BRAND REBOOT

November 12, 2013   by in Business Strategy, Industry   

Eight years ago, South Florida retailer City Furniture had come far from its beginnings as a waterbed retailer in the 1970s, evolving from a specialty store into a full-line home furnishings powerhouse in the highly competitive South Florida market, concentrating on value pricing and bringing services such as one-day delivery to customers ranging from Key Biscayne, up the Atlantic Coast to Stuart, and west to customers in Fort Myers and Naples.

That was when the Tamarac, Fla.-based retailer began another transformation that’s coming to fruition this year. The process involved renovating the brand through revamped stores and bright footprints at new locations, a move toward more upscale and unique product, and national-quality advertising that projected emotional appeal—plus attention to detail on all consumer touch points to carry through on that brand promise. And now, City is set to open its first stores in Central Florida this month, two locations in The Villages shopping area, which lies between Orlando and Ocala. What commands attention here is that City was doing all this during a period when a lot of its retail counterparts were retrenching or going out of business. At City Furniture, an investment that President Keith Koenig said is well above $100 million reflected a faith in its markets, the business model it envisioned, and its team.

Koenig sat down with Home Furnishings Business during the October High Point Market and later on the phone to discuss his company’s direction and how it pointed itself that way.

NEW TALENT, LONG EXPERIENCE

“We have fundamental belief in our business model, our team and our marketplace,” he said.

That team has leadership from old hands with a sense of the company’s roots, but also has an infusion of fresh faces with bright ideas that City goes out of its way to find. City actively recruits among colleges for sales management trainees, but while it goes to great lengths to find fresh talent, City’s core executive group has been together for a long time.

Mike Lennon, senior vice president of marketing, and Koenig have known each other since sixth grade and roomed together in college—they came on board in 1978. Garry Ikola, senior vice president of sales, has been with the operation since its days as a waterbed retailer, joining in 1973.

CFO Steve Wilder came on board in 1980; Senior Vice President of New Markets Curt Nichols and Vice President of Human Resources Janet Wincko have 20 years in the company, Vice President of Finance Kevin Riggott, 10 years; and Andrew Koenig, Keith’s son and managing director of operations, grew up in the business.

“We have experience, but also a young team, and they’re ready for the responsibility of working new stores,” Koenig said.

DEVELOPING A MODEL

In 2005, City decided it needed to make a deeper connection with consumers in the markets it serves. “Our real estate, our brand wasn’t where we wanted it to be,” Koenig said. “Too much of the industry is transactional. The customer wants to be emotionally connected to the furniture in her home and the brand she buys from.

“The goal has to be a real emotional connection with that consumer that essentially gets her to prefer our store to any other—who we are, what we do, and why it matters.”

The questions were: Where does City want to be? How does it build an emotional connection, a brand that makes consumers want to choose its stores?

“From that, we wanted to build all the touch points,” Koenig said. “We put the most investment into the stores, but we also put a lot of investment and time into the Web site.

“We had to learn how to shoot world-class photography that competes with the best online merchandisers in home furnishings, the Crate & Barrels, the Restoration Hardwares—and we had to do it at a lower price. That’s those others’ Achilles heel.” Television ads, which can be viewed on City Furniture’s Web site, were remade to resonate on emotional levels with the consumer and connect in a way that made her want to come to the retailer’s showrooms.

“The brand, whether it’s in an ad or the Web site, has to be aligned with every touch point in that customer relationship—store appearance, delivery, you name it,”

Koenig said. “That relationship is very fragile and has to be nurtured. “To do that, first, we’ve invested in our stores to create the shopping experience that’s consistent with what she’ll find appealing.”

On the Web site, City invested in new architecture, and in its own photography. “It’s not enough just to throw a manufacturer’s shot up there,” Koenig said. “Our television ads are shot in beautiful South Florida homes. Our advertising is national quality.”

IN-STORE SIZZLE

This year, City Furniture added Bernhardt as its primary high-end vendor. “We have Bernhardt galleries in all City stores now,” he said. “Bernhardt is the best fit for us at the high end for value and service.”

Those galleries range from 3,000 to 4,000 square feet. Since the first opened in March, the galleries already produce high dollars per square foot, Koenig said.

“It definitely opened some new doors for us and created a favorable shopping experience for our customers, whether or not they’re a Bernhardt customer,” Koenig said. “It makes everything look better.

“It fits what we want to do as a brand—fashion forward, beautiful furnishings, many of which people can’t find anywhere else.” That last part of City’s brand equation—really more than any cost savings—is what’s driven its extensive sourcing and manufacturing of private label product. In addition to its proprietary Kevin Charles upholstery line, the retailer sources exclusive case goods overseas; and works closely with key domestic vendors on product development.

