Needless to say, the external factors, such as tariff s and ecommerce, and internal factors, such as aging owners retiring and young consumers looking at renting instead of buying (that is if they can ever aff ord a house) any forecast becomes a “SWAG.” For those that don’t know what that stands for, email me.
When developing this, Florida was threatened with a direct hit from Hurricane Dorian. Everyone’s att ention was glued to the television, watching the forecasted path. It occurred to us that we could create our own spaghett i presentation of models and measure the accuracy of each. With that much exposure, many in the industry would stop prognosticating. Seriously, there are so many factors that are considered in arriving at the forecast. We fi nd the consumers and incorporate into our model. Unfortunately, one deviation can cause a major change in direction. The table below presents last year’s forecast with what actually occurred along with the consensus forecast for this year. Note the deviations, such as housing starts.
That is what happens in forecasting. Just like Hurricane Dorian, Florida was spared a direct hit, but the entire East Coast felt the power and endured the destruction. Unfortunately, the furniture industry forecast is similar. A downturn will happen in the near future. Exactly when and what sectors cannot be precisely determined, but for sure find the storm shutters.
The following presents the statistics behind the forecast, followed by the perspectives of those on the front line, followed then by those on the sidelines. Just recognize the ultimate perspective of the consumers. If 60% of consumers believe we are going to have a recession, we are in a recession.
Our Perspective — Forecast Spending, both by consumers and the government, appears to be the driving force behind forecasted steady, but slowing, economic growth this year and in 2020. Holding back the economy, however, is business investment in equipment, weaker inventories and structures and forecast soft housing and exports. Global declining manufacturing activity in the world’s advanced economies is putting pressure on the U.S. expansion. And then there’s the upside-down yield curve. Most economists predict a recession in 2020 or 2021, though most feel it will be short-lived.
The Furniture Industry Industry sales are forecast to finish this year 3.2% growth, well behind last year’s increase of 6.6% the year. Depending on recession fears, growth should moderate again in 2020 to around 2.4%.
The Bedding industry, the fastest growing segment coming out of the last recession, faced stiff competition in 2018 from imports along with disruption from consolidation and an increased Internet presence. This year the Bedding industry began to recover and should expect growth of 3.1% while all other furniture is on track to increase 3.2%. Both furniture and bedding sales should slow further over the next two years to under 2.5% growth. (Table B)
Distribution Channels. Retail sales, excluding motor vehicles and gasoline, should experience around 3.9% growth this year, with much of that growth taken up by e-commerce, leaving only about 2.0% growth for in-store sales. Except for internet shopping, retail sales are forecast to slow or go negative this year for all other broad distribution channels, according to the Census Bureau (based on sales through July). For Furniture Stores, coming off good growth in 2018 at 6.3%, the first half of this year has been a sobering experience for many. Furniture Stores are on track for sales to fall about 1% this year based on performance. A more robust fourth quarter than last year could pull these numbers up some. Home Furnishings Stores are also experiencing flat or declining sales compared to the first two quarters of last year, down 1% second quarter year to date. Electronic Shopping and Mail-Order Houses continue to experience high growth, up 12% thus far in 2019 Q2 YTD. (Tables C and D)
Prime Furniture Buying Population. Millennials (ages 23 to 38 this year) are firmly entrenched in the 25 to 34 age group and continue to pour into the 35 to 44 age group, the fastest growing category under age 65. This group is expected to increase 1.3% this year and continue to accelerate over the next few years. The younger 25 to 34 group is also growing, but more slowly going forward. Many in this age group who delayed entering the workforce are finally finding jobs, though not necessarily the ones that match their educations. Meanwhile Gen-Xers in the 45 to 54 age group, continue to decline. Of particular concern to the furniture industry is this age group tends to be at peak earnings, and a decline in number could slow consumer spending somewhat. Baby Boomers are still impacting the industry as the older age groups continue to grow and downsize, although not necessarily to less expensive homes. (Table E)
The U.S. Economy Many economists feel that overall the economy is healthy and that the forecasted slowing of Gross Domestic Product to within the 2% range is consistent with an economy that is slowing down to a more moderate growth rate which is not necessarily unhealthy. Unemployment is forecast to continue at the natural rate. There isn’t too much inflation or deflation. So again, except for an unexpected major domestic or global event, a recession, if any this next year, should be short-lived.
