Cover Story: The Internet: Friend Or Foe

September 4, 2017   by Jane Chero in Business Strategy, Industry   

According to a Credit Suisse report, ALL retailers are failing in record numbers.  It is projected that 8,640 will close.  This is up 40% from its peak in 2008.  We will leave this discussion for the October issue on State of the Industry, but will say that ecommerce alone is not causing this Armageddon.  

The internet can be the solution to survival for the independent furniture retailer.  The major concern today is the absence of traffic that is coming through the door.  Instead of defining this as a problem, the retailer needs to embrace the fact that the consumer coming through the door is more informed about what they want and have selected your store as one of the two they have chosen to provide a home furnishing solution.  Without a doubt the traffic is down.  Statistically, the close rate should be 50% if your performance is average.   This is adjusted down for consumers that do not purchase anywhere.  It should be in the high 30%. However, the traffic that arrives at your door is ready for you to provide that home furnishings solution.

For retailers their website is the first touch point for the consumer and their store.   Even if your store is not first shopped (49%), ultimately it is an influencer on 72% of all consumers that buy.  Your website cannot be one and done, but a continuous process of improvement. 

As a retailer does with the brick and mortar store when walking the floor critically assessing how to make the merchandise more appealing, questioning retail sales associates’ product knowledge, and evaluating their readiness to assist the consumer, all of these must also be done on the retailer’s website. 

Today, the retailer embraces digital.  However, is it merely lip service and dollars spent for results?    There are many digital vendors willing to provide the magic solution to drive traffic to your store and entice them while they are visiting.  The retailer must take a critical look at what is being communicated to prospective consumers via email blasts and presentation on the site.  What happens in the digital world should match what happens in the store.  Let’s go forward and understand the buying process as it relates to the internet and how to measure digital success.

From a consumer’s perspective, computers and their hand maiden, the internet, have moved beyond business applications and become essential to daily existence.  With the coming of voice commands integrated with artificial intelligence (AI), the prospect of “pepper,” the human-shaped robot designed to be the humanoid companion is not beyond belief.

We are still years away from the time when all of our needs will be dutifully performed by a machine that understands our every taste level.  For now let’s understand the consumer’s perception of shopping for furniture on the internet.

In terms of marketing, the first promise of the digital evolution was that the consumer could pursue product information on his or her schedule and not be the target of mass marketing’s continuous bombardment with enticements to purchase.  While there is now an abundance of information on the internet for any product, the consumer is still targeted constantly with an estimated 360 impressions daily.  With all of this noise it is understandable how one could conclude that the demise of brick-and-mortar retail is inevitable.

While it is painfully obvious that retail stores ARE closing (think HH Gregg and Sports Authority, for example), only a portion of that lost volume can be attributed to the explosion of e-commerce.  The truth is that the overzealous opening of new stores was beyond the justifiable increase in demand.  Fortunately, furniture retailers, either because of prudence or the lack of capital, did not enter this frenzy of store count expansion.  Just as the dotcom bubble tried to translate “eyeballs” to revenue, the concept of more locations in a single market did not directly translate to increased revenue.  Now the piper must be paid.

What about the impact of the internet on the furniture consumer?  Let’s follow this step by step through the buying process. For a brick-and-mortar store the fear is that the consumer will go on the internet to research furniture and will purchase from someone else.  The internet is a given for the consumer to accomplish the research, and consumers simply do not have the time to visit the five to six stores that they did a decade ago.  

No matter where the consumer ultimately purchases, the first step (54%) for the majority is to visit the internet before visiting the stores.  Graphic A illustrates the sequence steps for the consumer in his or her buying process.

Steps In Buying Process – A

It should be noted that for a significant percentage of consumers (40%) the initial step is still to visit a store before going to the internet for research. 

Let’s put a perspective on the fear of e-commerce for the brick-and-mortar retailer.   Currently only 11.65% of purchases (not dollars) is made on the internet.   Table B breaks down purchases by retail channel.

Type of Retailer Purchased From – B

Let’s understand the buying process beginning with the impact that internet advertising has on the furniture consumer.  The internet and, specifically the web presence and e-mail, are indicated by 37.5% of the consumers as the most influential advertising media on the intention to purchase furniture.  This percentage is more than double that of other advertising media as seen in Graphic C.

Media - Pie Chart – C

This influence is not to be confused with social networks such as Facebook, Pinterest, etc., which have a number one position for only 8.5% of consumers who purchased furniture.  The challenge for retailers is to translate that consumer traffic to the website into traffic into the store.

Furniture is not a commodity product, at least not yet.  Less than 30% of consumers consider their furniture purchase as “a practical purchase that meets my basic needs.”   The majority of consumers believe their home furnishings must communicate “who I am” and reflect a sense of current style.

Table D illustrates the consumer’s attitude toward decorating and home furnishings.

 

Table D

Significantly, the number of consumers who ultimately purchased on the internet exceeds the number who purchased in other distribution channels in both the “practical” and “style” attitudes, and only scored less with the consumer who was interested in projecting the image of success.

Today’s consumer is very interested in buying furniture, with over 68% either thinking about a purchase or has already begun the shopping process.  The remaining consumers are actively shopping or have purchased.  As can be seen in Table E, those who are actively shopping are predominately online purchasers or those who have purchased from brick-and-mortar retailers.

  Stage of Shopping – Table E 

As would be expected, the female most frequently initiates the first mention of the need or desire for new furniture.  No matter if it is an individual or a partnership, with 49% being female or 21% with spousal partners, the ratio is 3 to 1 female.  However, when compared to historical research, it represents a significant change from the 8 to 1 female-to-male radio in the 80’s.  The information is presented in Graphic F.

Graphic F

However, as seen in Graphic F, the ratio for the internet purchaser increases to 3 to 1 for the female furniture consumers.  Unlike other consumer online purchasers, the female has embraced the e-commerce distribution channel.

Graphic G

It is interesting to note that, on average, the internet purchasers shopped more retailers than the brick-and-mortar purchasers.  Additional research will be required to understand better the reason for this.  Was it to confirm both price and quality before making the leap to purchase online?

Graphic H

A common belief is that the internet purchaser does so because he or she doesn’t want to drive to a distant store.  However, the research shows that the consumer who purchases on the internet is as willing to drive to shop for furniture.

Graphic I   How Long Did You Shop Before Making a Purchase?

The major perception is that the internet purchaser comes to a decision faster than the brick and mortar consumer.  The fact is that 29% of internet purchasers shop longer than one month as compared to 21% for the brick-and-mortar customers.   We believe this is connected to the internet purchaser that is driven by selection. 

Graphic J   How Was Your Last Furniture Buying Experience?

Fortunately for brick-and-mortar retailers, the internet purchase rated their experience 6 or 7, with 7 being rated excellent only 53% of the time as compared to 58% of the time for the brick-and-mortar retailer.  As can be seen from the graphic, the internet tended to be more exuberant with 40% being excellent.  Are they trying to convince themselves of their decision?

Graphic K  Specifically, Experience by Area

As seen from the graphic, brick-and-mortar consumers give the highest ranking (7) for courtesy of store personnel (41.6 %), product knowledge, (33.8 %) and product display (33.9%), but rank almost evenly with ease of shopping and product selection.  There is still an advantage to being able to talk with knowledgeable sales associates and to experience a great visual display.

In summary, the Internet purchaser is a fact of life.  The challenge for brick-and-mortar retailers is to make their advantages known to the consumer. Today’s drive in ecommerce is virtual reality to assist the consumer in making product decisions.  Will it ever replace a competent retail sales associate?

 

 

 

 

 

 

 

 

 

 

 

 

 

Without a doubt, the internet has brought about a change much like that of the Industrial Revolution, which moved our society from agrarian to urban in the span of two generations.  But what has the internet done to our focus – furniture retailing?

During the past decade, furniture retailers have developed an Alternative Universe.  Do not panic!  We are not spinning off into science fiction and losing our touch on reality.  The advent of the internet forced the furniture retailer to create a virtual store where 72% of all furniture purchasers visit before making a purchase.  The furniture retailer had little choice but to establish a web presence.  In the early days, some were no more than an expanded “yellow pages,” which were produced by the retailer’s high school-age nephew.

Now, retail sites have expanded from placeholders with the address, brands carried, and store hours to expansive catalogs of every product made by every supplier carried in the retailer’s store.  The concept of “the endless aisle,” while important in other industries, lacks importance in the furniture industry.  For the furniture retailer, the average time on a site is less than five minutes (for non-ecommerce sites).

The website was envisioned by the early adopters as a way to reduce the cost of advertising.  The idea of having consumers visit a website to preview the merchandise when they are ready to purchase furniture, which cost the retailer a fraction of what newsprint and television cost was exciting. 

What has transpired is internet research has reduced the number of stores shopped, which has resulted in the industry standard of measure cost per up to increase.  Currently, the cost per up average for all retailers is about $14, but can range from $12 to $40 depending upon the size of the retailer.  The accompanying graphic illustrates.

