Statistically Speaking: Low Housing Inventories and Building Permits Hitting Some Markets Harder

September 7, 2018   by HFBusiness Staff in Business Strategy, Industry   

Once a problem faced mainly by big cities like San Francisco and New York, the demand for housing is far outweighing construction in both big and smaller-sized cities. Inventories are low almost everywhere impacting furniture and home furnishings purchases. Table A shows the downturn in homes for sale from 2011 when the housing market bust was in full swing to 2018 (Q2 YTD). During that period inventories among all metropolitan areas fell 56 percent. Among MSAs with housing unit populations over 500,000 inventories this year dropped below 1.0 home for sale per 100 households. As the economy and housing market began to improve, the table shows the slight upswing in inventories in 2015, but a continual decline since. Note: Homes for sale include both single-family homes and multi-family condominiums.

Table B graphically shows the top 5 states with lowest housing inventories and Figure 1 expands that graphic to a list of the top 10. California leads the way with only 0.44 homes for sale per 100 households, followed by District of Columbia with 0.47 and Massachusetts with 0.53. Washington State had the most dramatic decreases – inventory dropping 68 percent from 2011 to 2018 Q2 YTD.

While housing inventory has fluctuated among the states with the highest ratio of homes for sale, no state has maintained above a ratio of 2.0 homes for sale per 100 households through June of this year. At the highest, Vermont has 1.6 homes for sale per 100 households – down from 2.4 in 2015 (Table C and Figure 2).

Figure 3 shows the how the largest metro areas have been affected by the housing shortage and highlights the problems being faced, especially by our big cities. The top three largest markets with the tightest homes for sale inventories are located in the West -- San Francisco, Seattle, and Los Angeles. And by far, the Seattle area has been hit the hardest – inventory plummeting 76.7 percent down to a ratio of 0.34 homes for sale per 100 households in the past seven years. Metro areas with high inventories in 2011 – Atlanta and Miami – have fallen 62.9 percent and 44.5 percent, but both markets are still in better shape than other major cities.

New Residential Building Permits

While many metro areas are suffering with tightening housing inventories, some areas are having better luck with building permits and new housing construction in an attempt to turn the tide. Furniture retailers should pay close attention to the markets where building is picking up and where building is slowing. Overall building permits grew 6.6 percent in the U.S. 2017 Q2 to 2018 Q2 annualized. Interestingly, it is the smaller markets where building permits have increased the most especially for single-family units. The larger MSAs, 500,000 to 1.5 Million and Over 1.5 million housing units, had the smallest growth over last year, 4.8 percent and 5.8 percent respectively. Mid-size range 250,000 to 500,000 increased the most at 9.4 percent, while the smallest range available (50,000 to 100,000) had the second highest growth at 9.3 percent. of 4.6 (Figure 4).

Looking at state increases in building permits this year, Table D shows that Hawaii had the highest growth in residential building permits since the second quarter of last year —jumping 32.6 percent followed closely by New Hampshire at 30.9 percent. Idaho, Utah, and North Carolina all had over a 20 percent increase. Note: Data includes all states.

Building permits declined in many states. Montana had the lowest growth in residential building permits declining 23.7 percent this year compared to 2017, followed by Mississippi, down 20.5 percent, and Illinois falling 15.7 percent (Table E).

Among the largest metro areas (over 1.5 million housing units), Houston leads the way with 21 percent growth last year. Boston and Atlanta both have over 15 percent growth, while Phoenix and Los Angeles have over 10 percent. By far, Chicago and Detroit are experiencing the worst negative growth in residential building – down 23.8 and 23.9 percent from 2017 Q2 to 2018 Q2 (Table F).

Some smaller MSAs made the list of metro areas with the largest unit growth in residential building permits with Houston, TX topping the list at 5,032, followed by Orlando, FL with 4,319. Certainly Hurricane Harvey last year is contributing to some of Houston’s housing permit growth. Charlotte, N.C. is third on the list with 3,788 permits. Phoenix, AZ, Austin, TX, and Salt Lake City, UT are also smaller cities that are showing growth in residential building (Table G).

