Monthly Issue
From Home Furnishing Business
April 11,
2014 by in Business Strategy, Industry 
Forget national reach: Branding is all about your market.
The furniture industry is chock full of brands—La-Z-Boy, Ikea, Bassett, Ashley, Ethan Allen—we know them, and we love them ... sort of. Problem is, those “icons” mean way less when the people looking for furniture find that the name and the brand doesn’t add up to their expectation. If you’re an independent retailer, it’s up to you to make your name a brand. What do you bring to the table, what makes you the go-to destination for home furnishings in you marketplace?
This month, Home Furnishings Business takes a look at branding, and what you can do to plow your own ground when it comes to creating a brand.
WALKING A LINE
Bassett Furniture is a fairly well-recognized name among furniture companies, and it’s been making waves with its HGTV Home collection. Is there any sort of “push/pull” between the Bassett brand and HGTV, and how does Bassett manage that? “With any brand partnership it helps if there’s a congruence in values, at both the business and product level,” said Renee Loper, vice president of independent retail business development and marketing. “It’s why we have such a great working relationship with HGTV.”
The brand values Bassett wants to bring to the table include category leadership, teamwork and innovation. “There’s also the quality of people at the employee and corporate level, and there’s a log of similarity between the companies,” Loper said. Are there any brand-building lessons Bassett has learned in it relationship with HGTV? “The biggest lesson we’ve learned is to always be true to those core brand values and focus on those, to make sure those values are clear and defined; and that everyone on the team is working toward them,” Loper said. “You have to look at your brand from the consumer’s perspective. For HGTV, we have what we call ‘Essence,’ which is our brand mantra.(See accompanying grapic). Essence guides everything we do from a design perspective, photography, even the fabrics.
“We went through a repositioning of our own brand, going back to its purest form. What do HGTV’s fans and viewers get from its programming? What are the key triggers in it for our business, which is product design? As we select fabrics and finishes, they have to pass that litmus test. HGTV is about freedom of design, personal taste, and having fun with it. We had to flip our view from the manufacturer’s perspective to what HGTV viewers are seeing and getting from our brand, the HGTV Home Furniture Collection.” What are the opportunities, and challenges, of linking with a well-known brand? “The challenge is that especially with a brand as large and as loved as HGTV, and very broad-based—if you add in digital properties, the magazine and the programming it reaches more than 100 million people— is that we’re speaking to a lot of different people with a big range of incomes and style preferences,” Loper said. “The good thing for us is that people just light up when you mention HGTV. From a conversation and training standpoint, just mentioning HGTV opens up a lot of conversations. And they hear it’s from Bassett, which is an established brand. The doors open easily.
“The challenge is to stay focused on the core brand essence.”
A Retailer’s Brand
What defines brand for a retailer, and how do you measure it?
“Brand is what the community thinks of you,” said Lee Goodman, CEO of Jerome’s Furniture in San Diego. “It takes into account every encounter the consumer has with you—in person, on TV, charity involvement, billboards, what their neighbors say, what their mama told them, social media, what your trucks look like, your signage—and wraps it up into one big ball. That big ball is our brand. “We measure it in many ways but where the rubber hits the road is, are people coming into your store and shopping you? If they are, then your brand resonates appropriately. If they don’t come in, then you’ve got a problem. We work with FurnitureCore to understand the metrics on how often we are being shopped. That information is invaluable.” Last year, Jerome’s opened its first store in the Los Angeles market, and Goodman had some thoughts on establishing a brand in a new territory.
“It’s a whole new ball game—we have to think differently and have a different type of messaging depending on which market we are speaking to,” he said.