Koenig credited Lennon and his team with helping City offer unique product to customers. “He’s the genius behind all our marketing, merchandising and branding,” Koenig said. “He’d put all the credit on his team, but he’s the leader.

“Mike’s developing more and more proprietary product that fits what our customers want, and to work with our vendors on that product. It’s not about saving the last nickel, it’s about getting what the customer wants.”

CUT COST, ADD VALUE

“What the customer wants” also means pulling out waste in the process so there are no unnecessary costs. “If we’re over-priced on any item, she’s going to know it, and that doesn’t add to our brand, which is quality furniture at an outstanding value, and in many cases, something she can’t find anywhere else,” Koenig said. “The operational logistics have to be place in order to deliver on all of that brand promise, not just one or two parts.”

Recycling and energy efficiency are part of that cost cutting equation. City has recycling programs for a huge amount of its packaging and paper, and it has broken ground among furniture retailers in making its stores environmentally friendly. “We just completed our sixth LEED-certified furniture store,” Koenig pointed out. LEED, or Leadership in Energy & Environmental Design, is the U.S. Green Building Council’s standard for energy efficient building design. City also is considering transitioning its truck fleet to operate on compressed natural gas; and Kevin Charles upholstery uses soy-enhanced cushioning. “We aren’t ‘tree-huggers,’ but it’s the right thing to do balanced with business sense,” Koenig said.

City Furniture at a Glance

Homebase: Tamarac, Fla.

Store Stats: 11 City Furniture stores totaling around 750,000 square feet; and 11 Ashley Furniture Homestores with around

300,000 square feet serving greater metro Miami and South Florida Atlantic Coast; and Naples/Fort Myers.

Other Holdings: 800,000-square-foot, high-cube Fort Lauderdale-area warehouse serves all locations except new central

Florida stores with same-day delivery.

Future Plans: Set to open two stores in early November in The Villages, located between Orlando and Ocala.

Key Vendors: Kevin Charles Upholstery, Cheers, Bernhardt, Serta, Casana, HTL, Lifestyle, Steve Silver, Idea Italia, Natuzzi.

Key Management

Keith Koenig, president

Mike Lennon, senior vice president of marketing

Garry Ikola, senior vice president of sales

Steve Wilder, CFO/CIO

Kevin Riggott, vice president of finance

Curt Nichols, vice president of new markets

Andrew Koenig, managing director of operations

Janet Wincko, vice president of human resources

Dave Francis, managing director of City Furniture Lean Conversion Office.

A Look at City Furniture’s Markets

Furniture kept expanding during an economic downturn, and a big reason is faith in its markets’ future.

“The economic data clearly shows housing will be on a growth track for the next few years,” said City President Keith Koenig. “We’re looking at 900,000 new home starts in ’13; 1.1 million in ’14; and 1.4 million in ’15.

“We’re seeing it on our South Florida market after several years of a really challenging housing environment. The demographic trends for Florida are going to be solid. You’ll still have baby boomers moving to Florida. We have a favorable economy, and I think the state will outperform the rest of the country. All that makes us very confident in investing in the future.”

Stuart, Fla., City’s northernmost location, opened in 2005, is a fair drive from Miami, but is still part of a whole.

“It’s really part of the Southeast Florida metro area,” Koenig said. “There are 6 million people in multiple (greater metropolitan areas) and television markets, but they’re all easily serviced with same-day delivery out of our Fort Lauderdale/Tamarac distribution center. Past that you really can’t do same-day.”

There’s a lot to be had there.

According to Home Furnishings Business research, City’s East Coast markets are projected to total more than $1.1 billion this year; and around $400 million in the Gulf Coast markets it serves.

While City is expanding into Central Florida at The Villages between Orlando and Ocala, the retailer is holding off on same-day delivery there—for now.

“Our long-term vision is to have stores in Tampa, Orlando and all across Florida,” he said. “The Villages is the first step, and it was a little earlier than expected … Eventually, we’ll make the investment in local distribution centers.”

Mood Swings

November 12, 2013   by in Business Strategy, Industry   

No doubt about it, consumers shopping for furniture are antsy these days. Things were cooking along pretty well this year at San Diego-based Jerome’s Furniture—until September, that is.

“This year had been very strong because the housing market turned up, and less people are underwater on their mortgage; and as housing values firm up there’s a wealth effect to the stock market going up, and we think that’s going to flow our way,” said CEO Lee Goodman. “That all helped us until May, when interest rates started rising again. That’s led to a gradual cooling off. Then in September, with the Syria situation creating some nervousness and then the shutdown, we saw slower sales.

