Cover Story: Consumers are Demanding but they are the Customer

December 29, 2023  by HFBusiness Staff in Business Strategy, Industry   

Figure 1 summarizes all factors. As you can see, many of the factors are POSITIVE and few are NEGATIVE. However, much of the recent comments in the industry are about the impact of housing starts and inflation on the current performance.

For example, do you remember what happened when Reagan was elected? After Carter, inflation came down and mortgage rates declined. Yes, the industry accelerated. However, it began with Carter and only accelerated Table A.

The point is that the industry must recognize what drives it. If we recognize those factors that impact the industry and adjust our plans accordingly, performance will be maximized. Easy to say, but hard to do. Company management goes through distinct phases; DENIAL – It is just a temporary blip; ANGER – It’s the supply chain; ACTION – I must do something; and finally, RESOLVE – I will wait it out. The alternative is to have a fact-based plan. While the industry, at least the traditional industry, is experiencing a downturn, the TOTAL industry including furniture and bedding sold through all distribution channels is holding steady as can be seen in Table B.

Something’s Happening Here – What It Is Ain’t Exactly Clear However, we have a conundrum. While the industry appears to be stable if not improving as illustrated in Table C, the reality is that the TRADITIONAL furniture industry is faltering. It is not a typical industry rumbling, but a fact that since April TRAFFIC has plummeted. However, increased CLOSE RATES and maintained AVERAGE SALES have minimized the impact to written sales. The key performance indicators from top quartile retailers from FurnitureCore, a sister company of Home Furnishings Business, illustrate’s the trends below.

The question is, what caused the deviation in 2023, as illustrated by the furniture store results (retailers that derive at least 70% of revenue from furniture) and the KPIs of FurnitureCore’s top quartile? To understand, we must go to the consumer, the foundation of all retailing efforts. The following section examines TRADITIONAL retailers focus on the generational shift that is occurring; specifically, where they want to shop and what styles they desire, but most importantly, how do they perceive furniture in their priorities?

FURNITURE CONSUMERS – WHO ARE THEY? Times, they are a-changin’ It couldn’t last forever. The United States market has enjoyed the consumer consumption driven by the Baby Boomers. The population expansion that occurred after WWII resulted in one of the largest groups of consumers that wanted to spend. Without the constraints of wartime memories of their parents, and the “depression” of their grandparents, they were ready to consume, and they did. The HOUSEHOLD FORMATIONS is one of the prime drivers of the furniture industry. Table E presents the historical statistics. Each generation has different characteristics that influenced HOW THEY SHOPPED and WHAT THEY PURCHASED. And with each generational shift, retailers had to change the way they “retailed.” With each generational shift came different distribution channels that served the demands of this new generation. Table F illustrates the transitioning. It would obviously be easier if retailers could stop one generation and begin another. However, the transitions are the most difficult. Now we have a trifecta with three generations almost equally spending at the same time. The graphic below illustrates the expenditures and households.

This issue’s STATISTICALLY SPEAKING article provides additional information on the generations and their impact on the industry. The most important understanding is the consumers attitude toward decorating/home furnishings. As with other consumer products, the differentiation between “need” and “want” has shifted from a few product categories to many, especially among generation segments. When we asked the question, “WHICH OF THE FOLLOWING STATEMENTS BEST DESCRIBES YOUR ATTITUDE TOWARD DECORATING/HOME FURNISHINGS?” Figure 2 provides the response. The industry should be delighted to see that the coming generation is positive about our product and services. However, both retailers and manufacturers must interpret this attitude. The industry must gradually move away from “price” as a motivator to QUALITY and STYLE. The consumer does not want to communicate cheap and practical, but UNIQUE, STYLISH AND SUSTAINABLE. The marketing message must convey the same with quality visuals. Please note the caution related to the word gradually mentioned above. While the desire is there, the pocketbook may be reluctant to follow. When we analyze the survey results by income, we see the hesitation as shown in Figure 3.

This purchasing (expenditure) barrier is reflected when the purchase, by age/income of the majority of independent furniture retailers as well as regional chains. Figure 4 below presents the industry statistics for the past 12 months.

