Monthly Issue
From Home Furnishing Business
October 16,
2015 by in Business Strategy, Industry 
Furniture retailers continue their march to expand into new markets. Are any bold enough to make a push for a national presence?
Since the furniture industry’s emergence from the recession, retailers have been on the move plotting expansion plans, opening stores in new markets and gobbling up real estate in popular power centers.
The industry is back, and retailers are making bold moves to capture consumer dollars.
Analyzing the growth strategies of some of the industry’s larger regional chains, begs the question as to whether or not a multi-line, national furniture retailer could emerge on the U.S. landscape.
Not since Heilig-Meyers has the industry seen a national furniture chain. Prior to its bankruptcy filing in 2000 and eventual liquidation, the retailer had more than 1,000 stores across the country. The chain’s overexpansion could have been the proverbial straw that broke the business.
Is there a retailer amongst the industry ranks who could make such a power play by rolling out a successful plan that incorporates smart marketing, spot-on merchandising that translates across regions and a logistics plan to hold it all together? Could it work? What would such an animal even look like?
“The typical reason for a national chain is the economy of scale to allow efficiencies in product procurement, advertising and other functional areas,” said Bob George, managing partner of Impact Consulting Services, parent company of Home Furnishings Business. “With furniture retailing there may be a point of diminishing returns well before national distribution.”
George points out that while vendors always want to minimize, regional taste differences abound for product styles and designs. “This is quite evident in our consumer product testing,” he said.
Last year, the industry witnessed a number of regional players set plans in motion to expand, broadening their reach into neighboring markets. Notably, Nebraska Furniture Mart made the daring move to jump across market lines into the Dallas market with its fourth superstore located in The Colony, Texas. The 1.85 million-square-foot complex continues to generate buzz and consumers are still showing up in droves five months after the May grand opening.
This year is shaping up a bit differently, and we note a number of powerhouse regional players inching into other markets.
Each of the movers could cause a bit of disruption in each of their targeted new markets.
“The impact of a larger national player entering a market that has a dominant regional player is typically a loss of 10 percent to 15 percent market share to that retailer,” George said. “This is not enough to remove a regional retailer’s dominance, but it is enough to weaken the regional retailer’s financial performance.
“The major question is: At what pace can a larger retailer expand without overloading its infrastructure,” he added. “The desire is there, but reality sets in.”
Four major retailers are marching forward with full force expansion plans. Two of them—Rooms To Go and Bob’s Discount Furniture—operate in the promotional and middle price points. The other two—Havertys Furniture Co. and Raymour & Flanigan—deal in the upper middle to upper price points.
These four retailers—the ones we see as having the greatest potential for a national presence—should have their sites set on the markets with more than $100 million in sales. According to George, these markets represent 65 percent of the overall market.
Examining the promotional to middle price point market first, Rooms To Go and Bob’s Discount Furniture collectively own about 10 percent market share in those price ranges in their respective markets, George points out. Looking at the middle to upper price ranges, Havertys and Raymour & Flanigan control about 6 percent market share.
“Each of those percentage marks are within the sweet spot for profitability,” George said.
The map above shows the markets in which Rooms To Go and Bob’s Discount Furniture currently operate. It also outlines the markets ripe for the plucking and ready for expansion.
Rooms On the Move
Seffner, Fla.-based Rooms To Go currently operates 132 stores in 60 markets across 10 states, but the retailer has ambitious plans for growth in current markets and beyond that are tied to the expansion of its network of distribution hubs.
The retailer’s 1.45 million-square-foot distribution center and showroom on Interstate 95 in Dunn, N.C., is nothing less than impressive in its presence. Product started flowing into the center last month and is expected to be ready for shipping by the end of the year.
The compound includes a 60,000-square-foot store set to open during High Point Market.
Earlier this summer, privately held Rooms To Go expanded its Lakeland, Fla., distribution center and also built out its distribution center located in Katy, Texas, outside of Houston. Consideration is being given to expanding a Dallas-area center, as well.
Over the next year and a half, Rooms To Go plans to open 11 stores in its current markets. Cities on the list include Atlanta (a replacement store), Nashville, Tenn., Orlando and Fort Lauderdale, Fla. Texas stands to gain Rooms To Go units in San Antonio, Austin, Dallas and Houston during that time frame, too.
New stores are in the planning stage for South Carolina and Virginia.
