Cover Story: Distribution Channels The Stage Upon Which To Sell

April 10, 2024  by HFBusiness Staff in Business Strategy, Industry   

The driving factor of this transition is the consumer and their desire for a different “RETAIL EXPERIENCE.” That is the challenge for the retailer. What is “retail experience?” In the past decade traditional furniture retailers have pursued a strategy of price reductions enhanced with attractive financing. While price is important, according to Home Furnishings Business’ sister company FurnitureCore’s most recent consumer survey, it is number three and declining (16.81% - 14.48%) in the consumer ranking of motivators. Table A compares pre-pandemic (2019) to postpandemic (2023). The rankings are especially different when we consider the emerging generations as shown in Figure 1. What is more important – QUALITY, MANUFACTURER’S REPUTATION or DESIGN (style)?

While these motivators are not the retail experience per se, they are what is expected as part of the experience. Where does the traditional furniture retailer stand on these motivators? With the first— QUALITY— there is a challenge. Quality has declined in the past two decades. The industry can blame the increase in imports, but it is the industry that designs and inspects the quality. The industry can blame the margin demands of the retailer and they, in turn, blame the consumer for price resistance. Nevertheless the consumer price indexes (CPIs) have declined for years compared to other consumer products. Only with the pandemic did we get a bump up. Graphic 2 provides the statistics.

This price increase has resulted in better margin for retailers that created a volume variance in their financials and a better bottom line. Financial Snapshot is shown below.

Unfortunately, this impact has not “trickled down” to the manufacturers. However this will change. This price increase has not impacted quality. However, the consumer will begin to demand change. It is not a fad that the emerging “vintage furniture flippers” are taking donated furniture from outlets such as Habitat’s RESTORE and providing quality to the emerging generation. It is ironic that the generation (Baby Boomers/Silent Generation) that appreciated quality and brand are recycling their furniture to a younger generation (Millennials) that embrace sustainability and are beginning to appreciate quality and brand.

At the retail level, the industry has lost the quality words that were used by retail sales associates such as “eight-way hand tied springs,” 12- step finish, great cherry wood, and so forth. In FurnitureCore’s, ongoing consumer survey only 30% of furniture purchasers knew what an eight-way hand tied spring meant, down from 65% two decades ago.

What about MANUFACTURER’S REPUTATION (brand)? The industry has lost the iconic brands of Broyhill, Lane, and Thomasville while others have been rescued by companies such as Century and Stickley. Why have brands disappeared? Simple. The lack of advertising to the consumer via shelter magazines. An immediate response is, What about digital? The furniture product needs more than a moment on the screen with a low-res image for a consumer to appreciate the quality/design and brand commitment. And finally, DESIGN (style). What the consumer wants. What they find when they visit the store. It is difficult for traditional furniture retailers to move away from the style of their old customers to the new customers that are becoming their prime target audience. Graphic 3 provides the top style preference from FurnitureCore’s consumer research.

The demand for a retail experience catering to consumers seeking a particular style has led to the emergence of new distribution channels. These channels target specific customer segments defined both demographically and psychologically. We refer to these channels as RETAIL VERTICALS, encompassing both manufacturing-based entities such as Arhaus and La-Z-Boy, as well as retail-focused companies such as Pottery Barn or RH. The key differentiator is their control over product offerings.

What else is included in the retail experience? When surveyed, consumers who had purchased furniture within the past 12 months were asked what was important to them in the retail experience, the answer was “everything.” Shown in Graphic 4 is the range of importance by generation (the range from 1-5 with 5 being the most important).

As can be seen, advertising becomes increasingly important with younger consumers. Likewise, the younger the consumer the more important financing options become. The older the consumer the more important value becomes. Likewise, the older the consumer the more important reputation becomes. Service is more important to older consumers, and finally the older the consumer, the more important the interior of the store becomes. There is a significant deviation in demographics between markets. The challenge of the retailer is to tailor the retail experience to the demographics of their market footprint by generation as shown in Figure 2.

The consumer has a choice of distribution channels in which to purchase their furniture. Because of the infrequency of furniture purchases, the choice is influenced by their past experiences, word of mouth or advertising. Based upon current research, the first step in the purchase process (52.5%). The consumer conducts Internet research and then goes to the store to see what is available (23.2%). Obviously, the path to purchase differs for each consumer. Additionally, there are influences along the way. Table C breaks down the process by generation.

Once the consumer has completed the research process, they start the shopping process. Currently that process is fast, with the majority taking less than two weeks. Gone are the days when decorating was like savoring a fine wine. The time -starved consumer wants to get it done. Table D presents the statistics.

Graphic 5 documents the shopping process from the short list to the final purchase. How did each distribution channel fare in the competition for the consumer’s furniture spend? Graphic 5 presents the composite of specific retailers across the nation assigned to distribution channels and shows how each distribution channel compared. Let’s discuss each of the steps in the process and how the various distribution channels performed INDIVIDUALLY.

Did Not Consider First, BRAND AWARENESS (considered). Brand awareness is achieved over the long term from customer experiences, word of mouth and consistent advertising. Graphic 6 compares each of the distribution channels.

The first observation is how aware the consumer is that furniture can be purchased at mass merchants (home improvement/value retailers/warehouse clubs). With. 80% of consumers using the Internet for research during the shopping process, it was only a matter of time before they started buying online. The emerging RETAIL VERTICALS whether manufacturing-based (manufacturing verticals) or retailbased (lifestyle/style verticals) are distinguish themselves by controlling their merchandising assortment and focusing on a narrow demographic segment. From the graphic it appears they have less brand awareness. However, when measured against their consumer target, the brand awareness improves to the 60-70% range. In terms of awareness, traditional furniture channels perform evenly, with independents holding a slight disadvantage.

Considered Not Shopped Moving to the LOYALTY or EFFECTIVENESS of CURRENT ADVERTISING of those that CONSIDERED BUT NOT SHOPPED we begin to see the competitive advantage emerge.

Shopped not bought/shopped and bought The next step in the process is to ENGAGE AND PURCHASE. It now becomes a measure of the effectiveness of SALES MANAGEMENT and the appeal of the MERCHANDISE ASSORTMENT. Graphic 7 presents the comparison by distribution channel. In summary, the alternative channels are more effective in achieving the sales. However, they are attracting only 28.8% of the purchase share as indicated in Graphic 8. In today’s furniture industry, the traditional furniture retailer and the manufacturers that support them are faced with two competitive threats. The normal competition between other independent retailers and regional chains and the new distribution channels focused on furniture (retail verticals) and the general merchandise retailers trying to capture a share of the furniture market (Graphic 9). A retailer must understand their performance in attracting consumers within their distribution channel as well as their performance in the market against other distribution channels.

FurnitureCore, the business intelligence arm of Home Furnishing Business, continuously conducts national surveys to measure the effectiveness of the individual retailer against its direct competitors as well as its secondary competitors from other distribution channels.

How did each distribution channel fare? First, how did they judge each channel by the experience factors listed earlier? All were important, but what channel received the most #1s? From the ongoing survey of consumer purchasers in 2023, Figure 3 shows the findings.

The traditional channels led by regional chains maintain the consumers preference with a third of all furniture purchasers ranking them number one in seven of the eleven factors. However, the RETAIL VERTICALS, which include manufacturers that have established their own retail presence, pose significant competition. Their commitment to continuously updating their physical presentation, including both the building exterior and interior, along with visual displays, greatly enhances the overall retail experience. Moreover, their small store footprint enables them to have multiple stores closer to the consumer compared to the larger destination stores of regional chains.

These consumer perceptions contribute to the consumer decision as they move through the purchase process.