In truth, more retailers have not totally embraced the digital advertising strategy and still spend less than one-half percent of sales on internet advertising.  The subsequent table presents the expenditure by type of advertising currently.

The question is why continue the older medium and not entirely embrace digital?  The fact is, with the current furniture buying consumer, digital has not been as effective as the more established television/print.

For sure, the future, with the approaching millennials, digital will be more effective.  Television viewing and newspaper readership are declining.  Direct mail, especially targeted demographically/psychographically, with content tailored to the recipient, holds great promise.

A great question for furniture retailers is what is the purpose of their site?  If not for e-commerce, what is its objective?  For this discussion, let’s put e-commerce to the side.

Most sites today have emerged as super catalogs, which present all products merchandised by the retailer, along with all products sold by their vendors.  While this addresses the much touted “endless aisle” that many experts believe the consumer wants, it also challenges the fact that consumers spend less than three minutes on a non-e-commerce site.  The graphic illustrates.

It is frustrating for a retailer to create a virtual store in which 72% of his customers may visit, but leave for the most part anonymous.  Is this different from most advertising, either by direct mail or television?  We should take as a positive the consumer spent more than three minutes previewing your store, the merchandise you carry, and the services you provide.

When designing your website, it is helpful to conceptualize it as a store.  Your store design has been perfected over many years and has been effective in guiding your customer through the process of creating a beautiful room.  The table presents areas of comparison.

There is nothing like the first impression, whether it be in your store or on your website.  The first twenty feet of the store, often referred to as the Landing Zone, sets the expectation for the consumer as to what awaits them.  Outstanding visual display of new products, service commitments, and special sales usually greet the consumer at the door.  The Home Page of the website is the comparable element.  The typical furniture retailer’s website has incorporated slides to present new product – a good solution to establish the style/quality of the merchandise you carry. 

Unfortunately, this first impression can deteriorate over time into a haphazard collection of messages and promotions all screaming for attention.  Would you let your vendors plaster signs over the windows of your store?  Who is the editor of first impressions?

In your store, the important first step is to engage.  Tailored to the vision of the store, whether a receptionist or the next salesperson in a rotation, it should be welcoming.  The measure of your success on your website is the bounce rate at the home page.  Best practices in the industry is an 18%-20% bounce rate for the home page and 20%-40% for the overall website.

There are many variables that impact these statistics, such as the percentage of mobile traffic, Facebook traffic, etc. The key is to measure your site continuously and understand the reason for any changes.  The graphic illustrates the weekly monitoring.

Recently, the industry has seen heavy use of a “Pristil,” which is a fancy word for the intrusion of the consumers visit, enticing them to enter a drawing or to provide an email address for future mailings.  While this service results in 3% to 5% of consumers doing so, the impact on bounce rate and the quality of the lead has not been accessed.

The next element in the store is for the retail sales associate to establish rapport with the consumer and to better understand what they are looking to purchase – needs assessment.  This is a major challenge for the virtual store.  While the search engine has been perfected over the past decade, the consumer has a difficult time in communicating what they have in mind. In fact, in our on-going research, when we ask a consumer why they did not purchase from a retailer, a typical response is “could not find what they were looking for” (30%-40%).  This is for well-managed retailers. How would internet consumers respond?

The next step is the product presentation.  The typical interaction with the retail sales associate and the consumer on the floor is 35-45 minutes.  Of that time, about half is involved with the product presentation.  A seasoned salesperson would have narrowed the choices for the consumer to 3 or 4 of the most probable selections, along with a step up and step down in price.  With each of these choices, there’s a features and benefits story, as well. While a product spec sheet has the same information, it can’t be presented in such a way as to narrow down to a decision.

The final steps of handling objections and closing the sale are best done in person.  While “chat” provides an alternative, with over 50% of all e-commerce involved in “chats,” it is difficult to engage the non-ecommerce consumer on-line.  The application is inexpensive, but requires a dedicated person to handle all chats.

Obviously, all sites have an “inquiry” function that generates about 1% of unique traffic.  The inquiries must be handled within an hour to produce results.

The key to success is to monitor your site and to investigate any changes.  While Google Analytics provides a mountain of statistics, focusing on the important ones and relating them to your operation is essential.

We believe the following are important.

Tracking your unique visitors against the purchasers in your price point will provided a perspective of the effectiveness of your advertising, both print and digital.  Comparing your visitors to the “ups” in your store is critical.  The difference between the traffic to your site compared to your store is the most revealing.  While the consumer only “shops” two stores, they visit five to six on average on the internet.  If a retailer can achieve a 1:3 ratio, it is outstanding.

The goal is to minimize the clicks for the consumer from the home page to the product in which he or she shows interest. The industry average is 4-5 pages.  Understanding how your web design impacts your pages visited is critical.

The industry average of 3-4 minutes on the site confirms the consumer is just previewing your store and not seriously making a decision.

Understanding the different sources of traffic to your site will better allow the retailer to incorporate his website into his overall marketing plan.

Most sites today have been designed for mobile devices.  Obviously, the percentage of mobile usage impacts other statistics.

While research shows social media is not very effective in influencing the consumer’s intent to purchase home furnishings, it is very effective in building brand.

The website is an important part of a furniture retailer’s marketing strategy.  Creating a positive experience on the website will influence the percentage of time the consumer visits the store to consider a purchase.

For Wichita Furniture founder Jay Storey, the choice was clear. In fact, there really was no choice.

Traffic at his 59,000-square-foot store in Wichita, Kan., was falling fast with no bottom in sight. If he didn’t make a radical change soon, the business he started in 1989 with $5,000 in borrowed money wouldn’t be around much longer.

The only choice was to swallow hard and go digital. That meant replacing a website that contained barely more than the store hours and directions with a full-fledged transactional e-commerce website. And never looking back.

“The revolution is over and the customer has won,” he said, borrowing a quote from a retail pundit whose name has been forgotten. “They are going digital. It’s done. It’s over. We can either get on board with it or we’re done.”

And since he took that leap of faith a little more than two years ago – with a lot of encouragement from his Millennial son, Jordan, the company’s marketing and e-commerce director – the hyper-growth in sales generated by the website has more than offset the decline in store traffic.

Website traffic, in fact, increased more than 50% in 2016, and the company now routinely delivers more than 3,000 pieces of furniture a week.

“Our brick-and-mortar traffic has continued to decrease, but our web traffic has exponentially picked up where the brick-and-mortar traffic has left off,” said Jordan.

Jay Storey said driving that website traffic meant taking another leap of faith by moving a sizeable chunk of marketing and advertising dollars away from traditional broadcast and print ads and into digital marketing.

Today, about 30% of the marketing budget is set aside for digital, and he said the company has been especially successful using Google AdWords, which allows a company to “buy” specific search words. In turn, that gives the user the ability to know who is using Google to search for, say, a recliner, or is visiting websites that include information about recliners.

“One of the beauties of Google is that we’re now able to have that rifle approach where we can target our audience way more than we can from a traditional media standpoint,” said Jordan Storey. “With Google analytics, you can really go into one-on-one marketing.”

And that one-on-one marketing, for example, can result in a Wichita Furniture ad appearing on a non-furniture website when that consumer who was searching for information on recliners moves onto something else on the Web.

“It would probably scare you to know how far Google can take you into their audience,” quipped Jordan Storey. “The truth of the matter is we know who is looking at what, when they’re looking, and where they’re at. And therefore, you have the opportunity to reach them.”

Or as his father puts it, “With Google, you have the ability to find the person with a need, versus spraying (your advertising message) out there and praying that it works.”

Jordan said he especially likes the ability to target specific age groups or other demographic profiles. He said such targeting is typically not possible with traditional media because demographic data is often outdated.

 “But digital data is real time. And you can change it immediately if you need to,” he said.

And while Wichita Furniture does ship furniture nationwide – usually smaller parcels that are sent via UPS or FedEx – the Storeys said the biggest benefit of the robust e-commerce platform is the product knowledge it provides consumers, noting the clear majority of them do extensive online research before deciding what store to visit.

“It’s the online education that gets them to transact in your store,” said Jay Storey. “They’re not going to transact as much online because they want to come in and touch it and feel it. But when they walk through the door, they will hold their phone up and say, ‘I want to see this item’.”

Although he wouldn’t disclose specific numbers, Jordan Storey said the improved website has significantly boosted close rates even as traffic has fallen. That has kept retail sales associates fully engaged, knowing that many customers walk through the door ready to buy – and they may walk in with as much product knowledge as the staff.

“It has helped our metrics across the board … close ratios, average tickets, sales per guest, and so on,” Jordan said of the website. “We clearly have a more educated consumer.”

And his once old-school, furniture industry-veteran father knows there is no turning back. He says there is no question that going digital is a huge leap of faith that requires a large investment of time and money, but it’s a necessity rather than a luxury.

“You never will fully grasp the digital world because it changes to fast,” Jay Storey said. “You have to pick and choose where you’re going to go and be the best and what you do. You cannot just be OK at everything.”

