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From Home Furnishing Business

Diminishing Returns

By: Lee Brown

One of the major challenges facing retailers and suppliers in the retail sector is the number of storefronts that are necessary to effectively serve a trading area.

Historically furniture retailers chose a compelling location and built a substantial building that could be converted to other uses. Once the building was complete and merchandised just so, the retailers would host a grand opening event.

In other words, build it and they will come. Many retailers took this concept and attracted consumers from one to two hours away.

Today, however, the dynamic has changed.

Time-starved consumers are not willing to spend the day on a shopping excursion for furniture. For most, 20 miles in a mid-sized market is pushing the travel limit. Recent research for a $400 million total market is shown in the accompanying pie chart.

 

 

Compounding this trend is the consumer expectation that the store be located within a major shopping area. Doing so means shopping for new furniture or bedding can be included on the Saturday shopping excursion for flea collars at PetSmart and groceries at the market on the return trip from the soccer field.

The importance of the traditional real estate strategy is disappearing and is being replaced by leases. We can have a good debate about the pros and cons of the strategy. The situation, however, is that the 100,000-square-foot furniture store is shrinking to 50,000 square feet because where one store was at one time acceptable, now four stores are required 10 to 15 miles apart depending on traffic patterns and congestion drivers face.

The density of bedding stores is even greater. These stores require 5 to 10 miles apart since 70 percent of purchases are conducted within that distance. Remember, the consumer does not have time.

“Two exits back I saw a sign on the freeway about a store. Let’s go back to see what they have.” With the Starbucks effect of a shop on every corner, what are the changes to the business model and, more important, what are the skill-set changes needed to manage the merchandising selection?

Now, what about the manufacturers who, in many cases, have become suppliers without strong consumer brand awareness? Without a doubt, the product line breadth will support multiple retailers within the market.

For most suppliers, the consumer who does not have brand preference will visit 2.2 stores before buying and this is after having done extensive research on the Internet. The supplier wants to be certain their product is presented to the consumer. Unlike the consumer searching for a cup of coffee, more storefront choices may not be better.

Based upon our research, an optimum number of doors per market exists. Our measurement of market penetration compared the number of doors or every 1,000 households. We found a point that maximized the manufacturer’s market share. In fact, we discovered that, after a certain point, there was a decline in sales. The following graphic illustrates for bedding stores in a middle-size market.

 

 

Why the decline? We believe oversaturation leads to a consumer perception that, “Everybody will have it.” It is important to understand consumers still want to be unique within a comfortable range of style.

There is also a practical reason for the sales decline. Retail sales associates hesitate to push a product if a competing retailer has the brand even if they don’t offer the same product.

The solution would be for retailers and manufacturers to work as partners in order to find the sweet spot of distribution and maximize the market’s potential.


Shifting Sand

By: Janice Summers

Look back through time in the home furnishings industry, and you’ll see that in the 1980s the manufacturers sales representative was a force to be reckoned with.

Manufacturers knew it the secret sauce in hiring the best of the best when it came to sales representatives, and chose their reps like football franchises choose key players. They were superstars.

That began to change a few years ago. Sales territories got bigger, and sales teams shrank. Some companies, like Thomasville in 2007, even eliminated their sales forces altogether.

“Whether they will stay or go has been controversial for years,” said Randy Spak, vice president of sales for American Furniture Manufacturing. “At one point it looked like they’d be going away. We choose to have reps on all our accounts. The relationships they have are very valuable in our eyes. In many cases they are a tiebreaker when companies are competing. I even heard of one case where sales volume dropped by half when a certain rep stopped handling the account. That’s a big risk for a company.”

The role of a sales representative has never been easy, and in today’s climate of vertical retailing, offshore manufacturing and retail consolidation, the job has gotten more challenging. Being the liaison between vendor and retailer can put even the best of salespersons in a precarious position.

Today’s retailing environment requires sales representatives to wear a number of hats—marketing consultant, trainer, inventory control manager, customer service agent and more.