My Kind of Town
Bob’s Discount Furniture continues its march into the Mid-Atlantic and Midwest by recently opening its 63rd store as it pushes into Pennsylvania. Located in Reading, Pa., it is one of three stores the retailer has opened in Pennsylvania and New Jersey this summer and fall. The retailer currently operates 63 stores in 27 markets throughout 11 states.
Up next—the Chicago market, the retailer’s most western reach yet.
Earlier this year, Bob’s Discount Furniture expanded to the Midwest area by leasing a 751,966-square-foot distribution center near Chicago in the Heartland Corporate Center in Shorewood, Ill. It is Bob’s Discount Furniture first Midwestern distribution center and the retailer expects to occupy it by the fourth quarter of this year.
“We’re delighted to secure this much first-class space in such a desirable location,” Kaufman said. “The facility will support our exciting expansion plans into the greater Chicago market.”
Bob’s Discount Furniture will expand into the Chicago area with five stores in the first half of 2016. The Shorewood, Ill., center will service the new stores.
“This is an exciting time for us,” said Bob Kaufman, co-founder of Bob’s Discount Furniture. “We’ve been embraced whenever we enter a new market and success breeds success. People like value and we’re a value store.”
George points out that moving beyond a 200-to-400-mile radius from a home base location calls for an additional warehousing and delivery module. “Once established, the future geographic area can be absorbed,” he said. “Bob’s large warehouse signals more than just Chicago’s five planned stores.”
Boston-based private equity firm Bain Capital purchased Bob’s Discount Furniture in 2013 in a $350 million deal with plans to expand the business into new markets. The retailer, known for its odd but effective television commercials that pin the Bob-O-Pedic against brand name Tempur-Pedic, had grown by about two stores per year since Kaufman co-founded it in 1991 with his cousin, Gene Rosenberg, in Newington, Conn., but it has quickly seen expansion into the Chicago, Philadelphia, Pittsburgh and Baltimore markets.
Kaufman sold a majority stake to private equity firm Saunders, Karp & Megrue, which was later acquired by Apax, in 2005. It was KarpReily/Apax that later sold the majority stake to Bain Capital.
The Bain Capital deal was about a growth strategy. Bob’s Discount Furniture had 47 stores when Bain Capital acquired majority ownership, and has expanded by 16 stores in the past two years.
“There’s a real opportunity to grow this business substantially,” said Tricia Patrick, a principal at Bain Capital. “We believe in Bob’s Discount Furniture’s quality furniture at deep value fills an important need in the market. With strong growth prospects, we see no reason why Bob’s could not grow to be a nationwide chain.”
However, the next frontier for Bob’s still remains unmentioned.
The private equity firm has vast experience purchasing well-known retail companies.
“Bain’s been investing in the retail business for decades,” said Ted English, Bob’s CEO. “Their expertise coupled with our expertise makes a great marriage as we grow the business and take it to new places. Bain brings the experience and resources we need to support our continued expansion to serve more customers in more places, and provide opportunities for advancement for our people.”
Kaufman has remained the face of the company since Bain Capital’s acquisition and English remained as CEO. The retailer hired William Bracker as vice president of marketing in July to help guide the brand as it grows and expands into new markets. Bracker was hired at the time of this rapid expansion for Bob’s Discount Furniture, which opened four stores Memorial Day weekend in the greater Pittsburgh and Baltimore areas.
“We continue to be very excited about the long-term growth prospects for Bob’s and have been thrilled with our partnership with Ted and the entire Bob’s team thus far,” Patrick said.
According to the Motley Fool, Bob’s Discount Furniture will most likely remain under private equity ownership for the near future, as the typical holding period for a private equity firm is five to seven years. Bain Capital hasn’t disclosed its exit strategy, whether it will be to IPO Bob’s Discount Furniture or sell it to a rival furniture retailer, but the possibility remains that Bain Capital will choose to IPO Bob’s Discount Furniture as it did with Dunkin’ Brands Group and Michaels Stores.
Southern Ways
Havertys Furniture Co. has opened two stores in the new markets of Rogers, Ark., and Waco, Texas, and one in Southeast Florida in Coconut Creek, Fla., during the first six months of this year. Its store count was 122 at the end of the second quarter of this year, compared to 118 during the same period last year. The retailer operates in 72 markets in 16 states.
