Monthly Issue
From Home Furnishing Business
February 13,
2018 by Jane Chero in Business Strategy, Industry 
In fairness, most of the advertising in the furniture sector is executed by the retailers which should be event oriented. Retailers allocate a percentage of their advertising dollars to building brand. However, the majority of the spend is to attract those consumers that are actively shopping. Therefore, the significant advertising expenditure is targeted to 11.45% of the consumers based upon FurnitureCore’s (the research arm of Home Furnishings Business) ongoing marketing intelligence.
The major challenge in furniture retailing today is the declining traffic. In 2017, traffic declined 5%. Even though sales increased 3.4% according to Impact Consulting, parent company of Home Furnishings Business). The decline in traffic doesn’t mean less consumers in the market but just less store shoppers. As has been documented by the research, the average number of stores visited by each shopper is just over two stores.
The accompanying table illustrates these findings by age group. Of significance is that older consumers (over 45) limit their shopping to even less stores.
This situation of less traffic raises an interesting question: What about be backs and personal trade? Typically, the sales associate closes the sale on the first visit 20-30% of the time and then on the second visit 60-70%. For a sales associate, the higher the ‘be backs,’ obviously the higher the close rate.
The percentage of ‘be backs’ is influenced by the merchandise price point. The higher, the more ‘be backs.’ The average for an upper/premium store would be in the 30% range and middle would be in the 20% range. It is a great KPI to measure a retailer’s “sales associate” to see how they are developing the client relationship. An interesting read is the Coach’s Corner article in HFB Dec., 2017 issue — So Why Else Do Customers Leave Without Buying?
The furniture purchase is triggered by a life event such as a move (27%) or a remodeling/addition (16.8%). The graphic presents the occurrence factors by generation
Therefore the conclusion is that we wait for the lifestyle event to occur and then we are ready with a “sale.”
Obviously, we can take that approach but what about those consumers that are interested by no specific plans (28.63%) and those that are beginning to shop (39.26%)? These consumers should be our prime target for advertising because when they start the shopping process it is just under 50% finished and done within two weeks as can been seen in the graphic.
No matter the age or income, it’s a fast process.
When the consumer begins the process, they start with a list of retailers that they will consider. Often referred to as brand awareness, it is a perspective in the consumer’s mind of who they want to consider. The accompanying graphic illustrates a very competitive market with several long time retailers along with several new entrants (less than two years). Shown with the traditional retailers are the other distribution channels. Yes, they are in the consumer’s considerations.
Just because the retailer is considered doesn’t mean that they make the short list. An Important measure is considered, not shopped, which indicates the impact of the most recent messaging.
The advertising challenge for retailers is to create that ongoing awareness in the consumer’s perception.
There are many media choices available to the retailer to influence the consumer. Choosing the correct media to influence the consumer in the various stages of the buying process is the challenge. The table below presents the influence of each media type by generation.
But before we discuss how to influence the consumer that is committed to purchasing, what about those that are considering a purchase? At the beginning of each year, Impact Consulting surveys consumers on a national basis (demographically balanced sample) about their intention to purchase furniture. This is one of the factors used in their forecasting model. The response is typically an affirmative plan to purchase in the 65-85% range dependent upon the economy and consumer confidence at the time of the survey. As a follow up, a year later they ask the same consumers if they acted on that intention. Unfortunately, less than a third act on their plans to purchase furniture.
Furniture is a major purchase and daily occurrences can impact consumer’s purchasing plans. As we write, I am sure that many sofas lost out to that replacement snow blower. However, that is not the only problem. The industry has not made our product a priority. The table below provides some input by generation.
This is where the manufacturer/supplier comes into the picture. We have discussed at length the absence of branding in the industry currently.
Shelter Magazines at one time communicated the prestige/quality of iconic brands like Henderson, Drexel, and many others. The potential for Stickley, Brown Jordan, and others to excite the consumer exists. Retailers respond to those vendors that encourage the consumer to walk through the door and ask for a specific brand.