Sixty years of serving the San Diego community, running hundreds of spots a week, billboards, print ads “virtually means nothing when you move to a new media market,” Goodman said. “Sure there are transplants who know us, but for the most part we have to say hello to a whole group of people that have never heard of Jerome’s. “Of course, we don’t forget to inform them we’ve been in business for 60 years. That really resonates in a town like L.A. that has had so many furniture retailers go bust. We can assure the marketplace that we are experts and are here to stay. There’s comfort in that to the consumer.” The goal is to tell the Jerome’s story from the beginning at the appropriate pace, so that the community stays engaged. “We talk about being in business for 60 years,” Goodman said. “We talk about Jerry’s dad’s business philosophies. We talk about how the third generation is involved in the business today. We talk about
Jerry’s price and why we believe that is a fundamentally superior way for us to price our products. We have things to talk about, we have the selection people want at a great value. And we give the customer a positive experience at all touch points. “It’s not, come buy this sofa on sale this weekend.
It’s not, ‘Oh look, we have a $299 table.’ We don’t say come in and you don’t have to pay until 2019. We explain who we are as a company and how we evolved, and we find that people really respond to that. We have a good story to tell, we just have to tell it.” Measure how your message resonates in your market.
“We look at reach and frequency to determine how our messaging is getting out into the community and we listen to feedback from our locations, and social media,” Goodman said. “And hey, we look at sales. When the cash register is ringing you’re doing something right.
“There’s no silver bullet, but our mattress business, which is mostly house branded, gives us real insights into how our brand is faring, because if people buy our mattresses they are buying into the Jerome’s brand.”
Were there any particular challenges in bringing the Jerome’s brand to the LA market?
“In LA, most have never heard of us so clearly we need to really shake the bushes to get attention in a cluttered world,” Goodman said. “The good thing is, we actually have a good story to tell. Consumers are still interested in a good story, and frankly the market needed a store like Jerome’s. So it’s not like we were one more voice shouting about an upcoming sale or financing. We are truly different from our competitors, we have a 60-year history that establishes us as experts, and our location in South Bay is spot on.”
“If I had to pinpoint a challenge for LA, it’s the traffic. Of course, all that traffic is people in cars who need to buy furniture, so we’re going to look at that as a blessing instead of a curse.”
CHANGING LANES
High-end motion vendor Ekornes has been stressing its Stressless line of chairs as a brand for several years.
“Our mission is to build the Stressless brand here in North America,” said Ekornes Marketing Manager Beverly Kastel. “Without brand awareness our consumers don’t know about our company or products and they certainly are not going to walk in a store and ask for Stressless by name. We estimate that we have approximately 30 million consumers in our target market that we want to reach. Of course our goal is to get them familiar with the brand enough to go their nearest retailer to learn more and eventually purchase Stressless.
“We’ve done several brand awareness surveys throughout the past seven years and we know we have very low brand awareness levels which is a huge opportunity here in the (United States) in particular. In Norway and Germany, for example the Stressless name is a practically a household term and we’ve seen an increase in brand awareness correlate strongly with an increase in sales in these markets.
We are out to do the same here. Do brands matter to furniture shoppers, in terms of retail and vendor names? “Yes, we think brands matter in all categories,” Kastel said. “Not everyone is shopping based on price alone, especially once you get into the luxury product arena and at the price point we compete at.
“We want to create brand awareness, preference and eventually a Stressless community. There is not a lot of brand building going on in the furniture industry, and we feel like we have a unique story and proposition not only for our consumers but for our retail customers as well. “
The Stressless marketing program is built on 3 pillars: advertising, retail display/merchandising and training.
“If one of those pieces is missing we are not going to be as successful as we can be,” Kastel said. “We ask our retailers to support and advertise the Stressless brand locally and we pick up the national and in some cases, the regional advertising as well. That way we are working on all cylinders, reaching consumers at all levels with the same message.
“For example, if our national television advertising attracts a consumer to check out our Web site and potentially connect with us on social media, then when that same consumer sees a local TV spot or a newspaper flyer or ad for their local retailer there will hopefully be some connection.”
The goal with all Stressless communications is to drive consumers to Web site so that they will find out where to purchase in their local area, educate themselves more about the local store and then when they do make it in to the store they are predisposed on our brand, the products and what the local retailer has to offer.
While Ekornes is the company, Stressless is the brand it wants to push.
