From Home Furnishing Business
As more furniture retailers recognize the importance of the category, sales will continue to rise along with consumer demand. Lifestyle stores, like Restoration Hardware and Crate & Barrel, have mastered the showcasing of their product offerings by drawing the consumer in with pillows perfectly placed on sofas and coffee books and vases displayed on side tables that invite the customer in. Many independent retailers have also amped up their selection to provide consumers with just the right touch of je ne sais quoi that will complete their room. It’s all about creating a complete vision of a room the consumer dreams of for their own home.
This category allows for a touch of creativity and is often fulfilled by happenstance — a consumer may come into the store to search for a new sofa, but may leave with an additional purchase inspired by an eye catching bar cart, buffet, or décor that is sure to be the talking point of the next dinner party. Says Richard Chan, Art Max president, “Accent furniture is just like fashion to your home. It allows one to personalize their own style and adds character to functionality.”
If you, as a retailer, are not currently carrying accessories, you may be wondering why you should place a sharper focus on home accessories. It’s simple – the products sell themselves and take up little to no real estate. These products make the larger furniture pieces look more attractive and more like home. Items placed on a surface or hung from a wall do not take up floor space and instead offer more excitement while remaining functional. Adam Dunn, Four Hands creative director puts it best, “accessory items are becoming more functionally based as people are moving into smaller urban spaces. Layering unique accessories into a design create the personal and collected feel people desire, but adding functionality can make them an important piece of furniture.” Help your customers add a pop of personality to their next purchase by adding some of the following bestselling items to your sales floor.
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.
That is true. But maybe the industry has become too black and white, losing the opportunity for the other party to say, “He didn’t have to do that.” This give and take is the lubricant of a business relationship. In our digital driven world that has standard processes, the barrier is often how we would handle it on the computer.
The focus of this issue is the consumer, but more specifi cally, “what does the consumer want?” To answer this, the magazine’s research arm, FurnitureCore, conducted a national survey of consumers who purchased furniture in the past year.
Additionally, we asked those on the front line – the furniture retailers – what they believed the consumer was searching for. Finally, we asked other retail mavens their perspective on furniture retailing.
We found some insight, beyond the baseline of price /speedy delivery, to include retail experience and ease of shopping. However, no silver bullet emerged as something that would drive the consumer to the physical store, or for that ma er, to the digital store.
While the virtual experience was going to be the strategy that would drive the experience to the next level, to date the results have not delivered the promise.
A recent le er from a reader who opened his store in 1972 wearing bell bo oms and a puka shell necklace – yes, in California – who is still in business after 42 years expressed his frustration with the industry, not at the consumer, but the supply side. His frustration was with the disconnect between factory owners and business owners.
“There used to be a trust and an understanding that both of us were in business together. Owners wanted us to visit the factory, they wanted to know me. That has gone away. I never felt so abandoned.”
In our consumer research, we found the same perspective, “Do they care about my business? Do they want to take the time to understand my needs?”
Maybe the silver bullet that we are looking for is the people—more specifi cally, the owners. I realize that large regional chains cannot have an owner at the door greeting customers. However, maybe sometimes a presence can be virtually spread. Has there ever been a “selfi e” taken of an owner with the customer?
And not to let the manufacturers off the hook—I remember Mr. Broy hill at market greeting every retailer, thanking them for their business.
Maybe we need more “They didn’t have to do that.”
Historical industry data carefully transferred from black notebooks to Viscalc to Excel to Access to SQL (and now considering Mongo) over the years should provide more insight as to what will occur in the next year of 2020. Without a doubt, the economy will end its current cycle but not necessarily in 2020, unless unprecedented occurrences accelerate the process. And that is the problem. The focus of this issue is the same as every October: The State of the Industry 2020. As you will read, we are forecasting another year of anemic growth. However, that was writt en before this lett er and before the accelerated calls for impeachment of the President due to unprecedented actions of individuals in the government. I believe that no matt er their political tribe, consumers are tired of the noise.
However, while processing through the data one thing became obvious. There is no one industry, but 404+ individual markets that have unique challenges. While the growth was anemic year to date, the range in growth was signifi cant as be seen in the table above.
Within these markets, individual retailers are dealing with specifi c challenges such as new retailers invading their markets. If it is not new retailers, it is existing retailers expanding into their merchandising price points as consumers race to the bott om with a perception that good is good enough. With this competitive tug of war, many older retailers are evaluating why to continue without a specifi c exit strategy. By the way, did I mention the weather?
The recent storm in Beaumont, Texas, which was the repeat of three years before occurred just as demand was returning to some sense of normal. It is a repeat performance. Interestingly, only 75% of the replacement demand, according to FurnitureCore’s industry model, had occurred. What will the consumer do? ‘Why bother?’ is the att itude for many. Research indicates that it is impacting price points.
What are we saying? As they say, “Politics is local.” Furniture retailing is as well. Understanding your market and your business performance is the most important. Ignore the noise.