IS IT JUST IN MY STORE THAT TRAFFIC IS DOWN? — MAYBE

May 17, 2017   by Jane Chero in Business Strategy, Industry   

This common refrain at the April High Point market was consistent with what is happening to traffic.  Obviously, the economic results (GDP) for Q1 reflected an anemic .7% increase when compared to 2.1% for the previous quarter and the same quarter last year at .8%.  While not a substantial decrease over last year, it was still the weakest quarter in three years.

 

The furniture industry, including bedding, struggled along at 3.0% (Q1 2017 to Q1 2016), a growth we should be content with reflecting on all retail at 3.6%.

So, what is all the noise about traffic?  Traffic has been declining for the past decade as the time-starved consumer relies more on internet research which can be done while multi-tasking late at night when the kids are finally down and there is some “me” time.  Statistically, the number is right at two stores shopped before purchasing.  This is significantly down from the four to five stores a decade ago.

 

Unfortunately, the changing consumer buying process has created a segregation of “have” and “have not” retailers, those with the traffic and those that are asking what happened to the traffic.  Unfortunately, the easiest thing to blame is the intrusion of the e-tailers into everyone’s marketplace.  It is true that this new channel has captured 15-17% of furniture and bedding sales.  But, this is not the reason for the decline in traffic.  For major furniture purchases, the consumer who purchased on the internet still visited a “brick and mortar” retailer.

On average, about 50% of the consumers that purchased furniture visited the furniture store first and then proceeded with research on the internet.  The other 50% do their research first and then visit the retailers whose site inspired them.  It should be stressed that when not an e-commerce site, the typical time spent on the site is 4-6 minutes, not the in-depth research, but more “this retailer has the style/brands and price points I want”.  Only later do they drill down to the specifics.  The graphic details the steps and priorities.

It should be stressed that this is not a drawn-out process.  In fact, over 50% of it is over and done in less than two weeks.

The fact is that the time-starved consumers do not have the inclination to extend the process and enjoy decorating their homes.  If we look at the percentage of consumers that consult a professional designer as the first stop, it is small.  In discussions with the ever expanding cadre of “designers” in the industry, it becomes obvious that there are more “personal shoppers” than certified designers.

We should stop berating ourselves about the “retail experience” that we provide consumers.  In fact, more than 85% rate their experience above average and 27% rate it as excellent.  This is much better than other consumer experience ratings in other retail sectors.

So, where is the traffic?  It may be in your competitor’s store.  With Impact Consulting’s monitoring of what they define as high performance retailers, the traffic has been constant.  The sample is national, including in proportion retailers with sales from $5M to $250M.  There has been little change in traffic until the fourth quarter.

But, this volume of traffic is reflecting the growth in industry sales.  However, it should be noted that the high performing retailers’ performance was to increase close rate and average ticket.

The lesson learned is to treasure each of those opportunities (Ups) and to transform them to a sale.  Unfortunately, the focus on sales management decreases as the retailer’s revenues increase because the owner is further away from the selling floor. 

For well-managed retailers, the cost of attracting the consumer into the store is averaging $23/opportunity which translates into $70-$100 for each sale at a 30% close rate, a significant percentage of the gross profit generated on each sale.  Visualizing each consumer through the door as a potential loss will focus an owner on the importance of sales management.

So what do we do about it? Read on.

Sales Management: 

The Proper Mix of Coaching and Number-Crunching to Keep Business Humming

Sales management is a key function in any wholesale or retail organization that has products or services to sell to a consumer – the elixir in any effort to maximize the business. Most products do not sell themselves, so some sort of sales interaction is necessary. 

Managing what, when and how that process happens is an important element of the success or failure of the business. The more competitive an industry and marketplace is, the more critical it becomes. Therefore, since retail home furnishings is often one of the most competitive big ticket arenas in every market, it can be argued that managing the productivity of a retail furniture store’s sales staff is one of the most vital tasks on manager’s ‘to do’ list.

It also appears to be one of the most difficult, since it involves managing people and their behaviors when they work with consumers. Much like creating and leading a highly successful sports team, there are many parts of the process that demand a constant, consistent effort in order to win games. 

The retail furniture store’s “playing field” is the selling floor and the “players” are the sales people who are hired, trained and coached to provide the level of service retailers want their customers to receive.

The person responsible for this process in most retail organizations is called the “sales manager” and that person carries the burden of delivering the sales revenue that drives businesses. Since their focus is on the performance results of the sales staff, their function is very much like a coach or manager of a professional sports team, and their primary goal is to deliver as many “wins” or sales as possible.

In many stores, particularly smaller ones, this involves the entire range of management functions from recruiting, hiring and training new people, and managing what happens on the floor, to helping make sales and providing customer service support for the sales team. But in all cases, the most important task should be, as the title says, sales management. This mainly involves training, coaching, motivating and leading the sales team’s effort daily to make certain the store gets the maximum return from the traffic its advertising and marketing programs deliver to the sales floor.

And for countless furniture retailers such as Steve Nye, general manager of Engles Furniture in North Bend, Ore., those skills have become even more critical in recent years as store traffic counts have fallen. 

“With lower traffic counts trending each year, we have to sell the consumer more and more often,” said Nye. “I can confidently say customers want the nicer leather sofa with articulating headrests, instead of the one they saw for $499 in your advertisement, and they want the functional adjustable base to go with their new mattress, along with new pillows and sheets. It’s our sales people’s challenge to show them why.”

That puts pressure on sales associates to increase close rates and average ticket, but Nye and other sales managers said those aren’t the only performance measures they look at when evaluating performance.

“I believe in looking at close rate, average ticket, revenue per up, sales volume, fabric protection, and mattress performance to evaluate performance,” said Nye. “They are all individual indicators to focus on improving. If someone else on your team can close at 40% -- the coach-speak is ‘How and what can we do to get you there?’

“When it comes to weak performing situations, I put the most weight on performance index – it tells you everything about a salesperson’s situation when combined with traffic.”  

Sara Lawson, sales manager at Infinger Furniture in Goose Creek, S.C., said she closely monitors the close rate and revenue per up for her eight-person sales staff since her store caters to a higher-income clientele and focuses on upper-middle to upper-end merchandise. 

“If you can get the revenue and you can get the close rate, everything else kind of falls into place,” Lawson said.

She said it’s not unusual for an Infinger customer to make three or four visits to the store before making a purchase decision, so in this era of lower store traffic, it’s critical to at least convince the customer to pay a return visit if the sale can’t be closed right away.

“I try to encourage them to be aware of their close rate, especially the close rate compared to the return customer rate,” Lawson explained. “The faster you can close them means you won’t have as many return customers. But customer return rate (by itself) is not a good measure.”

And since the counting of those ‘ups’ that are so critical to performance has undoubtedly caused more than a few internal disputes, both Lawson and Nye said it’s essential to have a reliable and accurate system of measuring them.

Lawson said Infinger’s kept a door count manually until last summer, when the retailer installed a DoorCounts camera system that takes a picture of everyone entering the store. She said the photos serve as a cross-referencing tool that help the store’s greeter (known as the concierge) keep track of the sales team’s rotation.

“I’m very fortunate, because I’ve never had an issue where people are either missing a customer coming in the door or they’re cherry-picking,” said Lawson. “The person that they get is the person that they get, and they should try to maximize that.”

She said the DoorCounts system is especially effective during busy periods, and helps the concierge get a returning customer in touch with their sales person more quickly. “It works especially well when you have multiple sales people working with multiple customers. And that happens every single weekend,” she noted.

Lawson is a big believer in using a concierge, and said her store has one on duty seven days a week. Not only does that person greet customers and keep track of traffic, he or she answers the phone and calls sales people for their ups. 

“Sales people can be doing other things without having to constantly watch the door,” she said. “But the really great thing with the concierge is that when somebody comes in and specifically asks for (a specific salesperson), they’re able to catch it before it goes too far. You’ve got somebody there who is managing the front door. You’re not missing out or getting mixed up in your rotation.”

Practices such as that keep tensions and employee turnover down, which both Lawson and Nye believe is another critical factor in today’s lower-traffic world.

“The first and most important element to retention is proper training to begin with and ensuring all salespeople have every tool needed to do their job without obstacles,” Nye said. “I think after that, the company culture of growth and success in combination with goals and communication keeps everyone working in the same positive direction.  The practices driving that would be consistent training in furniture and selling practices, sales games to keep things fun, comradery and competition between sales people, and individual one-on-one meetings between the sales manager and sales people at least once a month.”

And interestingly, when they’re looking for new sales people, neither specifically targets candidates with furniture industry experience.

“If they had a successful employment experience with a furniture company similar to ours with a customer driven selling system -- I definitely look at that as a big positive,” said Nye, “but I don’t believe in putting too much value on just any previous furniture experience. I’m more interested in learning if they have a strong potential to stick with me through time.”

Nye said he begins evaluating potential sales people as soon as they walk in the front door – literally.

