From Home Furnishing Business
One of the most discussed issues in the industry today is the internet and the impact this new distribution channel is having on traditional ‘brick and mortar’ retailing. The reason for this concern is obvious when we look at the graphic below.
Without a doubt, a significant percent of furniture revenue is moving through e-commerce. The saving grace is that of this total, 49% is sold through furniture retailers with a ‘brick and mortar’ presence.
The growth of internet sales is still more than twice the rate of store sales growth. However, in the last two years, e-commerce growth has slowed down as the table below illustrates.
This finding is the same as was found in the Fourth Annual Major Purchase Consumer Study (June 2015) conducted by Synchrony Financial that concluded a 2% drop in purchases online from 2014 to 2015. While the total number of purchases has decreased, the total sales volume through e-commerce has grown.
However, it still remains a significant portion of the industry volume. To raise another point, other alternative channels are capturing almost the same level of sales as e-commerce. In some cases, such as mass merchants, the sales levels are higher than those seen with e-commerce. The question must be raised, “Should the industry not be as concerned with these channels? The graphic, a repeat from the April issue on distribution channels, explores the impact.
An historical perspective can sometimes be viewed as a negative. However, when the catalog showrooms, such as Blackwelders, Roses, and Furnitureland South, threatened the status quo of the industry, the discussion was the same. Furnitureland South alone remains, but only by adapting its strategy. Likewise, when Costco debuted its “furniture only” store in Washington State, many proclaimed the end of furniture retailing as we knew it.
The traditional industry has weathered the storm of other alternative channels and survived, but each new channel has taken a portion of sales until the traditional channel now represents less than 40% of the market. Maybe we need to change instead of surrendering a portion of our sales.
By Trisha McBride Ferguson
The Bedroom category (master bedroom and adult bedroom furnishings) has been climbing steadily in annual sales over the last five years. In 2015, the year ended with $10.86 billion in sales, up from $10.36 billion in 2014. Adult bedroom continues to see growth this year with second quarter up 3.75 percent over the same quarter last year.
Part of its Curated collection, the Halston fully upholstered bed features a tufted headboard with subtle arch and nailhead trim. It’s shown here in a gray cotton velvet and is also available in linen. Suggested retail $1.875.
A.R.T. Furniture’s Epicenters Williamsburg
Directly inspired by the warehouse-turned-loft neighborhood of Williamsburg in Brooklyn, NY, this bed features a stacked railroad tie design, a reclaimed pallet finish, and a two-drawer storage footboard. Suggested retail for the King bed is $2,999.
Rustic yet refined, the Windlore bedroom collection maximizes the beauty of minimalism. Its rustic oak-grain character is enhanced with a two-tone finish that modernizes its plank styling and hardware-free design.
Cresent Fine Furniture’s Larkspur
Simple yet sophisticated, the Larkspur platform panel bed features clean lines and a fresh finish. Suggested retail for the Queen bed is $1,199.
This solid hardwood bedroom group is crafted of birch veneers and features a black rub-through finish. Its round metal hardware wears a gunmetal finish and the bed and mirror are available with metal or solid-wood frames.
Furniture Traditions’ Master-piece Pier Group
Full of innovative features and clever details, the Master-piece pier group adds function and interest to a timeless look.
Crafted of 100-percent solid Moso bamboo, the Currant bedroom collection blends contemporary and Mid-century Modern influences. An eco-friendly and sustainable option, the platform bed is shown here in a black walnut finish. Suggested retail for the Queen bed is $1,878.
Hooker Furniture’s Chatelet
This upholstered mantle panel bed is part of Hooker’s whole home collection inspired by timeless antiques found in Old World Europe. The epitome of rustic luxury, its look is defined by pecky pecan veneers wearing a soft amber finish with highlights of distressed aged white.
Ligna Furniture’s Jackson
Crafted of solid, rough-hewn mahogany, the Jackson collection fuses modern and rustic. The bedroom group wears a cinnamon and sea salt finish.
Effortlessly stylish, the Townsend collection is crafted from solid hardwood and features naturally rough-hewn planks with heavy saw marks, pitting and distressing. A nine-step finish highlights its wood grain while simulating the patina of age. Suggested retail for pieces in the bedroom group range from $299 to $2,249.
Orient Express Furniture’s Boulevard
The Villa Collection’s Boulevard bed is one of Orient Express’ most iconic pieces. Its scalloped headboard is covered in an oatmeal linen and features a button-tufted back and nailhead trim around its headboard and rails. Suggested retail starts at $1,699.