“We are encouraged by the improvements in the macro environment in both housing and wages, key drivers of our business,” said Clarence Smith, chairman, president and CEO of Atlanta-based Havertys. “We have strengthened our brand in existing markets and have expanded into new communities.”
Smith explains Havertys is having consistent success in its custom upholstery business and it has increased by double-digits for eight of the past 10 quarters.
“Our free in-home designers’ consultations are generating business in the near term and establishing relationships for future sales,” Smith said. “As we further separate ourselves from the promotional furniture stores, we believe the on-trend customer will continue to identify Havertys as their preferred store.”
Havertys expects to increase its selling square footage approximately 3.2 percent this year based on increasing its store count by a net three locations. Its total capital expenditures are estimated to be in the $32-to-$33 million range this year depending on the timing of spending for new projects.
The publicly traded retailer opened its first Fort Lauderdale, Fla., store in late August after investing approximately $3 million while converting 50,000 square feet of a former Carls Furniture building into a newly designed store.
Havertys signed two leases to take over two former Carls Furniture stores in Fort Lauderdale, Fla., and Coconut Creek, Fla. Carls Furniture closed the last three of its regional stores in June 2014 after 73 years as a South Florida furniture mainstay.
Northeastern Powerhouse
Liverpool, N.Y.-based Raymour & Flanigan is the quiet giant in the Northeast who continues to methodically plot its expansion. The retailer has 110 stores, including clearance centers, in seven states covering 30 markets. The state of New York is home to 52 locations; Pennsylvania has 20 and New Jersey has 19 Raymour & Flanigan stores. Other outlets are in Connecticut, Rhode Island, Massachusetts and Delaware.
The retailer’s growth historically has come through a combination of acquisitions and store openings. In the 1990s, the company expanded out of its home state into New England, New Jersey and Pennsylvania when it bought the Furniture Unlimited stores.
Between 2000 and 2006, the retailer opened more than 50 stores in six states.
By 2007, Raymour & Flanigan’s appetite for acquisitions was back, and the company bought Alpert’s Furniture. The following year—2008 just as the recession was hitting—Raymour & Flanigan opened 12 stores and two clearance centers along with a customer care center to meet the expansion needs in New Jersey and metro New York.
Also in 2008, the retailer picked up Levitz Furniture leases while that giant liquidated, and Raymour & Flanigan opened 10 stores in the New York City area.
Four years ago in 2011, the retailer added to its online presence and currently has an e-commerce platform. To support the e-commerce function, Raymour & Flanigan has partnered with a delivery service to expand its delivery capability to all Eastern Seaboard states.
This spring, Raymour & Flanigan signed a lease for a 40,000-square-foot store in New York’s Harlem. The store will be part of a 200,000-square-foot, six-story retail complex that will also include an Olive Garden, Whole Foods and American Eagle Outfitters.
Throughout Raymour & Flanigan’s expansion, the retailer has chosen to remain relatively close to home in its heavily populated cluster of seven states.
The Holes
When studying the location maps, it’s curious to note the skipped markets in the western expansion. In the Midwest, Bob’s leap frogged right over the states of Ohio, Indiana and Michigan. Perhaps the regional players there—Morris Home Furnishings, Kittle’s Furniture and Art Van Furniture—are viewed as having a stronghold in their respective markets.
Art Van has made its on move into the Chicago market. The retailer opened its eighth and largest store in Downers Grove, Ill., in August. The industry should be prepared for a head-to-head showdown once Bob’s stores are opened in the market.
Moving south, both Rooms To Go and Havertys bypassed a wide swath through the center of Mississippi.
While Rooms To Go currently has one store in the state, it’s located in Gulfport, Miss., down south. Jackson, Miss.-based Miskelly Furniture currently has six stores in its home market. Havertys has two stores in the Memphis, Tenn., market, but none in Mississippi.
Is it Worth It?
Retail expansion isn’t for the faint of heart. It takes strategic planning, a whole lot of capital and a big dose of fortitude to turn it into a success.
At the core of the planning stage for an expansion is a consideration of how much it costs to steal market share as compared to the cost to hold onto market share.
While the emerging national retailers are looking to feed their growth appetite, regional retailers who are already entrenched in an enticing market should be exploring means to remain competitive and hold onto their turf.
The following graph illustrates a perspective of performance maximization for regional retailers to consider.
