As always, the furniture industry is greatly influenced by the population. As can be seen from the prime furniture buying population graphic, the Baby Boomers are fading away while Generation X is beginning to provide the growth until the much anticipated Millennials arrive.
While the prime furniture buying population has been diminishing, the amount of average household purchases has increased over 40% in the last five years, exceeding the growth of other home furnishings products. The consumer spending graphic presents the spending by product category. The consumer expenditure has resulted in a $300+ billion home furnishings industry of which furniture (consumer durables) represent 42% ($129.9b). Those other product categories typically not sold by traditional furniture retailers may become important in the future. Generation of traffic by these other products may be important to the more postponable furniture category.
There is an ongoing tug of war between furniture stores and home furnishing stores, but with both losing out to other distribution channels as can be seen from the graphic.
WHAT ABOUT YOUR CONSUMER?
The furniture consumer today is much more diverse as the Baby Boomers dominance has given way to Generation X and anticipating the much discussed Millennial.
The most important consumer is your consumer. In the last decade, what was a simple process of good/better/best has migrated to retail experience. The traditional furniture store is battling and trying to serve all consumers while lifestyle retailers, such as Restoration Hardware, are focused on a narrow band of consumers.
The first step is profiling the consumer that you are selling, or more important, those you are not selling. To do that we tap into FurnitureCore, the research arm of Home Furnishings Business. The graphic below provides the output from FurnitureCore’s consumer segmentation application illustrating the prime consumers.
To execute, this information must be drilled down to the market/store/product level.
The wide range of customer demographics can be bett er explained with an industry analysis of purchase price points. With all of this, it is understandable that the consumer has rushed to the bott om in terms of price. When almost 25% of all sofa (units) purchased this year were less than $399 at retail, we see the magnitude of the problem.
Lifestyle is important and is usually measured by psychographic cluster. Psychographics transcend demographics and focus on how the consumer lives and on the activities in their lives.
Using this concept in direct mail and email marketing can produce signifi cant results. The graphic from FurnitureCore – CONSUMER SEGMENTATION – illustrates the concept.
Beyond demographic diversity is ethnicity. While retailers have emerged that cater to certain ethnic groups, such as FAMSA, for the most part all groups are integrated into the total retail focus. However, a retailer should check their appeal to all groups. Business intelligence today allows a measure of ethnic concentration. FurnitureCore’s Consumer Segmentation application provides an ongoing measure on page 16.
What is the Consumer’s Buying Process? Solving the consumer conundrum often seems like searching for the Holy Grail for retailers. Opinions on consumer trends tend to be all over the map, but most observers agree that furniture purchases today involve much more study and research than in the past.
There are many demands on the household incomes that leave only a small portion of disposable income. The line blurs between needs and wants when it comes to expenditures, such as a car, computer, communication, leisure travel, and fi nally, furniture. This is where rationalization begins. The decider is the att itude that the consumer has toward decorating and home furnishing. The range is from “home furnishings are not a consideration” to “my home furnishings must communicate who I am and refl ect a sense of current style.” The fact is that more than 50% of consumers have a positive inclination towards home furnishings. The graphic on the next page illustrates.
There are many indicators that start the consumers on the road to the purchase. Some are life changing events, such as marriage or divorce. Others are life events like a recent move or the addition of a second home. Others, such as remodeling, redecorating, or desire for new furniture, are planned and anticipated. The fi nal indicator is replacement, which is a signifi cant number today (over 40%). The industry has created its own obsolesce factor in the last decade with a replacement factor 4x what it was 20 years ago to the chagrin of the Generation X population that complain of purchasing three sofas since their fi rst household while recalling the furniture of their childhood as being more substantial.
In a household, someone has to get the process started to buy new furniture. Based upon a new FurnitureCore national survey, it is still the female that has the inspiration. Having the idea is followed by the female performing the initial scouting trip to identify the retailer to shop.
However, after all the shopping and research on the internet, the purchase decision is a joint decision.
With the time starved consumer, the shopping process is fast with completion within two weeks for more than 50% of the purchases. Because of the research on the Internet, the number of stores shopped has been greatly reduced to just over two stores shopped per purchase. This change has caused signifi cant concern for the retailer — why is the traffi c down over 10% nationally in the past fi ve years? However, a more confi dent consumer produces higher close rate and larger average ticket.