Part of its whole home collection, the Virage Panel bed combines stark lines and clean surfaces with subtle moulding details and sweeping arched plinth bases. Its cherry veneers wear a Truffle finish accented by lightly striated Caviar black paint and glowing hand-applied Antique Gold Leaf highlights. Suggested retail for the Panel bed is $2,829.
Stickley’s Mission collection is crafted from solid, quarter-sawn white oak and includes the distinctive yet timeless Harvey Ellis bedroom group.
Vanguard’s Emma Bed
From Vanguard’s “Make it Yours” bedroom program, the Emma bed features a fully upholstered headboard and footboard. Available in fabric or leather, its tufted headboard is accented with nailhead trim. Suggested retail for King starts at $4,146.
Mention furniture and home furnishings sales sold via the internet, and the focus immediately turns to B2C retailing (business-to-consumer). So it may be surprising to learn that it’s the e-commerce (e-shipments) B2B platform (business-to-business) that has been exploding and generating buzz in the furniture industry.
A recently released report from the Census Bureau shows B2B e-shipments within the furniture and related products manufacturing segment (NAICS code 337) is now approaching 51 percent of the value of total shipments or $35.2 billion dollars in 2014. (Source: U.S. Census Bureau E-Commerce Report 2002 to 2014, June 7, 2016). The Census Bureau defines manufacturers’ shipments to include “orders accepted for manufactured products from customers, including shipments to other domestic plants”. While this appears to be double counting in some instances, it does little to diminish e-commerce’s impact on the wholesale furniture industry. (See Methodology and Definitions box for additional information). B2B e-commerce is changing the way manufacturers market and sell their products to both retail brick and mortar customers and online furniture retailers creating increased sales on one hand and distribution channel crises on the other.
E-Commerce across Vertical Furniture Industry Segments
The product categories included in data published by the Census Bureau may differ somewhat between furniture manufacturing shipments, merchant wholesaler shipments, and retail sales; however, the trend in e-commerce is the same. (See Methodology and Definitions box.) As of 2014, e-commerce accounts for over half (50.6 percent) of all furniture and related product shipments – up from 14.4 percent in 2004 (Table A). During the same time period, e-commerce sales of furniture and home furnishings within the retail trade sector increased 503 percent – representing 15.3 percent of total retail dollars. While e-commerce among the merchant wholesale trade of furniture and home furnishings increased steadily since 2004, the share of overall sales have remained stagnant since 2009 – increasing from 14.3 to 14.4 percent.
As Table B shows, the total value of manufacturing shipments in the furniture industry took a downturn alongside the economy during the recession. The 2014 value at $69.6 is still 9.9 percent below 2002. E-commerce shipments on the other hand kept an upward trajectory through the recession – increasing a total of 335.9 percent over 12 years. While total furniture and related products manufacturing increased by 15.4 percent since 2009, e-commerce shipments jumped another 70.3 percent to finish 2014 at $35.2 billion.
The percentage of total dollar shipments via e-commerce has climbed from 10.5 percent in 2002 to 50.6 percent in 2014 with the vast majority of growth (313 percent) occurring between 2002 and 2011 (Table C). From 2011 to 2013, increases of e-commerce as a percentage of total shipments tapered off. However, an 11 percent jump in 2014 pushed e-commerce to over half of furniture and related products shipment dollars.
E-Shipments: Furniture Manufacturing vs. Total Manufacturing
While e-shipments have grown at a rapid pace, furniture and related products manufacturers are still lagging slightly behind all manufacturing in the percentage of e-commerce shipments to total (Table D). In 2014, total e-shipments in all industries were 60.9 percent of total manufacturing compared to furniture e-shipments at 50.6 percent. Both total manufacturing e-shipment dollars and furniture e-shipment dollars increased an annual average of 14 percent from 2004 to 2014.
Merchant Wholesalers and MSBO’s
Merchant Wholesalers are wholesalers who sell goods on their own account such as distributors, jobbers, drop shippers, import/export merchants, and MSBOs. Manufacturers’ Sales Branches and Offices (MSBOs) are establishments maintained by manufacturing, refining, or mining enterprises apart from their plants or mines for the purpose of marketing their products. Sales branches will typically carry inventories, while sales offices typically do not. – U.S. Census Bureau
Since the turn of the century, e-commerce has slowly climbed its way into the furniture and home furnishings merchant wholesale trade. Merchant wholesalers weathered the recession well growing 43.8 percent in sales 2002 to 2014 to $76.9 billion while the e-commerce portion of those sales jumped 113 percent to $11.1 billion. MSBOs total shipments at $21.0 billion in 2014 grew more slowly -- 17.3 percent 2002 to 2014. E-commerce shipments from merchant wholesalers alone have increased a yearly average of 7 percent, while furniture MSBO’s have increased by 3 percent.
