From Home Furnishing Business
While dining room furniture sales growth was down in the first quarter of 2022, it rebounded in the second quarter and climbed steadily throughout the year, finishing with 6.6% growth in Q4 over the same period in 2021.
Today’s top-selling dining rooms offer versatility and functionality. Expandable tables, including those with hidden table leaves, are trending as are customizable design options that allow consumers to choose their favorite finish, table size, and seating styles.
At Bellini Modern Living, the Lago table is popular for its variety of options, says Frederik Winther, vice president of sales. “In just 200 square feet, dealers are able to offer their customers a visually stunning dining table that expands three sizes, with a choice of four Italian ceramic tops and a choice of three sculptural bases.” Consumers love the durability and easycare of the ceramic tops featuring realistic stone patterns, and the self-adjusting/selfleveling system that automatically lifts the extra leaves hidden beneath the tabletop into place, Winther explains. Jofran’s Telluride Collection is all about scale as the dining table can be expanded to accommodate large groups with two breadboard extensions. “At 127 inches long with a relaxed Driftwood finish, it really makes a statement in any home,” says John Miranda, executive vice president of Jofran. Telluride’s coordinating bench seat option is another popular feature. Combining natural beauty and craftsmanship, Greenington’s Erikka dining collection is turning heads. Its solid Amber bamboo construction delivers a sustainability story that resonates with consumers while its streamlined designs complement an array of home décor styles. “We are very excited about the solid performance of Erikka as it has earned a place in our top sellers,” says Troy Lerew, vice president of sales.
Solid-wood construction is a key selling feature for many manufacturers. “Our Fall River Collection has been one of our best sellers because it’s hard to beat beautiful solid wood,” says Julie Grant, owner and creative director of Porter Designs. “All our wood designs are solid, and this set matches an entire collection that spans occasional, accent pieces and bedroom.
We find that buyers start with a few pieces and end up with the entire collection.” The Ziglar table from Fusion Designs is also revered for its solid wood craftsmanship. “Ziglar is a best-seller because customers immediately see the value in its solid wood, mortise-and-tenon construction, and love the fact they can choose from more than 30 hand-wiped finishes to suit their personal style and still have their dining furniture delivered quickly,” says Norm Schrock, sales manager at Fusion Designs.
Updated traditional continue to be well-received, as illustrated by Klaussner’s Trisha Yearwood Hometown collection. “We’ve seen very good traction on the Pennamon double pedestal table, it’s a classic look that’s been updated with a relaxed plank top and beautiful espresso finish,” says Ben Radoll, vice president of casegoods and import upholstery at Klaussner.
When it comes to personalization, the options are nearly limitless. At Wildwood, the Athena round table is consistently a best seller in its select line of customfinished furniture, says Meg Gilliland, director of marketing. “Its classic shape fits in a variety of settings, and the ability to choose any shade from Benjamin Moore’s array of over 3,500 paint colors gives designers more control over their colorways.”
The Phillips Collection is another supplier finding success with custom design options, says vice president Jason Phillips. “Our live edge dining table continues to thrive for several reasons: It speaks to our company’s ethos of sustainability and environmental stewardship which our customers connect with; it’s stunning in appearance, exceptionally constructed, and each one is unique. We sell each table as a one-of-akind SKU and it has taken years to master the procurement, drying, photography and technology required to support this sort of business, and ultimately packaging and freight to our customer.” The company is thrilled with the number of reorders and the positive reactions from clients on these unique models, says Phillips.
The strategy of traditional furniture stores to market to homeowners has been attractive because, after all, homeowner households outnumber rental households by about 1.8X, not quite double, and that ratio hasn’t moved much in the last few years. However, during the pandemic and since, some of the reasons this ratio has stayed stagnant have started to change (see Figure 1. Apartments Begin to Have Greater Appeal).
It is estimated, based on housing units already started, that over 450,000 new apartments will be completed in the first three quarters of this year, more than 100,000 units than last year. This represents an increase of 30%+ over the first three quarters of last year. Meanwhile single-family housing starts slowed over the last months, and new homes scheduled to be finished in the first three quarters of this year are estimated to be 20% less than the same period last year (Figure 2).
The demographics, psychographics and economics of apartment living may all be aligning at just the right time with the builders starting to address the pent-up demand for apartments. Traditional furniture stores and other furniture retailers may want to take another look at the special furniture needs and style preferences of apartment renters and how best to market to them. The last installment of Statistically Speaking began a two-part series on the housing industry – homeowners and renters. This issue addresses the growth in apartment construction and the opportunities for furniture retailers to target marketing efforts to these young, mobile, renters.