For single family units only, Phoenix leads the way with 1,509 building permits added from 2017 Q2 to 2018 Q2, followed by Santa Rosa, CA with 1,007. Denver, Charlotte, and Atlanta all had above an 800 unit growth over the same time period (Table H).

From the 2^nd quarter of 2017 to the 2^nd quarter of 2018, Houston tops off the list for MSAs with the largest growth of multi-family units at 4,525, followed by Orlando with 3,767 and Charlotte with 2,892. Los Angeles, Atlanta, and San Diego all exceeded 1,500 units over the same year (Table I).

Furniture retailers in these high and low housing growth areas are paying attention to current housing inventories and future building growth in their specific marketing areas. Sluggish building and tight markets often equate to slower industry sales.

Coach's Corner: How to Create the Best Strategies for Your Business

September 7, 2018   by HFBusiness Staff in Business Strategy, Industry   

This month’s theme of Internet Strategy is particularly challenging because in the past three years I have written three articles dedicated to this subject. In addition, I believe that various aspects of what should be in your internet strategy plan have been addressed or at least mentioned in virtually every column I have produced. The Internet and how you use it is so critical to your business today that it becomes a part of almost any discussion about what you are doing to win the battle for customers in your market. Its impact spreads throughout your organization, touching marketing, sales, merchandising and operations.

My main focus here is normally on the front end of your business: sales, marketing and merchandising. A core element of that effort has been directed at helping the reader to become a better manager and more effective leader of their business. To that end, we have put forward many ideas and recommendations about ways to improve your management team’s efforts and to help you make better decisions for your company. As a result, several columns have specifically given the reader direction on either creating an internet strategic plan or at least some elements one should contain.

Last year’s September column presented some ideas about using your staff and customers to help you make decisions for your company. It talks about forming cross functional teams to study each area and make recommendations that management could include in any strategic plan for the company. This would certainly include researching and brainstorming about how to better utilize the many opportunities provided by the internet.

As I considered what to write about this month, I thought it might be beneficial to focus again on the strategic planning process itself, so the information could be helpful not only for your internet plan, but also for any other area. My thoughts went back to my own experience with this process at places I worked and how much it varied from organization to organization. Some of this was due to cultural differences between them (democracy vs. dictatorship models), but a lot was mainly a result of size variances (big companies have more people to throw at a problem or process). In my 45 plus business years, I have worked for or with some of the largest manufactures and retailers in our industry. I have also had the opportunity to work at or with some very small operations. Just like people, the personality of each company was different at each stop.

So, what was the difference between companies that consistently created great strategic plans and those that did not? To be honest, there were a lot of factors, but by and large, the bigger companies were able to be more organized and focused in their approach. They also had the distinct advantage of being able to put more heads around the table when brainstorming, developing and finalizing the plans. They could create multiple teams to focus on each area and aspect of the plan, so nothing got missed.

The larger corporations usually had an even bigger advantage over smaller ones. They had a board of directors, made up of successful executives from other companies who could provide a critical element to the process – an expert final analysis of the plan using experience and insight not present within the company. They were appointed and paid to ask pointed questions that insiders might not ask and provide insight which insiders might not possess. Depending on the quality of the board, the end result was almost always a much better thought out strategy and a more solid plan to execute it.

Smaller companies, on the other hand, needed to have one or more very high-quality individuals at the top, with experience in all aspects of the business, to create a good plan. Smart ones often hired outside consultants to guide and direct the process, plus provide the outside insight needed to stretch the talents of the management team. Those that did it on their own had to rely on the owner’s gut feeling and a little bit of luck. In many cases, a lot of luck!

Home Furnishings Business Magazine, as it says on the cover of every issue, focuses on providing “Strategy for the Furniture Industry”. The company that owns it, Impact Consulting Services, has been providing strategic planning research and consulting services to the furniture industry for over 35 years. I can tell you that having the right data that allows you to ask the right questions is absolutely critical. Knowing where your company is at and where it has the opportunity to go, is equally important. Creating a strategic plan is then the process of laying out the journey to the targeted result. There are many others that provide this type of assistance, including some accounting firms. Most of them can help their clients improve their planning process.