Although increasing just 30 percent in e-commerce sales from furniture MSBOs over 12 years, e-commerce accounts for 21 percent of furniture and home furnishings MSBOs (Table F) compared to other merchant wholesalers at 14 percent. As a percent of total shipments, e-shipment sales of both merchant wholesalers and MSBO’s have declined since 2011.
With more advanced websites and ordering portals that make it easier for a business to make purchases online, e-commerce should continue to grow as a key part of the furniture industry. Manufacturers look to e-commerce to increase sales and broaden its customer base. This approach, however, presents a challenge to manufacturers in terms of personalized customer service and maintaining that sales rep relationship.
As a boy growing up in North Carolina I well understood the “dog days of summer” when it was too hot and humid to move too far from the porch and a pitcher of lemonade. This term in business refers to the quietest months of the year. Well, it has been dog days for all of 2nd Quarter and recent results would indicate that it is continuing. Our hopes are now pinned on the upcoming Labor Day.
When business is this slow the typical reaction is to look at external factors that may be contributing to this problem. When we see the statistics we find that they too are at a standstill. Housing starts annualized are up slightly. Consumer confidence is also up slightly going from 96.5 to 97.3, while unemployment for the year is down slightly. So what’s the problem?
The challenge is to get consumers excited about their environment, not merely to replace a broken piece of furniture. Disregard the impact of ecommerce and focus on what is, in my opinion, the most important internet opportunity, which is the ability to communicate with and, more importantly, to interact with your customers.
The retailers’ website has become the “front door” of your business. Take a hard look at your home page. How long has it been since it was updated? Not merely product update, but also color story, the site’s overall look and feel, and, very important, how inviting it is to the consumer. Give the site the same attention that you give the “landing zone,” that first impression the consumers have when they enter your store. Four times more consumers see your home page than your store entrance!
Once consumers pass the home page how are you engaging them? Oversized banners proclaiming the latest financing package should not be the first “words” out of your mouth. Engaging consumers with conversation about what they want to do with their houses is where their interest lies. Many retailers have design tools to assist consumers, but frequently these tools are not “front and center.”
While we wait for Labor Day to ignite the last quarter of the year, it is a good time to take a hard look not only at the web site, but also the merchandise strategy. How does your “bell-shaped” curve of slots by price point compare with the industry? Assortments out of bounds can negatively impact sales by 20-30%.
I understand that you don’t want to interact very much with your sales associates because they will complain about the lack of traffic. This is the time to engage them to keep them “sharp” when the customer does arrive. Take this opportunity to observe their sales techniques. Are they following the five-step selling technique they were taught or are they going directly to close?
The point of all of this is to use this time to visualize what you want your operation to be and then start the process. It is better than languishing in the dog days of summer. Call if you need a motivation session.
Probably the single greatest impact on the entire retail landscape since the turn of this century has come from the introduction, growth and evolution of the Internet as both a research/educational tool and retail distribution channel. Other articles in this issue and previous ones have outlined the numbers to give you a picture of the depth and breadth of its role. How many use it and what they use it for, gives us great insight into why it has become so important to the shopping process.
This is great information to know and understand, but the main thing it tells us is that the Internet is causing a significant number of potential customers to avoid visiting our stores! That is the major negative we are experiencing at retail. It is really a double whammy for us since not only are people searching for, finding and buying our products on the internet, they are using their research to zero in on where they want to shop, thus significantly reducing the number of stores they will visit. As a result, in addition to losing sales directly to the Internet, it is also helping to reduce the total amount of traffic we have available in our markets.
Obviously the first step we need to take is to develop our own online sales capability. We must do that in order to capture some of the potential lost sales from customers that initially want to avoid visiting our stores. If this sounds to you like “joining the enemy”, then so be it. The internet is here to stay and the amount of home furnishing products sold directly over it is going to continue to grow. We are in the business of selling our products to the people in our market and it does not make sense to just let such a large percentage of them go elsewhere to buy. Especially when the end result can be that we can sell more people and then have the possibility of bringing them into your store when they make their next purchase. If we do not provide this convenience to those that want it, we will probably never see them.
While it seems that very few smaller retailers have taken this route, the numbers are growing and the initial reports indicate that many are having some success with it. The volume is not huge, but they are capturing customers that they would have missed otherwise and in the long run that will benefit them. As their client list grows, so too will their ability to reach deeper into their market and increase their market share. Therefore, find someone to partner with or hire that can put you into the online business and do it soon!