“We were running 10 percent ahead in July and 20 percent in August. September was off more than 6 percent.” Jerome’s business model gives the retailer a sense of overall consumer appetite for and interest in furniture. “Our message doesn’t change. We don’t run sales, we’re talking about Jerry’s Price, about our own brand, the customer experience, so we think we’re a good barometer of the macro-economic situation,” Goodman said. “When we see a change in our business level, it’s usually macro-economic related. All things equal, we’re more likely to see macro-economic indicators impact this year’s business.”

In conversations at High Point Market, plenty of other retailers reported taking a hit on sales, and most cited consumer preoccupation with the government shutdown and debt-ceiling brinksmanship as a big reason.

PREOCCUPIED CONSUMERS

Britt Beemer, CEO of America’s Research Group in Charleston, S.C., believes consumers have plenty to worry about besides political games in Washington, especially when it comes to personal finances, and the impact of taxes and healthcare costs. He cited an ARG consumer study after Labor Day that indicated 19 percent of people said they take home less than they did a year ago because of health care cost increases in their paycheck.

“You have a third of Americans saying someone in their household is unemployed, working part time, or working for less than they did a year ago,” Beemer said. “Forty percent of parents are worried about paying for their kids’ college because they can’t rely on the equity in their home. For the backto- school season, 44 percent of parents were telling us they’ll do most of their apparel shopping for that in December, when prices are lower.

“Thirty percent of families told us after Labor Day that they didn’t take a vacation of four days or longer this year because they couldn’t afford it.” Beemer doesn’t think uproar in Washington was an issue for consumers, but some measures indicate that it was. The Conference Board’s Consumer Confidence Index fell sharply just before press time, from 80.2 in September to 71.2 last month, a nine-month low.

“Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers’ expectations,” said Lynn Franco, Conference Board director of economic indicators. “Similar declines in confidence were experienced during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the government shutdown in 1995/1996. However, given the temporary nature of the current resolution, confidence is likely to remain volatile for the next several months.”

Other drags on the Index: Those saying jobs are “hard to get” rose in October from 33.6 percent to 35.8 percent; and those expecting business conditions to improve over the next six months fell to 16 percent from 20.6 percent, while those expecting business conditions to worsen increased to 17.5 percent from 10.3 percent. Other measures of consumer confidence indicate similar worries. The Thomson Reuters/ University of Michigan Index of Consumer Sentiment fell to 73.2 in October, the weakest score this year, from 77.5 in September; and its Expectations Index is at its lowest level since late 2011.

That survey indicated that consumers believe the Federal shutdown and other restrictions on government spending would slow the overall pace of economic growth over the next several months.

It also found consumers increasingly moved toward the view that the government is the main obstacle to more robust economic growth. When asked to describe recent economic developments, the number of consumers that negatively mentioned the federal government in October was the highest in the survey’s 50-plus year history. “This was the third time in the past three years that negative references to the government’s impact on the economy set another half-century peak level,” according to the survey report. Indeed, after each repeated advance in optimism during the past three years, a revival of the DC follies promptly reversed the gain. It is hard to imagine how economic uncertainty will decline in the next few months since nothing was settled, only postponed.”

And in its survey of planned holiday spending, the National Retail Federation, for the first time, asked holiday shoppers if the political gridlock in Washington around U.S. fiscal concerns would affect their holiday spending plans.

On average, 29 percent of respondents said the situation would somewhat or very likely affect their spending plans. Nearly one-third of those between the ages of 55 and 64 said political gridlock in Washington was somewhat or very likely to affect their spending, the highest percent among all age groups surveyed. When asked specifically about the overall state of the economy and how it would affect their spending plans, more than half (51 percent) of consumers said the economy would in some way impact how they spend this holiday season, with 79.5 percent plan to spend less overall, looking to cut corners and tighten budgets.

Beemer worries that the importance of “the deal” in getting consumers’ attention will eat into furniture retailers’ profitability. “It’s all about the deal. How much margin are you willing to give up to get the deal?,” he said. “That’s what’s driving the consumer today for the most part. I think you’ll see more retailers impacted by this margin squeeze (they’re already tight). It takes bigger and bigger deals to get consumers in the door and close the sale. I’m concerned we’ve reached the point of no return on this.”

WHAT RETAILERS SAY

Retailers contacted for this article believe the shutdown and debt-ceiling battle did impact their business. For example, in reporting on its first fiscal quarter, which ended Sept. 30, Ethan Allen said that the government shutdown had impacted written orders. “While we had a strong first fiscal quarter with total written sales increasing 11.4 percent and a comparable increase of 13.8 percent on top of a 9 percent increase in the previous year, we believe the bickering in Washington and the continuous focus of the news on the subject created concerns and also reduced our written business in September,” said Farooq Kathwari, CEO of Danbury, Conn.-based Ethan Allen.

Belfort Furniture, located near the center of any political firestorm in Dulles, Va., saw store traffic continue to increase, but no commensurate gain in sales.