Age and Income Demographics
In 2021 there were over 128.5 million occupied housing units, according to the U.S. Census Bureau’s American Housing Survey (AHS). (Note: The AHS is sponsored by the Department of Housing and Urban Development (HUD) and conducted every other odd year by the U.S. Census Bureau. The survey is the most comprehensive national housing survey in the United States.) Homeowners represented 64.2% of the total in 2021 and renter households 35.8%. This ratio has been relatively stable in recent years with the race to own a home during the low interest rates of the pandemic increasing homeownership slightly. Table A compares the number of occupied housing units 2017 to 2021. In the last two years, 2019 to 2021, renter households grew 3.0% in the two years and homeowners 3.8%.
More than any other demographic, low income limits the ability of a household to make a significant furniture purchase. Table B segments total households 2017 to 2021 into three income ranges: Under $30,000 (24.6% of households in 2021), $30,000 to $99,999 (45% in 2021), and $100,000 and over (30.4% in 2021). Together, the renters and owners share the lower income households under $30,000 households -- 53% renters and 47% owners. On the other end of the economic spectrum, homeowners account for 82% of the 38.2 million households with annual incomes $100,000 and over. Between the low end and the more affluent end lies the broad range of $30,000 to $99,999 households totaling 45% of all units, where growth in apartment living is thriving (Tables B). It should be noted that the $100,000 and over group has benefited from post-pandemic growth in incomes, with the other broad categories declining since 2017.
A significant portion of each tenure type, renter or owner, is comprised of households with total income less than $30,000. Research has shown these households not to be significant purchasers of furniture. Table C gives a picture of more detailed income ranges shown in millions of homeowners. Zeroing in on key apartment furniture purchasers, Table D details percent of renter households compared to owners since 2015, excluding households with income less than $30,000. The data shows that the percent of households in the two upper income groups, over $80,000 to $99,900 and $100,000 and over, have been growing for both owner and renter housing units. Adding the perspective of age, the largest segment of households continues to be the 55 to 64 group as Baby Boomers age out of this group (Table E). They are 25.6 million strong and controlled by homeowners, 74.1% owners to 25.9% renters. As would be expected, renters dominate the 25-to-34-year-old age group 60.4% to 39.6% and control a significant portion of the 35-to-44 year olds, 41% renters to 59% homeowners. According to the National Association of Realtors, in 2021 the typical age of a first-time homebuyer was 33 and last year rose to 36.
Mapping the income of households to their householder ages brings the opportunities for furniture marketing to apartment dwellers into focus. Figure 4 shows the ratio of renter households to owners, with the highlighted areas indicating primary furniture purchasing segments where renter households outnumber homeowners. Profiles that reflect more renters than owners include ages 25 to 44 with incomes $30,000 to $99,999 and ages 45 to 54 years with incomes $30,000 to $79,999. (Note: Households with annual income under $30,000 as well as all ages under 25 years are not included in this analysis as they are not considered significant purchasers of home furniture.) Renters outpace homeowners in four key age/income ranges (Figure 3):
This profiled age/income segments where renters began to outnumber and grow faster than owners began between 2013 and 2015 (Table F). But since that time, even with tight apartment inventories and a pandemic, the number of renters in these middle-income ranges out surpassed the number of owners, increasing in 2021 to 12.1 million housing units (renters) compared to 8.2 million owners.
The remaining demographic comparison relates to composition of renter versus owner households (Figure 5). Renter households tend to be a combination of single individuals, either living alone, 38.3% of renters versus 22.9% of owners, or single and living with other adults or children, 36% renters versus 18.2% owners. Married couples with or without children tend to be homeowners, 25.7% of renters compared to 58.9% of owners. Interestingly, the percentage of households with children tends to be similar among renters and owners, 29.5% of renters versus 29.2% of owners.
Marketing to Renters
According to the U.S. Census Bureau, the typical U.S. renter is 39 years old, has never been married, with at least 4-years of college education, and a median annual income of $42,500 (the national median annual income is $67,500). Within our profiled furniture-targeted renters (see Figure 2 profile), median household incomes are higher between $60,000 and $69,999, with many single, one-person households. Owners within this same profile show median household incomes of $80,000 to $89,999.
With renters significantly younger than owners within the same income groups (Figure 6), marketing requires a totally different approach, especially looking at the size and style requirements for smaller apartments versus larger homes.
The typical rental is a 2-bedroom apartment with 1.5 baths and an area between 1,000 and 1,999 square feet (500- 999 square feet for most recent renters) (Zillow).