The shopping process is very proactive, “visiting the store” or “research on the internet” are the fi rst two steps, equally distributed as number one and number two. This activity is followed by input from friends and research in printed materials. Far down the list is designers or advertisers.
The choice of retailers and corresponding retailer experience are extensive. However, for now the traditional furniture retailers’ single store and regional chains dominate, the Internet follows closely to being considered.
The furniture consumer has moved away from destination stores to stores closer to their homes. This change has resulted in more stores per households in a market, thus leading to smaller stores located in more expensive real estate areas. A signifi cant change in the furniture retailer business model is combining occupancy and advertising expense considerations.
The furniture retailers are doing a good job of accomplishing a positive experience for the consumer with all factors rated above average.
HOW OTHER RETAIL OBSERVERS PERCEIVE FURNITURE
Observers of consumer trends say the same disruptors affecting a broad range of retail purchasing decisions are also affecting furniture. These are affecting how people make decisions and how they shop.
Michael Solomon, a consumer behavior expert and thought leader in marketing and advertising, says would-be furniture buyers are doing much more research than in the past. This includes reading blogs or watching Joanna Gaines on HGTV’s remodeling show, “Fixer Upper.” The result is consumers are getting a lot of feedback in advance of making purchasing decisions.
“For 50 years or so there has been a tremendous amount of research on the steps that people go through when they make an important decision, which furnishings usually are,” Solomon says. “We know it is a linear sequence that people go through that begins when they recognize a need, all the way through the purchase itself, and then after the purchase, where they evaluate the quality of that decision, and how that affects future decisions. What we are seeing is that we are entering a period now where we have what some people call social selling, where a lot of these basic assumptions get turned on their heads.”
Solomon, who is also a professor of marketing at Saint Joseph’s University in Philadelphia, Pa. says, for example, people are doing a lot of research before the fact prior to making not only large purchases, but less important decisions such as where to eat.
“Traditionally, someone would decide that they want to buy a couch and you would shop a few stores, find what you like, and bring it home. Then if you like it and your friends tell you they like it, you will go back to the same store the next time. Mostly it was an individual decision or maybe a joint decision by a married couple. That’s not the case anymore. What we are seeing now is that people are working a lot harder, even though there are so many more choices, and so many timesaving apps and things like that. When you add it all up, more time is spent to research and look into decisions, to look into options, before they make the decision.”
Oracle Retail says consumers are increasingly open to whatever gets orders to their door the fastest, with more than 90% seeking free one-day delivery by whatever means is fastest, including drone, driverless car or a messenger. This is more than double (43%) the number of consumers who felt these delivery mechanisms would be “awesome” when asked just last year.
Most consumers recognize that furniture is not a “hamburger,” and it requires a little longer lead time. Per the FurnitureCore survey on the next page, more than 40% received delivery within a week, well within their desired time.
Solomon says it has been his experience that retailers are some of the most riskaverse people he’s ever met. “The ones who are dying in the retail apocalypse are the ones who are resisting change, who are not willing to take risks, because what they have to do is totally reframe their perspective to offer a customer experience that sells product,” he says.
Successful retailers are enhancing the shopping experience. As Solomon says, they have to give people a reason to get out of their pajamas and actually go to the stores. “Some people say brick and mortar is dead but I very much do not believe that,” he says. “But I do believe that a store is not just a place to inventory or display your furniture, your merchandise. A store should not just be treated like a warehouse. A store is an opportunity to create an experience. One of the biggest trends today is marketing as customer experience. It’s imperative to track the entire customer journey that starts well before you enter the store and finishes well after you’ve left the store. But that in-store experience is really crucial, especially with home furnishings. Being able to experience the product as you would experience it at home is a very important aspect.”
Solomon says consumers might post some photographs of furniture that they think they might want to buy, and wait to get reactions from their Facebook or other social network friends prior to making that decision. That represents a big departure from traditional wisdom about how consumers make decisions.
“It’s extremely important to retailers because when people go to a physical store to look at or order their furniture, they’ve already made up their mind prior to walking in the store,” Solomon says. “They are basing it on feedback they are gett ing from their social networks, or what bloggers are writing, reviews of various kinds. Some retailers are more aware of this than others. That doesn’t mean they can’t sway that decision, but the challenge for retail stores is very diff erent from what it used to be. They think they have a naïve shopper coming in who isn’t very knowledgeable about the furniture, and they think they are going to educate them on the options they have in their store.