A great many companies have found help from membership in a buying group. One of the best things I have seen in the last decade or so is the evolution of these associations from mainly product focused purchasing and marketing advisors to full service support organizations, providing assistance to their members in almost all areas of their business. Their meetings, symposiums and other programs offer members fantastic opportunities to seek input to solve problems and find help with creating plans for their business. I highly recommend that every retailer finds one that is a good fit and takes advantage of all they have to offer.

Apart from the obvious benefits to your management process of hiring a dedicated professional consultant or taking advantage of the support offered by a buying group, there is one other opportunity for an owner that truly wants to take their business to the next level and beyond. It not only offers access to information, data and ideas to help improve your results, it also provides the opportunity to have a virtual “Board of Directors” to help better understand your business realities, create higher quality strategic plans and know what you need to focus on to succeed. It can also help hold you accountable to do what you said you would.

I am talking about a concept that began in the Auto Industry, probably thirty years ago, when a major manufacturer realized that the owners of its dealerships could learn more from each other than they could from in-house advisors, outside consultants and even other family members. So, they created what they called “20 Groups” that brought roughly twenty owners of similar dealerships together on a regular basis to visit a member’s operation, provide feedback for improvement, discuss what was working for each one, share best ideas, review each other’s financial statements, set goals and hold each other accountable from meeting to meeting.

Twenty-five years ago, the Charter Group was formed as the first Performance Group of this type for the furniture industry. The next year the Premier Group was born. Those two are still flourishing, with some of the founding members and many of the original companies still participating. Others have followed, serving retailers from under five million dollars of volume to those in the top 100. They normally meet three times a year and a major part of each meeting deals with strategic planning for all aspects of their businesses.

For the past dozen or so years, it has been my distinct privilege to facilitate the meetings for several of our groups. Internet strategy, a topic that is discussed at every meeting, led me to focus on them in this month’s column as a great way to help create better strategic plans. One of the biggest benefits of being a member in a performance group is the twenty or so heads around the table, helping each other solve the problems they all face owning and managing a retail furniture store in today’s marketplace. They help create strategies/plans for improvement. The amazing thing is how much smarter ten or twenty people are than one or two. They truly function as a “board of directors” for each other. In addition, members develop great and lasting friendships, along with a deep dedication to helping everyone succeed.

We are not the only company that provides this service. A few of the buying groups, some of the major systems providers and a couple of consulting firms also have similar programs available. It is by far the most rewarding experience I have had in my business career and I highly recommend that anyone out there wandering alone in the “business jungle”, that wants help, guidance and supportive friendship, look into joining one. “Strength in numbers” was never truer than with the performance group experience.

What Sells: Inside Out

September 7, 2018   by HFBusiness Staff in Business Strategy, Industry   

Looking back over the last year, outdoor furnishings continue to post impressive growth—up 7.6 percent this year to date compared to the same period in 2017. The category also grew from $4.17 billion in 2016 to $4.36 billion in 2017.

Channel Insights

When it comes to purchasing habits, consumers favor mass merchants such as Target and Wal-Mart for their outdoor furnishings. According to a Home Furnishings Business survey of consumers who have recently purchased outdoor furniture, nearly 31 percent (30.77) shopped this channel. Next in line are home improvement stores, such as Home Depot or Lowes, with 23 percent share. 

The growth of online retailing continues to challenge brick and mortar furniture stores. Nearly 18 percent of consumers surveyed report purchasing on the internet, equal to the approximately 18 percent who purchased from an outdoor furniture specialty store. Traditional furniture stores came in last with only 10.26 percent of the purchases from those surveyed. The opportunity for furniture retailers to sell outdoor products to their existing customers continues to be significant.

Regardless of where they eventually purchased, outdoor furnishings shoppers continue to research products online. Over 25 percent report researching online from two to four hours prior to their purchase. Almost 18 percent (17.95) shopped for their new outdoor furniture for a surprising seven hours or more. And about 23 percent of respondents reported that they did not research online.