“People are showing interest in home furnishings, but they’re not making commitments,” said CEO Mike Huber. “We actually saw an increase in traffic recently, but there were a lot who were looking. Getting them to buy was a whole other story.

“Immediately after the shutdown, we had cancelled orders because the customers weren’t sure when they’d be getting their next paychecks, and we gave them their money back. Now that things are back to normal, or what passes for normal, I’m hopeful, but I can’t say they all came rushing back in.”

Circle Furniture, Acton, Mass., had a very strong August and September, but also saw a dip in October. Queen Been Peggy Burns said it’s important to project a positive attitude in the store no matter what’s going on in the larger world.

“The minute people start thinking traffic is down because of the shutdown, they start reacting instead of serving the customer the right way,” she said. “We’re concentrating on giving the best, positive service we can, and creating the best possible atmosphere.

“The way we approach it is the world can be going to heck, so you have to make your home a haven. You have to be very positive. We just do what we always do.”

THE BRIGHT SIDE

Some retailers believe their customers are a little more used to negative headlines; and don’t foresee a return to the all-out gloominess of the recession. “It’s not like it was (in 2009) when people worried about the economic structure collapsing, the spigot hasn’t just turned off like it did then,” Goodman at Jerome’s said. “It’s noisy, but it’s not debilitating.”

Goodman believes consumers have developed some numbness to troubling news, but it would help if the politicians would make some long-term decisions on things such as the debt ceiling instead of short-term fixes. “They keep kicking the can down the road. We know it’s coming—Americans have a short attention span,” he said. “The government shutdown is a real issue on consumers’ minds, but it’s not their first time at the rodeo.”

Kathwari anticipates another round of soft conditions when the debt ceiling issue comes up again early next year, but agreed that consumers have grown more resilient. “The debt ceiling issue will remain as an ‘overhang’ and will impact consumer confidence,” he said. “However, its effects are minimized as consumers are getting somewhat numbed to the workings of Washington.”

BEST FOOT FORWARD

Burns at Circle isn’t alone among furniture retailers who’ve decided to get proactive and upbeat with consumers versus griping about what they can’t control. Belfort Furniture, for example, focuses on everyday low price in general, but moved fast this fall to boost business.

“Immediately after the shutdown, we went to a 36-month extended financing program, the longest we’ve ever done,” Huber said. “And if we think we’re going to have a slowdown, we advertise more. In addition to the 36-month financing, we came out with a 32-page circular. We typically do 12 pages, but we decided to show more product, put our best foot forward.” It helps to build some excitement in the store, as well.

“With HGTV Home, we’ll have Genevieve Gorder in the store on Nov. 9 when we launch that collection in the showroom,” he said. “That’s generated quite a lot of interest. Don’t get caught up in negativity—that filters through the organization and customers pick up on it.

“With our salespeople now, when we have a customer in the store—you know so many of them researched online what they’re looking for, so they’re ready to buy—we are working hard to improve the close rate,” Huber said. What is Ethan Allen doing to break through negative headlines and get consumers thinking about buying home furnishings?

“Our current focus is very exciting,” Kathwari said. “We are moving from being a leader in furniture to a leader in home fashion. This will also help people focus on home.”

“New Eclecticism” is the umbrella message for Ethan Allen’s product direction, and the company is reaching out to customers directly with a new vehicle.

“We have launched a 60-page magazine in October that focuses on eclecticism,” Kathwari said.

“We believe consumers are ready for fashion, which means color and the fun of mixing styles. Our variety of styles, our values, our 2,000 professional designers and about 300 Design Centers give us a good opportunity to make an impact.”

Looking at a looming big picture issue, Burns at Circle Furniture has a message for her fellow retailers concerned about the impact of health care reform. “I know there’s a lot of concern about the ACA, Obamacare, whatever you want to call it, but here in Massachusetts we’ve already gone through this with our former governor’s plan several years ago,” she said. “There were some costs that went up for some, but we’ve been living with it, and we’ve survived. It’s not the end of the world.”

It also helps to remember that some macro issues are happy ones. “This past month we’ve been promoting getting your home ready for the holidays,” Burns said.

“That’s a happier thought.” HFB

What Sells: Leather Upholstery - Consumers Sound

November 12, 2013   by in Leather Upholstery, Product   

Consumers in the market for leather upholstery tend to be younger, live in higher income brackets and exude a slight preference for contemporary.
In a Home Furnishings Business survey conducted last month of consumers who had bought leather upholstery within the last year, 55.6 percent of them were 44 years old or younger. When you stack leather upholstery side by side with fabric upholstery, we found only 38.6 percent of the consumers who opted for fabric upholstery were 44 years old or younger.
We found it encouraging that younger consumers are choosing to buy furniture. Another interesting tidbit that made us take note—the leather category captures the attention of male shoppers. Men are more inclined, 51.2 percent, to choose leather upholstery over fabric.