The uncertainty regarding trade wars with China, is being blamed for at least some of the forecasted GDP slow down.
The Home Furnishings Business economic forecasts that follow are a compilation of predictions by leading government agencies and U.S. economists. Figure 1 provides the complete sources.
Real Gross Domestic Product. GDP, which measures the nation’s production output, should continue to slow to an estimated growth rate of 2.2% this year and slow further through 2021 (Table F). The economy barreled forward last year, but slightly lower than the anticipated 3.0% annual growth. After a dismal fourth quarter last year that experienced only 1.1% growth in GDP, the first quarter of 2019 posted a surprising 3.1% increase. The second quarter slowed to a 2.0% rate. According to the U.S. Bureau of Economic Analysis (BEA) the second quarter slowing in real GDP primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in consumer spending and federal government spending. A large number of experts feel this historical expansion will continue to cool with a mild recession looming toward the end of 2020 or 2021. (Table F)
Payroll Employment and Unemployment Rate. Since the end of 2017 through the second quarter of this year, the U.S. added 3.7 million jobs. Employment growth slowed, however, beginning in the fourth quarter of last year and has continued to slow, with the second quarter of this year adding only 437,000 jobs. The number of non-farm workers is forecast to grow 1.6% this year compared to 1.7% in 2018 and slow further through 2021 to 0.5%. Job openings exceed new hires.
On the positive side, the Bureau of Labor Statistics reports wage growth for nonsupervisory workers ticked up through the first half of this year and the number of hours worked rose. The share of the population employed is the highest since 2008. On the negative side, retail establishments continue to shed workers as stores continue to close and the telecom sector continues to shrink. No doubt businesses will be looking for workers in the future. Tighter immigration laws may have a larger impact on specific industries, for example Agriculture, where undocumented workers have been heavily employed. (Table G)
Unemployment is forecast to continue at the natural rate rising slightly over the next two years. This year should average 3.7% unemployment and grow to 4.2% in 2020. The short-term unemployment rate (those unemployed for less than six months) is near its lowest level since the Korean War in 1953. (Table H)
Inflation. The Federal Reserve is predicated to hold inflation steady over the next two years with 2019 averaging 1.8% and the next two years at 2.0%. (Table I) Stock Market. The stock market continues to do its own thing – rapidly reacting to geo political conditions then shrugging them off just as quickly. The Dow Jones started the year around 23,000 and at press time in September was at 27,000. The average for the year is forecast at 26,000 and the average next year at over 27,000 or higher if a recession doesn’t occur. (Table J)
Consumer Prices. The furniture industry has struggled to get prices up. Prices began to rise in 2019, but not in the manner the industry had hoped. With new tariffs imposed and the threat of additional tariffs this Fall, furniture industry prices are forecast to grow 2.7% and 3.0% in 2020. Meanwhile all consumer goods prices are forecast to grow 1.7% this year and 1.8% in 2020. (Table K) Gasoline Prices. Barring any international incident that would disrupt the crude oil and gasoline industry, the U.S. Energy Information Administration predicts gasoline prices will remain stable through 2020, forecast at an average of $2.62 per gallon of regular this year and $2.71 in 2020. The government is sticking to its forecast that the United States — already the world’s biggest oil producer — will become a net exporter of crude and petroleum products in 2020. The good news for the economy is lower gas prices reduce the cost of transportation for food and every other consumer product resulting in raised profit margins. It also gives consumers more disposable income to spend. (Table L)
Consumer Confidence. While fickle, Consumer Confidence remains relatively stable despite trade rhetoric, recession threats, and political unrest. This year began with a Confidence Level of 120 (1982 = 100) in January following less than expected consumer spending in December 2018, but quickly jumped over 10 points the following month. Confidence is forecast to remain around 130 to 135 the rest of the year, barring any dramatic events. According to Lynn Franco, Senior Director of Economic Indicators at The Conference Board, regarding August 2019 level of 135.1, “Consumers’ assessment of current conditions improved further, and the Present Situation Index is now at its highest level in nearly 19 years. Expectations cooled moderately, but overall remain strong. While other parts of the economy may show some weakening, consumers have remained confident and willing to spend. However, if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook.” (Table M)