“The major unspoken question for a regional chain is: How much market share must I have in order to deter one of the emerging nationals from moving into my market,” George said. “When faced with an emerging national, at what point would the home-base retailer consider acquiring versus taking? Taking share is an expensive venture.”
Next on the horizon, George suspects more venture capitalists to jump in with two feet to boost the emerging nationals along. “Bain Capital (with its Bob’s investment) is already in it,” George said. “It won’t be long before others follow. We can only hope that the retail furniture sector fares better with financial engineering that the manufacturing sector has.”
January 12,
2015 by in Customer Service, Industry
Whether you know it or not, like it or not, your store is a brand.
Maybe not a brand in the classic sense of mega names such as Coca Cola or Apple, but everything you say in your advertising, every touch point you make with shoppers, gives consumers a sense of what you’re all about.
You’re projecting an image to the people in the markets you serve. Working to ensure that projection lives up to what you offer—and vice versa—is what we’re talking about this month in Home Furnishings Business’ first issue of the New Year.
We asked several retailers to describe the brand image they want potential customers to associate with their store; and whether that’s changed over the years, or remained consistent.
Keeping it Real
“The image we project and want to be perceived as being is one of offering quality products at a great value with the best customer service available,” said Woody Whichard, president of Midtown Furniture Superstore & Mattress Center, Madison, N.C. “We strive daily to meet these expectations. This has been part of our vision since we opened in 1977. Even though I am a second-generation retailer this has not changed. We believe that this is why people call Midtown Furniture their furniture store, and come back again and again.”
Whichard’s been front and center in Midtown’s promotions (see Sidebar: Personal ID) for years, but lately Midtown has let its customers do some of the talking.
“For the past year we have run most of our TV ads with our customers in them,” he said. “We called a few customers, and had a few walk in during production, and asked if they would like to do a testimonial for us on TV. All that were asked and available when we produced were excited to help us out.
“Now we are talking about real people talking to real people. That is about as personal as you can get. These commercials have no sense of urgency. They are only brand-building ads that allow new customers to hear from a real person, like them, that we offer quality products at a great value with the best customer service.”
Dealing with the Big Guys
Hillside Furniture, a high-end contemporary furniture specialist, operates in the Detroit market, home of one of furniture retailing’s regional giants, Art Van Furniture.
President Jeff Selik has all the respect in the world for what he called the area’s “brand leader,” but said a retailer such as Hillside has to work that much harder to tell its story to potential customers.
Hillside’s brand image has been consistent: family owned, local, small, geared toward people who want to “shop local
“We project 'unique, very contemporary,'” Selik said. “We want to have that as our overall brand, and private labeling is a key to keeping your store exclusive in your market. When people walk into Crate & Barrel or Pottery Barn, they ask 'who makes that sofa?' They're able to say 'They make that for us.' It creates an exclusive outlet for that brand.”
Hillside’s association with the Contemporary Design Group merchandising consortium has helped in that regard. The buying group has worked hard to help members identify themselves as the go-to resource for upscale contemporary goods in their respective markets.
One example: CDG negotiated a deal to offer members the chance to create customized, magazine-format mailings—or “magalogs”—to a targeted list of customers. (Disclaimer: Home Furnishings Business created and published the magalogs for the group and continues to work with a number furniture retailers on similar projects.)
“The magalogs are a total brand-builder,” Selik said. “When people flip through those pages at home, they should get a sense of what it's like to visit and explore Hillside.”
Staking a (Believable) Claim
“Our brand image from the beginning has been ‘the best furniture value in Alaska,’ and that continues to this day,” said Ron Bailey, president of Anchorage-based Bailey’s Furniture. “We endeavor to buy wisely, contain our expenses and offer the best possible prices, everyday, for our customers.”
Bailey’s also isn’t afraid to point fingers to differentiate itself from the competition.
“Our brand is believability and trust,” Bailey said. “We constantly advertise and educate our customers about the ‘unbelievable’ price swings of our competitors, and I believe that we are making headway.”
On that note, it should surprise no one that consumer research from Impact Consulting's FurnitureCore arm says "believability" is a key part of making furniture stores' advertising connect with shoppers.
Consumers don’t resent ads that seem too good to be true, they just ignore the stores running them, said Lance Hanish, principal of Scottsdale, Ariz., agency Sophis.
“They don't hold it against them, they just won't go to that retailer,” he said. “It's an immediate, visceral attraction as to what you believe in.”