It has been fixed in the industry mind that over 70% of consumers visit the internet to conduct research during the shopping process according to FurnitureCore research. Interestingly, almost 40% go to the store first. The table illustrates that first stop in the buying process by generation.
Interestingly Generation X, the current prime target for furniture retailers, do research in the magazines (10.8%). This is the rationale behind the magalogs that Home Furnishings Business produces for retailers, which last year resulted in 9%+ of all recipients visiting and making a purchase.
The cost of advertising is a major part of the traditional furniture industry expense structure. While the overall industry is above 7%, there are many retailers expending 8-9%, a level that is not sustainable. High performance retailers achieve a 6-6.5% range as illustrated below for those retailers.
As can be seen from the table, the breakdown by media type still favors television. As can been seen from table D, only 12.9% is influenced by this media type. Long term, this media type will lose influence as can be seen from the response of the millennials (8.5%).
With advertising cost increasing as a percentage of sales and the cost per opportunity (up) accelerating to $30/up or $100/sale at 8% of the average sale ($1,250) the bottom line is challenged.
Additionally, adding the 3-4% of the cost for the financing — the offers that many believe critical for traffic — even though on average less than 35% avail themselves of the offer.
On top of this is the ever increasing cost to attract and retain good sales associates which can easily reach 7%.
With the above, the furniture retailer is running out of runway for profitability.
The answer is to measure the results and target your customer. If your market is in Columbus, Ohio, there are 738k households headed by consumers over 25. A middle/upper retailer targets 476 households. When the analysis is done of the psychographics (lifestyle), focus of the retailer number goes below 250. Let’s shoot a rifle instead of a shotgun.
January 19,
2018 by Jane Chero in Business Strategy, Industry
From an architectural definition, “keystone” refers to the final piece of an arch which, when put in place, locks all the stones together, allowing the arch to bear a distributed weight. In the furniture industry, merchandising is the keystone to success. The responsibility for merchandising lies with both the supplier and retailer. In certain distribution channels where the entity is both supplier and retailer, it would appear the challenge of merchandising would be simpler. However, the “creative tension” between the two entities contributes to a better solution.
What is this lynch pin of success called merchandising? It sounds straightforward – the selection and presentation of products to a pre-determined group of consumers displayed in such a way that stimulates interest and entices the customer to make a purchase. The reason for pursuing a topic and expanding effort to better understand the specifics is to improve performance. Can improved merchandising improve performance?
In total, compared to other retail sectors, home furnishings did quite well in 2017 and is projected to continue to prosper into the future. In fact, only electronic shopping (Internet) has a better growth rate, as can be seen from the accompanying table.
In direct comparison are the lifestyle stores, which unlike their competitors the furniture stores merchandise a more complete product selection of everything for the home.
The first thought is consumers are purchasing more of the accessory products than furniture which is what is contributing to the performance growth. However, this is not the case.
The following articles explore the various elements of the merchandising function and approaches to better accomplish the task.
TARGETING THE CONSUMER
The tendency of most traditional retailers is to be everything to everybody – with the fear of losing a sale offsetting any consideration of inventory turns or productivity of selling space.
The result is 100,000+ square-foot showrooms built outside the shopping areas frequented by consumers on their weekly trips for pet supplies, groceries, and the other necessities of living. Furniture stores are often destinations unlike their competition – lifestyle stores, which are in the mix of other retailing.
Even with this abundance of space, most traditional retailers fail to satisfy the consumer. As can be seen from the graphic, the major reasons for not making a purchase is “could not find what I was looking for.”
Unfortunately, included in this category are several distribution channels - some winning, some not faring so well. Traditional furniture stores are one of the channels that fall into the latter category. In fact, while the total home furnishings sector has grown, furniture stores have declined. The graphic below shows the decline.
The challenge of satisfying all consumers is the diversity of the United States consumer. The most basic segmentation of the consumer is Age/Income of the households. The graphic illustrates the consumer breakdown.