Prime Interest Rate. This short-term interest rate is the most commonly used in the banking system. The average rate for the year should be at 5.2% following a rate cut in September to 5.0% by the Federal Open Market Committee (FOMC) of the Federal Reserve. Some economists predict another rate cut shortly to 4.75% where it is forecast to remain through 2020. The Prime Rate is generally increased if the FOMC determines that the pace of inflation within the U.S. economy is too high so as to bring inflation under control. (Table N)
The Housing Market 30-Year Mortgage Interest Rate. Interest rates for 30-year mortgages remain very low, forecast to average 4.0% this year and 3.7% next year. (Table O)
New and Existing Home Sales. New single-family home sales picked up this year and are expected to grow 7.7% thanks to good housing starts in 2018. However, new sales are forecast to slow to 3.2% growth in 2020. The industry’s main obstacle to ramping up construction is that it has become more expensive for builders to break ground on new projects. Meanwhile, existing home sales have been struggling lately to gain momentum because prices have risen beyond many buyers’ means. Sales of existing homes are forecast to decline again this year 1.1% but pick up slightly in 2020 to 3.4% growth. Low mortgage rates are giving existing-home sales a slight boost.(Table P)
Housing Starts. The boom to housing starts predicted for 2019 never occurred, leaving demand high and inventories low in many markets. The blame is being placed on scarce workers, high costs to break ground, and long permitting processes in many cities. Predictions are now that 2020 will make up the difference for single-family starts which are forecast to be down 0.7% this year, but rebound in 2020 to 7.0%. The growth in multi-family starts, however, is forecast to be slow – up 1.1% this year and down 0.5% in 2020. (Table Q)
Home Prices. In July this year, the Census Bureau reported the median price of a new home sold in the U.S. was $312,800 and an existing home sold, tracked by the National Association of Realtors (NAR) at $280,800. The price of new homes is forecast to be down 2.5% this year, but rise 1.5% in 2020. In July, almost half of new homes sold were priced below $300,000, reflecting a shift among home builders to building more-affordable homes. Meanwhile existing home sale prices should increase 4.0% this year and 3.3% in 2020. (Table R)
Recession Fears: Many economists believe that recession fears are overblown. Others say signs of a possible recession keep stacking up and at some point, it no longer makes sense to keep explaining them away. In the September Wall Street Journal monthly survey of 60 economists, the question was asked: When do you expect the next recession to start? Less than half, 42.5% thought a recession would occur next year and another 35.0% felt a recession would occur in 2021. And according to the Duke University/CFO Global Business Outlook survey released mid-September, 53% of chief financial officers expect the United States to enter a recession prior to the 2020 presidential election. And two-thirds predict a downturn by the end of next year. Finally, add climate change to the list of economic worries, which the insurance industry ranked as the top risk for 2019. It beat out concerns over cyber damages, financial instability, and terrorism. In 2017, insurance companies paid out $138 billion in damage claims from natural disasters such as hurricanes, floods, and wildfires.
And don’t forget 2020 is an election year, which oddly enough historically usually bodes well for the furniture industry.
Looking back over the past year, the upholstery category has held steady at 33.2% of total Furniture and Bedding sales YTD according to a FurnitureCore, Inc. industry model developed by Impact Consulting Services, parent company to Home Furnishings Business. Though there has been buzz around the motion segment of the category regarding voice control, concealed USB chargers, and many other innovations, stationary furniture has seen some excitement as well. Performance fabrics for durability, modern designs that allow for style and comfort, and most importantly, customization, have lent this segment of the category a boost.