“It’s not translated into anything else but ‘Stressless’ around the world, and it’s definitely the name we want consumers to remember,” Kastel said. “Ekornes is the company name but Stressless is the brand we are building. There are some retailers that still know us by Ekornes but for the most part I think they are all aware of what we are trying to accomplish with ‘Stressless’ in the marketplace.” In it’s re-branding efforts, Ekornes/Stressless is targeting some 30 million consumers.
“That is why we are reaching outside the traditional TV and print box to communicate with these folks,” Kastel said. “Digital advertising and social media are excellent and extremely efficient ways to reach them but we do not leave TV and print out of the mix. Our target market is older and these traditional channels still resonate with them.
“Also, for the past four years we have very strategically gone into seven markets with a comprehensive campaign to the build the brand in a certain region to see what kind of impact we could have. Instead of spreading our dollars so thin and not making much progress, we saturated these particular areas with a strong mix of traditional and non-traditional marketing and saw some great success in terms of building brand awareness.
It also helped us in other ways like increasing sales, opening up new retailers and solidifying relationships with some of our existing retailers. In 2014 we are going back to a national brand building approach with a very strong mix of traditional and non-traditional media along with a solid focus on building distribution in certain areas.” HFB
Lessons in Rebranding
Steve Blue, president and CEO of Miller Ingenuity, helped his 60-year old company successfully implement a corporate rebranding effort.
Here are some lessons from that experience.
· Don’t Fix What’s Not Broken
Coca-Cola learned not to tamper with a beloved brand in 1985 when it decided to re-stage its iconic brand with “New Coke.” The public was outraged and let Coca- Cola know they didn’t want a “new” Coke. They wanted their old Coke, literally a quintessential icon in American popular culture. Coke responded within a few months and brought back “Classic Coke.” Classic Coke sales rebounded. Although New Coke remained on the shelves, it eventually faded from store shelves. Some commentators felt the move to New Coke was a marketing gimmick to regenerate interest and sales in the brand after sales erosion due to the
“Pepsi Challenge” taste test campaign. Don Keough, company President, responded to the charge saying “We’re not that dumb, and we’re not that smart”.
· Expansion may require a bigger umbrella.
International Harvester changed its name to Navistar International in 1986 when it sold its farm equipment business and entered the truck, diesel engine, and bus markets.
Although the name is “made up,” it broadened the brand and has strong connotations of movement and direction. As a 2013 company report stated, Navistar was selected as a name with a strong sound, a resonance to Harvester, and a connection to its root words “navigate” and “star.” It does all of those things and has since become the name of the holding company over multiple Navistar divisions, International Trucks, and MaxxForce Diesel engines.
· Respect your heritage but don’t let it get in the way of making your brand relevant and compelling
Miller Felpax had been family owned since its inception more than 60 years ago. The Miller heritage could not be lost, particularly because its founding products were innovative for their time. However, the full name didn’t have the same meaning as it once did, so the company changed one word that encapsulates aspects of its culture, its operating philosophy, and its service to customers: “Ingenuity.” At the same time, this name placed the company smack in the middle of the position we wanted to occupy in its current and future customers’ minds, an ingenuous company
· Names have to be understandable, accessible, or at least intuitive in meaning.
In the beginning it was unclear why Jeff Bezos would name a bookseller Web site, “Amazon.” The story is told that he named it after the river, of course, because of its size. An early logo consisted of a large “A” shape with a river-like line running down the middle of it. And the tagline was:“Earth’s biggest bookstore.” Bezos’ ambitions were as large as the company name, and he eventually developed a business model that would include far more than books.Amazon continues to fit this e-commerce giant now, doesn’t it? No wonder there’s a smile on the box. Other names can be just plain difficult to figure out. When Kraft split off its snack division in 2012, they named it Mondelez.
The name has been criticized on two counts. It’s hard to pronounce—what is the correct pronunciation? And, what does it mean? If you are a linguist you might understand the root words for “world” and “delicious.” Maybe. Similarly, Philip Morris renamed itself Altria when it was trying to position the company more as a food marketer and less as a tobacco company. What’s an “Altria”?
Not intuitively understandable. One thing is clear: customers or consumers will not work to understand your name.
· Avoid initials unless you are a big player with an enormous marketing budget.