“The characteristics I look for with a salesperson begin with the way they carry themselves when they are greeted at the door by a salesperson and taken to the office to fill out the application,” he said. “Witnessing those interactions tell me quite a bit about an applicant’s connection skills and ability to work well with others.”

Lawson agreed that working well with others is critical, and can be the determining factor in many hiring decisions.

“Seeing them in action is always the best way. I want to see how they communicate, how articulate they are, and how well they know their product,” said Lawson. “And it’s especially important how they interact with their colleagues.”

Although two current members of staff used to work for Bassett, the store’s largest vendor, she also doesn’t put a lot of stock in previous furniture industry experience. 

“I used to strive to find someone who had furniture experience, but now I realize it’s more about just being able to handle the floor,” she explained. “I’m looking for someone who can walk in and feel confident enough to be on their own…learn on their own…and is willing to be coached by me and their peers.”

“It’s more of an interest in furniture and an interest in interior design. If you don’t have the interest, then you can’t be effective. You can be the best sales person in the world, but if you have a passion for cars and you’re selling furniture, it’s not going to translate that well. I think people trust you more when you’re passionate about something.”

Instead of looking for furniture experience, Lawson said she frequently recruits sales people from nearby restaurants.

“Because most of the restaurants (near the store) are higher-end, they’re dealing with the same clientele, so it’s not that difficult to transition from being a server or bartender into this type of work. They’re commission-based, essentially, with tips, so it’s not as scary for someone who knows they have to put their best foot forward in order to make money,” she said.

Lawson and Nye also said old-fashioned word of mouth is an effective recruiting tool, although Nye said he’s happy he has needed recruiting tools only sparingly in recent years due to extremely low turnover.

“We provide an environment where people are consistently challenged and learning.  This produces personal growth in both abilities and income with accountability and with goal setting to continuously improve – so they don’t want to leave,” he said.

And while Millennials may present special challenges as customers, Lawson said they also present special challenges when they’re applying for sales positions because they often have multiple tattoos and piercings.

“There are so many people who have piercings through their face, and tattoos all over the place,” she said. “There’s totally nothing wrong with it, but we try to … have a little more wholesome look. We’re a family-owned business and we try to maintain a family environment.”

COMPETITIVE BATTLEFIELD

April 20, 2017   by Jane Chero in Business Strategy, Industry   

Competition in furniture retail has moved from a simple game of tic-tac-toe to a multi-dimensional game involving more than one player and more than one board.  A key characteristic of 3D tic-tac-toe is that it decreases the likelihood of a tie.

When furniture retailing occurred in a single market among family owned entities, while aggressive, the results, like in tic-tac-toe, was often a tie or a short time advantage reversed in a later move.

The equalizer of all is the economy.  The great recession created havoc, resulting in a loss of almost half of the 60,000+ furniture stores in the period 2007 to 2015. 

While this purge is behind the industry and growth has resumed achieving a compounded growth rate of 4.1% CPGR in the last five years, the competitive turmoil continues. 

Much of this competitive activity was instigated during the downturn as the exiting of smaller retailers created perceived opportunities for the larger independents and regional chains.  Additionally, the changing consumer buying process of shopping fewer stores (1-2), down from 4-5 a decade ago, encouraged retailers to open more stores in a market.  Moving away from a “destination store” to “stores of convenience” significantly changed the business model of the traditional furniture retailers.

The change of the traditional business model has created a need for additional revenue.  As more stores were added in the market, often in higher real estate cost areas with more dramatic store exteriors, occupancy costs had to accelerate. The traditional thought of adding occupancy and advertising costs elements together suggested that with a better location and outstanding facility, advertising cost could be reduced.  Unfortunately, the need to attract a declining base of shoppers put pressure on the advertising expenditure.  Additionally, the explosion of exposures from digital, either social media or email, diluted the power of television and almost eliminated the print alternatives 

The impact of competition has not been as much from the individual competitor as from new retail concepts that better satisfy the consumer demand for a different retail experience.  The graphic illustrates the share of furniture and bedding sales by distribution channel broken down by traditional and emerging channels. 

There have been significant shifts in the breakdown of sales in the traditional channel.  While in total, falling to less than 40% of sales, the independent dealers have lost almost half of their market share.  Some of the gains have gone to the regional chains.  However, the internet and verticals, such as Ashley Home have been the major recipients.  Another major impact has been the free standing bedding specialty stores where now almost 50% of consumers buy in the smaller footprint that promotes their product expertise and significant selection.  The table presents the shifts over the past five years. 

The internet has been the fastest growing non-traditional channel capturing 19% of total sales by 2015.  The rate of growth has declined in recent years reflecting the penetration of the consumer demographic that want to purchase a major consumer durable sight unseen. The major e-tailer, Amazon, has recognized this and, as was reported in the New York Times, is considering brick and mortar stores to facilitate the purchase. 

Why have furniture retailers attracted the attention of other retailer sectors?  Simply put, it is the growth that has occurred over the past five years when compared to the other sectors.  A growth in the furniture and home furnishing stores over the past five years of 24.4% compare nicely to the other retail sectors and total retail as well.  Only building material retailers grew more at 30.8%. The table illustrates the comparison.

The other attraction is the significant gross margin when compared to other product categories.  The challenge most national retail chains have today is, gross margin generated per square foot of selling space.  While multiple store locations increase the convenience of shopping for the consumer, the result is less gross margin per square foot of retail space.  The only solution is the closing of stores, which the furniture industry has, to date, avoided.  For the top quartile performers, the average gross margin per square foot of selling space is in the $9 range compared to a similar graphic of sales generated per square foot.  The graphic illustrates the range by size of the retailers. 

Relating these statistics to the average lease costs illustrate our challenge to control store expansion.  

While all retail segments are considering the furniture product category to date, only the internet has made any significant inroads.  The graphic illustrated the change from 2002. 

The bottom line is that the battlefield is littered with mines and booby traps that furniture retailers must consider as they plan their strategy forward.  While the traditional furniture retailers have seen significant loss of market share in the past 20 years, there is a 2.0 version of the traditional retailer emerging.  More sophisticated in terms of marketing, finance, and technology, this new generation will succeed.  The major retailers have concluded that the consumer wants what we have always provided – product displayed with style, delivered and placed in the home by people who care.  Now on to the next generation.

Is an Amazon Furniture Store Coming to Your Town? 
By Larry Thomas

Furniture industry tongues were wagging furiously last month when a New York Times story briefly mentioned that e-commerce behemoth Amazon has had discussions about opening brick-and-mortar furniture and appliance stores.

The story, quoting anonymous sources, said such stores “would be showcases” for large items that many consumers are hesitant to purchase online without seeing them or touching them.

According to the story, the stores would use cutting-edge virtual reality or augmented reality to give consumers a better idea of how the products would look in their home. And while the Times story didn’t mention it, these stores presumably would not have traditional, commissioned retail sales associates. (The story, which was mostly about Amazon’s difficulties selling groceries online, noted that the company is testing a cashier-less brick-and-mortar grocery operation where the customer’s account is charged as soon as the product is removed from the shelf.)

So if the store was only a product showcase with no sales people, a big key to Amazon’s success with a brick-and-mortar furniture store would be logistics — a category in which the company also claims to be a world-class provider. But while a small item such as an end table or lamp could be easily shipped via FedEx or UPS, that can’t be done with a large item such as a sofa or dining room table because they far exceed the shipping company’s 70-pound weight limit.

And can Amazon deliver those large items the next day — or even the same day — like many brick-and-mortar furniture stores?  That’s debatable.

“It’s not so easy to deliver quality assembled furniture to a consumer in that manner. Every internet company has trouble doing same day/next day with large products,” Pat Cory, president of Cory Home Delivery, said in a recent interview with Home Furnishings Business. “It’s very difficult for them to do, and it’s incredibly expensive because of the inefficiencies you have with the loss of productivity on a truck and loss of density on a route. It creates a huge cost increase that most consumers would not be willing to pay.”

But Cory was quick to point out that e-commerce companies such as Amazon and Wayfair “absolutely” could accomplish that feat with two- or three-day delivery in many markets.

The question there, of course, is will our “I want it all and I want it now” culture accept that “slower” delivery cycle? That’s a question that Amazon may well spend millions of dollars to find out.

Cory said Amazon already has opened two enormous distribution centers — as in 3 million square feet each — in central New Jersey just to serve the New York and Philadelphia markets. And while he says they have hired top people away from FedEx and UPS to try to develop their own logistics network, he remains skeptical.

“They came into logistics with a sense of arrogance…like the rest of us didn’t know what we’re doing,” said Cory. “It’s one thing to sell a product on a computer. It another thing to create a supply chain from scratch and be successful at the level of FedEx and UPS. Those are two different worlds.”

WAITING FOR THE INVASION

The die has been cast with major regional chains expanding into the large markets (markets with sales over $50 million).  The most aggressive is Bob’s Discount playing catch-up with infusion of Bain Capital.  The recent acquisition of Art Van by T.L. Lee can only indicate a further expansion of the Michigan powerhouse.  The remaining significant players, Haverty’s, Raymour and Flanigan and Rooms to Go, continue to expand, but not at a frenetic pace.   