Off On Leather

The 262 consumers in the survey also showed 43.2 percent of the respondents who bought leather had a household income of at least $75,000 while 35.8 percent with household income of $75,000 or higher bought fabric upholstery. Speaking of money, price of the product tends to have a smidge more influence on the purchase of leather than on fabric. It’s interesting to note, however, that quality is the most important purchase motivator for both categories.

Another key factor in the purchasing decision revolves around goods made in the U.S.A. We asked our consumer panel if they “like the style and comfort of a piece of upholstery” would they be willing to pay more if it was produced domestically. More than 81 percent—81.5 percent to be precise—of the leather purchases said yes. Of the fabric upholstery consumers, 76.5 percent said they would pay more for American-made product. Both the leather consumer and the fabric upholstery consumer are

Internet savvy, and both sets took to the Web to research prior to buying. The leather consumer at 72.8 percent edged out the fabric consumer at 66.2 percent in the research department. How do they feel about buying online? The leather consumer indicated a higher penchant to by online than consumers who bought fabric upholstery. Nearly 72 percent of the leather consumers indicated they would be likely to very likely to consider buying online. Nearly 55 percent of fabric upholstery consumers said they would be likely to very likely to do the same.

Once the research is done, however, the leather consumer is quicker to pull the trigger on the purchase.

Those in the leather market are more likely to shop for a month or less before buying, while those shopping for fabric designs extend the shopping period out to three months.

The overall leather upholstery shopping experience was not without its challenges for our consumer panel. The biggest problem they ran into was distinguishing differences between products.

Who can blame them? The leather category is filled with a variety of terms, an abundance of leather grades, types and even “bonded leather” that many in the furniture business don’t always understand. Interesting enough, despite the confusion about half of the consumers said they would like to have had a wider selection of products from which to choose.

In the style category, contemporary is the preferred choice for leather upholstery, while the fabric consumer leans more strongly toward the traditional realm. One thing is for certain in both leather and fabric upholstery. Custom order goods are great, but the consumer isn’t going to wait more than two months for a sofa to be delivered. More than 90 percent of the leather consumers aren’t likely to wait more than two months, and 43.2 percent want their product delivered within a month. Fabric upholstery consumers are a little more forgiving on the delivery time frame with 85.9 percent saying two months is the limit. When you look at the one-month period, 36.5 percent are willing to wait. Nearly 50 percent said they’d be OK waiting up to two months. Overall, our consumer panel was “very satisfied” with their upholstery purchases—both leather and fabric.

AMERICAN LEATHER’S PARKER SOFA

“It has great design and great size. The mid-century style is on trend, and it’s available in so many leathers and Ultrasuedes. Plus, it ships in four weeks.”

Peggy Burns.

Circle Furniture. Acton, Mass.

FLEXSTEEL’S DYLAN

“The combination of Flexsteel’s strong reputation and the incredible comfort of this style has carried it to the top of our sales charts for years. Our customers and salespeople also like the special order capability.” Retail is $1,899.

Mark Mueller

Mueller Furniture. Belleville, Ill.

HTL INTERNATIONAL’S 9170

“The casual/contemporary styling, 100 percent leather product, great seat comfort and the fact that it can be ordered in many colors and qualities of leather make it a winner.” Retail is $998.

Mike Griffieth
Morris Home Furnishings
Dayton, Ohio

ASHLEY FURNITURE’S 4000138

 “It’s a winner because of the track arm styling with wood trim in 100 percent leather. The seat comfort is superior to other manufacturers, and the price point is $998.”

Mike Griffieth
Morris’ Ashley Furniture HomeStore
Dayton, Ohio

CLASSIC LEATEHR’S LARSEN

The classic styled sofa is the company’s top-selling frame because of its traditional styling, comfort and basic design elements that match with a variety of home interiors, said Tommy Shores Jr., CEO and president. The sofa is also made in Hickory, N.C., allowing it to speak to customers looking for American-made goods. Suggested retail is $3,390.

CR LAINE’S HANS CHAIR
Consumer desire for eclectic décor has driven CR Laine to add pieces with soft modern styling, said Holly Blalock, vice president of marketing. The design inspiration is mid-century modern which pairs in both funky and serious décor, she said. Suggested retail is $2,205.

PALLISER FURNITURE’S MIAMI

Palliser’s sectional offers an abundance of seating without overpowering a room. The casual contemporary design offers low profile, tufted seating for extra comfort.

KLAUSSNER FURNITURE’S CANOY
Priced to retail at $1,299, the Canoy features transitional styling with an inner soft coil seating for extra comfort.