Avoid brand names that are merely initials. If your initials are well established in the market, still ensure your tagline delivers a branded proposition or benefit. Consider the case of SAP, which is dominant in the Enterprise market and compliments it’s small and midsized business targets with the lines: “The
Best Run Companies Run SAP” and “Run Better.” Of course, GE has the marketing muscle and marketplace presence to make big claims. Neither of these brands have restaged their names but have evolved their brands’ taglines multiple times to reflect marketing objective and market needs.
Elements of Marketing
What are the elements at Jerome’s Furniture for a great marketing program? What are the best ways retailers and vendors can tell their stories and get the word out about the company and its products?
“In today’s world, you have to be everywhere. It’s not easy like it was years ago and you buy some network and the local paper,” said Lee Goodman, CEO of Jerome’s Furniture in San Diego. “There’s a dizzying amount of places to reach the consumer today and no single place has the golden egg. It makes for a lot more work, different creative messaging, and spreading your budget across many different vendors. You have to be fast, you have to be relevant, and you have to be really smart to do it right.
“You cannot set it and forget it. Constant evaluation of how your efforts are working is another key component. Look at those metrics, study them, compare them against sales, have your sales floor communicate back to you what’s working, and hone your plan every minute of every day. If you are being successful right now, go buy your marketing department lunch. They are doing a whole lot more than they used to, I guarantee it—and they are going to have todo a whole lot more tomorrow.”
April 11,
2014 by in Business Strategy, Industry
All the warning signs are flashing—Consumer Price Index —Furniture— flat when compared to all consumer products; Furniture Purchases as a percent of Disposable Income— declining, dwarfed by the increased expenditures in communication. Ignore them! We are lucky to have survived the “almost” depression. Slowly we are pulling out of the decline, but the lights keep flashing.
This issue deals with Brand, the most important element in the health of a product category. What are our brands? Let’s not “cop out” with that “retailer is the brand” scenario. Yes, the retailer has a brand. However, that brand is about service, value, experience, not product quality and style. That is the realm of the manufacturer. The question becomes, “What has happened to brand.” Yes, we have brands: Century, La-Z-Boy, Henkel Harris, Broyhill, Natuzzi, Lane, and more. Yet few of these would register with consumers under the age of 45. Why? Have we failed to maintain our brands?
A recent analysis of the leading consumer shelter magazines yielded an interesting landscape. As far as product goes, sink faucets and shower heads were comfortably out in front. And, when looking at how the consumer would acquire the product, there was heavy representation of the e-tailers and specialty retailers. It is not a surprise then that the consumer, when shopping, considers both of these retail channels on the same level as the traditional retailers who have been in the local community often for 50 years or more.
Has our lack of clarity failed to communicate to consumers that we have a difference? Are the words we are using factors? Does the term “mixed hardwoods” fail to excite in the way that “rich mahogany”, “hard rock maple”, and “elegant pecan” do? Do the often-used terms of “eclectic style” and/or “transitional” fail to communicate style trends we believe in? These terms can mean anything you want them to mean. The consumer is, in fact, searching for Brand. The rapid growth of Amish furniture is an example of this.
Amish furniture is not only about style. Rather it is more about quality, durability, value—all characteristics of a brand. Obviously, I have been addressing the furniture category rather than the bedding industry, an industry that is in direct contrast to furniture. Why has bedding outperformed furniture in the past decade? In short, it is because the bedding industry has excited the consumer with brands that promise the product will deliver something that is different, often something that will make the consumer’s life easier, happier, better. This becomes the challenge for the furniture category.
I cannot end this article without extending my compliments to those CEO’s and presidents of manufacturing operations who have withstood the pressure to make their brands less by reducing quality, infringing on designs, and other short-term actions in pursuit of short term gains. And, finally not to let the retailers “off the hook,” demand that your suppliers create and maintain their brands, that they help you to sell to the consumers by delivering their part of the process. But be willing to allow your suppliers more margin to do so. When a strictly utilitarian product classification like women’s handbags can re-create itself into a category that has women, even those with modest incomes, purchasing a product that can represent a substantial portion of their salaries, this gives hope to our industry, one that is so intimately a part of the consumer’s daily lives.