Brad Lebow, president of Horich, Parks, Lebow Advertising, Baltimore, Md., said believability can depend on the messages consumers in particular markets are accustomed to.
“We want to be credible and believable, but we also want to promote and entice. At the end of the day, consumers want a deal,” he said. “It depends on the playing field, and it's a question of what consumers in a market are used to seeing.”
When people see ‘70 percent off,' they know that’ just to get them into the store, said Jason Pires, CEO and senior creative director at MVC Agency in Los Angeles.
“I think overall ads are believable,” he said. “For me, it's more than just being an offer or promotion. The brands that are smart create a lifestyle-centric approach that respects the consumer.
“We bought furniture for our office the other day, and the company had these catalogs showing this sexy—fully clothed—woman on the back cover. The spine of the chair looked, how do I say, like a part of a woman's anatomy. If that looks condescending to me as a guy, imagine how that looks to a woman. For you to treat a woman in an ad the way they were in the '50s or '60s, that's just unbelievable.”
Whose Voice?
FunitureCore’s consumer research also indicates that celebrity endorsements don’t resonate with consumers, and the industry certainly has its share of licenses with high-profile names.
One reason Whichard plays his on starring role in Midtown’s promotions is that “I am real.”
“The customer can come in the store almost any day we are open and meet me. I have passion about our store,” he said. “A celebrity has passion for doing their job and being paid for it without a clue as to who or what your store is about. This works for some customers, but I feel that our customer wants a real person.”
While Hillside has invited local athletes to participate in its charitable work, the store doesn’t depend much on linking well-known names to its promotional efforts.
“I don't have a budget for celebrity 'endorsement.' For me, a lot of it's your image and branding,” Selik said. “Charitable efforts are a brand builder, and it does good in the communities where you operate.
“Paid spokespeople are clearly just that. In general, they don't come across as credible. I'm president of this company, and I'm second generation here, so I'm committed.”
Hanish pointed out that celebrities such as Cindy Crawford and Oscar De la Renta have met with success in furnitureland.
“There are two things about celebrity endorsements,” he said. “One, the company who is proposing to use a celebrity; and two, it depends on the celebrity. The key here is you have a client who really wants to make it work. Their magic can't just rub on off on you.
“Anything can work if it works in a unified message, and you'd better make the investment to support that effort--his or her aura alone won't take you to a new level.”
Lebow at Horichs Parks said that from its
client base's experience, a celebrity association raises awareness for a short period of time, but most haven't stuck with it for the long term.
Done with a strategic approach, famous names can help, believes Pires at MVC.
“They can be fantastic if it's in combination with the rest of your strategy. I believe they do work if it's done right,” he said. “It's always better to have someone refer people to you versus saying it yourself.”
Where to Promote
It might surprise some in this digital age, but FurnitureCore’s consumer research indicates direct mail and newspapers remain effective media, with more than 30 percent of consumers saying those would encourage them to shop for furniture instead of other media—i.e. television, radio, social media, e-mail.
Whichard says direct mail print has worked very well at Midtown.
“You have to do a lot of planning for this type of advertising,” he said. “You have one shot to get their attention from the mailbox to the trash can. Direct mail is usually a onetime shot so you better make sure you are offering them something they desire or you will be forgotten tomorrow. Most people do not leave their mail out like they will a newspaper. You can get a few days and extra eyes on a newspaper advertisement. Direct mail can be substantially more expensive way to advertise compared to newspaper.
He doesn’t feel newspaper advertising is as effective as it used to be.
“I like to use newspaper to reinforce the message I have on TV,” Whichard said. “Also newspaper gives you an opportunity to reach your direct-mail recipients a second time with a reduction of the cost. There are effective newspapers and other newspapers. Make sure that the newspaper and the ad placements are a reflection of your business and that they reach the target audience you desire.
“We have a small local paper that is very effective. The price is less than the large city papers and it targets the same customers that we do. It is a weekly paper that is well read by its readership. It is direct mailed to their homes at no charge, and this a great bonus. My prospective customer did not have to buy my ad to see it, nor were they only given an ad to throw in the trash. It has value. What I see is most effective is a good mix of all medias. We have a diverse customer base and different demographics are reached in different ways. We try different things to reach customers in unique ways, but we keep our main focus and our budget on what customers are responding to right now.”