Complicating this today is the emerging generational divide. Retailing for the past forty years has been dictated by one generation – Baby Boomers, defined as those consumers born after 1946 who were greatly influenced by the disruptive 60s. However, when they settled down they became the most driven generation ever. The sheer size of the population significantly changed the furniture industry. This generation, though still purchasing 37.2% of all furniture sold, is declining in purchasing power.
Retailers today must connect with the emerging generations, while continuing to meet the needs of the Baby Boomers. The table below defines the challenge.
Targeting requires understanding the consumer the retailer is selling or more importantly, the consumer the retailer is NOT selling. The following graphic illustrates (shading) the propensity of an upper/premium traditional furniture store to sell a demographic cell.
Developing a merchandising strategy to attract those consumers who are not being sold is the challenge for the furniture retailer going forward.
The strategy involves not only product selection, but also advertising to communicate to the underperforming demographic.
The understanding of the consumer can be further refined by understanding the psychographics (lifestyle) of the consumer to whom your merchandising strategy is attracting.
On the demographic profile in the figure above, it shows that the Upper/Premium furniture retailer sells all the ages/incomes. The understanding of the psychographics provides a way to attract those consumers who have lower incomes, yet purchase furniture at higher price points.
The accompanying graphic illustrates the psychographic profile of the consumer who purchases from this same upper/premium retailer.
Further complicating this demographic explosion is the changing ethnic mix of the United States.
The U.S. population is still a majority of non-Hispanic Whites, but in the younger age groups, that demographic is changing rapidly. Between 2010 and 2016, the total White population lost 2.6 percentage points falling from 63.9 percent of the population to 61.3 percent.
All other ethnic races gained ground with the Hispanic population gaining 1.1 percent points reaching 15.6 percent of the population.
Baby Boomers (now ages 55 to 74) have dominated consumer spending and the home furnishings industry for decades. Of note is that currently 73.3 percent of all Baby Boomers are non-Hispanic Whites. As they continue to age and the population dwindles, minority groups will gain more influence rapidly.
For Millennials (ages 15 to 34), White, non-Hispanics, have fallen to 55.2 percent of the group, and for the youngest Generation Z (ages 0 to 14) only 50 percent are now considered White.
Over one-third of the White, non-Hispanic, population is over the age of 55 reflecting the massive aging of the Baby Boomers. This compares to only 15.2 percent of the Hispanic and 22 percent of the Black/African American population.
For younger Americans, looking at each ethnic group, 58.2 percent of Hispanics are under the age of 35, compared to 40.2 percent Whites and 52.2 percent Black/ African American.
This is not to say different ethnic backgrounds do not assimilate into US retailing. However, when the customer base of traditional furniture retailers is analyzed, we find there is a failure to attract the emerging population. The graphic below presents the percentage of sales of a major regional retailer compared to the population in the market.
There are many factors which influence the procurement of consumers – product selection, advertising, retail experience – all of which constitute merchandising. Into the future, retailers will need to monitor how well they are serving the consumers in their market.
Merchandising was, at one time, quite simple. Today’s data driven retailers are taking share from traditional retailers with a total focus on the specific consumers they intend to sell.
SELECTING THE PRODUCT
The challenge of merchandising is the selection of products which appeal to the targeted consumer. A combination of price and quality constitutes value. Unfortunately, the latter part of the equation is difficult to communicate to the consumer. The absence of recognized brands leaves the challenge to the retail sales associate. The industry recognizes price segments which define merchandising segment of promotional, middle, upper, and premium. These ranges are presented in the table below.
Unfortunately, consumers do not recognize the factors that differentiate between price points. The result is consumers are under purchasing in relation to their household income.
The graphic illustrates the percentage of traditional fabric sofas purchased by household income.
Regardless of household income, purchases by these merchandise price segments are fairly stable. The graphic illustrates.
Within the price segment, there are shifts influenced by the economy. Currently, the price point distribution for fabric sofas (stationary) peaks at $499, based upon unit sales. The graphic presents the bell-shaped curve.
Most retailers can recite these best-selling sofa frames by units (not $). However, understanding best sellers by generation is not so easy. There is a significant difference here. Targeting products to consumer segments is the next level of merchandising. If Generation X purchases 34% of all furniture, should the retailer’s merchandise assortment reflect that same percentage?