They are going to be very sadly mistaken.” Sucharita Kodali, an analyst with Forrester, says in every retail category, more consumers are purchasing online. However, she says furniture is one of the least penetrated online, citing 2018 Forrester fi gures that had about 9% of furniture being sold online. She says the higher the price point, the more likely consumers are to buy in-store. “Looking online is a convenient way to fi nd what you are looking for,” Kodali says. “That’s why you see the percentage of online sales increasing.”
Solomon cites the example of mattress fi rm Casper, which allows customers to take a nap on the matt resses in the store. He says companies sell pillows, but people buy sleep.
“What that means is that a lot of companies still don’t seem to understand the fun damental difference between the attributes of a product and the benefits of a product,” he says. “They are selling the attributes but customers are buying the benefits.”
REI is another example. The outdoor retailer allows the customer to try products in the store and they even take customers on camping trips to show them how to use the products in a real environment. “That’s a very basic example of what I’m talking about. Understanding the customer experience is really key, and definitely understanding from the customer’s point of view, not from the salesperson’s or manager’s point of view. When you change the lens through which you view that kind of experience to focus on what if feels like to the customer, it’s a completely different perspective.”
So, what advice does Solomon offer furniture retailers? He suggests they get out of the “warehouse” business and move into the true retail business, which he says is about providing enough added value to motivate people to get off the Internet and actually come in to have a physical encounter.
Consumer Expectations and the Value-adds for Celebrity Designer Furniture Collections
Whether today’s consumer is buying food or furniture, fashion or accessories, there’s something singular they are seeking: authenticity. In the case of Rachael Ray Home by Legacy Classic Furniture, that authenticity is more apparent because of Rachael’s vibrant “whatyou-see-is-what-you-get” personality, said Don Essenberg, president of Legacy Classic. “Whether it’s a dinner Rachael is preparing, a TV interview she is doing or furniture she is designing, it reflects her personality and resonates with her fan base as authentic,” he said. Her design partner Michael Murray agrees. “Rachael Ray Home is Rachael telling her personal story of design through her furniture partners, Legacy Classic and Aria Upholstery. Those who know Rachael know she would never just slap her name on something. It has to be her truth.”
In truth, all the collection ideas begin with Rachael, and “she adds tremendous creative value because she is involved in every detail of the design,” said Essenberg. “She approves every sketch, every finish, every piece of hardware and even the hardware finish.” Rachael’s creative input has borne fruit, as Essenberg says. “Each collection we’ve introduced has been more successful than the one before. Rachael Ray Home, first introduced in 2016, is today stronger than ever.”
As an international television personality and author, Rachael has a tremendous consumer franchise, but addressing changing furniture design and lifestyle trends is more art than science and based more on her personal life and experience than on research or focus groups. “Rachael hears feedback from all walks of life and very much lives the same way her audience does,” Murray says. “Therefore, what works for her generally works for her audience.” Rachael puts it this way, “I like to design things that solve problems, whether it is an oval pasta pot or a USB port in the back of a nightstand.”
One of Legacy Classic’s top Rachael Ray Collections, Monteverdi, sprung out of Rachael’s love for the Tuscany region of Italy, relates Essenberg. “She’s in love with Tuscany. She got married there and visits a lot. So she came to us with the idea of a collection inspired by Tuscany. It became a rustic casual collection with planked tops and a sunbleached Cypress finish. It all began with her love of the region and the way it makes people feel.” Another appeal that comes with the Rachael Ray brand is her “approachable” point of view, Essenberg adds. “Her furniture is approachable, not stuffy. You could use her dining table for breakfast on a Wednesday or for the family Thanksgiving dinner.”
Her newest collection for Legacy Classic, Milano, is “fashion-forward and fearless,” Murray said. “It is fearless, but it keeps her most important (brand) promise. “My most important promise is, ‘You don’t have to be rich to live well,’” Rachael says.
That subliminal promise becomes a competitive edge on the retail sales floor as it attracts and draws in the consumer to experience an exceptional – yet accessible – life through Rachael Ray Home, said Essenberg.