Selik at Hillside also believes in a discriminating approach to print.
“I certainly see that if it's in the right newspapers, it's still effective,” he said. “I'm very selective, and the one I work with, the Detroit Free Press, gets a lot of response.”
He also is a fan of printed post card mailings: “It's tangible, something people still hold in their hands, and it's pretty inexpensive.”
Bailey is more sold on the airwaves for promotion.
“We are 80 percent TV, 10 percent radio, 10 percent Web and others,” he said. “Our traffic continues to be strong, and we are up double digits for the year in sales. We do not offer huge discounts and mark prices up and down, but rather everyday low prices and offer the same prices on our Web site.”
Lebow at Horichs Parks Lebow said Impact’s findings don’t quite jive with what he’s seen in the marketplace, but that direct mail absolutely remains an important component of a promotional strategy.
“Our clients do that eight to 12 times a year, and that's more than it used to be,” he said. “Number one, direct mail retains existing customers. We also use it as a customer-acquisition tool for people who aren't our customers, but who should be.”
He suggests that retailers should use direct mail to target people who've shopped for the products they offer, but for whatever reason haven't checked out their store or Web site.
Regarding newspaper advertising, Lebow said the issue today is how fast circulation numbers are shrinking.
“Newspaper (advertising) is one of the first things to go when people have to fund other channels,” he noted. “We find we're lessening print advertising to fund digital initiatives. That's the trend within our client base now.
Print does remain viable, said MVC’s Pires.
“If a particular type of media doesn't work, it's a matter of how they're using that media and delivering an overall consistent message,” he said.
“It's all about strategy, positioning and knowing what you're about as a company. It's not what you're telling people, it's what they experience. You can't fool people for very long, and in a competitive market like LA, you can't fool them at all.”
Whatever your advertising mix, make you’re you pay attention to where a lot of shoppers get their first impression of your store—online. Hanish noted that the Web site is to shoppers today what store window displays were in the 1950s.
“Web site traffic is today's window-shopping,” he said, adding that the key is to put that vehicle to work in new, innovative ways to ask shoppers to come into the store. “In our industry, too many don't understand what she's doing today. The data from all this information we're accumulating--we're going to have to adapt that information to our approach.”
Closing the Deal
A believable, real impression is the key to brand-building promotion that makes for repeat customers.
“You have to be believable, because when they do come to shop they want to have the same emotion you created in your advertisement,” Whichard said. “You better not over sell your store, or they will be disappointed and never return. We shoot our commercials in our store, and the advertisements show people what they will expect when the walk in. We do not use product shots to show furniture, we use the furniture with the background showing more of the store. We want to be believable and create the same emotions that brought them in in the first place.”
Especially in markets with a dominant player, independents have to differentiate through advertising, product assortment and culture. Dealing with an 800-pound furniture gorilla in your market?
“His size means I have to be more nimble--where we spend our advertising dollars, our product assortment,” said Hillside’s Selik. “We have to offer the furniture, service and experience that's different from any place else in our market. When your brand can be 'the best at what you do,' you can differentiate. You don't have to be the biggest, but you want to be consistent.”
December 4,
2014 by in Bedding, Product
By: Powell Slaughter
Don’t expect record-breaking growth overall in 2015 for home furnishings, but sales at least should pick up a percentage point or more over the current year.
FurnitureCore, the research arm of Impact Consulting Services, forecasts $90.6 billion next year in sales of furniture and bedding, up 3.7 percent over 2014 full-year projections. That estimate predicts 3.6 percent growth for furniture and 4.4 percent from bedding following FurnitureCore’s projections of 2.6 percent and 3.9 percent growth, respectively, for the categories this year.
Furniture sales ticked up a notch in 2014 despite one of the nation’s most severe winters on record this year impacting a lot of potential first-quarter business.
“People are going to be surprised we got 2.6 percent this year because of the terrible weather in the first quarter,” said Impact Consulting CEO Bob George. “Basically, we’re treading water. The economics just aren’t there. The middle price-point customer has not returned to buying furniture. They’re looking at college tuitions, food prices. The middle class is getting squeezed right now.”
George recalled talking to a reporter who asked him why a value-priced retailer such as Bob’s Discount Furniture is locating stores near affluent neighborhoods.
“People are considering lower price points,” he said. “It’s part of the winnowing down of expectations for the middle class, how they view their lot in life, and that’s a shame.”