Retailers taking this data to the next level would share this information with their sales associates to guide the consumers through the product presentation process.
Additionally, targeting email and direct mail to these consumers with product that they most likely prefer will improve the effectiveness of advertising.
Product merchandising is more than price and must involve styles. The industry has had a significantly long period without the emergence of a new style which captures the imagination of the consumer. Not since Bob Timberlake has the market responded to a must-have product.
The result is the furniture product becomes a commodity. How do we measure the value of this new commodity? We believe the share of income spent on the category by income quartiles (in the table below) shows the same relative expenditure no matter the income segment.
Yes, the higher the income segment, the more the consumer spends, as illustrated in the table. However, the expenditure is consistent.
December 18,
2017 by Jane Chero in Business Strategy, Economic News, Industry
Even though furniture industry sales are projected to grow by a modest 4.1% in 2018, retailers who made the prestigious Power 50 list compiled by Home Furnishings Business undoubtedly will be disappointed if they don’t exceed that growth rate by a wide margin.
It will take an aggressive, play-to-win strategy to beat those industry projections, but that mindset is one of the factors that landed members of the latest Power 50 on the list in the first place.
But the list is not simply based on annual revenue – that’s why a handful of smaller independents made the cut. Instead, it takes into account factors such as market share, expansion, and social engagement.
Market share, in fact, is the most heavily weighted factor determining who makes the list, accounting for 46 percent 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’s a metropolitan statistical area, micro statistical area, or a rural area. Sales of electronics, appliances and housewares are not included.
The list gives revenue the second most weight, accounting for 20 percent of the score. Revenues are compiled using publicly-available information or HFB estimates.
The factor getting the third most weight – social engagement – is the most complicated, but accounts for 19 percent of the score. It considers social signals, website metrics, and third-party scoring platforms to arrive at a list of home furnishings retailers with the strongest online engagement, as measured 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 Google Page Rank, 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 social engagement score.
The final factor in the Power 50 ranking is retail expansion, which accounts for 15 percent of the total score. Using public records, it measures 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.
November 16,
2017 by Jane Chero in Business Strategy, Economic News, Industry
The home furnishings industry is in a transition with total growth forecasted to be 3.4% this year, which would be an above average performance for all retail sectors. Next year, Impact Consulting projects a similar forecast of 4.1% (HFB October issue forecast). So, what is the problem? In the last decade, a proliferation of retail formats has emerged to attract an ever-changing consumer. Whether it is price, experience, or convenience, each format attracts a different, but overlapping consumer group.
The traditional distribution channels of Independent furniture stores, department stores, and national merchants, which decades ago controlled more than 90% of all furniture sales, have declined to less than 50%. Capturing that volume has been new retail formats with new value propositions or new ways to satisfy the consumer’s need for creating an environment to enhance their lives.
Traditional channels have themselves morphed into different formats with different product categories. In fact, the loss of product categories, such as small appliances to the mass merchants, has eliminated traffic to the stores. Gone are the days of the credit stores, which ensured a continuing contact with the consumer. This loss of product categories and credit solutions removed an element of loyalty.
The result is fragmented distribution at retail. The accompanying graphic illustrates the distribution of purchasers.
In 2017, Regional Chains have gained share of consumers, which is best illustrated by the expansions of retailers such as Bob’s Discount and Art Van. Department Stores have lost share to both independents and regional chains. Retail Verticals have been combined with Lifestyle and have grown, as Ashley HomeStores have expanded their brand presence. The resulting retail environment is a complex competitive network with each retail format competing for the consumer expenditure.
Unlike the previous 20 years, the Baby Boomers are not the dominate generation in the furniture retail sector. While still a force, purchasing 34.7% of furniture and bedding in 2016, the growth trend is downward. The children of the Baby Boomers, Generation X, represent 34% of the total expenditures and are still in a growth mode, as their children are beginning to leave the home and the consumer is adjusting for the empty nest phase. The emerging Millennials, in size, will eventually dwarf the Baby Boomers and are still in the household formation phase.