As for the prospect of ending up with fewer people to sell, what could we do to minimize its impact? Perhaps the answer is for us to find ways we can use the internet to expand or enhance our selling efforts to reach and ultimately satisfy more of the consumers that are still available to us in our market. To determine that, we need to focus on what potential opportunities for help the internet could provide us with.
Basically there are only three ways you can grow a retail business: See more people (Increase your traffic), Sell more of the people you see (Increase your closing rate) and/or Sell more to the people you do sell (Increase your average sale). Any of these individually or in combination will build sales. Therefore, let’s take a look at how we might use the Internet to improve or enhance our processes to help us achieve better results in these areas.
See More People (Traffic)
For the vast majority of the people interested in buying home furnishings, the first place they go is the internet. It is where the whole decision making process either begins or at least really gets serious. They use it to get ideas for their home, plus to educate themselves about products, prices and places to buy. Consumers only shop for furniture a few times in their lives so they generally know very little about it and the WEB is where most go to begin their learning process. It is the library they go to study at before the big test, which in this case is the actual shopping and buying experience.
As a result, your web site is absolutely critical! It provides your first impression to as many as 85% of the people who could potentially visit you. You only get one chance at that, so make it the absolute best it can be.
To these potential customers, your site IS your showroom and it needs to make the viewer want to come see it. We know they are looking for product ideas, pricing, specifications and other information. The ease they have finding what they are looking for on your site and the excitement you help them experience will go a long way towards establishing your place in their “Stores to Visit” pecking order. Do all you can to provide visual stimulation through exciting graphics, videos and other tools. Obviously most information they seek must be delivered in text format, but make that the last resort. How do you figure this out? Visit the pros that do this for a living and study what they do! We can’t all be Amazon or Wayfair or other major players, but we can learn from them!
Where you differ is that your main goal is not necessarily to make the sale then and there online, it is to get them to talk with you and ultimately to visit your store! Setting up chats, connecting to design advisors, moving from an online entity to a personal connection is what you want to do. We recommend that you have a dedicated person or team that creates and maintains your online marketing and sales effort.
Sell More of the People You See (Close Rate)
We have always maintained that If you can get a customer to tell you what they want, you have a much better chance of helping them find it. We also know that if you can show them what they are looking for (or something pretty close), even on a screen, you have a better chance of selling them. Therefore, in many cases you will need to provide a continuation of their internet shopping process. Your staff can do this by understanding that process and learning how to discover what each person has learned and what they have found that they have liked or not liked. To do this they will need easy access to the Internet on the floor. Using it in the selling process must be part of your sales effort and training program. They need to become a partner in the consumer’s search and join them on their journey as opposed to leading the process or just telling them what they should get.
Often we are finding the inquiries coming in from a retailer’s site via email or phone are potentially the best Ups sales people will get each day. However, we also know that not all of your sales people believe that. We recommend that you develop an individual or team that buys in and understand how to communicate via the internet and develop relationships that result in the customer coming in for a visit. The close rate on consumers that have connected to an individual and had a positive experience that brings them into the store looking for that person is probably about 90%. Why give these opportunities to sales people that do not treasure them? Make them matter by only allowing those who have demonstrated they can connect with online customers to deal with them.
Sell More to the People You Sell (Average Sale)
We know that product knowledge and design skills both contribute greatly to average sale. If your customer is going to use the internet to educate themselves, so can you. Part of your training and coaching program should involve using the WEB to learn more about product, sales techniques and design ideas. Your vendor sites can provide a treasure trove of information to help your staff better serve your customers. There are many great design and style centered forums and pages that can raise their awareness of trends in style and colors. All of the buzz words are there, if your people go looking for them. There should be no “down” time in a retail store for sale people, if they have access to the same library their customers are studying at!
We have also found that the better a retailer is at reaching their target customers through email blasts, social media and other online tools, the higher their closing rate and average sale is with those they bring into the store through it. We have had clients that have significantly reduced and even eliminated much of their traditional advertising effort to concentrate on reaching more potential customers via social media and other internet avenues. While total traffic declined, in most cases the increases in revenue per up more than compensated for seeing fewer people. They became much more efficient and effective with those that they did see because they were bringing in much more “qualified” customers!
So the answer is to sell who you can online and then get better at using the internet to reach and connect with more customers that you can get into your store. That is how you can offset the potential negative impact of the Internet and turn it into a positive. No matter what you do, you must tie it all together with your selling process and use it all on the floor consistently.