Historically, monthly mortgage payments are higher than rents, but as demand has exceeded supply for apartments, that gap has narrowed. According to Business Insider, in 2022 the average mortgage payment nationwide was $2,064 on a 30-year fixed mortgage while average rent for a 2-bedroom apartment had grown to $2,048, a difference of only $12 (Rent.com). Comparing that same apartment rent to a 15-year fixed mortgage of $3,059 on average, the difference is more significant at $1,011 a month.
Another key element of marketing to renters is location. Numbers of renters versus home owners as well as age and income can vary significantly, depending on the market. Bear in mind that while home values have skyrocketed, so have rents. Realtor.com reports that New York, California and Massachusetts are the most expensive states in which to rent, and yet home prices are also much higher, making renting more attractive in some metro areas. They report the top 10 U.S. cities where the gap between rent and mortgage is most attractive for renters (Figure 7) with San Francisco, San Jose and New York city heading the list.
The metro areas where buying is cheaper than renting are scattered in the South and Midwest and include Pittsburgh, Birmingham, St. Louis, Cleveland, Baltimore, Louisville, Indianapolis, and Kansas City. The costs of renting vs. buying in these areas are less significant, between $12-522 a month, in favor of buying.
Build It and They Will Come
Once construction has begun, it takes on average 17+ months to complete an apartment building and eight months to build a house. Table G shows estimated completions over the first three quarters of this year. The market for apartment furniture in these new, often billed as luxury units, will respond.
And finally, when you couple increased apartment supply with continued growth in the population of 25- to 39-year-olds and 40- to 54-year-olds over the next 10 to 15 years (Table H), then the table is set for retailers to step up to address the demand for apartment furniture.
Over twenty years ago, with the demise of the national chains (Sears/Montgomery Wards/JC Penny) to be followed by the national furniture chains (Levitz/ Wicks/ Helig-Myers), the warning of “alternative distribution channels” became the caution. While many alternative channels have fallen by the wayside and new ones such as Wayfair in the eCommerce channels have emerged, the warnings were correct.
Traditional retailers whether independents, regional chains or manufacturing direct face significant competition in these alternative ways to buy furniture. In the disruption of the pandemic in Q1/2020 our sister company, FurnitureCore, registered a decline in market share of traditional retailers (independent and regional chains) due to the lockdowns in 2020.
The challenge is to recognize these SILENT COMPETITORS and decide, do we want to compete with some of these giants for the “trash furniture” or more specifically the $399 sofa that is missing from the assortment? It is the beginning of a new year and a new strategy.
Now, before we go too far, there is a need for people to live in a stylish home at an affordable price point. That is the major challenge. In today’s world of $1000 phones where does the beautiful room fit.
In a recent national consumer survey FURNITURE is faring well in position number two only behind cars compared to 2019 prior to the pandemic. The table below present the rankings. Maintaining that position of intent to purchase is the challenge in MERCHANDISING.
MERCHANDISING is the sum total required to create a product from design to manufacturing to transportation to marketing to the retail floor or website. Then the retailer moves forward creating the presentation along with the message that will be used in the marketing and down to the retail sales associate that communicates to the consumers. In summary, a product that excites the consumer at the price point. What is important to the consumer? In a recent national survey conducted by FurnitureCore, a sister company of Home Furnishings Business, consisting of consumers that had purchased furniture and when asked to rank the importance of certain features, QUALITY by far was number one in their minds. The table below shows the consumers’ ranking. When you made your most recent furniture purchase, the following are some features that may have brought that product to your attention. Rank these features in order from 1 to 7 of the importance of each with 1 being the most important feature, 2 being the second most important, etc. If you do not think a feature is important to you, please do not rank it.
When you made your most recent furniture purchase, the following are some features that may have brought that product to your attention. Rank these features in order from 1 to 7 of the importance of each with 1 being the most important feature, 2 being the second most important, etc. If you do not think a feature is important to you, please do not rank it.
Merchandising is a process not a flash of brilliance, nor is it a cold calculation of another point of gross margin. It is a creative process. In today’s diverse consumer base and competing needs for disposable income, there is a requirement for a more data driven approach. However, the numbers will never replace the creative input provided by the merchant. The following presents the elements in the process:
Reflecting back, when you questioned the MERCHANT, how he – yes typically a male and for the most part the owner of the store – made the decision on the product he purchased. The answer was the people that were his customers, specifically, “Well, Mrs. Jones, they are well off and Mrs. Smith is as well, but sort of frugal, and Mrs. Brown has great taste, but they struggle” … and so forth. He really knew his customers not the specific purchase but the lifestyles of people.