So why is this? Many say that today’s consumers are time strapped and with all the demands of our hectic lifestyles no longer have the time to waste parsing through multiple messages to get to the ones that matter. As a result, they habitually reject anything that does not “ring their bell” at the very beginning of an interaction. In addition, since we are dealing with a more confident shopper, who at least has an idea what they are seeking, they will be much quicker to judge whether what we have to say is of interest to them or not. Lastly, the very presence of all the messages aimed at them, probably leads consumers to not feel the need to study each one at length. An abundance of selection often leads people to move through the process quicker than if they have fewer offers to review.
All the above reasons probably have merit and indeed the combination of them and other influences have certainly created a tough hill for us to climb when it comes to breaking through the clutter and getting our message through. It is possible that many consumers actually bring the resulting confusion from the media message frenzy with them into the store, which most certainly influences how they listen to our salespeople and what they want to hear from them.
If you agree with what I have said so far, then the next step is to determine what we can do about it. Rather than blaming the consumer and running from the issue, we need to attack it head on by accepting that the problem is not with the consumer. The problem is with our message. Obviously, we feel the story we have to tell is important for the consumer to hear, however that is not as critical as knowing and delivering information the consumer wants. Somehow, we need to refocus our marketing and selling efforts on saying what consumers want to hear instead of just saying what we want to say.
As Michael Brenner, author of the bestselling book The Content Formula puts it: “The answer to all this is Content! We have to stop pushing messages and start creating messages our audiences are interested in. We need to be more interesting and we need to distribute interesting content in multiple forms across all the channels where our customers are consuming it.” His message is that today content is indeed king. We have been too busy sending messages that are not interesting to our target consumers and not what they want to hear. We need to focus more on providing interesting content that our target customers are interested in hearing.
How do we do this? I for one think that today’s consumers are most interested in getting the result they want, as easily as possible. The process of getting there is secondary to knowing what will happen in the end.
A home furnishing customer wants a home that is comfortable, livable and beautiful in their eyes. They may only need a piece or two to complete that dream or they may need a whole house makeover, but it is achieving their desired end result that drives their actions. Therefore, the quicker and more clearly, we can present the result we can deliver for them or at least a logical first step towards it, the more chance we have of getting their attention.
In our business I think the ones that are doing this the best today are the major online retailers. They have partnered with many popular websites and app providers to have a very powerful marketing presence that most consumers may not even realize is actually advertising. Talk about fake news! These are not articles as much as advertisements for online sales. I have christened them “adicles”, they are ads made to appear to be news articles on the app. They provide good information, but their intention is not merely to educate the reader, it is also to motivate them to buy from those retailers with whom the provider has partnered. The vendor basically pays a commission on whatever is sold via the link, as stated in the disclaimer below from USA Today:
— Our editors review and recommend products to help you buy the stuff you need. If you make a purchase by clicking one of our links, we may earn a small share of the revenue. However, our picks and opinions are independent from USA Today’s newsroom and any business incentives.
The real point is that these “adicles” do a great job of providing a message that may lead consumers to click on them because it foretells the result they may be seeking or at least provides a possible first step towards the desired result. As I said earlier, it certainly does help that most consumers probably don’t see these links as advertisements, which may make them more likely to click. But that only tells us that perhaps we need to try to deliver our messages in formats that are not perceived as being advertisements.
Here are the titles of four recent “adicles” on my favorite news app, USA Today:
“The 20 best places to buy furniture online” — What better way to start your shopping than knowing the best places to visit according to an “expert”? Here is their opening message: “Shopping online for furniture can be tricky. Not only do you need to measure your own space, but you need to check ratings and reviews to see if it holds up to the photo. It is appealing, though—you just have to be smart about it and these are the best places to shop.”
“15 gorgeous pieces you can get from Home Depot’s huge furniture sale” — Many people don’t even know that Home Depot carries real furniture, so this is a big draw for them. Each product featured has a short blurb that describes what benefits it provides and forecasts the owner’s satisfaction: “A good ottoman provides seating, extra surface space for snack trays, and (of course) a place to put your feet up. This one has a near-perfect 5-star rating and it’s half off right now!”
“Casper is having a huge Columbus Day sale on their bestselling mattresses” — Certainly sounds like an ad and it is one, but its opening message really sets the stage for a happy result: “When the weather is crisp and the clouds are overcast, it’s the perfect time to huddle under the covers in bed, or as I like to call it, my hedonistic sloth nest. All you need is a candle burning on your nightstand, Netflix on in the background, oh, and of course a comfy duvet and plush mattress to help make it all the more cozy. If your current mattress leaves a lot to be desired, we have some good news for you. In honor of Columbus Day, Casper is offering shoppers a discount on their cult-favorite mattresses.”