As can be seen in Figure 4, while traditional furniture retailers sell all demographics, their sweet spot is above $75K in income. The challenge is to return to communicating “Furniture is an investment – that will last for many years” and stand by that promise. Now traditional furniture retailing is focused on less than a third of the nation’s households.

There are distribution channels – value retailers, such as Big Lots, which are targeting the middle-income demographics, $35K - $75K. The use of retailer credit cards and revolving credit at the department stores can address a need and build loyalty. How has the purchasing process changed from the Baby Boomers to their children?

As can be seen in Table G, the initial shopping is NOT a family outing with partners on a shopping expedition. The impact of dual income families creating busy weekends, along with additional research on the Internet has led to delegation. Also, home furnishings are no longer the domain of the female with the male participating. However, the female/spouse is 3x more likely to take the lead.

When the consumer shops for furniture, what are they looking for? Interestingly, there is no significant variance between generations, as can be seen in Figure 5.

Now for the actual process of purchasing. With the limitations of the pandemic, you would expect a significant change, however not as much as expected. Figure 6 compares the length of the shopping prepandemic and post-pandemic. The table compares the shopping time by generation currently.

As can be seen from the graphic the shopping process is not savored as it was in the single income family time period (1980 – 1990) when the decorating project was a timeconsuming project. Figure 7 shows, the number of retailers shopped did not vary significantly by generation. Rest assured that the United States will remain a “shopping” nation.

During the pandemic, consumers were reluctant to travel great distances to shop or travel at all. However, furniture retail shopping has returned to normal with the majority of consumers driving 10-24 miles to shop. Table H presents the pre/post pandemic comparison.

As can be seen, there is no generational differences as to willingness to travel. This is important for future expansion plans to determine the number of stores in a market (Table H).

And finally, was the consumer satisfied with their shopping experience and if not, why not? When we solicited the consumers input, we got the following results as shown in Figure 8.

For the most part (30-40%) of consumers were extremely pleased with their experience. The most negative area was “good decorating advice from the retail sales associate.” This finding caused us to reflect on the growth of designers/personal shoppers.

In the last decade, the traditional furniture retailer has been under significant pressure with the disruption caused by the deterioration of the national chains; Montgomery Ward, JCPenny, Sears, Levitz, Helig, and Myers. While the decade, beginning with the year 2000, saw the decline of the national chains with many bankruptcies, other retailers that continued as more shadows of the concept of a national furniture chain also vanished. However, this disruption gave rise to the next generation of the family to expand the single-store independent to regional chains, such as ROOMS TO GO, RAYMOUR AND FLANIGAN, and HAVERTY’S, and later BOB’S DISCOUNT. Again, financial difficulties, often fueled by venture capitalists, led to the failure of ART VAN, FURNITURE FAMILY OUTLETS (FFO), and others. Furniture retailing is a tough business impacted by the ever-changing consumer purchasing and style preference. One furniture retail solution, after the deterioration of the national chains was the opening of dedicated manufacturer brand stores such as THOMASVILLE, LANE and BROYHILL driven by the conglomerate FURNITURE BRANDS. Most of this distribution channel has disappeared except for the ASHLEY brand that is now the largest furniture manufacturer/ retailer with more than 1,000 stores in 60 nations. There are other manufacturers that have pursued a combination of retail and wholesale such as LA-Z-BOY and BASSETT INDUSTRIES to name some of the larger retailers pursuing this manufacturer direct strategy.

Larger general retailers such as COSTCO and TARGET and more recently BIG LOTS attracted by the high margins embraced the furniture product. With the creation of offshore manufacturers capabilities new retailers collapsed the channel and began to design and produce their own product line. Led by entrepreneurs CRATE AND BARREL, RESTORATION HARDWARE, and POTTERY BARN, these major players developed product and a retail experience focused on a specific consumer group. And finally, the most recent retail challenge is the move to ecommerce in 2010 with WAYFAIR who after an experimental beginning as CNN STORES in 2002, became a threat to traditional retailers. Wayfair has been joined by general retailers and other ecommerce players such as AMAZON. The digital retail presence for furniture is here to stay. In fact, furniture manufacturers following their sister manufacturers in bedding, are beginning to sell direct to consumers (DTC). As always entrepreneurs are filling the space with no prior furniture experience and launching successful companies such as MAIDEN, BURROW and ROVE CONCEPTS.