According to Luis Ruesga, Zuo Modern CEO, “2019 trends show, more than ever, people desire a stylish home but prioritize comfort. The current trends of 50s and 60s Pop prioritize layers and textures in upholstery— all the features that make a home more fun and comfier. Sofas and armchairs are overstuffed and more cushioned which allows for maximum comfort. We are at the age of Max Upholstered furniture. Zuo strives to make our furniture equally as comfortable as it is aesthetically pleasing. Our new upholstery furniture allows for both style and comfort. We wanted big and bold shapes, but also wanted to emphasize the softness and curves of good old comfy couch. So, we took a very Deco shape and made it plush.”
In line with Zuo’s stance regarding upholstery are the findings of the FurnitureCore industry model. When consumers were polled on which look they selected for their most recent upholstery furniture purchase, 55.71% selected plump, overstuffed sofas with deep seating compared to 44.29% who selected a sleek, tight body cover following the line of furniture.
Many manufacturers have boosted their ability for customization in their upholstery lines, driving business in the right direction for retailers who are able to retain a small footprint at retail. Take Bradington-Young’s Luxe for Living Collection for example. Cheryl Sigmon, director of merchandising, expands on this idea saying, “The Luxe for Living program is a best seller because it allows our retail partners to display a variety of SKU configurations within the motion and stationary categories in a small footprint on the retail sales floor. It can also be customized in a variety of covers including more than 150 leather selections and over 135 performance fabric selections. With customization being so important to consumers today, this is a key selling feature.”
Klaussner has the same mindset, bent on keeping the category from stagnation. “Klaussner Furniture offers our customers so many options, from special order to selecting the exact type of frame design the end consumer is looking for” says Jill Sprehe, director of stationary upholstery at Klaussner. “The importance of allowing the consumers’ choices ensures the industry stays fresh and relevant. A bland sea of sameness will get us all nowhere.”
Surprisingly, given today’s fast paced environment in the age of the Internet, consumers are willing to wait for these customized pieces. According to the same FurnitureCore study, consumers polled on the length of time they would be willing to wait for a customized sofa, 25.71% said they were willing to wait 1-3 months for their delivered purchase. The majority, 44.29%, were willing to wait up to one month, which is the most common anticipated manufacture timeframe. The remainder is identified on the adjacent page.
When consumers consider purchasing their next upholstery furniture piece they are largely placing them in their living rooms (71.43%) or family rooms (30.71%) based on the study. The remaining 4.28% place their purchase in the bedroom or another room. With the majority of these purchases being placed in high traffic areas, it is no small wonder that performance fabrics are in demand. Whether these pieces are in homes with small children, pets, or enthusiastic red wine drinkers, accidents happen! Performance fabrics ease consumers’ minds and boost confidence in their purchase.
Read on to see the manufactures’ best sellers and the myriad reasons why their products are a success.
While this approach is certainly a primary ingredient in sales performance improvement, most of the effort is focused on the selling process and the critical time that our salespeople spend face-to-face with a customer. This is indeed where the selling rubber meets the road and as a result must be the first part of the process we address. If they don’t know how to connect with consumers, find out what they each want as a result of their store visit and then help them make it happen, nothing else matters! However, there may be an area of opportunity that is neglected in many stores.
What I am saying is that we spend so much effort working directly with each salesperson on selling skills, product knowledge and other elements of the selling process, that we could be missing a chance to help them better manage their own time and positively direct it at making themselves (and the store) more successful. Truth be told, most of our staff members spend less than half of their in-store time working with customers. During the busy weekend days, they may be on the floor working with Ups 70% to 90% of the time, but during the week they will have many days with only a few opportunities. Therefore, the obvious question is: What are they doing to maximize their sales and selling abilities during the time they are NOT with customers, or as we often call it, salesperson downtime?
This point was brought to my attention a few months back when my Premier Owner Performance Group requested that I have the members of my Sales Managers Group come up with a list of what their salespeople should be doing during their time in the store away from customers. I had often developed lists like this for clients in the past and worked with individual managers on ways to include them in their sales management efforts on the floor. However, it had fallen off my radar a bit but was certainly worth revisiting to get my team of twenty plus sales management professionals input. So, at the next meeting we had a very meaningful discussion on the subject and created a rough list of tasks, plus kicked around some ideas about how to use it in their stores.