“The 16 best deals at Wayfair’s huge weekend sale” — This big player has great brand awareness and seeing what experts call the best deals from them definitely has some traction with potential customers: “October may be the time to decorate your home with gourds and Halloween decor, but it’s also a great time to freshen up your home with new furniture and decorations—especially when there’s a good sale going on. Right now, Wayfair is having their October Clearance Sale, which offers up to 70% off popular rugs, mattresses, lighting, and so much more.”
It has been said that Millennials and other younger consumers will buy things because they feel smart about how they bought them. They shop online because they can get information they want and find products they need easily. The above examples present ways some very successful retailers are getting their message across to these consumers. How can we be more like them and deliver content that today’s consumers are actually interested in receiving? Remember to give them information you know they want and need, not just what you want them to hear.
I recommend you start with a review of your social media effort and web page to make sure you are providing messages there that they want to see, instead of just what you have on sale. Perhaps you can create your own “adicles” to put out on the web? You certainly have experts on staff who are willing to make recommendations you could share with potential customers looking for advice, just like the big guys do. Lastly, it also may be a good learning opportunity for you and your people to take advantage of these links to learn what some pretty savvy retailers think people want to buy. You might see something you missed on your last market visit.
The explosive ecommerce growth comes in spite of a report indicating only 14% of consumers actually prefer to purchase furniture online (Euclid Analytics). This leaves brick and mortar retailers scratching their heads trying to determine how to give consumers the shopping experience they apparently prefer.
Despite predictions that the rate of ecommerce growth in the furniture industry would slow, ecommerce sales have continued at over 20% annually in recent years. This article updates Statistically Speaking’s June 2018 article Ecommerce Strengthens Foothold on Furniture Industry.
The retail furniture industry reached $112.8 billion last year, a growth of 7.0% over 2018 (Figure 1). While total furniture and bedding retail sales have maintained robust growth through 2018, 2019 year-to-date has slowed – only increasing 3.6% from 2018 Q3 YTD to 2019 Q2 YTD.
Ecommerce Total U.S.
Internet sales of all consumer products from all retail outlet types, ecommerce companies or brick and mortar stores selling from internet websites, are estimated to have reached $524 billion in 2018 (Table A).
In 2018, overall online/ecommerce retail purchases for all consumer products slowed, but still grew 3.6 times faster than all other retail channels. At $269 billion year-to-date, ecommerce growth is 5.9 times faster than the first half of 2018. Total retail sales increased by 5% from 2017 to 2018, compared to 14% for ecommerce.
A recent report published by the Census Bureau segments sales by ecommerce retailers by merchandise lines through 2017 giving a glimpse at penetration by product category.
Among different types of ecommerce retailers, online sales of furniture and home furnishings products was the second highest product category in sales at $48.7 billion increasing 22.3% from 2016 to 2017 (Figure 2). Ranking number one in sales growth, computer software including video games, grew by 23.9% to reach $15.4 billion in 2017. At $66.7 billion, clothing and clothing accessories had the highest sales among ecommerce retailers and with an annual increase of 11%.
Sales of combined furniture and home furnishings through ecommerce retailers have increased from $7.9 billion in 2006 to an estimated $59.7 billion in 2018 – an average per year growth since 2009 of 23% (Table B).
While internet purchases have continued to gain a bigger piece of the retail pie over recent years, online sales represented only 8.6% of all retail sales for all consumer products in 2018 (Table C). And mid year-todate that percentage has declined slightly – down to 7.5% with mail orders picking up to 4.4%.
Brick and mortar retailers have tried various approaches to competing with ecommerce retailers by attempting to market through their own websites, but with little success. Furniture and home furnishings stores lag behind other retailer types in terms of ecommerce sales as a percent of total sales (Table D). Ecommerce sales were 1.2% of total sales in 2017 for brick and mortar furniture and home furnishings stores, compared to 3.8% for clothing stores, 2.9% for sporting goods, hobby, and book stores, and 2.1% for electronics and appliance stores. While the success of online retailing among brick and mortar merchants has increased over the years, the ecommerce sales comparison remains vast between brick and mortar stores and pure ecommerce retailers.