April 9,
2014 by in Business Strategy, Industry
The ideas of brand and branding are such broad, wide-reaching concepts that a slew of books—some worthy, some not—have been written espousing this, that and the other thing. Heck, if libraries still used physical card catalogs (remember those?) the topic of branding could completely fill at least one 42-drawer cube. Ideas and opinions of branding are ubiquitous. Shake the proverbial stick and you’ll uncover someone’s idea of brand.
You get the idea.
Here in furniture land, a handful of our brands still carry legacy cachet among older consumers. However, those Millennials and some Gen Ys are now stepping into the home furnishings buying cycle without much a clue about La-Z-Boy or Bassett or gasp, their parents’ Drexel Heritage or Ethan Allen. More likely than not, they’re thinking Ikea or West Elm; maybe Pottery Barn. I’m curious if the so-called traditional furniture brands have fumbled and lost their way in reaching these up-and-coming consumers. No doubt, we in the furniture business love the baby boomers, and have for some time, but let’s face facts. That generation won’t be around indefinitely feathering their nests. The cycle of life is just that—a cycle. The next question becomes who will replace their love of furnishing with wellknown, cultivated brands. AND, will there be companies the younger generation deems worthy of their hard-earned cash? These thoughts circle me back to a matter I see happen frequently. Few companies—furniture or otherwise— differentiate between the marketing and branding, and the two different things.
Marketing is promoting a product or service. Marketing revolves around pushing a message to generate sales or a following or something. Advertising falls under the marketing umbrella. Do it; advertising generates results. Branding or brand building should precede marketing efforts. A brand is the essential truth or values of a company or product or service. Brands tell consumers who a company (or product) is; what it stands for; why it exists. Brands, especially the strong ones out there, help encourage folks to buy a product, and a strong brand will help support any marketing efforts out there. Marketing is tactical; branding is more strategic.
An effective marketing plan roots out and encourages consumers to buy, while branding creates loyal customers and evangelists for your brand. Brand evangelists then encourage others to buy your product. How’s your brand? What is your marketing strategy that helps support your brand? Perhaps it’s time for a check up on both fronts.
Inside our cover story, you’ll find a great report that covers brand building and marketing strategies to put to work in your organization. Put together a plan that makes sense.
Happy reading, and I’ll see you at Market.
March 21,
2014 by in Business Strategy, Industry
Despite what that pesky groundhog had to share last month, spring is just around the corner. With its return, spring will usher in the urge for consumers to shed winter coats, buds to push through warmer earth and garden parties filled with brightly colored tulips. Just one or two (let’s hope) residual snow storms left before dining al fresco under a pergola or relaxing by an outdoor fire pit makes their long-awaited return.
One sure sign of spring’s arrival—retail floors are filling with outdoor furnishings. Sofas with plush cushions; tables with brightly colored umbrellas and plenty of space for friends.
According to a Home Furnishings Business survey conducted in late January, consumers continue to spruce up their outdoor living spaces and make them true extensions of their homes’ interiors. Consumers participating in the survey had purchased outdoor furniture within the last year or so. More than 80 percent of those surveyed said they made their purchase to either replace an old outdoor furniture collection (50.8 percent) or to add to an existing collection (29.5 percent). Those purchases weren’t made without a bit of due diligence and Internet research by the consumers. Nearly 43 percent spent between two and seven hours digging into outdoor furnishings prior to making their purchase. Once the online research was completed, our panel took a bit of time to find just the right thing for their homes. More than 60 percent of our shoppers took between one and four weeks to close the deal.
Shopping Versus Buying
In the research stage, consumers shopped a variety of channels in their hunt for outdoor furnishings. More than 57 percent shopped the home improvement chains, like The Home Depot or Lowe’s, while only 21 percent shopped traditional furniture stores. That was the lowest score falling behind outdoor furniture specialty stores (36.1 percent), the Internet (37.7 percent) and mass merchants, like Walmart and Target (49.2 percent).