While the industry has not outpaced other retail sectors, the demographic trends of the much-anticipated Millennials have been the focus of many of the larger retailer behemoths.  Recent statements by Big Lots and Target have all mentioned furniture in their future expansion plans.

On a daily basis retailers with 75+ year histories are announcing their closings.   Their reasons may vary, some because of the lack of a viable transition plans, others because of competition from a more aggressive chain.  The fact is that consumers’ shopping habits have precluded the opportunity for many.  The consumer’s shopping excursions are often limited to 2+ stores while they are relying more frequently on the Internet to narrow their choices.

At least the furniture sector has avoided the problem of being “overstored.”  Major retailers are announcing store closures weekly.  Unfortunately, from a strategic perspective, the addition of the furniture category to their product category with its comparatively attractive gross margin could provide an alternative to their lack of gross margin per square foot of selling space.

Bottom line, the larger markets will be a battlefield resulting in 2-3 surviving retailers with multiple locations.  This is similar to what happened in the home appliance sector with several major retail entities presenting limited brands competing primarily on price.

The major question for retailers in mid-sized markets is “When will the “war” come to my market?”  This is a similar position that building supply and hardware stores found themselves in 20 years ago when the new concept store, Home Depot, emerged on the scene.  The question was “How far down the market size spectrum would Home Depot go?”   They had the answer shortly when Home Depot came to town  along with the copycat competitors, such as Lowes and others.

What should a significant retailer in the smaller markets do besides wait for the inevitable invasion?  The first and most obvious action is to be acquired by the expanding retailer.  However, at this point the strategy of the expanding retailer has been to establish a presence and then capture market share.  The logic is that to modify the culture of the existing retailer to the culture of the acquiring retailer would not be economical.  

The rationale of “taking” instead of “acquiring” should be reexamined when considering the challenge of developing effective sales associates and building brand awareness.  The cost of attracting, training, and retaining those sales associates who can achieve a close rate of 35%+ and an average ticket of $1,500+ is well over $50,000.  In addition, achieving a brand awareness (to be considered) requires an expenditure of 3% to reach a growth of 5 points over a 3-year period.  The fact of the matter is that the invading retailer’s market share will level off at about 8-10% and then gradually compete with the existing substantial retailer.

Earlier we have addressed the major expansion of the larger retailers, such as Bob’s, expanding from the Northeast down to Washington, over to Chicago, and on to San Diego.  Haverty’s and Rooms To Go, while not being as aggressive, are quietly filling out their distribution capacity.

As in any war, the major concern is the battle map and where the battles are occurring. It is better to focus on the individual markets.  There are 401 distinct market areas in which 90.7% of all furniture is sold.  Graphic A breaks down the specifics of these markets. 

The current focus of expansion is in those markets with over $500M.  This represents over 50% of the industry.  These markets have the size to support both the distribution infrastructure and the advertising required to penetrate an existing market.  Interestingly, the larger the market, the better the per capita demand is for furniture.  

While it is somewhat comforting to know that the battle is at a distance, the faint sound of the artillery is enough to give a solid retailer a pause.  The strategy to prepare for the coming battle is complex.  The first step is to create a dominant market share that would cause the expanding retailer to pause before entering the market.  

There are many examples where the dominant retailer is executing this strategy.  For example, Steinhafel’s in Milwaukee, a dominant retailer for many years, has expanded its distribution north into Fox Valley (Appleton) and south into the suburbs of Chicago.  While Bob’s Discount has entered the Milwaukee market, Steinhafel’s dominance in the immediate market and the expanded market will present a formidable barrier.  The map illustrates.

One of the most competitive markets in the United States is the Minneapolis-St. Paul market.  The metro area is crowded with HOM Furniture, Schneiderman’s, Slumberland, and Becker Furniture along with a strong Ashley presence.  Even without the threat of additional competition, each retailer has expanded its footprint to neighboring markets.

The bottom line is not to wait for the invasion, but to maximize your market share and establish a marketing parameter within your 200-400 mile delivery zone.  

The State of Advertising

February 21, 2017   by Jane Chero in Advertising, Industry   

Developing furniture and bedding advertising was a relatively simple process for decades.   For retailers, it meant getting material for the upcoming weekend’s newspaper advertisement submitted on time, and possibly taping another radio or television spot to go with it.  Yes, there were direct-mail pieces and the occasional billboard to deal with, but for the most part, the biggest concern was what other newspaper ad or news story would get placed adjacent to the space purchased by the furniture or mattress retailer.

 For manufacturers, it meant checking insertion deadlines for their favorite shelter magazine, and touching base with key retail customers to do a deal on getting them co-op advertising dollars (that means the manufacturer foots some or all of the bill).

 But a few years ago – way back in the early 2000’s – consumers started yelping about late furniture deliveries, tweeting about their comfy new mattress, and pinning pictures of that cool living room makeover they saw on HGTV.  So much for those meetings with the ad salesman for the local newspaper.

 “What has happened is that the amount spent on print – except for circulars – has dropped significantly.” Said Steve Rotman, president and CEO of Rotmans Furniture in Worchester, MA.  “Radio and TV has dropped from what it used to be.  And the amount spent on (direct-mail) circulars has dropped, although we still do them.”

 No, Rotman and other furniture and bedding retailers like him haven’t cut back on advertising.  But their dollars are being re-directed in a big way to the digital realm, which includes everything from social media sites such as Facebook and Pinterest to paid search programs such as Google AdWords to YouTube videos.

 What use to be simple in terms of communication has exploded into a multiplicity of ways to communicate with perspective furniture consumers.  Let’s start the discussion with how retailers are allocating their advertising budget.

 Print is definitely trending down with some larger retailers in larger markets moving entirely away from the medium even with substantial discounts and value added.  The fact is the consumer has moved away from the newspaper as a source for news reducing the impact of advertising.

Television which exploded on the scene more than a decade ago as the workhorse to attract potential customers to furniture retailers, is slowing.  The fact is that consumers are viewing less television and when they are viewing, they are doing so on devices that exclude advertising. 

 Even in instances where television is the centerpiece of a marketing and branding strategy, digital media plays a key supplemental role.  This is especially true with brand-building strategies by well-known manufacturers who advertise nationally such as La-Z-Boy, Ethan Allen and Tempur-Pedic.

 Internet is either the first or second step when the consumer decides to make a furniture purchase.

 As can been seen from Graphic B, 46.3% of consumers first visit the internet shopping various sites before selecting those 2-3 stores they will visit.  This is a devastating blow to the less dominant retailers in the market.  More retailers today have a web presence of some degree.  However, the challenge is the site management, populating the site with new products and current advertising are the basics.

 The other 38.8% visit the store first to scout out the retailers shopping environment.  This is a critical visit influenced by the retailers branding effort as well as the reputation in the market.  An important note is how the sales associate treats the scouting consumer.  A lack of interest by the sales associate because of a perceived “tire kicker” can result in no return visit.

 Of late, however, Rotman said his store’s most effective ads have been videos used as so-called “pre-rolls”, or short ads that run before a user can watch a selected video. He acknowledged that the click-through rate on such is small, but those who do click on the ad and visit Rotman’s website are much more likely to visit the store.

 “It has a positive effect on store traffic and sales because it drives people to the website”, he said of the pre-rolls.  “And, we’re finding that when website traffic goes up, store traffic goes up.  And there’s a direct relationship between store traffic and store sales.”

 He said that makes it critical to keep the website fresh and engaging so it accurately reflects what the in-store shopping experience is like.

 “We want to create value for each web visitor,” said Rotman.  “It has been very effective for us in terms of (an improved) closing rate and in terms of store sales.”

 Social Media still has the buzz to be the solution to the furniture retailers advertising problems.  Anecdotal research is the most often cited as reasons for pursuing this medium.

 As can be seen from Graphic C from the consumer research, social media is not the most effective method to inform the consumer.

Rotman and Julia Rosien, brand manager to bedding producer Restonic, agreed that the measure of social media and digital programs is very important, but they noted that the traditional advertising measure of gross ratings points is only a small part of the measurement puzzle.

 “At Restonic, we measure a wide variety of things – impressions, reach, engagement, and especially sentiment, which is very difficult to measure in traditional advertising,” Rosien said.  “There’s a misconception that a social media strategy is easy to develop and implement.  You can spend hours on social sites gathering and creating content, commenting on others content and sharing it all, and measuring the wrong thing. Valuable resources could be wasted on a vehicle that is not driving toward your goals.”

 Rotman likes to call it “web-oriented advertising.”  And he said, it now takes up about 40% of his annual advertising budget, and by next year, it probably will be 50% of the total.  Five years ago, it was barely 10%. “I don’t see that trend reversing itself,” Rotman said.