Furniture Industry Channel Growth Of the $112.8 billion furniture industry, sales can be distributed between (1) brick and mortar stores, (2) ecommerce retailers plus ecommerce sales by brick and mortar companies, and (3) mail order houses. In 2018, furniture and bedding sales by brick and mortar stores (non-internet) totaled $87 billion compared to $23.09 billion for ecommerce and $1.9 billion from mail order houses (Table E). As shown in Table F, ecommerce continues to gain a greater share of the furniture industry – jumping from 3.8% of sales in 2009 to 21.2% in 2018. This includes not just sales by ecommerce retailers, but also online sales by brick and mortar retailers of all types – including furniture and home furnishings stores, department stores, warehouse superstores, etc. Meanwhile, brick and mortar share of total sales fell from 93.5% in 2009 to 77.1% in 2018 — decreasing 6.6 percentage points from 2017 to 2018.
The total furniture and bedding industry grew 7% last year. It is estimated that brick and mortar store sales of furniture grew only 3.2% while ecommerce retailer sales grew 25.7 (Figure 3). Over the course of nine years since the bottom of the recession in 2009 furniture sales through ecommerce have grown at an annual rate (CAGR) of 27% compared to brick and mortar retailers at 3.0%. Total industry sales have grown at an annual rate of 5.1%.
Table G shows the annual year-over-year growth of the three outlet types. Note that the rate of ecommerce sales growth peaked at 31.2% in 2015, but has slowed slightly to an estimated growth of 25.7% in 2018.
Home furnishings products – floor coverings, window treatments and home accessories – have shown consistently higher online sales than furniture as consumers are still finding it easier and less daunting to buy home furnishings online without seeing or touching them in a store. However overall growth of furniture products sold via ecommerce has been higher than home furnishings. Table H shows that home furnishing ecommerce sales have grown from $6.5 billion in 2009 up to an estimated $37.4 billion in 2018 – a jump of 477%. During the same time period, furniture ecommerce sales rose 761% from $2.8 billion to $23.9 billion.
Furniture retailers, who have historically enjoyed high margins, claim that although ecommerce home furnishings companies are taking business from brick and mortar stores, many ecommerce retailers have yet to make a profit. And there is some truth to that. For example, ecommerce home furnishings giant Wayfair, sold almost $7 billion in 2018 across five branded furniture and home furnishings websites. But gross profit of $1.5 billion was offset by $2 billion in operating costs. Much of that operating cost has been spent on acquiring new customers and repeat purchasers, which they hope will pay off in the long run. Wayfair also opened its first retail store in Natick, MA and an outlet in Florence, KY.
Perhaps the primary obstacle brick and mortar stores face with ecommerce retailers is the consumer’s online exposure to a vast selection of thousands of furniture items and efficient websites to drill down to exactly what they want. This, coupled with easy checkout, fast delivery and liberal return policies, are challenges traditional retailers have yet to fully formulate a strategic response.
Home Furnishings Business: How important is celebrity branding to the sale of luxury goods?
Pamela Danziger: The brand thinks that celebrity is important. Brands have been using celebrities for advertising campaigns for years. Now, with social media, they are starting to turn to them more to stimulate having more eyes on them, to try to give them more attraction and more influence. I know there was a study recently about these influences losing influence. I think it’s a strategy that’s been overdone. Too many brands think that there is some magic bullet—if you do A, B, and C, that suddenly you’re going to stimulate sales and grow your brand and all will be well with the world, but that isn’t the case. You’ve really got to understand who your customers are and what influences them, and it may be that a celebrity endorsement may be more of a turnoff for many potential customers.
HFB: What do you define as the price points for luxury goods? For example, a fabric sofa at $2,000 or more?
Danziger: What we have to understand is that luxury isn’t some objective qualification, something that’s imposed upon it or determined by the industry or the manufacturer. Luxury is determined by the consumer and how they view the product that you are offering. Everybody wants luxury; not everybody wants to pay luxury prices, whatever that could be. There’s just no objective criteria that industry can apply that will ultimately translate into how the consumers view it. To my mind, the consumer’s perception is your business reality. HFB: Besides the decorator channel, what retailers do you perceive as luxury retailers for furniture? Pottery Barn? Restoration Hardware? Danziger: People that have money to spend are very skeptical of brands that call themselves luxury. Brands that try to elevate themselves into that luxury realm. They may look at those as all marketing and little substance. Pottery Barn might be a luxury to one segment of the population; Restoration Hardware might be a luxury to another segment of consumers. But Restoration Hardware might be considered mass market by the true ultra-high end, affluent consumers, who are the target for luxury.
