Cover Story: 2020 Power Distribution Channels

December 6, 2021  by HFBusiness Staff in Business Strategy, Industry   

Based upon research from Colliers research team and COSTAR real estate database for furniture stores (NAICS Code 442110) nationwide in 2019, the 378 transactions for 5.06 million square feet declined 46% in 2020 to 203 transactions, totaling 3.1 million square feet. For 2021, the decline continued to 124 transactions (38%) and 1.68 million square feet. What does the future hold? Ben Haverty, a seasoned industry veteran and vice president of Colliers Retail Service Group, summed up what has happened best: 2020 Shrink and Survive “In 2020, as the pandemic exploded, retail furniture focused on surviving by shrinking unproductive stores, renegotiating overpriced leases and working to expand their digital sales.”

2021 Stabilize and Plan “In 2021, retailers that survived 2020 are focused on product supply chain and logistic issues to capture the robust bounce back in sales, but at the same time started the long planning process of opening new store(s) in their existing and new markets.”

2022 Expand and Strive “2022 will see the fruit of the 2021 planning. We will see a surge in new furniture store openings from national chains, regional players ready to expand into new markets and native digital brands that have discovered they need physical showrooms to complement their digital business.”

Adding a different perspective for the houseware/home furnishing retail segments, there were approximately 2,900 closures and 1,200 openings between January 1, 2018 – November 1, 2021. Eliminating Mattress Firm and Pier 1, the gap narrows to approximately 1,800 closures and 1,150 openings. Another industry powerhouse, Julius M Feinblum (JMF), believes 2021 has been better than most believe with the more entrepreneurial independent retailers taking advantage of opportunities. From Julius’ perspective, 2022 and beyond will see a continued expansion, not only with the established retailers but new entrepreneurs, especially the second generation of new immigrants that see retailing as a low cost of entry business. While the growth of brick and mortar stores will continue, the major question is in what distribution channel. Figure 1 and Figure 2 present the historical growth and decline of retail stores compared to the retail sales by distribution channel.

The pandemic, while interrupting growth in the second quarter of 2020, returned in the balance of the year and has continued in 2021. However, the retail stores growth was in home furnishings stores but not furniture stores.

HISTORICAL PERSPECTIVES

The industry discusses distribution channels often but not what causes the need for new distribution channels — the consumer need for a different retail experience. The initial graphic places the distribution channels in perspective of time and the furniture purchasers that dominated the purchases. Prior to the 1960’s, the furniture market was dominated by National Chains (JCP/Sears/ Wards) that provided value to the growing middle class demanding quality at a good price and satisfied the move to the suburb. Fashion was defined by Homes and Garden magazine and supported by television shows such as Price is Right. Local Department Stores, before the mergers, defined the upper-end consumer expectations. The Warehouse Store format (Levitts), with inventory in racks overhead, addressed the consumer need for instant gratification and has continued to this day with “next day delivery.” The warehouse clubs such as Costco emerged to satisfy the search for a better deal along with the 1-800 Number Retailers Independents took the mantel from department stores for better goods as the product/services of the merged local department stores failed to satisfy regional states and traditions.

Some independents continued to grow, becoming Regional Chains still run by second and third generations of furniture retailers, a tradition that continues today. Designers expanded but have expanded their services to more than the “manor born” to now the two income households that do not have time to shop for furniture – in essence personal shoppers executing the consumer’s personal style not that of the designer.

And then came e-tailers that provided the selection/price at 10 o’clock with a click of the mouse. If not a purchase, at least the shopping research. With the pandemic, more consumers completed the research with a purchase.

From a false start in the 1980’s, the major manufacturers brands such as Broyhill, Lane, Ashley, Bassett, Thomasville and many more expanded their gallery concepts into free-standing Manufacturer Verticals stores mimicking the successful Ethan Allen in partnership with retail partners. This concept has significant potential but failed with outside corporate financial ownership and lack of management depth. Entrepreneurial retailers expanded their consumer-targeted stores such as Crate and Barrel into Lifestyle Stores, delivering to a very focused consumer target the look and price they wanted.