When it came to the buying, traditional furniture retailers fell farther behind. Only 6.6 percent of our consumers—the lowest percentage—bought their outdoor furniture from a traditional furniture retailer. Instead, they bought from home improvement stores (37.7 percent), mass merchants (23 percent), outdoor furniture specialty stores (19.7 percent) and the Internet (13.1 percent). Perhaps the reason for the high purchasing rates at mass merchants and home improvement stores is the fact that they stock what they sell. The immediacy factor allows consumers to shop in the morning, take it home and host a backyard barbecue all in the same day. More than 80 percent of our consumers purchased store stock for their outdoor areas, while the remaining ones opted to custom order their selections.
What Retailers Say
Northcape International’s Charleston Woven Sofa
This is a great value with domestic Sunbrella fabric cushions made in Chicago. It features an Aluminum frame with high-quality poly-resin. Sofa retails at $1199.99.
Kyle Johansen
HOM Furniture
Coon Rapids, Michigan
Tropitone’s Montreux Collection
“This group has a great Tropitone story and offers
special orders in three weeks. It’s a great style.”
$2499.99 for a five-piece sling dining set with stone-works table.
Kyle Johansen
HOM Furniture
Coon Rapids, Michigan
Woodsource’s Sunset Cliffs Collection
This group is cast aluminum and powder coated. The group is in ‘safe’ color cover, brown and tan striped, and has a variety of pieces. We offer four different dining table options – a 52 inch round, rectangular, counter height and a dining table with a fire pit in the middle. We offer a standard cast aluminum chair with a seat cushion as well as a sling chair. Our seating options in the collection are expansive.” $999.99 for a five-piece grouping with a round table and four chairs.
Megann Handley
Jerome’s Furniture
San Diego
What Suppliers Say
The Cloud by Gloster
Reminiscent of contemporary interior upholstery, Gloster’s Cloud group continues to be a winner. Cloud is the epitome of functionality with its modular pieces based on five different style base frames. The collection gives consumers an endless amount of options and configurations to fit any available space.
Homecrest’s Lana with Lunar Fire Table
The Lana spring base chaise is the perfect fit conversation around a fire pit, paired up on a porch or as a dining option. The Lana spring base chaise is proportioned and positioned for relaxation. Designed with support to easily enter and exit the piece, and the chairs are perfect for a relaxing nap or a good book. The Lunar Fire Table offers an embossed leather aluminum top and can be customized in one or two color combinations on the top, frame and side panels.
Tropitone’s Montreux Urcomfort Collection
The Montreux collection with its adaptable design has been a winner for Tropitone. Here the company has paired it with its URComfort seating that moves with the body. “Whether you are sitting at a table in a dining chair or relaxing in a swivel action lounger with your feet on an ottoman, URconfort finds the most comfortable position for you,” said Mark Gorr, vice president of product managemen and consumer sales. “And it stays in that position unless you want to move. Then it moves with you. URComfort is an elegant fusion of design and engineering.”
English Garden Collection by Pride Family Brands
The collection offers lasting leisure in cast aluminum. The crescent share of the collection provides ease of conversation and also eliminates the appearance of straight lines. The Castelle fire pit coordinates with a number of Pride Family Brand collections, including English Garden. Cast aluminum top and leg elements, hand-woven base and a propane fire mechanism and warmth to outdoor rooms.
Century Furniture’s Andalusia Group
The Andalusia Collection designer by Richard Frinier reimagines what an outdoor space can be. The collection gives consumers the ability to create a casual, beautiful retreat in their own backyards.
Janus Et Cie’s Janus Living Collection
Available in multiple finishes and as a stocking program for quick delivery, the collection continues to be a winner for Janus et Cie and its retail partners. The Joe armchair shown here with a teak table, offers a classic bucket-style seating atop chrome polished, steel legs. The collection offers 21 items, eight finishes and four fabrics to offer a customized approach to living.
March 21,
2014 by in Business Strategy, Industry
Staying on touch with retail metrics can turn a mediocre operation into a High Performance Company.