HFB: With the absence of furniture brands, what is the impact on luxury goods?
Danziger: For the true luxury brands in the marketplace, like Louis Vuitton and Prada and Gucci and Chanel, brand is everything. They have spent over a century building that brand and the consumer perception. There is tremendous potential in the furniture industry to get more brand conscious. Ethan Allen has done it, Restoration Hardware clearly has done it. West Elm and Pottery Barn have done it, Williams Sonoma has done it. There’s a lot of opportunity to build a brand. It takes a lot of work, a lot of heavy lifting to go from no name to being a real name that stands for luxury.
HFB: Consumers are driven to the lowest cost. What is to blame: manufacturing, retailers or the consumer’s lifestyle?
Danziger: They look for the most cost effective solution when they are buying because if they save money here, they have more money to spend there. Affluent consumers, if we look at them as a group, are extremely savvy in the purchases they make, about what they are looking for, and how to find it. They will scrimp and save in one category to spend lots of money in another category that is meaningful to them. That’s why you see Mercedes Benz cars in the parking lot of Walmart. Price is always important, and with so many options available to consumers, Wayfair, Ashley, there is so much out there, there is so much competition. You have to be very strategic about where you price and what you offer, and building a high value proposition for your products is exceedingly important today. Without it, you are always going to lose sales to the lowest common denominator.
HFB: Is luxury only for the $250,000 income household that represents only 2.64 percent of the U.S. population?
Danziger: No, luxury is for when you come down to what I call the HINRYs, the high income, not rich yet, with incomes from $100,000 to $250,000, there are about 30 million of them, versus about 5 million of the $250,000 and above. These can afford maybe one luxury, but they can’t afford all luxury. I think that when you move further up, they have much more discretionary income and can indulge across more categories, and more regularly. But the HINRYs are the emerging and the next generation luxury consumers, one that the home furnishings industry really needs to focus on. There are the ones who are in the life stage. The ones who spend the most on home furnishings are those who are buying their first or second house, from age 30 to 54. That’s the age range when you are going to find a lot of HINRYs. They are on their way up in their careers, and becoming more established.
HFB: What is the biggest disruption you see happening in the overall luxury market and also specifically, in furniture?
Danziger: One of the biggest disrupters right now is the resell market and it’s going to come to furniture too. It’s harder to ship furniture, but luxury consignment company The Real Real is being very disruptive in fashion sales and the rental market also, where you rent an outfit for a weekend because you only need it for the weekend. We are going to see that translating into furnishings. I look at Interior Define, and I’ve written about them as being disruptive, because of the process where you design your own sofa and it takes 8 to 16 weeks to get delivered. I don’t think that’s a sustainable business model. You have to turn your products around faster and give people what they want. If you spend $10,000 on a sofa, they don’t want in in 16 weeks, they want it tomorrow. That’s a big challenge for furniture retailers, especially at the high end.
HFB: What trends are you observing in online vs. in-store shopping?
Danziger: All shopping experiences start online today. That’s the major takeaway. That doesn’t mean all sales are completed there, but they start online. So for furniture retailers, they’ve got to have a very sophisticated online presence designed to draw people to the store. They need to be using digital methods to attract people. Furniture brands need to have very good presentation online. They need to have a store locater, to help people find them. Wayfair, Josh & Main, and other digital providers of home furnishings are really a very big threat. Consumers really do view Ikea as more of a luxury brand than a mass brand that is quality.
HFB: What is your best advice for furniture retailers?
Danziger: You have to focus on the people. You have to understand who your customers are, you have to understand what they are looking for when they shop, you have to understand what makes them come into your store, what they expect to find and whether they are finding it in your store. You need to focus deep insights on your customers. They are the people you depend upon. Then you need to look at the people you have in your store and whether they are being served. How does the staff interact with the public? Retailers often do not invest the time and attention they need invest in training, re-training. They do not invest in the research needed to understand their customers. Those are keys that are going to cause brick and mortar retailers to fail.