I recently combined the list that the Motivated Wise Guys Group and I developed with what I used in the past to put together a fairly complete, salesperson focused directory of tasks and activities that would help them improve their store presentation, increase customer happiness, build client loyalty, generate additional personal business and develop better skills to please more potential clients. Here is the final list, including my notes about each item, with the goal of helping us maximize the return the staff can achieve from their downtime in our stores:
Floor Maintenance and Improvement –
In essence, the selling floor is a salesperson’s office or workspace and as a result it is critical to their success or failure. Therefore, they should participate in maintaining it and contribute ideas about how to make it better. n Catalog updates, swatch maintenance and fabric drops/updates – By helping to maintain these sales tools, not only is their effectiveness improved, but so too is the salesperson’s product knowledge.
- Fluff and straighten pillows – The visual impact of your store’s display is critical to having a customer choose to buy. A cluttered and messy store does not build their confidence in working with your staff.
- Check selling aids for assigned vendors – This goes hand-in-hand with the first point but focuses more on samples and other POS materials provided by vendors or developed by the store.
- Walk the floor for new merchandise or clearance items – This should be the first thing every salesperson does each day before they start their shift, particularly after days off. Things change and they must be aware of what is happening on their selling floor before they work with their first Up of the day.
- Feedback on display – Let display/buying staff members know about any holes in vignettes, listen to new ideas they have, and be aware of accessories and area rugs that have been sold off or damaged.
- Check/replace/update tags – Many stores have salespeople do the tagging which is a good way to keep them familiar with what is happening on the floor. But even if they don’t actually tag the floor, they should still be responsible for checking the tags and getting any problems rectified before they impact a customer.
Active Client Follow Up –
This is an absolutely critical activity for all salespeople. Following up and staying in contact with people who bought from you is the best way to turn customers into clients. It makes them remember you and come back the next time they need anything.
- Check order status and call clients as needed – The number one customer complaint about the furniture buying experience is “why did I have to call them to find out my delivery was delayed?” Communicate promptly and all is usually forgiven.
- Checking open orders or quotes and call clients to gain commitments – Don’t let these potential sales dry up and blow away. Follow up and keep your order list current and complete. n Thank you notes to all who bought – If you think these don’t matter you are very wrong, they do and sending handwritten ones, the “old fashioned way”, is still best. It will separate you from the competition faster than an email or text! n Post-delivery calls for all deliveries each day – Show them you are excited about the new products they just received and want to share their joy. If there is an issue with the purchase, then you want to know immediately to have the best chance of fixing it.
- Upcoming appointment prep – Contact in-home clients before the visit to set the stage, make sure you have all the information you need and to get them excited about it.
Build Their Business on the Phone or Internet –
This is the most productive thing a salesperson can do when not working directly with a customer. It turns downtime into uptime!
- Contact people they haven’t heard from in a while – Go through your previous customer list weekly and reach out to them. The results will surprise you.
- Soliciting referrals from clients, family and friends – Call, text and/or email happy clients for names of people they know that you can also make happy.
- Develop positive reviews from previous clients – Reviews are one of the most powerful motivations for online shoppers to put you on their store visit list. Cultivate and build them by asking for them.
- Self-promote on social media – fast becoming a powerful way to build your business and possible the only way to reach certain potential clients. Do not ignore this very meaningful personal marketing opportunity.
Education and Training –
The most successful people in any field are constantly searching for ways to improve their knowledge and skills. Today there are more ways than ever to do this and every store should provide their staff with the ability to better themselves during their downtime.
- Go on company website – Many customers today enter a store knowing its website better than the person who greets them. Don’t let that be you.
- Shop competitive websites – No one likes surprises and knowing what your competitors are doing is the best way to eliminate them in the selling process and to gain a distinct advantage.
- Shop all competitors in the marketplace every six months - see point about shopping websites above.
- Create teams with assignments – Working together with others on the staff builds cooperation and greater awareness of what the store offers. Here are some suggested assignments for the teams.