AICO’S ELLIA

Ellia is a traditional, deep button-tufted sofa, but it is made “extremely contemporary with the stainless steel” accents, said Martin Chapman, director of leather development. Ellia is one of the first leather frames the company introduced earlier this year with its Mia Bella by Michael Amini leather division. Retail is $7,999.

AMERICAN LEATHER’S INSPIRATION COLLECTION

A high-style factor with an understandable design make the Inspiration collection from American Leather a versatile work horse. The design is clean and functional and works in a variety of spaces. The two-seat sofa in a mid-grade leather retails around $5,400 and a sectional would be priced around $9,500.

SIMON LI’S ALPHA

A casual style with contrast stitching gives Alpha the ability to slide into any home with ease. The sofa comes with contrasting fabric pillows to soften the look. Retail is $1,900.

NATUZZI’S A297

Traditional design coupled with total comfort makes this sectional among Natuzzi’s top sellers. Shown in this classic wine leather, the detailing of the shaped front offers consumer appeal. Retail is $1,699-$1,799.

Leather Upholstery Snapshot

Leather upholstery remains a bright star in the furniture industry and has garnered quite the following among consumers. Retail sales of the category for 2012 hit $4.49 billion, an increase of 7.72 percent from 2011 sales of $4.17 billion. The total upholstery market—both leather and fabric—totaled $24.18 billion. Leather sales were 18.5 percent of the total.

Leather upholstery sales have steadily increased since 2009 at a rather impressive rate, outpacing both the growth of the industry and fabric upholstery. The category’s cumulative growth rate from 2009 to now has been a whopping 20.04 percent. From 2011 to 2012, the category posted a 7.72 percent increase. For the same time period—2011 to 2012—the total furniture industry grew 6.95 percent. Fabric upholstery posted a 6.57 percent increase during that period.

What She Wants

November 12, 2013   by in Business Strategy, Industry   

Despite political fireworks and personal financial concerns that weigh on consumers’ minds showing no signs of retreating any time soon, a recovering housing market and gradual return to economic normalcy are creating opportunity for home furnishings retailers.

The following examines potential furniture buyers and what motivates their decisions to purchase— or not purchase—based on Home Furnishings Business research.

 Furniture and bedding sales for this year’s second quarter totaled $17.84 billion, off a half percent from the same period in 2012. Excluding bedding, first-quarter 2013 sales were down 2.8 percent from last year’s first quarter; and the second quarter was off 1.4 percent compared with last year.

(For a breakdown of who’s doing that business— the U.S. population in 2012 segmented by age and income—see accompanying story “Who’s Out There.”) Following are some insights on consumer behaviors and attitudes behind those numbers.

What’s driving consumers?

When consumers start the process of shopping for home furnishings, the most important business intelligence for both vendors and retailer is the following:

·         Who did the consumer consider purchasing from?

·         Who did the consumer consider, but not shop?

·         Who did the consumer shop, but not purchase from?

·         Who did the consumer purchase from?

·          

It’s worth noting that the research found that consumers nationwide are well aware of alternative retail channels for furniture, in addition to traditional channels such as department stores, independent furniture retailers and regional home furnishings chains

Vertical retail models such as Crate & Barrel, Ethan Allen and Ashley had the highest awareness among consumers, 62.7 percent. The second highest— get ready—Internet sites at 60 percent. In third place, with 57.4 percent awareness among furniture shoppers, are mass merchants, which also should give traditional retailers pause. Independent retailers showed up third from last in the channel-awareness rating among consumers at 52.5 percent, followed by department stores, 50.8 percent; and lifestyle stores at 44.7 percent.

The good news is that consumers are interested in furniture. When asked, “Do you believe your home needs some redecorating that would include new furniture?,” the response was overwhelmingly positive: 87.4 percent said “yes.” Those consumers’ high awareness of other channels from which to find that furniture, though, should concern traditional home furnishings stores.

Also, while consumers recognize the need for furniture, getting them to act on that need remains a problem (see “Shopping Stages” graphic).

Getting a Sense

Our research posed several questions concerning the furniture buying process to consumers. When asked, on a scale of 1 (very likely) to 5 (not at all likely), “If you had a free afternoon, what is the likelihood that you would spend it in a furniture store?,” the average response was 2.9. We don’t rate highly on the “entertainment value” scale—retailers need to think about what they can do to raise excitement for new designs; and how they can make their store a place where people want to be. Note that when we asked “Please rate the degree to which store environment, décor, furniture display, atmosphere, and ease of navigating the store adds to your perception of the value of the product. Rate on a scale of 1 to 5, with 1 being ‘No additional value’ and 5 being ‘Much value,’” the average of all responses was 3.7.

Not surprisingly, most consumers are cost-conscious even if they have money to spend. When asked to rate their current style of living on a scale of 1 to 10 with 1 being “I have to be very conscious of what things cost and must live within a strict budget” and 10 being “If I want something, I buy it. Cost is not my first consideration,” the average of all responses was 4.5.