Manufacturers that were considered to be PROJECT MAVENS, typically the owners, cultivated relationships with these merchants and got specific input on what would sell. This input continued as recently as 20 years ago, but more organized with dealer counsels at Broyhill, Booker and others.
Today the industry has moved away for the most part from this collaboration as retailers have gotten larger and more diverse and manufacturers have expanded their product offerings. The challenge to avoid the impact of “fast furniture” is to restore the “human hands” in the process. We can not return to the small factory in the foothills and the predominant local mom and pop community store. However, we can use a more analytical approach to determining the product promised and the product offered to the consumer. It may not be as good as “Mom’s apple pie, but, “not bad.”
Let’s start with a 35,000-foot perspective. There are 131.21 million households in the United States from single homes to condos/cluster home to apartments. Living in these shelters are approximately 100M furniture purchasers annually segmented by age/income as shown below:
These households are the targets for furniture manufacturers and retailers. Each year approximately 75% of these household make a significant furniture purchase. As of October of this year, based upon a national survey of furniture purchasers conducted for Home Furnishing Business by FurnitureCore, 17.8% were engaged in the shopping process significantly up from 13.4% in 2019.
This consumer target at a national level is interesting but not actionable to either the retailer or manufacturers. First, if we drill down to a market (MSA) level, we find the demographics vary 200% in age and 400% in income. In other words we have young markets (Manhattan, KS) and old markets (The Villages - Florida) as well as affluent markets (East Stroudsburg, PA) and less affluent (San Rafael, CA). The tables below present some examples.
The merchant must go beyond sheer demographics to identify those “Mrs. Smith’s that have the income but are frugal” and the “Mrs. Brown’s that have the taste level but lack the means.”
This introduces lifestyle into the equation or physiographic clusters. When a typical furniture retailers customer base is analyzed, we find that they sell to everybody, but specific clusters emerge. The graphic to the right presents:
The “chic society” and “doing well” are the descriptions that replace the mental image of “Mrs. Smith” and “Mrs. Brown.” The starting point for understanding the retailers customer base is who you are selling. Now, availability of data allows the determination of the age/income of the “Head of Household” simply by use of the home address. The processing of your sales each quarter allows the definition of your customer base, and when compared to the households in your market footprint a concentration factor can be produced. The concentration factor is simply the probability that a person in this age/ income segment would be a customer. The graphic below illustrates the concentration of a traditional furniture retailer:
Obviously, this must be drilled down to the product level and for some the store level which introduces the possibility for tailoring the merchandising line-up for those customers within a defined perimeter. Today, the concept of a “destination” store has disappeared because consumers will not drive the distances to shop.
As can be seen from the graphic, the retailer sells to everyone, but 73% are their primary consumer (shaded brown). A retailer or manufacturer obviously wants to sell everyone but too broad of a selection results in a confused customer. The goal is for the consumer to comment, “this is my store, it knows what I want.”
As the United States has become more diverse and the Internet has exposed the consumer to a global lifestyle, along with the increase in the more visual social media platforms of Pinterest and Tik-Tok has stimulated the home furnishing consumer. As the styles evolved from traditional, manufacturers and retailers coined the term “transitional” contributing to a lack of clarity. Home Furnishing Business has found one of the better ways to communicate style is the use of a room scene along with a descriptor. The scenes to the right are the current descriptions:
In the recent consumer survey, TRADITIONAL, while still the largest descriptor (38.4%) continues to decline. When the consumer was asked their current decorating style, Cottage casual continued to increase. The graphic to the left presents the findings: But even more interesting is the increasing decline of the traditional style when the consumer was asked about their “dream” style. The statistics are shown below:
The pandemic and the disruption of the supply chain has played havoc with the industry’s price structure. Unit prices have increased resulting in record sales in the furniture sector and specifically furniture stores as can be seen in the graphic: While revenue has increased as the average ticket increased, unit sales did not. The net results are the shifting of price increments.
While revenue has increased as the average ticket increased, unit sales did not. The net results are the shifting of price increments.
The graphics below present the unit sales by price point for a STATIONARY/FABRIC/SOFA comparing 2019 Q1 – Q3 to 2022 Q1 – Q3.
As can be seen from the graphic, the promotional price points < $399 declined 11.3 % with the opening price points of upper $999 – 1099 increasing by 9.0%. Will the price points shift back to the promotional price points? Will the value merchants (Big Lots/American Freight) and Mass Merchants (Home Depot/Costco) capture that price point? Should we care? The cost to buy/sell/deliver a $399 sofa is the same as a $599 sofa. What does your consumer want? What can your retail sales associate sell?