This is the challenge for traditional retailers – can they change the product they merchandise and the buying experience to maintain their market share. Table I presents the historical transitions: The pandemic caused disruption in the furniture industry distribution channels with many furniture stores being declared “non-essential retailing” while other retailers continued to sell furniture along with other products. Retailers such as home improvement stores gained market shares.

Figure 9A and B compares distribution channel preferences before and after the pandemic. While ecommerce experienced an initial bump it was short lived. The major recipient was other alternative distribution channels such as home improvement stores and value retailers. While this temporary change in purchasing habits, driven by demand, many returned to their pre-pandemic preferences. A recent national survey shows the results. Driven by demand, long term consumers will return to their preference based upon lifestyle. A recent national survey measured this preference by generation.

Currently (2023), the traditional furniture retail distribution channels have just over half of the market share (62.1%). The Internet market share does not include those online sales in mass merchants and catalog chains such as Amazon. We estimate total online furniture and bedding sales to be about 18%. The next question is, “why are these various distribution channels preferred by consumers?” A recent national survey of consumers ranked specific retailers as #1, which we then attributed to specific distribution channels. As can be seen only in the valuation of the physical plant – exterior/interior—are regional chains found lacking.

What Does the Consumer Want?

As was previously mentioned, the Baby Boomer was easy to satisfy as long as it was traditional.

Yes, there were variations; CHIPPENDALE, LOUIE THE FOURTEENTH, or to the extreme SHAKER, but it was traditional. While not as exacting as their parents as to the finer styling details, the transition from craftsmen in small shops to manufacturing plants went well. Overtime the distinct design points were lost in each manufacturer’s interpretation of the style. With the next transition in the industry – moving to offshore manufacturing – more details were lost in the quest for manufacturing efficiency or just the ability to get something produced. The thoughts of dove-tailed drawers and 10-step finishes were traded in for the pursuit of margin. With this transition came a change in the consumer attitudes toward furniture from being an investment to a disposable item. As was discussed previously, the youngest generation’s attitudes especially in the upper incomes are returning to appreciate style and design. However, this return is not to the “Brown Furniture” of their parents and grandparents but a style that is uniquely their own.

Using visuals in a recent national survey, FurnitureCore asked consumers to identify their current style and then their dream style from the following visuals. The responses are shown in Figures 10 A, B, and C.

As would be expected, the American furniture consumer has not totally abandoned the traditional styling, but they have started in that direction as can be seen from the graphic below. Leading that direction is the Millennials and Generation Z as indicated in Figure 10A, when the findings were segmented by generation.

Styles changes slowly, especially in durables that are purchased less frequently. Style changes are influenced by what the consumer is exposed to. Before we moved away from stay-at-home moms, “soaps” were big influencers. Social Media has filled that role as shelter magazines have declined as well in content/ advertising for furniture in the magazines that remain.

Manufacturers observe the trends and hope to strike a chord with the consumers. In this issue of the magazine, Style Directions presents animal motiffs as one of these trends.

The consumer has a vision of what their personal design style would be. In the same national survey, the consumer was asked, “What is your DREAM STYLE,” and this was their input along with the variance from their current style: As with the current styles, the generations influence the style direction. Figure 10B presents the dream styles by generation.

As can be seen from the table, midcentury has lost its luster with the younger generation, but modern is more in favor with this emerging furniture buyer. Analyzing this same input by income range, the results are shown below in Figure 10C.

The major challenge related to style with furniture manufacturers and retailers is not identifying incoming style trends, but how to communicate both externally to its customers and internally to the staff that will sell the product to the consumer. To accomplish this requires that the retailer develop its own unique naming process for a style using a series of fun questions that require less than five minutes. DesignCliq identifies the consumers styles with a 90% concurrence. An output is shown below in Figure 11. This process, while informing, can be utilized to market with direct email and the website.

It is difficult to incorporate generational and style preference into the execution of a strategy. The use of the old standard of a war room with pictures and notecards posted to a conference room wall has served retailers for years. Transforming this concept to a digital format can provide a demographic and style preference to merchandising. Figure 12 illustrates.