Women lead the way

When it comes to visiting a store, women still rule. We asked: “In your household who is usually the person who makes the initial visits to look at the furniture that is in the stores?” The top response “Self-Female” accounted for 79.7 percent of responses; “self-male” 10.5 percent; and “spouse/ partner-female,” 9.7 percent. “Spouse/partnermale”? Zero.

And, women are far and away the primary motivators to considering a new furniture purchase. We asked, “In your household who is usually the first to mention the need or desire for new furniture?” “Self-female” was the answer for 70.4 percent of responses; “spouse/partner-female,” 12.3 percent. The male spouse? You guessed it: nada, nothing, zero percent. While women inspire initiation of the buying process in most instances, the final decision in male/female households remains a joint decision, with 58.5 percent of respondents saying both partners make the call. And men apparently still command the pocket book, with 26.8 percent saying he has the final decision, while 14.7 percent of respondents said women decide on a furniture purchase. Once they’ve decided to buy home furnishings, what are the steps consumers take? According to our research, the first thing most consumers do is Internet research. That’s followed, in order, with visiting a store to see product on display; save newspaper and magazine articles and ads; do research in magazines; get recommendations from friends and relatives; respond to television or radio ads; and consult with or hire a design professional for advice.

Internet research and store visits were close; but it’s worth noting that responding to an ad was near the bottom of the list of steps.

The rubber meets the road

Once shoppers are in the store, are your salespeople focused just selling a sofa or bed? If they are, you are missing an opportunity. We asked consumers to choose from two sentences which one most nearly explains how they shop for furniture: “When I shop for furniture, I think about the total room plan before purchasing”; and “When I shop for furniture, I am only interested in purchasing a specific item.” A large majority, 68.5 percent, said they think about the entire room when shopping. What first impression does your store make? We found that the first thing shoppers look for are product displays, even before sales and promotions, which are followed by price tags, latest designs, and then—pretty far behind—a salesperson or service from sales personnel. When they do interact with your sales team, the most important thing consumers want them to provide is product knowledge (36.7 percent of respondents). Order writing was next at 26.3 percent.

Another indication that shoppers have done their research is that those first two items they said are most important for salespeople are far ahead of other things they want your sales staff to provide: help with color combinations (14.6 percent); style advice (13.3 percent); and assistance in developing a room layout (9.1 percent). Let’s consider those responses against the next question, which asked, “From your experience, what does the sales person in a furniture store/ department actually provide to you?”

Order writing was first (35.6 percent); followed by product knowledge (35.1 percent); help with color combinations (12.5 percent); style advice (9.9 percent); and assistance in developing a room layout (6.8 percent).

While they feel salespeople are very strong in those top two services, consumers indicated room for improvement in the other three. Our research also found that shoppers are fairly quick to pull the trigger. We asked, “How long did you shop for the product before you made your most recent furniture purchase?” A third of respondents said less than a week; and another 43.8 percent bought within a month, almost half of those one to two weeks into the shopping process. The lesson: Keep working those close rates, or they might buy somewhere else. HFB

Who’s Out There

The first part of reaching consumers is a basic understanding of who they are. Here’s a look at U.S. consumer households in 2012 by age and income percentages.

First, let’s look at the age groups.

No surprise here, but Baby Boomers (45 to 64 years of age) remain the largest age demographic, comprising 38.53 percent of U.S. households. Not far behind, though, is Generation X (25 to 44), with 35.17 percent of the population.
Pre-boomers, those consumers age 65 and older still represent more than a fifth, 21.22 percent of U.S. households; and Generation Y, consumers under 25 years of age, 5.08 percent. (Let’s hope that last group has some kids.)

The good news for furniture retailers is that older Gen Xers—those 35 or older—and “second wave” boomers, age 45 to 54, are in their prime income producing years. Together, they represent 40.52 percent of U.S. households. This cross-generational segment has the largest percentage of families with incomes more than $50,000—25.41 percent—than any other segment. As a comparison, older boomers represent 9.79 percent of such households; Gen X’ers 25 to 34, 7.94 percent; those over 65, 6.86 percent; and Gen Y (under 25), 1.14 percent. (51.14 percent of total U.S. households have income more than $50,000.)
Also, the second wave of Gen X (25 to 34) is catching up to its older siblings in terms of income. Their households represent 7.94 percent of those earning than $50,000 a year, compared with older Gen Xers at 11.56 percent.
Moving it up a notch, the younger Boomer/older Gen X combination stacks up pretty well in the $100,000-plus household category—10.52 percent of their age group. (Total U.S. households with income at that level comes to 19.3 percent.)
For older boomers, 4.2 percent of that group’s households earns $100,000-plus. They’re followed by pre-boomers (2.25 percent); younger Gen Xers (2.16 percent); and Generation Y (0.19 percent).