CREATING THE TOTAL ROOM
One of the most important elements that differentiate furniture stores from mass merchants and value merchants is the retail sales associate. The opportunity to inspire the consumer to not just purchase a sofa, but to create a beautiful room is the traditional furniture retailers unique difference.
But first it requires some cooperation between the upholstery buyer and the occasional buyer. The questions of “what goes with what” is often forgotten. There is technology that analyzes words in product descriptions to suggest purchase combinations. However, the talent of the visual merchandisers working with the buyers to create looks to include upholstery/occasional/ accessories has improved the consumer’s experience and increased the average ticket at the same time.
The pandemic mentality of “can we deliver what we sell” has cut short the effort to add to the ticket. The graphic on the next page presents the industry statistics for attachment rates.
With the pandemic and the supply chain disruption came a significant increase in gross margin (48.71 – 51.93%). The table below presents the comparison.
GROSS MARGIN MAJOR PRODUCT
As is evident from the table, all product categories experienced increases especially outdoor driven by supply and demand as consumers moved outdoors for entertainment due to COVID.
The downside to this increase in gross profit was the increase in inventory. The measure of GMROI (Gross Margin Return On Investment) as shown below:
While overall, the measure fell slightly ($2.94 - $2.70) from pre-pandemic, the top retailers decreased substantially ($5.30 - $3.27). As can be seen from the graphic to the right for ALL RETAILERS the gross margin per square foot of selling space continues to increase driven by the larger retailers (red line):
MEASURING THE RESULTS
The final step in a more analytical approach to merchandising is to understand how effective the product line-up is in attracting those consumer segments that are part of the overall strategy. Again, a furniture retailer does not necessarily need to sell everyone. The very focused retail verticals such as Arhaus, La-Z-Boy, and Love Sac know their customers, a very focused target. Understand your targets as presented to the right. The approach to measuring the effectiveness is simply a more comprehensive “WAR ROOM” that is digital instead of the difficult to maintain wall of pictures with post-it notes. The same information is needed. Sales in dollars and units; Gross profit and average unit sales all in rank order. The table presents an actual example with some redaction illustrating top 10 performers. That could be expanded: the comparison of top sellers overall to top sellers by demographic segment, there is significant deviation in top sellers. A critical merchandising analysis of price point and style will give guidance to how to expand sales to this demographic segment.
While the knowledge of what is selling to who on the retailer’s floor is important input to the consumer preference, but this is after the fact. In the ideal world, sharing of this information with the manufacturer would be invaluable. Another approach would be for the manufacturer to solicit input from the consumer. While in person focus groups are ideal, the costs and logistics can present a challenge. However, the use of Internet focus groups can provide a broad sample of consumers on a timely basis. The use of digital model early in the project development process can avoid costly mistakes. The graphic on the next page illustrates the output. Merchandising has evolved from the intuitive perspective of the merchant. The challenge is to integrate a more analytical approach to deciding WHAT WILL SELL.
Health and wellness are taking priority in consumer spending and mattress makers are seeing their share of the sales. “Today’s consumers are looking for better goods because they understand how quality sleep benefits their life,” explains Mark Kinsley, president and CEO of Englander. The link between health and home has never been stronger and is generating increased consumer interest in the origins of mattress components. “With the heightened awareness of sleep and its link to physical and mental wellness, the appeal of natural and organic products in our homes now includes the mattress which we spend one-third of our lives on … and more people are willing to pay more for materials that are better for their health and offer luxury sleep comfort,” says Trina Solomon, director of marketing for Diamond Mattress.
Mattress sales continue to climb according to industry research. Estimates from the FurnitureCore model developed by Impact Consulting Services, parent company to Home Furnishings Business magazine—shows the bedding category grew year over year from $18.48 billion in 2020 to $22.56 billion 2021. This shows the bedding category as stable with approximately 12.9 percent of total furniture industry sales in both 2020 and 2021. Third quarter mattress sales in 2022 finished at $17.37 billion, a respectable 3.9 percent increase over the previous quarter’s sales. Growth measured year over year in Q3 was smaller, with a 0.7 percent increase compared to sales in the same period of 2021 ($17.26 billion).
While post-pandemic home furnishings sales have softened, the demand for wellness and health-related products continues to grow. Addressing these consumer priorities appears to be a key strategy for mattress makers working to retain their share of consumer spending.