Finding financial prowess in the furniture retailing business can be a tricky proposition. What numbers are key performance indicators? What components of the business can add to the bottom line, and which ones will have a detrimental effect? It has been several years since a comprehensive survey of retail financial performance has been published. In fact, the National American Home Furnishings Association report was last issued in 2009 based on data from fiscal year 2008. This is the first time Home Furnishings Business has published such a comprehensive look at financial performance in the home furnishings industry. Impact Consulting, parent company of HFB, compiled the survey for the NAHFA and has continued to maintain the data since that time using the same methodology. Currently, the information is available in the company’s Best Practices application of FurnitureCore.com via subscription basis. The online information allows retailers to compare themselves to other home furnishings retailers and devise a plan on how to better manager store operations. Participating retailers submit financial information that is then matched to a standard chart of accounts to insure all expense categories are comparable. The study has been confined to traditional furniture retailers. Excluded are mass merchants, e-tailers, and vertical manufacturers, like Ashley HomeStores or La-Z-Boy Furniture Galleries, and vertical retailers like Crate and Barrel. To insure a comparable evaluation a balanced sample was selected to reflect a geographic mix, volume range, and merchandise price points.
Graphic A presents this breakdown.
Table 1 on the following page presents financial ratios for 2013. As can be seen in Graphic B (page 19), while the industry has recovered from the Great Recession kicked off in 2008, the financial performance of the furniture retail sector has not completely regained its footing. In fact, compared to 2008, the bottom line is a mere third (1.4 percent net income, 2008).
However, a significant difference arises when we analyze using different parameters like retail volume or price points. For example, let’s examine using sales volume. From the analysis in Graphic C (page 19) it can be said that it is all about volume. However, it appears there is a no-man’s land between $5 million and $25 million—operations too big to be run by an owner-manager, but without enough volume to justify a much larger organization. The following will explore the reason by each major operating rationale.
Furniture retailing has a number of elements that can contribute to or detract from revenue. Things like delivery, income and fabric protection are all considered above the line items. Smart management of these elements often defines a retailer’s success, or in some cases, failure.
Returns: Smaller retailers tend to handle many of their returns outside of their tracking systems by simply voiding the ticket or making even exchanges. The retailer at $25 million and above is more likely to record the transaction and feel the brunt of this major issue for the industry. However, retailers above the $100 million level show a significant difference. Is this an indication of tighter procedures or the introduction of a restocking fee?
Merchandise Protection: Merchandise protection, like fabric protection, is often considered to be a gold mine with the exception of those retailers in the upper to premium tier who often consider it a negative. For the midsize retailer—those with sells between $5 million and $100 million—merchandise protection is an important profitability component.
Delivery Income: Delivery income is beginning to become part of the consumer’s ire along the same lines as airlines’ charging passengers for checked baggage. However, for now, it is an important part of offsetting the delivery expense and can impact it by as much as 60 percent to 75 percent. Many high performance furniture retailers are able to offset the cost of deliveries.
GROSS PROFIT
The ongoing confrontation between manufacturers and retailers is to arrive at a selling price to maximize the volume sold to consumers. While this is a point of significant research in other retail sectors, the furniture industry is still playing a game of dare.
Retailers remain in the power position for now because few suppliers have managed to create and maintain brand names that resonate with the consumer.
Nevertheless, for many retail sectors, such as electronics and appliances with margins in the teens, the furniture industry’s gross margins are envied. The table in Graphic E (page 20) explores our current position. The information presented in Graphic E kills the myth that big retailers buy better and have better margins. However, those dealers may have a strategy of low price that consistently drives revenue at reduced gross profit levels. It’s important to point out that many vertical retailers, like
Restoration Hardware and the like, enjoy margins of 12 percent to 15 percent higher because of their direct sourcing model. Now let’s discuss how the industry makes so little profit beginning with what appears to be such a healthy margin.
SELLING EXPENSE
The cost to motivate consumers to put home furnishings at the top of his or her discretionary spending and, more specifically, at your store through advertising is the first step in the process.