The challenge for the furniture retailers is to satisfy all generations, the largest but declining sector, the Baby Boomers, while satisfying the unique needs of Generation X, which will continue to grow. Accomplishing this, while anticipating the future Millennials, can be a challenge. The following addresses some of the differences between each of the generations.
SILENT GENERATION (AGES 71-88)
While representing 13% of the households, surprisingly they consume 8.2% of the furniture expenditures. This generation, especially the younger segment, is pioneering the concept of “aging in place.”
However, this generation still has a lot of living to do. As the other generations cluster, over a third (36%) intend for their next purchase to be leisure travel, followed surprisingly by a new car (29.5%). Furniture falls at the bottom (7.9%) of their plans. One could assume they are going to visit their kids by plane or car. Hopefully, this will generate second bedroom purchases in the succeeding generations.
This generational cluster, as would be expected, has a different attitude toward decorating and home furnishings. By far (43.8%), they believe their “home furnishings should be practical and meet my basic needs for comfort.” Obviously, they are not concerned (3.8%) with their home furnishings communicating their success and reflecting a sense of prosperity.
Unfortunately, the reason for their purchase was replacement (47.5%), reflecting a quality issue. The other reasons were in line with other generational clusters: desire for new furniture (25%) and redecoration (23.8%).
Like all consumers, the first step in the furniture purchasing process starts on the internet for research (45.8%), but the visit to the store (53.3%) still is favored by the majority.
The use of designers (10.4%) remains an important first step, a characteristic this generation shares with their grand or great-grand children. Input from their friends (7.1%) is also important.
Before this generation starts the buying process, the advertising media having the most influence was the local newspaper ads (29.7%), followed by the internet/email (20.8%). The other advertising media that excelled with this generation was radio ads (6.8%) -- more than three times the rate for all consumers.
As would be expected, this generation remains loyal to the independent retailer, with almost one-third of purchases made in this distribution channel (31.2%). The interior decorator channel is almost twice (7.5%) as likely to be the channel of choice. Only the mass merchants were not favored (13.8%) compared to all consumers. Old doesn’t necessarily mean frugal.
Looking to the future, the Silent Generation would most likely shop the Independent retailer (42.3%). However, the intent to shop the internet (18.0%) increased from the actual purchase. Also, the Interior Design sector saw an increase (14%). Could this be an indication of more of a “personal shopper” need?
The Silent Generation was the group most pleased with their shopping experience, with 35% ranking it excellent, and a nil response below a 3 on a scale of 1-7. As far as furniture shopping is concerned, they are not the “grumpy” generation.
Specifically, what they were pleased with in their most recent shopping experience was ease of shopping, which ranked the best (51.2%). The lowest was product knowledge of sales associates (40.3%), still higher than all consumers. The older generation likes the furniture retail experience.
Why did this consumer purchase the furniture they purchased? Overwhelmingly, it was due to the quality (35.1%).
What does the furniture retailer need to do to continue serving this consumer segment? For the most part, the industry has done a good job from the Silent Generation’s perspective. While not a significant part of the industry volume, it is a segment that has disposable income and is willing to pay for quality and service.
BABY BOOMER GENERATION (AGES 52-70)
This generation, which represents 34.8% of the households and about the same in consumer spending for furniture (34.7%), is an important, but declining segment of the furniture purchasers.
This generation is facing a significant transition as they contemplate retirement. Their choice - whether to age in place or downsize to a retirement community - involves a purchase decision.
However, like the other generations, their first choice in the list of intended next expenditures is leisure travel (37.5%), followed by a new car (35.19%). A furniture purchase, unfortunately, is the last of their intentions (5.7%). They are saddled with the “brown furniture” that was the preference of their generation, but their children don’t want it, and the consignment shops are avoiding this furniture. So, the decision is just to keep what we have. Unfortunately, in downsizing, the scale of their furniture doesn’t work. This decision of what to do with the old furniture becomes a problem.