Matt Keepers has been an independent sales representative for 13 years and has seen the role evolve during that time.

“We are constantly finding ways to reinvent ourselves,” he said. “In the beginning, a rep’s sole purpose was to sell merchandise. It was still like that when I started.”

Today, most manufacturers have computerized systems requiring sales representatives to update them with accurate information. The systems offer real-time projections on what products are selling.

“It’s time-consuming,” said Keepers, who is the current president of the International Home Furnishings Representatives Association (IHFRA). “We have to analyze our business by product. Many manufacturers have 2,500 or more products. Having up-to-the minute information is crucial, because domestic manufacturers might have inventory that’s 30 to 60 days out, but importers can have a 4-to-6-month lead time. Sales reps will have a purpose as long as we have value, and providing information to the retailer is a huge part of that value.”

Number crunching aside, Keepers recognizes the most important place to be is in front of the customer.

“I work with my customers face to face during the day and do my computer work in the evening,” he said.

Keepers feels that independent representatives still build crucial relationships between manufacturers and retailers¾offering product training, advising about things that are not working, and answering specific questions that aren’t apparent either in the catalog or by looking at the product.

“The distribution network hasn’t changed all that much,” said Keepers. “Some major customers tried to go direct to overseas suppliers but found it’s difficult. There’s no sales force, no cataloging, no parts. It’s a big challenge to source straight from China. Most international companies don’t have warehouse space here, so they sell by the full container. The largest retailers might be able to handle it, but it’s hard for most retailers to take 100 of anything. That, and other manufacturing constraints overseas restrict retailers from going direct.”

Historically, most representatives are independent and may represent several companies. Companies may have as few as three reps or as many as a hundred for the larger companies. Sometimes they are salaried and sometimes commissioned.

There might be fewer of them, working longer hours and bigger territories in a role that has shifted, but IHFRA has more than 2,000 members in the U.S. and Canada.

“We must look out for our manufacturers and customers, not ourselves,” Keepers said. “If we take care of them, we’ll be fine.”

 

 


Retailer to Retailer

By: Janice Summers

Retail buying groups offer members discounts, rebates and an immeasurable wealth of networking opportunities.

Does size matter?

There are dozens of buying groups in the furniture industry. Some have thousands of members and billions in annual sales. But some, like Contemporary Design Group, are much smaller.

“We are not a classic buying group,” said Howard Haimsohn, president of the group and co-owner of San Diego-based Lawrance Furniture. “We originally formed the organization to give stores that had a similar product mix and style the opportunity to share the cost of printing color marketing circulars. It had nothing to do with power buying, but we bought the product that was advertised in the brochures. We created strong relationships with vendor partners who did business with most or all of us.”

The group was formed in 1983 with seven members. Today, CDG remains an intimate collection of 26 companies with similar business models and revenue of between $2 million and $10 million each.

“Don’t make the mistake of thinking your company isn’t big enough to be in a buying group,” said Chris Cooley, president of Michael Allen Furnishings and a director of Furniture First, another industry buying group. “Take the time to look into them and understand the benefits.”

Who gets in?

Each group has its own qualifications for membership¾perhaps it’s a certain credit rating, a specific merchandise offering, a minimum amount of time in business, geographic or regional location or a willingness to share. All require some type of investment.

“When we began, most of our members were on the West Coast, primarily Seattle and Portland, Ore., but some of our members were as far east as St. Louis,” Haimsohn said. “We are very exclusive by trading area, and allow only one member in a metro market. Our members are some of the best contemporary retailers in the country. It’s also about personality—who fits in with the group.

“We are proud to have partners that stay with us for a long time,” he added. “That’s more important to the group than people who pay a lot but bounce in and out.”

 

Fringe Benefits

Members typically receive rebates and discounts, but may also have access to merchandising concepts, private-label products, communications, including best practices, best sellers, best ideas, industry trends, real estate advice, store design help and marketing programs, as well as conferences, symposiums, and regional meetings.