- Develop good, better, best product stories by target customer n Develop good, better and best product stories by vendor
- Study vendors and develop strategies for each
- Practice sketching and room planning – Interesting that the most successful people in every field of endeavor are always the ones that practice the most and the hardest. Conversely, the least successful ones usually practice the least. Think there may be a lesson there?
- Research design trends and current hot products online and in magazines - The more current your knowledge and style awareness is, the more successful you will be. Besides, this is the fun part of our business, why not enjoy it?
- Learn more about adjustable base remotes, lift chair remotes, etc. – Duh, if you don’t know about it you can’t sell it.
- Research wood species, leather types, fabric types, etc. – see above point.
- Get questions answered from sales reps – Have reps help you develop FAQ sheets for each line then present them to the rest of the team in weekly meetings.
- Online training, such as what is provided by the Furniture Training Company – Online training is time well spent improving your sales technique and product knowledge. Even the pros improve after doing online training.
- Role play different selling scenarios and product categories – I know you hate it, but if you can’t do it with someone you know, how can you expect to be effective with a stranger? Just a thought.
- Meet with sales manager - Oh yes, downtime is when you have one-on-one meetings with managers and others to give and get feedback.
How you use this list is up to you. Every store culture is different and management’s ability to actually get their staff to do what they want varies greatly. I have some clients that will achieve positive results merely from having a meeting about it and posting the list in their sales office. Their people are professionals and they will just “get it”. In my experience though, most retailers will need to put together some sort of organized task/activity checklist and assign items to each staff member daily or weekly based on individual needs. Then to actually get the desired results, the sales managers will need to train, coach and hold people accountable to do as asked, which of course is why we have them. In a perfect world salespeople would do it because it makes so much sense. However, as we all know, retail is far from a perfect world. Good luck!
This month’s Statistically Speaking highlights the effects the current 25% tariffs have had on many furniture imports, using data from the U.S. International Trade in Goods and Services Report and the Bureau of Labor Statistics. For the consumer, trade wars elevate concerns about increases in furniture prices. Before this year, the Consumer Price Index for furniture fell gradually since 2012 from an average of 120.3 to 111.1 last year (1982 base year = 100). At press time, available data through August showed that furniture prices appeared to make a significant move upward in July facing the threat of increased tariffs then eased back in August as the international dance between the U.S. and China continued. The CPI for furniture climbed to 115.2 in July, then fell to 113.9 in August (Table A).
Prior to the Great Recession, U.S. imports peaked in 2007 at $41 billion for the broad import category that includes furniture (Table B). Since bottoming out at $30.1 billion in 2009, imports have grown to $67.1 billion in 2018 – a jump of 123%. However, in the first half of 2019, furniture and bedding imports are tracking to be lower this year. For the first and second quarter of 2019, imports were $31 billion compared to $32.4 billion in the first half of 2018. As shown in Table C, tariffs have historically hovered around 1.1% of furniture imports until 2018 when they increased to 2.3%. Since the first half of 2018, tariffs as a percent of furniture category imports climbed to 3.5% by the end of 2018 and up further to 5.7% in the second quarter of 2019.
Imports declined in the first half of this year compared to the same period last year for the first time since 2008 – falling 4.3% (Table D). Import growth had tapered down somewhat post-recovery from the recession before the dramatic drop this year. The first major increase in import tariffs began in 2018 – increasing from $660 million in 2017 to $1.5 billion in 2018. The big jump in tariff growth occurred between the first half of last year ($311 million) and the second half of this year ($1.8 billion) – a jump of 465.9%.
In 2018 the U.S. imported $67.1 billion in furniture and bedding goods and parts worldwide. Over half of those imports are from China, $34.8 billion in 2018, with Mexico, Vietnam and Canada trailing in the distance (Figure 1). Worldwide imports are on track to decrease in 2019 with imports from China taking the biggest hit. As of this year’s second quarter, imports from China are $14.3 billion compared to last year’s second quarter total of $16.5 billion. While imports from China decline, many companies are turning to Vietnam and Canada as alternate resources. Imports from Vietnam have increased from $2.3 billion in the first half of 2018 to $3 billion in the first half of 2019, while Canadian imports increased from $2.4 billion to $2.6 billion over the same period. Mexico import growth has stayed relatively flat.