Features that Sell

Fashion colors, innovative features, and trusted brand names are all behind the growth of the category. Fire pits, chat sets, outdoor recliners, and configurable pieces offer engaging reasons for consumers to invest in new outdoor furniture.

A recent player in the outdoor market, Barcalounger is seeing success with its new Barcalounger Outdoor Living collection. “Overall, the collection has been received very well,” said Todd G. Langenhorst, manager specialty accounts for Barcalounger Outdoor Living. “The long-standing Barcalounger brand name as well as the unique motion features within the collection have garnered a tremendous amount of interest.”

While the brand name appeals to consumers, the company’s quick fulfillment (48 hours in some cases) has dealers motivated, added Langenhorst.

At the upper end, Castelle is capitalizing on the appeal of custom looks to grow its business. “The Castelle high-end customer is looking for, in addition to superior outdoor construction and materials, the ability to create one-of-a-kind outdoor living,” said president Mark Stephens. “Through our custom capabilities, each of the hundreds of items available from Castelle can be completely customized utilizing virtually thousands of custom options including our entire selection of fabric and finishes, hand-painting techniques and custom buttons.”  

In color, shades of brown are far from being obsolete, but are ceding to a newer neutral. “Gray tones are outperforming browns for us—but browns are still a solid seller,” said Langenhorst. “In addition to these two popular colors, the combination of taupe, brown, and gray are definitely emerging.”

“Blues continue to be trending in outdoor, but due to our custom capabilities, we are seeing growth in curated collections,” said Stephens. “An example is the tremendous response we received with regard to the Barclay Butera Signature collection and its white frame and navy blue textile choice. This was Castelle's number-one seller in the current season and our highest selling introduction in the history of the company.” 

While family dining sets dominated in years past, today’s outdoor consumer is drawn to fresh configurations. “Deep seating, chat, and sectional seating are leading the charge for Barcalounger Outdoor Living,” said Langenhorst.

“Chat sets, especially those with motion, are popular right now for conversational seating along with the season-lengthening attributes of luxury fire pits,” added Stephens. “As far as styles, we see contemporary and transitional designs remaining popular,” said Mark Stephens, president, Castelle. “A nod to history is gaining considerable interest as evidenced in the positive reception to the storied design of our Biltmore Estate Collection and the elegant days of old Hollywood featured in the Barclay Butera Palm Springs Collection.”

Take 5: Leib Oehmig

September 7, 2018   by HFBusiness Staff in Business Strategy, Industry   

Home Furnishings Business: The outdoor segment in 2017 was a $4.4b segment growing at 7.6 percent through Q2 2017. What do you believe is driving this?

• We are seeing two major factors driving this. It’s consumers who want to spend more quality time outdoors with family and friends. That is supported by designers and architects, who are creating spaces to spend more time outdoors. At Sunbrella, our passion is to add beauty without adding stress. The whole idea of an outdoor room continues to resonate with consumers. Another factor we are seeing is an expansion of retailers for all of these outdoor products. This includes an increase in bricks and mortar all the way to ecommerce, providing great access. Interest in outdoor products comes from the areas you would expect to associate with year-round outdoor living like coastal regions, the Southeast, and the Southwest, but we are seeing interest across North America. We have been pleasantly surprised with the level of interest in some areas you might not associate with outdoor living. While historically our products have been more prevalent in the higher end of the market, we are seeing consumers across all ages. There are more new consumers, Millennials who are embracing the idea that purchasing a better product is an investment. It’s an investment in a lifestyle. We are always trying to understand our audience, and think generationally about our business, and therefore want to create products that resonate with this next generation of consumers.

HFB: Obviously, Sunbrella is a recognized manufacturing brand and growing consumer brand. How important is that and what is Glen Raven’s commitment to building it?