Unlike the Silent Generation, the Baby Boomers still want furniture that communicates “who I am and reflects my sense of style” (35.1%). However, the Baby Boomers still have the need for home furnishings which “are practical and meet my basic needs for comfort” (28.6%). This consumer is still attached to this more traditional/formal furniture, but is contrary to these statements and provides an opportunity to influence their decision to purchase. A great trip lasts 7 days, but a new power/motion sectional lasts a lifetime – maybe.
Unfortunately, 40% of the consumers in the Silent Generation bought furniture for replacement. We know furniture should have a definitive life span, but from a consumer’s perspective, the life of their furniture is short. The next major reason for purchase is desire for new furniture (24.4%) – an opportunity the industry can stimulate.
What was their buying process? As with all consumers, the majority of the Baby Boomer generation starts with research on the Internet (51.8%). However, a visit to the store is still favored by many in this generation (40.5%). The brick and mortar stores still have the opportunity to influence the sales. Many of these consumers “scout” the store with no intention to purchase at that time. Retailers, be careful with slighting the “tire kicker.” We only have one time to make a good first impression.
Of all the generational clusters, the Baby Boomers have some use for the local newspaper, especially in small markets.
Interestingly, the Baby Boomers have embraced the internet/email as the number one media to influence their intent to purchase (28.6%). This is not to be confused with social media, which was the major influencer for only 5.8% of this generation. As can be seen from the accompanying table, television/print magazine/direct mail/local newspapers are in a neck-to-neck race for the number two spot.
The Baby Boomers are still the major customers of the independent retailer (33%), followed by the regional chains (20%). Their support of the other distribution channels is comparable, with the exception of the lifestyle stores (6.7%), which they have discovered. Stores such as Pottery Barn, Arhaus, and Restoration Hardware reflect their need for a new style and comfort as they transition from their more traditional/formal furnishings.
Looking forward, they will consider regional chains (33.7%) at a higher percentage than their past purchases, along with the internet (20.5%). The designer channel will also be one which will increase in importance.
As with the older generation, the Baby Boomers are pleased with their most recent shopping experience, with over 60% giving a positive rating (6 or 7) on a scale of 1 to 7.
The Baby Boomers are pleased with the courtesy of the store personnel (46.1%) and less pleased with product display and selection. But overall, it was a positive experience.
What brought the product they purchased to their attention was quality (38.8%), reflecting the attitude of all consumers. The continued identification of product quality, as reflected in the reasons for purchase (39.6% all consumers) is creating a wary consumer.
Functionality is important to the generational clusters, reflected in the increased sale of “power” in upholstery and bedding.
Warranty is of little value to this consumer group, reflecting past experience, as well as an attitude of never buying extended warranty.
GENERATION X (AGES 36-51)
This generation is the overlooked or forgotten generation. While smaller (27.5%) in terms of the number of households, they represent more of the consumer expenditure (34%) than the much-touted Millennials. In many ways, this generation is leading the transformation in furniture retailing. While the Baby Boomers are declining in terms of furniture purchase volume, Generation X will be increasing.
As with the other generations, they have a desire to travel, with over 43% stating this as the number one intent as to a major purchase. While important, the car is slightly below (25.9%) the other generations.
The attitude of Generation X is comparable to their parents, with 34.9% believing decorating/home furnishings should be reflective of “who they are and reflect a sense of current style.”
This generation is contending with furniture replacement (43.9%) as are the other generations. However, compared to the others, they are remodeling and adding to their homes (17.9%). The older end of the generation is seeing the first born depart, freeing up a bedroom for the “man cave” or “she-shack.” All of this creating a demand for new furniture.
How do they go about their purchase? Like all consumers, the Internet (50%) is the first stop in the process. However, it is important to point out 40% make a shop excursion first.
The other important difference is their use of magazines. Print is not dead for this generation. The importance has been confirmed with Home Furnishings Business magalogs, which combine lifestyle editorial content with product to achieve a response rate of more than 9%.
Unlike their parents, few get recommendations from friends and relatives (7.6%). Remember this is truly the Facebook generation.