 Neither does Rosien who is an early proponent of a digital-heavy advertising and marketing strategy.  “The goal of any well-conceived digital campaign should be to improve the connection between the brand and its consumers – turning fans into ambassadors,” she explained.  “In this way, the sale becomes the by-product, but the community that drives engagement and love for the brand, that’s the sweet spot.”

 She said Restonic’s digital media strategy has become important for both a business-to-business and business-to-consumer standpoint.  Restonic dealers, for example, have access to a library of blog content they can incorporate on their own social media pages, while the company’s Facebook page now has more than 30,000 “likes” from consumers.

 “Brand awareness and growth have been phenomenal in the past few years,” Rosien said.  “Our blogger outreach campaigns have allowed us entry into groups and communities on social media that we wouldn’t have reached otherwise.” 

 She said the B2B side is important because retailers, especially smaller independent operations, often lack the time or staff expertise to execute the strategy.  “We know retailers struggle to produce content and our digital publishing program takes the burden from them,” she said.  “Social media is no longer a nice-to-have. It’s a must have.”

 Rotman agreed, but said social media can be the classic double-edged sword if a retailer’s customer service or product quality consistently falls short of expectations.  That can result in numerous negative comments and harsh reviews on sites such as Yelp, which a retailer generally has no ability to remove.

 “If you have a lot of customer service issues, then it’s not a positive thing,” Rotman said.  “But, if you have good customer services, there’s no reason to be afraid of it.”

 Direct Mail, with the advent of computer graphics and digital printing, has evolved to the next level.  This process allows small-run quantities with the ability to change product shots to match the targeted consumer.  From the consumer’s perspective using more information/product shots makes the message more effective.  Graphic D illustrates. 

  Over the past two years the concept of magalogs has been introduced to the traditional retailer.  A combination of editorial content and product presentation devoid of a “sales pitch” has produced substantial results with 9%+ of existing customers and 4%+ of targeted potential customers visiting the store to make a purchase.  Lifestyle stores, such as Pottery Barn and Restoration Hardware have used this approach instead of television advertising.

 The introduction of targeting the consumer “most likely to purchase” has more than doubled the response rate of direct mail.  The same targeting concept is now being applied to email transmissions.  This involves moving away from the weekly total emails to numerous emails to specific consumer targets with products that most likely would appeal to them in terms of style and purchase cycle.

 The focus going forward will be to direct a specific message to a potential customer incorporating a feedback loop for performance.

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WHO DOES THE TALKING?

Advertising is the communication from suppliers and retailers to persuade a consumer to purchase their product.  It is a simple statement but a difficult objective to accomplish, especially to quantify success.

 The starting point must be what influences the consumer purchase.  According to the latest buying process study conducted by Impact Consulting Services, parent company of Home Furnishings Business, price was obviously number one well down the list.  The graphic to the right illustrates all of the purchase motivators.

 Manufacturing Role to
Attract the Consumer

 In the past decade, the industry has lost many of its major brands or, of those that remain have muffled their voices.  The traditional role of the manufacturer was to create, in the minds of the consumer, an aspirational desire for the product.  The chief purveyor of this message was the “shelter” magazine.  Starting at the upper end with Architectural Digest and Elle Décor and moving down stream to Southern Living and Good Housekeeping.  If they still exist, there is little furniture advertising.  Interestingly, there are rugs and accessories advertising which could explain the increase in the consumer price index for these product categories (index at 93.8 compared to furniture/bedding at 71.9).

 There are brands that are the exception.  In our discussions with Eli Winkler, Vice-President of Digital Customer Experience and e-commerce, he shared the La-Z-Boy approach to advertising to the consumer.

 “La-Z-Boy’s hugely successful “Live Life Comfortably” effort, featuring actress Brooke Shields, wouldn’t be as effective without the benefit of digital media, despite the presence of her high-profile television and print ads,” said Winkler.

 “La-Z-Boy has an integrated media plan across numerous channels: print, TV, digital video, display, social and search engines,” Winkler said.  “It has been incredibly successful for us, garnered attention, and shifted people’s perceptions and knowledge of the brand based on our research findings. And, we have seen unprecedented sales growth.”

 He said a key goal of the branding strategy is to change the perception that La-Z-Boy only makes recliners – a view that persisted among consumers despite the company’s nearly 90-year history of making a variety of upholstery products.

 “We addressed the outdated associations head-on”, Winkler said.  “We used Brooke to capture consumer’s attention, and her welcoming personality and authentic charm helped communicate that La-Z-Boy offers a wide range of great looking furniture options that fit almost any lifestyle and home.  And, with Brooke in the furniture, customers took notice of our variety of stylish offerings.”

 In 2017, he said Shields’ (and La-Z-Boy’s) visibility will increase as her ads will be used more extensively online, and will move into prime time broadcast TV slots.  That’s in addition to the usual mix of non-prime broadcast and cable TV.

 “Our target is the woman who wants to create a great looking, comfortable home where she can relax and enjoy life; where both family and friend feel at home the second they walk in,” Winkler explained.  “She looks for quality and style that will stand the test of time and provide the functionality of her family needs, and is never interested in just following the newest trend.  Her home is a place she really lives, not just a showpiece meant to impress others.”

 Another successful brand-building effort built around TV and digital is found at Palliser, a Canadian upholstery producer who is wrapping up a national campaign in Canada and is planning to extend into the U.S. later this year.

 “The secret to our success is the Palliser brand reputation in the Canadian market,” said CEO Cary Benson.  “Palliser believes everyone deserves to have their home furnished exactly how they want it and when they want it. Their home furnishings reflect their personal style, color, comfort and function that matches their taste and lifestyle.”

 He said the most recent TV commercials aired during early morning and evening news shows, as well as several national entertainment and sports broadcasts.

 “We included a large hockey buy because, in Canada, female buyers are avid watchers of hockey broadcasts with an almost 50-50 split with men,” Benson said.  “In addition, we have been sponsoring nationally televised Winnipeg Jets games with signage on the rink boards” (Palliser is based in Winnipeg).

 He said the company currently is evaluating the best way to spend its media dollars in the U.S. market, but said the campaign will probably focus on digital and social media because national TV buys in the U.S. are not as cost effective as Canada.

 “Our goals with our advertising investments are to help educate consumers about our brand and attempt to develop brand preference for our products so a consumer will visit our website, learn about our products and visit one of our local retailer partners,” said Benson.

 Manufacturers acknowledge that some retailers are reluctant to promote a particular furniture brand – preferring instead to promote the store as a brand.  Rotman, however, said he’s fine with including both the store brand and the manufacturer’s brand in his advertising, since the combination can convey the message that the store carries quality products from reputable manufacturers.

 “The store brand is effective when it’s placed with the manufacturer’s brand,” he said, pointing out that some of Rotmans ads promote a particular category of furniture, such as solid wood and don’t mention any specific brands.  “In that case, it’s the store brand used with a phrase that signals quality to the consumer.”

Retailers Role to Attract Consumer

 The retailer’s role is to communicate price/value, selection and service.  However, this message has evolved to “you can afford it” a financing message.  The costs of this message, in addition to the medium used, is a hefty sum.  The following graphic compares traditional retailers to the lifestyle stores (retail verticals).

These expenditures are quite a bit out of the average gross margin 48.6% that can be achieved.  We should carefully understand the comparison to other distribution models such as lifestyle (retail verticals) brands Crate and Barrel, Pottery Barn and others, as can be seen from the graphic.  An expenditure of half that amount by these retailers can be used to reduce margin targets or increase advertising.

 As traditional furniture retailing moves into the future, the role of the suppliers to this distribution channel must be better defined.  Suppliers are now comfortably selling other distribution channels, such as Etailers and Lifestyle stores as private labels. 

 Likewise, many retailers are directly importing using their brand.  However, the focus from the consumers perspective is not aspirational, but one of price.

 Without branding to the consumer of a product’s attributes, quality, design, etc… the product category will become a commodity.

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WHO ARE YOU SELLING?

There is an old adage that says, “I know 50% of my advertising is not effective. I just don’t know which 50%!” This is the challenge that must be addressed in order to reduce the cost and to improve the effectiveness of advertising. The foundation must be to know who you are selling at the most basic level of age and income. This is accomplished by appending — on an ongoing basis — the consumer demographics down to a product category level. Impact Consulting Services/FurnitureCore, the parent company of Home Furnishings Business, provides a Consumer Segmentation application that delivers this ongoing service. It is shown in the graphic above.

Comparing these findings to the consumers in your individual markets allows you to better understand your primary consumer. This information, when compared to the consumer you should be selling based upon your merchandise mix, gives direction to the buyers.

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TARGETING YOUR CUSTOMERS

One of your most valuable assets is your customer list complete with mailing addresses, email addresses, and telephone numbers.  When this list is appended with basic demographic data and purchase history it allows you to use a “rifle approach” to targeting your consumers.  Impact Consulting Services/FurnitureCore, the parent company of Home Furnishings Business, maintains a subscription-based application that maintains your databases.  The targeting screen is shown in the the graphic above.