“We also have staff that conducts research, negotiates special consumer rates with national finance companies, and sets up committees to select and negotiate with manufacturers and importers for special programs,” said Cooley.

Furniture First has more than 200 members representing 450 furniture retail stores across the U.S.

We work together to leverage our purchasing power with leading furniture manufacturers and suppliers,” Cooley said. “Because we work together, we can bring great values in high quality home furnishings to our community.” 

Group staff and volunteers work to provide the best value to all their members. Their duties may include keeping up with new innovations, changing technology, and the best partners for the membership. They might also maintain relationships with preferred vendors in operating systems, website development, insurance, all categories of the products sold by member retailers, and others. Everything changes more quickly than in the past, and it’s a challenge to keep up with it all.

“We’re super efficient,” said Mike Herschel, executive director of Furniture Marketing Group, which has 112 members representing 800 retail stores. “We have only three full-time and three part-time employees. “We try to keep 90 percent of the benefits going to the retailers.”

Some groups offer different types of memberships, depending on need.

“We have five levels of partnership, with increasing benefits and required investment,” said CDG’s Haimsohn. “Our higher-level partners can request custom surveys and reports on designers around the country. We promote them more heavily, and they have access to better programs.”

He added, “I encourage new members to come in at the lowest level so their investment isn’t steep, and they can discover what works best for them before committing to a higher level.”

Because members don’t compete, they are free to share information, and the resulting networking is a huge benefit.

“We’re actually more of a networking group than a buying group, said Herschel. “Of course, discounts and rebates are a huge component, but our members also benefit from sharing merchandising, warehousing, and other back-office information.”

“Contemporary Design Group evolved quickly to a networking group. Within 10 years, it started to evolve into a performance group, and we began sharing financial information,” said Haimsohn. We have a huge amount of trust. We talk. We share information. We have great relationships with each other.”

He continued: “Today we do some collective buying, and some products are made for us. We have very strong vendor relationships, but our main strength is collaborative information sharing.”

Vendor Benefits

Buying groups act as a conduit between manufacturers and retailers. New or smaller manufacturers who would usually be overlooked by the largest retailers see it as an opportunity to be noticed.

“For the suppliers and vendors, it’s all about communicating their benefits to the members through our communication tools,” noted Herschel. “We have a variety of marketing assets for fostering those partnerships.”

“We spend a day and a half with the vendors,” said Haimsohn. “It’s an annual conference like no other. Our partnership is not just about how to get a special price from them.

“We don’t have a strict policy for adding vendors,” he added. “If they want to invest, I decide if they’re a good match. A lot of our vendors have partnered with us for 10 to 30 years. Many vendors want to invest with us because they think we will be a good target audience in the future and want to build a relationship. We have manufacturer partners. They help us financially, by giving us programs, information, and specials. We share a lot of data and information with them.”Relationships are key.

Most buying group members benefit from the rebates and discounts, which often far exceed the cost of membership. But many say the best part of belonging is the relationships that have developed over time.

“When we formed 25 years ago, we were all about buying at a better price and negotiating with our supplier base,” said Herschel of Furniture Market Group. “Our mission was to basically become a conduit between the members and selected service providers. Now, it’s more about relationship building and providing better information to grow our members’ businesses. We have a large annual conference each January. We also have membership meetings at each High Point Market along with an occasional regional meeting.”

Because FMG targets higher volume, larger independent retailers who can negotiate good deals on their own, its main focus is to foster relationships between members of like size, and to better their relationships with suppliers and other retailers.

“I’m in the relationship-building business,” Herschel said. “That’s my first mission. We try not to overlap market areas so members can talk business among themselves and not be worried about talking to a competitor.”

“I am proud of how the group has held together,” Haimsohn said. “Some members have been in the group 25 years. Our relationships with vendors are equally strong. It’s like a marriage. There’s compromise, you have to make a commitment.”

Perhaps Cooley summed it up best.