What is this generation looking for in their products? As with other generations, the number one feature is quality (38.1%), Design and aesthetics (24%) are important, along with comfort (16.7%), but most important is value (11.9%). Consumers are both time and budget constrained.
What advertising media influences them? As compared to their parents, they are more likely to be influenced by the Internet/email (44.6%). The next most influential media is targeted direct mail (15.4%). While more influential (8.0%), social media is next to the bottom, just above radio. Television viewing declined from their parents (12.8%).
The regional chains are the distribution channel of choice (24.1%). Surprisingly, the Internet is less important, compared to both the Millennials and the Baby Boomers. Unlike their parents, they accept the mass merchants as an acceptable retailer for furniture. However, for their next furniture purchases, it appears Generation X would be very likely to consider the lifestyle stores and the internet, and less likely to consider the independent retailer and regional chains.
The reason for the propensity to consider other distribution channels may be found in the satisfaction with their last buying experience. While not negative, it is not as positive (54.4%) as the Baby Boomers. A significant area they ranked lower compared to their parents was the “courtesy of store personnel.” This paints a portrait of a time-constrained consumer who does not have time for a sales pitch and has little patience for a lack of product knowledge (25.4%).
October 26,
2017 by Jane Chero in Business Strategy, Economic News, Industry
As an industry, we should be pleased that the home furnishings category, at retail, is out performing other retail sectors, as can be seen in the accompanying table.
TABLE C (REPEAT FROM FORECAST SECTION)
The furniture/bedding sector has steadily increased since the great recession and we estimate an industry volume of $103 billion for 2017, up 3.4% from the previous year. The graphic below illustrates our performance through the most recent quarter.
INDUSTRY SALES GRAPHIC
Unfortunately, this growth has not been shared with the traditional furniture stores, but instead has gone to home furnishings stores such as Bed, Bath & Beyond and Restoration Hardware or other alternative channels. The graphic below illustrates.
The fact is all retailing is facing challenges in the first half of 2017. A Credit Suisse report indicated 8,640 retailers will close doors, up 40% from 2008. The ripple effect of this will be, according to Credit Suisse, 275 malls will close within the next five years. All “brick and mortar” retailing is going through a transformation.
Contrary to popular belief, e-commerce alone is not causing this Armageddon. It is the changing consumers, not just the emerging millennials, but the downscaling baby boomers. The fact is the U.S. is over retailed. This so-called commercial real estate bubble goes back three decades. The major question is will the bubble cause another great recession like the housing bubble?
The furniture store share can be broken down by; regional chains, large independents (multi-markets within a state) and what we refer to as “mom and pops” (independents). The following table breaks down the growth by channel.
For the furniture industry, this abundance of commercial real estate has fueled the expansion of the regional chains. Attracted by low occupancy costs, stores such as HH Gregg have been retrofitted to furniture stores. Unlike other retail sectors, furniture retailers are not over-stored.
The major question is why all the interest in home furnishings? Simply put, it is our gross margin. Currently, gross margin is running at 48-49% for retailers over $10 million. This performance is accomplished in stores within a 50K – 60K footprint. This translates into an attractive gross margin per square foot of selling space at least to other retailers. The graphic below provides the monthly statistics.
The other major sea change is the collapse of the total channel, blurring the distinction between manufacturer and retailer. The objective is to capture more margin, while tailoring the purchasing experience for the consumer.
The graphic illustrates the transformation. Remember the gross margin percent for a retailer who produces or contracts the product itself captures an additional 20-30% million dollars.
For example, the varying gross margins by publicly held entities involved in the channel:
Obviously, what occurs below the gross margin line on the profit and loss statement involves the consumer experience. Matching what the consumer demands against the price the manufacturer or retailer is willing to charge is what is driving the proliferation of different ways to supply furniture to the consumer. The table below illustrates the give and take.
The only given is, a business entity must make a profit to survive long-term. The rocks are littered with bankruptcies which had a new idea. Several companies are getting closer to the shoals.
Moving forward to our forecast. Remembering other retailers or manufacturers strategies - good or bad - will impact you in the short term. It must always be a long-term strategy.