Attitudes and Behaviors

Furniture isn’t a frequent purchase, but consumers view it as central to their self-image, and its facilitation of sharing togetherness with family and friends makes buying it an emotional decision.
That’s among key findings from “Consumer Attitudes and Buying Behavior for Home Furniture,” a study this year from the Franklin Furniture Institute’s Furniture Outreach Program at Mississippi State University.
The results are based on a national survey of 2,007 adults who participated in an online consumer panel.

Other takeaways: The survey found that quality is the most important criterion consumers use to evaluate furniture for purchase. Made-in-the-U.S.A. is stronger than environmental friendliness overall, but the latter is increasingly important among younger, Generation Y consumers.

They aren’t in their prime buying years yet, but “green” will grow in importance for furniture as that group’s incomes increase.
The study identified five stages of the consumer decision process regarding attitudes and buying behavior for home furnishings: problem or need recognition; information search; alternative evaluation; outlet selection and purchase; and post-purchase evaluation.

WHERE THEY BUY

The Mississippi State project found that most consumers have little brand or store loyalty; and since most have already done their research online, they come to a store or e-commerce site with a good idea of what they want. The good news here is that their prior exploration means less buyer remorse after the sale.
For furniture retailers, the study suggests they must be on target with display, selection and price all the time. Only 26.3 percent of respondents said they are loyal to a specific furniture store; and 76.7 look at numerous stores before choosing where to buy.
The good news: Quality is important. Almost three quarters of survey participants disagreed with the statement: “I prefer to shop for furniture at discount stores like Target or Walmart.” (That still leaves a significant share of overall respondents who would, though.)
Do you think consumers won’t buy your product online? The study found 21.6 percent of surveyed consumers had made a furniture purchase on the Internet, almost double the figure from a similar 2008 research project.
Plus, more than a third of respondents say they will shop furniture online over the next few years, compared with 25 percent last time around; an more than half, 52 percent said they are willing to buy furniture online.

Regarding attitudes toward online furniture purchases, the study found significant variation among different age groups. When asked if they would shop for furniture online in the next few years, 46.9 percent of Gen Y respondents said “yes”; 36.7 percent of Gen X; 28 percent of Baby Boomers; and 3.9 percent from the Depression/Pre-Depression age group.

The full study can be found here: http://bit.ly/1aOd3Z8

From the Publisher: $1,000 Purses and Furniture Flatlines

November 12, 2013   by in Business Strategy, Industry   

By Bob George 

Yes, I am fully aware of the depth of the recession that our industry has experience since 2009. However, we are not the only industry that has been impacted by the worst financial meltdown since the Great Depression. Rather, we are an industry that is struggling with a recovery. The Consumer Price Index for all products has continued to move upward while furniture and bedding have remained flat. The CPI indexed to 2008 (100) is shown in the accompanying chart.

As can be seen from this graph, our situation occurred some years before in a previous downturn and has continued as the industry became “fixated” on price. I know many out there will point to the great value that we have given the consumer as production as moved offshore. However, a careful analysis of transportation costs, duty, inventory carrying costs and obsolescence will yield minimum savings. Nonetheless, the price has been reduced, but at a cost, the loss of quality. A sobering thought comes to mind—maybe the furniture we are producing is worth what we sell it for.

The group that is losing in this scenario is the consumer. We must ask ourselves the solemn question, “Are we presenting to this consumer worthy product?” It is important that we challenge ourselves as an industry to consider where we stand on these key factors:

Quality—Manufacturers, are we proud of the product we present to retailers who will then present this product to the consumer? We are speaking not only of upper-end products, but also the middle-priced goods.

Designs—Are we creating new and innovative collections that reflect classic shapes and forms, or are we knocking off our competitors? The result: The average life cycle of a new design is less than three years with most designs merely filling the pipeline only to be discontinued in a year.

Marketing—Are we resorting to a celebrity brand name to be noticed rather than designing collections that are inspired by original concepts that evoke dreams?

Sales—Are we basing sales on a true desire to achieve great product turnover that results in a great GMROI? Will there ever be another Collectors Cherry (Thomasville) or Fontana (Broyhill)?

Before you dismiss me as a ranting old man, there are signs that are positive. Witness the Amish phenomenon that inspires consumers to pay for quality or premium bedding where consumers appreciate innovation and will pay for it.

Yes, there is a chance. For the past 20 years of research when consumers are asked the question, “Does your home need redecorating that would require the purchase of new furniture?” the answer “Yes” has never been below 87 percent. It is our challenge as an industry to get the consumer to act on this need. Price is not working.

Let’s try a different approach.