“It is vital to belong and give back to the home furnishings industry to help educate, share good business practices with other furniture families so that we may all prosper and learn together,” she said. “The more we help others the more it helps the industry as a whole.”

What Sells: Outdoor Living

By: Sheila Long O’Mara

Winter has been brutal in many parts of the country this year, and people are eager for the big thaw. With sights set toward spring and dinners al fresco, consumers are eager to turn toward decorating and using their outdoor spaces.

More than 55 percent use their outdoor furniture at weekly. Eighteen percent said they use their casual furniture daily, while another 18 percent said they enjoy their purchase two to three times a month.

That’s good news for furniture retailers adding outdoor furniture vignettes to showroom floors for the category’s big selling season. Of course, the category is a bit regional and dealers throughout Florida and Southern California sell outdoor furnishings year round.

No matter the case, it’s always a smart strategy to know where the consumer stands on a certain matter or category.

According to a Home Furnishings Business survey of 146 consumers who had recently bought outdoor furniture, retailers should be aware that most of the shoppers opted to spend their money on the category with either a home improvement store (37.7 percent) like Lowe’s or The Home Depot, or at a mass merchant (23 percent) like Walmart or Target. Only 6.6 percent—the lowest percentage—bought from a traditional furniture store, and another 19.7 percent turned to an outdoor furniture specialty retailer.

Consumers did not leave traditional furniture retailers out of the research stage of the shopping process; they just opted to buy elsewhere for whatever reason. Nearly 14 percent (13.8 percent) said they shopped at a furniture store while considering their purchase.

Furniture retailers are losing traction to alternative channels of distribution for the outdoor category. That 13.8 percent is a significant drop from last year’s survey that showed 21 percent of consumers surveyed shopped with traditional furniture stores while researching outdoor furniture.

 

Price Matters

When it comes to pricing of outdoor furniture, consumers are a tight-fisted bunch. Nearly 56 percent said they spent less than $500 on their most recent purchase. Another 18 percent spend between $500 and $999; and 9.8 percent opted to spend $1,000 to $1,499.

When compared with the stores from which consumers bought, the prices fall in line with the products found at the mass merchants and the home improvement stores.

When asked about difficulties encountered while shopping for outdoor furniture, slightly more than 20 percent (20.4 percent) said prices were too high. Another 24 percent said they had trouble finding exactly what they wanted from a design point. Fourteen percent said the selection in their area stores was too slim.

Now that they’ve bought their outdoor furniture, consumers are in a long-term relationship. More than 39 percent expect it to last between three and five years. Another 26 percent think it will last six to eight years.

 

Want More?

A more in-depth report on the outdoor category is available for purchase by calling Natalia Hurd at (404) 390-1535 or via e-mail at NataliaHurd@ImpactConsultingServices.com

 

 

4.79%

Outdoor percentage of 2014 furniture sales

 

$3.59 Billion

2014 outdoor furniture sales

 

2.6%

Outdoor furniture 2014 sales growth

 

Retailers Say...

Lloyd Flanders Contempo

“It’s a very transitional contemporary setting with a very sophisticated look and feel. It’s very livable and a better quality. Eighty percent of the Contempo we sell is special order.” The sofa retails at $2,699.

Tom Lias

Gorman’s Furniture

Novi, Mich.

Agio’s Heritage Collection

“The customer sees a lot of value for the price in this collection on its solid construction, and the fabric selection lends itself to be used in many different environments.”

Sofa retails at $999.

Nathan Smith

Miskelly Furniture

Jackson, Miss.

Monterey from Castelle by Pride Family Brands

“The collection offers simple lines with a beautiful old world feel with the sand-cast detailing on the arms and back with cast rivets added to the backs of the deep seating pieces. Customization is a large part of the success of the collection.” Retail depends on fabric selection.

Debbie Allison

Furnitureland South

Jamestown, N.C.

Agio’s Haywood 5-Piece Fire Pit

“The chairs are comfortable, and everyone is loving fire pits right now. At $1,499.99, it is a terrific value.”