As shown in Figure 2, the U.S. has mainly imported from China, followed by Mexico. Total Chinese tariff dollars for the first half of the year total $1.7 billion with trade agreements protecting many other countries, including Mexico who paid only $6.8 million.
Tariffs as a percentage of Chinese imports were consistently below 2% before reaching 4.2% in 2018. Beginning at 1.6% in the first half of 2018, tariffs on China’s good increased to 6.4% by the end of last year and by the second quarter of this year has reached 12% (Table E).
As shown in Figure 3, China has fallen from over 50% of total world imports in 2017 and 2018 to 46% in the first half of this year. Alongside China’s downturn in percentage of total imports, Mexico, Vietnam, and Canada have all increased their share of total world imports.
Import Sales by Product Type
Among the different types in the broad furniture import category, import sales of Household Furniture is highest at $48.4 billion in 2018, followed by Lamps and Lighting at $12 billion and Office Furniture at $2.6 billion (Table F). Import sales of Household Furniture slipped from the first half of 2018 to the first half of 2019 – dropping 5% and Lamps and Lighting decreased by 8.7%. Office Furniture import sales increased by 10% during the same time period. Household Furniture has consistently represented around 72% of the broad import category since 2002 (Table G). Lamps and Lighting have fallen in recent years— ending the first half of this year at 15.9%, while Office Furniture has gained a slightly larger share of 4.4%.
Currently, the most impactful is the ecommerce retailers that increase advertising spend (12%) and focus on digital (Internet) while providing free delivery (14%), eliminating the physical presence (store) for the consumer with a goal of making a profi t. For most, such as Wayfair, profi t is still in the future. While not yet profi table, Wayfair and etailers in total have taken 15-18% marketshare. The result, as with all category killers, is the loss of smaller furniture retailers and a fi nancial impact on larger retailers. Not only is the retail sector impacted by the disruptors, but also the supplier sector and they must change to accommodate this new player in the industry sector. They need to provide a different level of support, such as bett er collateral, as well as absorb some of the additional cost associated with a national distribution strategy, such as returns and additional packaging.
The retail disruptors create supplier disruptions that create a model just to serve their needs— a model without showrooms at market, or sales representatives to serve the retailer— becoming suppliers with an outstanding supply chain.
What should an established furniture retailer do? Establish a disruptor model. Typically, this strategy is not possible. However, an established retailer can migrate his model to refl ect the changing industry and to off set the industry. However, this will require the diffi cult decision to consider changing long held beliefs. For example, with this issue we have addressed the Internet and how it has matured into an important strategy to communicate with the consumer. If managed properly, it can be very cost eff ective, but it must be measured for eff ectiveness. With this accomplished, other media can be released such as newspaper, television, and circulars. You cannot have both. Advertising cost is declining — speed the process, release the old, and embrace the new. The new disruptor didn’t begin with the old approach to advertising.
Another example is real estate — own versus lease. The old adage of “let the store feed your family and real estate fund your retirement”… Disruptors do not want to be in real estate and therefore can expand faster into the key consumer shopping areas. Related to this is the size of stores. The productivity of 100,000 square foot stores compared to 50,000 square foot stores provides a distinct advantage. Not only is gross margin per square foot of selling space higher, but occupancy cost is lower. Additionally, the emerging consumers prefer the smaller footprint of curated merchandising. More traditional retailers are “twisting” themselves into pretzels to justify purchasing the closing big box stores in malls to capture a great real estate deal. Commercial retailers love it!
Of course same day delivery is considered a must. But the disruptors are pushing consumers out 2-4 weeks. Consider the reductions in inventory.
The message is not to create a new “disruptor” model, but to tweak your old model to more accurately refl ect today’s consumer and improve profi t at the same time. Consider the data below and get more from our June 2019 cover story “Retail Metrics for Furniture Retailing”.