After arriving at the store, sales management takes over converting prospective buyers, and keeping the sale is the task of the backend. As we discussed earlier, between four percent and six percent of revenue can be lost through merchandise returns. Such returns can be attributed to the back-end operations, as well as to the front-end floor staff.
Advertising remains a function of volume with the foundation for smaller retailers pushing their expense up ¬about two percent. However, it is important to manage advertising expenses. It’s imperative to control costs while measuring the advertising’s effectiveness on a weekly basis. The only measure is number of visits—or ups—to the store or the Web site. With such scrutiny, advertising effectiveness will improve. Weekly sales are secondary results influenced by a number of other factors.
Sales Expense includes not only the sales associates’ commission, but also sales management, bonuses/contests and similar activities. The January/February 2014 issue of Home Furnishings Business provided some significant perspective. Warehousing/Delivery completes the cycle of selling expenses, and it must be managed intelligently. Often a retailer’s upfront performance is negated by the backend if the retailer is unable to manage it effectively. If that’s the case, management should seriously consider outsourcing warehousing and delivery functions.
Hidden in the other factors is Sales Office. Retail technologies exist to eliminate the sales counter which can cost one percent or more, but can zap consumers’ excitement for the furniture purchase. Graphic F (to the left) presents this information graphically.
GENERAL AND ADMINISTRATIVE EXPENSE
To complete the selling process requires a place to conduct business (Occupancy), a management team to develop and execute a strategy, and, technology, which is becoming more and essential in controlling the overall process. In total, this expense is almost equal to the selling expense. See Graphic G on page 21. Do the larger retailers have an advantage over the smaller retailers because of volume? Not proportionately. However, the ability to attract top talent and secure the best locations is often the case. The focus is not to reduce the expense, but to make the most effective decision. We believe the expenditure for information for both systems and data will expand. Of course, we are invested in this area via our portal FurnitureCore.com, which offers business intelligence to our clients.
The importance of location which impacts occupancy cost has always been key, but it’s stepping up to be a major factor today as time-starved consumers want to find furniture retailers adjacent to their Saturday shopping routes The management team (Administrative) is a major decision and can be the difference between a $50 million retailer and a $100 million retailer. It is a matter of management talent. The decision for a $10 million retailer to hire a sales manager is excruciating, but the increase in close rates and average ticket can increase sales by 20 percent if properly managed. This is true in all areas—delivery, warehousing, and advertising. Results can be produced when someone is focused on the task. If a retailer cannot execute the administrative tasks, it makes more sense financially to hire an outside supplier. This is especially true with delivery functions where costs can be reduced and customer service improved.
CREDIT INCOME AND EXPENSE
This area of expense was, at one time, a key area of profitability for retailers when many carried their own paper. Some still operate as credit houses; however, the likes of the former Heilig-Meyers are only in the memories of the seniors of us still in the industry. Today, credit is a crucial place to control cost. Graphic H (to the left) provides the statistics.
From our perspective, credit is a selling expense that has emerged as a perceived necessity to generate consumer traffic. In our experience, less than 30 percent of consumers opt for offered credit promotions.
SUMMARY
Keep in mind; our numbers are only guidelines to stimulate thought and discussion of how to profitably run a retail operation. We caution any specific retail figures, to be comparable, must be compiled to conform to these classifications. We believe an ongoing focus on a company’s statistics is the path to high performance companies. It is not achieved in a month, but is part of a continuing process. Such a process is greatly enhanced with a membership in a retail performance group that allows for an open and frank discussion of the barriers to achieve certain objectives occurs with retail peers.
While the overall industry statistics are discouraging, there are individual retailers who achieve 10 to 20 times this performance level. We challenge you to be one of those. Home Furnishings Business is committed to providing input to your process. HFB
Best Practices
FurnitureCore’s application, Best Practices, provides an ongoing monthly measure of a retailer’s performance. No individual retailers’ numbers are shared, only composite percentage results are provided. Contact info@furniturecore.com for more information.
Want More?
A more detailed Operating Performance Report—2013 is being prepared and will be available in April. The report will detail further each expense category as well as segments by price point and region. Contact info@furniturecore.com to reserve a copy.