Jeff Child

RC Willey

Salt Lake City

 

Manufacturers Say...

Flight by Brown Jordan

Transitional styling gives Brown Jordan’s Flight an abundance of versatility. It is available in both sling and woven options with dining table tops available in glass or aluminum.

Amari by Janus et Cie

The lounge chair is available in a high- and low-back design and a variety of finishes. The chair’s sweeping curves complement a variety of décors, create a comfortable seat and work indoors and out.

 

Cassley by Klaussner Outdoor

Crafted of polyethylene over a powder-coated aluminum frame, the collection feature Klaussner’s drain-through cushion construction for ease of care.

Island Estate for Tommy Bahama by Lexington Home Brands

The hexagonal Island Estate fire pit serves as a focal point for an intimate seating arrangement of high-back wing chairs. Upholstered seating offers full customization, including trims and custom fabrics for a designer look.

Barcelona by Summer Classics

Outdoor furniture with indoor appeal, this lounge chair is crafted with weather-resistant outdoor materials including Sunbrella fabric and welded aluminum. The collection offers a number of cushion options.

Adele by Walker Edison

The four-piece woven rattan conversation set is welcoming in a classic warm mocha finish teamed with plush, tufted-back cushions. Set includes two chairs, loveseat and cocktail table.

 

That’s Entertainment

The old mantra size matters couldn’t ring more true than in the home entertainment category.

Retailers selling and vendors supplying case pieces and consoles built to accommodate the ever-growing television screens on the market are sure to reap the rewards as consumers continue to upgrade their viewing habits.

The consumer electronics business has been on a steady growth trajectory over the last few years, and forecasts call for the increases to continue.

The Consumer Electronics Association estimates that sales of consumer electronics will close out 2014 with a 2 percent increase to hit record sales of $211.3 billion. Looking ahead to 2015, the association expects industry sales to grow by 1.2 percent, with industry revenues reaching an all-time high of $214 billion.

Televisions remain a key category as vendors continue to evolve their offerings with larger, crisper screens and other relevant features. What does all this mean for the furniture industry?  It could result in a possible boost in home entertainment sales.

Innovations within the television category have brought larger screens and premium displays, which have piqued the interest of consumers and pushed many to upgrade their home video experience.

This year, television sales are expected to reach $18.4 billion. Specifically, ultra HD TVs continue to gain momentum, earning an estimated $1.9 billion by yearend, and the subcategory is expected to top $5 billion next year. Not too shabby for a category that barely existed three years ago.

Lest we’ve put you into a frenzy trying to figure out how to make a connection between televisions and entertainment centers and consoles, here’s a look at what consumers are thinking when it comes to outfitting their home theaters.

In the latest Home Furnishings Business consumer survey including 150 consumers who had purchased home entertainment in the last 12 months, report that size is a consideration when it comes to television screens. In fact, more than half (53.8 percent) said the primary television in their home was between 37 inches and 52 inches. More than a third (36.6 percent) said they own a television that is 55 inches are more.

When asked what size television they would consider purchasing in the next six month to a year, more than a third (34.3 percent) said they’d be in the marketing for 55-inch or larger screen. Just under a third (32.4 percent) said they’d opt for a television between 37 inches and 52 inches.

As televisions have gotten sleeker and sexier, they’ve pushed out the trend of hiding the screen behind closed doors. Armoires our definitely out — check out the products on the next few pages — and open walls and cool consoles are the styles of the day.

The trend meshes well with what our consumer panel shared on their preferences. Hide the television? Consumers said no way with 77 percent saying hiding their television was not important to them in the least. More than 60 percent (63 percent) said they’d prefer to put their flat screen television on top of a console featuring media storage. Just over 26 percent said they’d hang the television on the wall and forego home theater furniture.

Want More?

A more in-depth report on the bedroom category is available for purchase at FurnitureCore.com—Industry Info—Industry Reports—Home Entertainment or by calling Natalia Hurd at (404) 390-1535.

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