Consumer confidence has historically been one of the top five indicators for home furnish- ings sales. However, this year it lost some of its cachet and impact on furniture.
Toward the end of last year, consumer confidence was expected to jump from the 75-point index in 2013 to a more vibrant 82-point mark. Instead it leaped to a 95-point reading, but didn’t push industry sales significantly.
“The variable that typically gives us a lift is consumer confidence,” George said. “It’s the highest it’s been in seven years, but it didn’t really do anything for furniture this year. Housing starts and home sales didn’t meet last year’s forecast, but had little impact on 2014 sales, but the usual indicators aren’t really impacting us either way.”
Industry analyst Jerry Epperson, director at Mann Armistead & Epperson, Richmond, Va., is more optimistic about 2015.
“I think (FurnitureCore’s forecast) is a little low,” he said. “If we hadn’t had the bad winter, 2014 would have seen 4.3 or 4.4 percent growth. As long as we don’t have a really bad winter, we’ll have a better first quarter, which will be a boost for the rest of the year. I think we’ll do between 4 and 5 percent.”
Mann Armistead & Epperson is still working on its forecast for the coming year—it had just received the University of Michigan economic forecast, which factors into its 2015 outlook for home furnishings, when we talked with Epperson.
RETAILERS SHIFT TO HIGH GEAR
The outlook for next year is good enough for some pretty sharp home furnishings retailers to make some significant moves. Ethan Allen, for exam- ple, is gearing up for the 2015 in a big way—it’s in the process of changing out 70 percent of its prod- uct offerings, according to Chairman and CEO Farooq Kathwari.
“We’ve been hiring people, adding manage- ment and growing internally,” he said.
Kathwari believes there’s no one thing that would make or break the furniture retail sector next year. Even if bad news pops up, consumers hear so much that’s negative that external factors don’t matter as much as they once did.
“We’re confident about next year because our business is vertically integrated,” Kathwari said. “We’re changing our product line dramatically, and we’re bringing more manufacturing to North America, so we have more control.”
Furnitureland South is gearing up for in- creased business expectations in the coming year, opening its third new gallery of the year in November—the 62,000-square-foot “Ground Floor.” Ground Floor gathers mid-price furniture in a single area, fully outfitted with accessories, wall décor and carpeting.
The Jamestown, N.C., retailer is still just half- way through a $4 million renovation plan for its 1 million-plus square feet of showroom space.
Why all the activity now?
“We very much believe in the showroom experience, so we partnered with our vendors to freshen up the world’s largest furniture store,” said Jess Harris, CEO. “We have about 25 new manufactur- er galleries underway or in the works.”
Those will have “storefronts” on a new 25-foot- wide corridor connecting the store’s north and south atriums that Harris called a “street of dreams.”
Furnitureland South also is revamping its Web site, which it’s using to set shoppers up for a more productive, efficient experience within the vast store.
“Customers are going online first, looking for inspiration and the best place to shop,” Harris said. “The No. 1 question people ask when they call in after going online is ‘Can I see this item, can I sit on it, and check the quality’ in the store.
“We differentiate ourselves from everyone else online with the size of our showroom,” he said. “You can come in and see exactly what you were looking at online. Our strategy is to inspire people online, and then to engage them with our design consultants—before they come to the store.”
To that end, Furnitureland South created video biographies for every design consultant. Shoppers can view those on the Web site to see who they’d like to work with when they come to the store. That way, the consultants can start working on a game plan to help the customer navigate and make the most of a visit to the huge showroom.
“There’s a lot of work that can be done before you come to the store,” Harris said.
Part of Furnitureland South’s renovations includes a redesign of the front entrance, an- chored by Lexington Home Brands, the popular Tommy Bahama line in particular. A video wall will prep arriving customers for what they’re in for going through the store, the size of which can be overwhelming to the first-time shopper.
“We stress that we have to help you with the experience,” Harris said. “The role of our design consultants is to help you through the entire pro- cess. It saves time, energy and helps guide you to the best values. Ultimately, it can save people money.”
And in Ohio, South Zanesville -based Coconis Furniture opened its third location in Heath, Ohio, 20 miles east of Columbus. The new store is in a high-traffic area between the communities of Newark and Heath.
Connie Post Cos. Designed the interior and exterior of the new Coconis Furniture and Mattress First store.