The application has a feedback loop to measure the results of direct mail campaigns as well as email campaigns. This provides the opportunity for you to communicate directly with your millennial customers (25-35 years old) about the targeted merchandise just purchased at Market or a special offer to your customers with available credit line or even the customer who has recently bought a bed, but not a new mattress, etc.  All of this allows a more targeted approach to advertising.  But most important, did it work?

Merchandising Success: Logic or Luck?

January 23, 2017   by Jane Chero in Industry, Merchandising   

Where is the magic in the furniture industry?  The majority opinion is that it is merchandising.  However, that term is as mystical as anything in the furniture industry.  This industry lore is punctuated by references to manufacturers as product men or retailers as great merchants.  The success of many manufacturers and retailers is attributed to the talents of those individuals in merchandising, designing, and selecting products that the consumer loves.

As the industry struggles with what is referred to as the “commoditization” which relegates furniture to a utilization status to be used and discarded rather than cherished and passed on to the next generation.  As is presented in the Statistically Speaking article, the consumer price index declined for the fourth year while other consumer products have increased 10 percent over the same period.

Can we look to merchandising to bring the consumer back into the store to make aspirational purchases instead of searching for the best price only ignoring the value proposition?  Before casting our hopes on merchandising it may be good to define it.   The objective of merchandising, whether a supplier or retailer, is to present to the targeted consumer a selection of product that appeals to that targeted consumer and, rising above price, becomes  a “must have” purchase.  To accomplish this requires a combination of many functional areas all of which are focused on satisfying the goal of enticing the consumer.

The connecting point between the supplier and the retailer is the consumer.  Unfortunately, that is the point that is most often ignored.  In fact, merchandising suffers from both suppliers and retailers working in silo only coming together at Market to see if the product concept envisaged by the supplier matches the merchandise strategy defined by the retailer.  Only later the consumer is engaged by the retailer on the selling floors for the thumbs up or thumbs down.  It is too late at that point.  Unfortunately, merchandising takes time and money.  However, product failure consumes even more money and time. 

Planning? Marketing? Who has time for that?  Savvy furniture manufacturers and retailers say it’s critical to make plenty of time for merchandising.  It’s what separates the leaders from the also-rans.  In the home furnishings space, merchandising is critical at both the wholesale and retail levels of the business.  A manufacturer’s trendy, but poorly merchandised line that, for instance, fails to address a critical price point, is likely to languish.  “If the product isn’t right, then it really doesn’t matter what the price is,” said Pat Watson, vice president of merchandising at Hooker Furniture. “You have to be able to merchandise at certain price points.”

By the same token, a retailer who buys a trendy, well-merchandised line, but displays it haphazardly on the showroom floor is likely to have similar results.   “Unless you’re having some kind of a warehouse sale, I don’t see how you can just line up a bunch of sofas and expect to sell many of them,” said Jeff Selik, general manager of contemporary retailer Hillside Furniture.

Retail executives say manufacturers nearly always merchandise their showrooms by collection, or at least by product category.  However, the retail merchandising story varies widely. Some retailers set aside dedicated space for major collections — especially if they are licensed collections such as Standard Furniture’s mega-successful Magnolia Home or Klaussner’s popular Trisha Yearwood line.  There are retailers who merchandise their sales floors using lifestyle vignettes.  South Florida-based El Dorado Furniture is a standout here.   Others arrange products by category, by style, by price point, or any combination of the above.  “We’re all searching for something that will really entice the consumer,” said Geoff Beaston, senior vice president of case goods at Klaussner.

The Design Story

Design, of course, plays a huge role in any merchandising scheme. And that’s a big reason why manufacturers often urge dealers to display all pieces of high-profile collections together. They argue that good design can’t be fully appreciated if a collection is broken into items and scattered throughout the store.   Design-focused displays also give manufacturers and retailers a chance to tell a story – a story they hope will capture the consumer’s interest and motivate that consumer to add a part of that story to the home. 

 For example, the story behind Fine Furniture Design’s licensed Biltmore collection is one of a fabulously wealthy man – George Vanderbilt – and the magnificent 250-room “country retreat” he built in the Blue Ridge Mountains of western North Carolina in the 1890s.  Today, the home and the surrounding Biltmore Estate are open to the public, and the vast property is owned and managed by Vanderbilt’s descendants.  “We try to come up with classic designs that reflect what we see at Biltmore House, but are functionally relevant for today,” said Eric Graham, president of Fine Furniture Design.

The design of Stanley Furniture’s newest collection, Havana Crossing, is anything but classic, but it has a solid merchandising story centered around a country most of the world has begun to see only recently.  Randy Wells, Stanley’s vice president of creative, said the collection, which will begin shipping to retailers this spring, features a 1950s mid-century modern design that is found throughout Havana today. The city’s unique architecture, he said, gives the appearance that it’s stuck in time.   “People fall in love with a story, and there’s a unique story behind each piece in the entire collection,” Wells said. “They can learn about the place (Havana) and the people who live there.”

For that reason the company is urging dealers to display Havana Crossing in a dedicated space, using the storyboards and other material the company has developed that describes the design inspiration for many pieces and discusses the historic significance of several key buildings.  “Havana is a very special place that the world should see,” said Wells, noting that a percentage of sales from the new collection will be donated to groups working to restore the city’s historic buildings.  Stanley devoted a large chunk of its showroom to the Havana Crossing launch at last October’s market.

Producers say input and inspiration from retailers also is an important part of the process, and Hooker Furniture, for one, takes it a step further by meeting with small groups of dealers once or twice a year to discuss upcoming product launches.

The meetings, which the company calls Dealer Councils, often result in design changes and provide other valuable input, said Hank Long, the company’s senior vice president for merchandising and design.

“We’ve come out with some great product by listening to them,” Long said of the Dealer Council meetings. “You can always learn a lot by listening to your customers.”

He said a meeting typically involves representatives of 15 to 20 dealers – some of whom may be retail sales associates. Attendees are surveyed individually prior to the meeting, and the results are shared with the group. That often spurs additional discussion, which can result in more ideas for improvement, he explained.

“It’s usually helpful to let them bounce ideas off of one another,” said Long, noting that the subjective nature of design makes it impossible to pin down a “right” or “wrong” idea.

Plus, the relationships fostered by the meetings give the company an edge in what Long calls the “tiebreaker,” when a dealer is trying to decide whether to make room for new Hooker Furniture product or that of a competitor.

“It’s good for all those tiebreakers. When everything else is just about equal, they may be more likely to give it (product placement) to us,” Long said.

Watson agreed that the showroom display is critical from a merchandising standpoint because it often influences how the retailer displays it.  He said Hooker Furniture’s merchandising team meets regularly with the showroom design team to discuss how various collections should be displayed. And before a market begins, the sales and merchandising force is provided with a detailed list of the accessories used, names of other vendors used, and even the specific color of the paint and/or wallpaper. That’s because many retailers, especially smaller operations that don’t have in-house merchandising teams, want to replicate what they see in the showroom as closely as possible, he said.   “We try to help the showroom designer get the feel of the environment we’re trying to create for the collection,” Watson said.

Selik, for one, encourages manufacturers to use as many vignette displays as possible because it simplifies his job as retail buyer. He said his time at Market is limited.  Therefore, a manufacturer that ships him the rugs, occasional tables or other accessories in his displays – or at least gives him the name of the vendor for each product – is more likely to get his attention.  “If I can get these items in their showroom, I don’t have to shop for them when I go to High Point or Las Vegas,” said Selik. “It’s a better use of my time … and it makes their stuff look a lot better.”

Selik said vignettes are critical to Hillside Furniture’s merchandising scheme because he believes that it’s really important for people to visualize what it will look like in their home.  But he cautioned that it’s also important to merchandise vignettes with items that blend well together and are similar on the price spectrum. “You don’t want a beautiful $3,000 leather sofa with a $149 cocktail table,” he said. “People who can afford a high-end sofa usually aren’t going to want to buy an inexpensive table to go with it.”

New Product Churn

Like many retailers, Selik wants to see new product at each of the five markets he attends every year and many vendors comply – albeit reluctantly. Some furniture manufacturers would like to follow the lead of the bedding industry and concentrate product introductions at a single market (the January Vegas show), but most feel compelled to have something new at each High Point and Las Vegas market.

Beaston, of Klaussner, said “it’s crazy” to plan merchandising strategy that way, but no one has come up with a better idea. And for his part, Graham of Fine Furniture Designs believes such frequent introductions are almost a necessary evil to keep retail sales people motivated to sell a particular company’s product line.  “A consumer only shops a furniture store once every few years, but the sales people are there every day,” Graham said. “They need to see something new to keep them interested.”

Licensing Success Stories

One merchandising scheme that has been a tried-and-true winner for Fine Furniture Designs, Klaussner and numerous other manufacturers is licensed collections. While such deals can make product development and merchandising more complex (depending on the level of involvement of the licensor), many have found it’s an effective way to open new accounts and secure more floor space from existing accounts.

