn’t create the same sense of urgency as a broken refrigerator. It is, therefore, a postponed purchase.

As can be seen from Graphic G, “desire for new furniture” is just over 27% of purchase motivators. However, for our prime furniture buyer age 25-54, a recent move and remodeling are over 50% of the purchase motivators. The importance of direct mail to influence the new movers is well justified with over 25% of purchases from this demographic. As would be expected, when the consumer’s reason to purchase is driven by furniture replacement, quality (29%) would be the most important feature that attracted the consumer to the product they purchased (Graphic H).

While quality is consistent across all age groups as being of importance, warranty is much more important to the 35-54 age segment, being the segment that have experienced the decline in quality first hand. The opportunity to provide warranty is a significant opportunity to add profitability. A key profitability item in appliances and electronics has not been fully executed in furniture retailing.

While the purchase motivator for new furniture is style representing only 25%, it does present an opportunity for larger tickets and higher margin. Where does the consumer get their style inspiration? Again, the Internet (37.5%) is the primary response, but there are other important infl uences as shown in Graphic I.

As you would expect, for our emerging furniture purchasers (25-34) age group, the Internet is more important. However, retail stores represent less than half. Are we creating the visual experience in our stores?

What ultimately motivated the consumer to purchase? Unfortunately, the manufacturer and retailer reputation contributed less than a third of the motivation (Graphic J). Again, the repeat of quality as the prime motivation was the consensus. From an advertising perspective, the most diffi - cult element to communicate is quality. In advertising, the substitute for quality is brand.

Finally, we must consider the financial aspect of advertising. Unless you have fi nancial backers, such as Casper, you cannot aff ord to spend 33% of revenue on advertising. A percentage in the 5.5% to 6.0% range would be appropriate. The table below (Graphic K) presents the statistics by retailer’s revenue.

Beyond the advertising expense must be the eff ectiveness of advertising. In other words, does your advertising bring the consumer through the door? The most common measure is the cost per up. The industry average can be seen in Graphic L .

As can be seen, the smaller retailer < $5M is at a signifi cant disadvantage. Advertising in furniture retailing today has become more challenging. While the Internet can be a more eff ective medium to communicate considering our time-starved consumer, it is diffi cult to communicate the quality. What is emerging is the direct to consumer brands. These manufacturing direct brands are Omni-channels with unique brands with unique points of diff erences, begun on the Internet and moving to physical stores will be their strategy. The need to expand customer bases will drive the need for brick and mortar.

However, their stores will be customer experience focused. By that, they will be personalized, frictionless, and enjoyable, staff ed by passionate sales associates. The stores will be smaller, less high-price environments focused on brand building assets, such as digital screens. The new retail will be data driven, putt ing the consumer experience first. Maybe the retail experience will become the advertising. We are beginning to serve the experience generation.