The Heath showroom has 25,000 square feet, and an additional 8,000 feet of showroom and clearance center will be added to the rear of the store. Those additions should be completed early next year.
Two pre-existing buildings behind the new store will be used for warehousing and storage. A separate entrance to the store will allow customers to enter the Mattress First area of the store (See Sidebar, “Building on Bedding).
“We project with the new Heath store open in 2015 we will do $15 (million) to 17 million total for all three stores,” said President Randy Coconis. “That would be an increase of approximately 35
percent to 40 percent over 2014.”
EVERYTHING IS LOCAL
Coconis Furniture is a good example of the in- creasingly local viability of markets for home furnishings retailers—Ohio is home to five of the 10 markets with FurnitureCore’s slowest project- ed growth in furniture sales next year, based on household growth. And here’s Coconis expecting a big jump in 2015 business.
“We are situated in a more rural part of Ohio that doesn’t seem to follow the ups and downs of the larger cities in Ohio,” Coconis said. “Also the Utica shale oil and gas surge has helped so many in our area.”
That has helped lower unemployment in southeastern Ohio.
“We have also seen some nice business come from the oil and gas industry as workers move into our area,” Coconis said. “They say it’s here for at least the next 20 years.”
George said furniture retailers shouldn’t worry too much about what’s happening every- where else: “It’s that every market is local.”
He pointed to the Dallas market, where Ne- braska Furniture Mart is set to open a huge new store early next year. The marketing accompany- ing that event will increase furniture’s mind share among consumers, but stores currently serving the market need to keep their dukes up.
“That will increase sales, but the people al- ready there will lose some,” George said. “When a larger regional chain invades a market, it doesn’t destroy a retailer, but it’s like getting pecked to death by ducks.”
That said, the hottest markets for the next five years, according to FurnitureCore are Midland, Texas (13.4 percent growth); Austin-Round Rock, Texas (11.8 percent); Charleston-North Charles- ton, S.C. (9.2 percent); and San Antonio-New Braunfels and Dallas-Plano-Irving, each with projected 9 percent growth.
No wonder Nebraska Furniture Mart wants a foot in the door in Texas.
On the flip side, the metropolitan regions with the slowest growth potential for home furnish- ings, again, based on projected household forma- tions in the next five years are: Detroit-Dear- born-Livonia, Mi. (down 1.8 percent); Youngstown-Warren-Boardman, Ohio (down 1.4 percent); Cleveland-Elyria and Toledo, Ohio (down 0.3 percent each); and Akron, Ohio (flat).
MAKE OR BREAK ISSUES
So what could make or break sales for home furnishings retailers in 2015? The good news about a
seemingly constant barrage of bad news is that consumers appear to be getting a bit numb.
“I think we’ve become oblivious to the shenanigans in Washington,” George said. “We were just in this quagmire where we talked about sending troops to Syria—and the stock market doesn’t go down. In a 24-hour news cycle, one side will say it’s bad, and one side will say it’s good.”
Retailers shouldn’t bother themselves too much about things out of their control. Take the horrid winter this year.
“The sales opportunity you lost (from weather) in the first quarter didn’t go away,” George noted. “I don’t see anything outside the industry that will make a really big impact either way.”
Epperson said a make-or-break in 2015 relates to home furnishings retailers’ supply chain.
“If we have a longshoremen’s strike, that could impact the availability of product,” he said. “That hasn’t been a problem lately, but that could cause shortages and cause us to lose significant business.”
Consumer attitudes also are subject to measures such as gasoline prices, and that’s been nothing but good coming into the end of the year.
“I bought gas this past weekend at $2.41 a gallon,” Epperson said. “It’s been a pleasant experience for everybody, and it added to the outlook for the holiday season and retail in general.”
Another factor affecting product flow is transport stateside.
“There’s a shortage of trucks and truckers, so that’s a little bit of a problem,” Epperson said, adding that other factors are looking good.
“Transportation costs are going down, and we aren’t worried about inflation right now,” he said. “Housing figures are up, and there are 2.5 million more people employed than there were a year ago.”
Retailers need to look at where they operate, and find the opportunities in the consumer base they serve.
“We aren’t so much bullish, we just see oppor- tunities out there with an improved economy,” said Harris at Furnitureland South. “We see a lot of people who haven’t invested in their homes in several years, and we think they want to create a better backdrop for living their lives.