“Very few furniture manufacturers have a brand name, but licensing gives us a brand,” said Beaston, whose company has licensing deals with Trisha Yearwood and North Carolina artist William Mangum. “I don’t really care if the consumer knows if her furniture came from Klaussner or not … as long as she buys Trisha Yearwood’s or William Mangum’s furniture.”  Beaston said the company is very pleased with both licensing programs, noting that five collections have been launched with Mangum since that line debuted in October 2013, and the company’s third Trisha Yearwood collection will be unveiled later this year.   “What it has done for Klaussner is that it has opened people’s eyes to the fact that we are a total solutions company,” he said. “We’re not just upholstery.”

According to Beaston, Mangum and Yearwood are “very much involved” in the product development process and the personal relationships that have evolved between them and the company have been big contributors to the success of the programs.  “Nothing takes the place of good product at value. But when we can deliver that with a licensing story, that’s a tremendous competitive advantage,” he said.

Graham agreed, noting that Fine Furniture Designs’ Biltmore products, which are at the upper end of the company’s product line, provide aspirational purchase opportunities. Those aspirations are especially important in reaching consumers in the southeastern U.S., where the majority of Biltmore Estate’s visitors live. However, it has become a destination stop for tourists from all over the world.  “There’s an authenticity to it,” he said of FFD’s Biltmore line. “There is a difference between just renting a name … and providing a product that has an air of authenticity to it.”

The Biltmore collection was launched in April 2013, and Graham said the company just signed a five-year extension of the licensing agreement. About 140 pieces are available now, and several more will be introduced at the April High Point Market.  He said occasional pieces in the collection have been the best performers of late, but dining room, especially casual dining, is also doing well. Dining rooms start at $2,499 for a table and four chairs. 

The collection is being produced at FFD’s factories in China, and Graham believes that provides some peace of mind for the Biltmore licensor, knowing the company is not using third-party outsourcing.  “We’re not just going out and finding somebody to make it for us, and slap our name on the box,” he said. “We’re using our factories and our warehouse, which has about 30,000 pieces of furniture ready to go at any time.”

Licensing, of course, has its risks. Just look at the licensing deals Paula Deen lost a few years ago when she was accused of making racially-insensitive comments (although Universal Furniture and its sister company Craftmaster stuck with her, and the program has done well).  However, some furniture licensing deals have been spectacular flops. (Think Elvis and Sponge Bob.)

But neither Graham nor Beaston have had any hint of such problems with their programs, and they have no reason to believe that will change. Graham said the prestige of the Biltmore brand and the great reputations of the Vanderbilt family erase those worries.  “It’s not going to do us any harm,” he said. “They’re not out there getting DUIs or going to prison. They’re just being good stewards of the property they own.”

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The answer to the question, “How do you merchandise?” is often a loose series of comments that leaves the inquirer with the perception that the magic cannot be revealed without the statement, “If I told you, I would have to kill you.”  Home Furnishings Business corralled two leading industry participants, each of whom could be referred to as a “product man” or “merchant,” to get the straight story.  However, both of these individuals would reject the label, insisting that it takes a team to execute merchandising and it does.

Building the Perfect Beast

Merchandising a stationary upholstery line may seem like a magical combination of creative thoughts, clairvoyance, luck or maybe even directions from some alien intelligence.   Clearly, creativity is critical and working hard to find a style with sales velocity has a bit of luck attached to it.  However, there is much more to finding the winning recipe for an upholstery product portfolio.

To start, a clear understanding as to whom you want to sell and an understanding of the key items needed to start a product portfolio to address your audience becomes the first step.  This is where your due diligence on your competition becomes critical.  You either have to zig where they zag, or do what they do at a better value (not only just cheaper which gets you into a pricing box, but also with better sales/marketing support or better operational support).  Be disciplined to build the fundamental merchandising scheme with products to hit the “good, better, best” formula.

Many elements of style, shape, or scale attract the buyer(s).  With this in mind, as you research the competition by style and price point rationale, ask why these items sell as well as they do.  Is it the overall silhouette, comfort level, cover application, scale, function, price, or a combination of several of these elements? Use this information to build into your styling as the models are being discussed and planned for development or purchase. 

As the designs are selected, close attention to every component used to develop the model is weighed to help reach the cost target (to hit the selling price with appropriate margin).  Do you select softwood plywood, strand board, hardwood plywood, or even solid wood for the frame construction?  Each has it’s own attributes, but can vary in cost by as much as $50 added to the frame cost.  Which one is more readily available from a reliable source, which one can be replicated in the factory more efficiently with automated equipment, which gives you a stronger frame with less labor – and still hits your cost for the target selling price? 

Foam and filling materials (cut fiber) are key components whose cost varies greatly.  A set of foam for a sofa can range in cost from $65 up to $100 depending on the density, ILD (Indentation Load Deflection), and size needed for the model.  Review solid foam versus coil/foam seat cores for costs/comfort relationship.  Seat cores have a ratio to hit the target comfort based on the ILD which is a measurement of the hardness of the foam, the weight or density (how much chemicals/materials are used in the foam to increase its cellular strength), and the dimensions of the seat core.  Care in selecting the right foam for the model at the right comfort/durability and cost is very critical.  Foam is also used to pad out the frame along with bonded fiber and other such materials. Likewise the type (virgin fiber, mixed fiber, short staple, long staple, slickened, number of crimps per inch, for example) and amount of filling materials (used in the backs and/or arm pillows) has to be justified to achieve the look, comfort, and durability to hit the target cost.

One of the largest purchased components is the cover.  The cost of the cover varies based on the amount needed models’ cutting and sewing pattern (is it a match pattern, is it a chopper, is it up the roll), the base cost of the cover (if a top grain leather with a split match is used, it can be as much as 65% of the total build cost of the item), the yield on cutting of the cover and, of course, the sewing labor.  In selecting the cover one must keep the price point in mind, but get the maximum look, feel and durability that you can afford at each price point level.  Paying close attention to color, patterns, and textural trends is important to maximize your item’s look and differentiate it from the competition.  The old axiom, “the cover sells the bones” is a true statement.

Other components that warrant attention in the costing and product line build-up are:

Seat suspensions – do you use eight-way hand tied, drop-in coils, webbing, sinuous wire, drop-in sinuous wire.  Each has a cost implication and a comfort/durability consequence

Back suspensions – sinuous wire, webbing, or elastic sheeting

Scale or size – the larger the item the more components used

Legs – made into the frame, screwed on; solid wood, resin, plastic, metal.  Legs can range from a few dollars for each piece to as much as $14-$16 each piece (heavily carved and multi-finished).

Throw pillows – size, cost of cover used (matched or chopped), inter-bagged and zippered closed, blown directly into the cover envelope and sewn shut, and the type of filling used (feathers, a mixture of feathers/fiber or fiber) can vary the cost of a pillow from $11 up to as much as $50 each.

Packaging – how much and what type is needed to ensure the item’s arrival to the end user without damage – cartons, shrink wrapped with trays/side suspensions, plastic bag tapped enclosed; costs can run from $10 to $35 in general for the type of sofa pack selected

Replication within the factory – Will the item run efficiently down the line in the factory?

From a manufacturing point of view, working closely with your product development and manufacturing team along with accounting is fundamental to reach your selling prices and margin requirements for the long-term health of the organization.  This is also true for retail merchants since they are charged with producing profitable sales across their assortment and maximizing their sales potential by having what their customers want at the price points that entice them.

As you build up the line with key styling staples like roll arm traditional looks or casual pillow top styles, keep in mind developing the line with some product differentiation to entice the buyer(s) to purchase from you.  Over the years in the furniture business, we have all witnessed a style jump off the sale chart and, within a few months, weeks or days, the competition has their own versions.  These items come along when all the elements of style, scale, comfort, and cover cross at the same time.  Learning from these moments is critical as the line is built up.  It may be as simple as an added sew line, an attractive pillow combination, the shape of the leg or some other design component.  Always keep in mind the price point level for the model and use more intricate shaping, sewing and components to walk up the price points.  You want to be able to demonstrate to your buyers your ability to fulfill their price point and style needs without their having to go anywhere else.

As the product portfolio strategy develops it is easy to imagine attacking higher price points since that’s the promise land of margins and, hopefully, velocity.  It is much more fun to work with more expensive covers and components than it is to wring out the best look for the least amount of cost in the lower price point arena.  One has to be able to take the customer on this journey with the least amount of questioning possible (“We don’t look to you for this price point” is a no-sale statement).  The value proposition you have has to be intact even as you walk them up the price point either from a style, scale or cover point view.  At the same time, keep a watch on your flank as the competition will try to eat into your base portfolio looks.  Shoring up the other price point levels as you take the price points up is the key to maintaining the sales and position of the line with your customers.

As you can see, components, manufacturing and strategy can drive your thinking on the scale, shape, comfort and look of the product line as it comes together.  Waving a magic wand would be easier.  However, until Harry Potter becomes an upholstery merchandiser, we will have to rely on the old fashion methods.