There are survivors in each of these distribution channels still servicing a consumer base. However, their rise and fall will be determined by an ability to deliver the retail experience that their consumers seek. As each of these channels emerged, existing retailers anticipated their channel would be decimated. However, those that accepted the challenge of change survived. Look at the graphic. Some are in the dustbins of industry history and others have prospered. For example, Furnitureland South is now at the top of our Power 50 Retailers – Independents. Graphic A tracks the performance of each distribution channel over the past five years.

But the pandemic has created significant growth for many distribution channels and many retailers have seen a financial bonanza. The question is whether a return to historical levels of demand will result in a reversal of their marketshare.

A major question is, what will the furniture store look like in the future? There is a move to smaller footprints with a more curated selection.

What will emerge from 2021 and into the future will be different but for sure it will address the needs of the emerging generation of consumers.

HOME FURNISHINGS BUSINESS’ RETAILERS 10TH ANNUAL POWER 50

T he pandemic in the first quarter of 2020 could have dealt a death blow to the foundation of the furniture industry. The smaller independents, already dealing with the expansion of the regional chains, now faced with this new external factor could have decided enough was enough. Regional chains with their more entrepreneurial management teams innovated and managed to continue selling in spite of shutdown orders.

What was an obstacle to the traditional retail sectors became a boom for others as the status of “essential retailer” allowed mass merchants, value retailers, appliance stores and home improvement stores to expand their selection of furniture and gain marketshare. Leading this marketshare STEAL was the direct-to-consumer distribution channel, gaining 5%+/- in 2020. Topping the list was Wayfair, surpassing Amazon in the furniture segment.

After a tumultuous second quarter, it became obvious that consumer expenditures for furniture and bedding was going beyond pent-up demand and reflected the change in consumer perception about their home and living environment. After a slow start due to restrictions, Furniture Stores regained their competitiveness. Graphic A presents a comparison of monthly sales.

The traditional furniture retailers, lead by the regional chains, surged back. However, the next challenge emerged – the lack of product to sell. The old strategic advantage was important again as long term relationships with manufacturers became the difference between “product” to sell and “promises” to sell. While quarter to quarter comparisons were historic, the challenge was and continues to be product to sell.

What matters is after the turmoil how does the consumer choice of distribution channel emerge. In October, a survey of consumers indicated where the dust settled. Not surprisingly, the iIternet gained ground but independent retailers did as well. Note from Graphic C the winners and losers.

The next important finding will be as we return to normal in 2021 and beyond, where will the consumer preference emerge? But at the end of 2020, this is where the individual retailers stand according to our methodology.

POWER 50–METHODOLOGY

Market share is the most heavily weighted factor determining who makes the list, accounting for 46% of the total score. It is determined by dividing the retailer’s estimated sales by the estimated retail sales of furniture and bedding in each of the markets in which the company participates, whether it is a metropolitan statistical area, micro statistical area, or a rural area. Sales of electronics, appliances, and housewares are not included.

To arrive at a list of home furnishings retailers with the strongest online engagement, we measure by 14 separate metrics. Sources include Alexa, Facebook, MOZ, OpenSEO, Twitter, and Pinterest. On Facebook, for example, the number of “check-ins” and “likes” were among the metrics, as were the number of Twitter followers, Pinterest “pins” and GooglePageRank, just to name a few.

From that data, we used a basic ranking methodology, assigning a numerical value to the ranked list of each metric. (For example, the retailer with the highest number of Twitter followers received a “1,” and so on.)

Then, we arrived at 14 individual scores calculated for each metric. After dropping the two highest scores to eliminate any outliers, the statistical average of the 12 remaining scores was used to calculate the final engagement score.

The final factor in the Power 50 ranking is retail expansion, which accounts for 15% of the total score. Using public records, it measured store expansion and expansion into new markets. In addition to the Power 50, HFB compiled separate lists that ranked regional chains, large independents, vertically integrated retailers, and independents with sales of less than $50 million in a single state.