• For all of our 138 years, we have remained committed to working with our customers. We want to offer them something different, and so it has motivated us to push the limits of technology, utilizing our Sunbrella fibers’ texture and fashion forward design while retaining its performance characteristics. We’ve been on this journey almost 60 years, and the product has evolved, and we’ve expanded the markets we serve. It’s part of our brand’s promise to be able to deliver on all of this. Glen Raven has always sought to invest in and build the Sunbrella brand and our whole family of products, wherever we see growth opportunities. We have a global footprint. If the opportunity is in North America, we will expand here. We have a significant presence in Europe and we continue to invest in Europe. We have followed our customers to Asia, and now we have a significant business along the Pacific Rim, catering to current and prospective customers.  When I joined Glen Raven, we were heavily focused on shade, boating and automotives. We were just beginning to take these performance fabrics into outdoor furniture. I don’t know if 30 years ago we could have envisioned the evolution in fabric design. We were also beginning this journey of becoming a marketing-oriented company. We’re still a manufacturing company that has great, unique products, but now we understand a lot more about how to help our customers, the furniture manufacturers, reach consumers and move them to invest more into outdoor and indoor living spaces.

HFB: While the outdoor product category is significant, the total upholstery fabric market at retail is $28.1B. Is there a need for performance fabrics indoors?

• Absolutely. For more than a decade now, we have been asking ourselves the same question. If Sunbrella’s attributes such as spill resistance, fade resistance and ease of cleaning, are important outdoors, why would those same qualities not be important to active families for indoor living? I use Sunbrella indoors in my home, and most of my colleagues are using Sunbrella indoors. It has the same attributes, and also importantly delivers a soft, supple hand and ease of drape. These characteristics are important to both manufacturers and residential designers.

When we first introduced it to the market, we had some questions. Our research found that having these attributes indoors is certainly desirable. More than a decade later, we see the product category is one of the fastest growing segments in a broader category. Other companies have done this, but we get there a little bit differently. What you see a lot of coming into the marketplace are fabrics that have essentially been used for indoor fabrics for years with topical treatments to achieve some of those attributes. The difference is, we engineer Sunbrella from the fiber all the way through the manufacturing process to fabrics finishing. It’s embedded into the DNA of the fabric as opposed to being added on. That’s a differentiator for us. We have designers using our fabrics in most every application you can think of for indoor furnishings. It’s not only for seating, but for window treatments too. Young families have kids who are rough on furniture. Pets are rough on furniture, too. Why have a room in your house full of beautiful furniture if it creates stress when people use it? We are creating products that allow you to have beautifully designed furniture and to encourage people to use it.

HFB: Obviously, some of fabric upholstery is imported, but not as much as leather. How much of Glen Raven’s production is domestic?

The vast majority of all of our fabrics are produced in the U.S., including all of our Sunbrella fabrics. We do have major business hubs in Europe and Asia. Our goal is to produce close to our customers and where our customers want to source. We sell into more than 100 countries. We are scaling our Burnsville (N.C.) plant with significant investment in support of the growth of Sunbrella. We have five plants in the U.S. dedicated to Sunbrella, if you include Sunbury Mills and our yarn plants in Burlington and Norlina, N.C.

HFB: While 10 percent tariffs are an issue, at 25 percent they become a problem. What impact do you foresee for the furniture industry?What are Glen Raven’s views on the reworking of NAFTA?

For most everyone, it comes down to not knowing. That’s what is creating the biggest concern. Tariffs are going to impact everyone, but what we are hearing from our customers is the not knowing is the toughest part. It’s difficult for them to plan in terms of financial modeling and their sourcing strategies. It’s hard for them to have a high level of confidence in those strategies when things are so fluid. It’s too soon to tell about the reworking of NAFTA. We were heavily involved in negotiating the NAFTA agreement and we have given input as it relates to this new agreement. While we supported NAFTA, it’s a 24-year-old agreement and we recognize it needs modernization. The business climate has changed, but we did not advocate for wholesale changes to NAFTA. The reality is that it’s a global economy and decisions that are made anywhere in the world have ramifications in our parts of the world. The best way for us to have the greatest chance for success is to embrace globalization and look for opportunities around the world. We get concerned when we start seeing these trade issues come forward. It creates uncertainty. But we adapt to changes and try to make them work in our favor.

Editor's Letter: Innovate or React?

July 24, 2018   by HFBusiness Staff in Business Strategy, Industry   

Currently, the industry is doing well. Last quarter the industry was up 4.42% compared to the 1^st quarter of 2017. The 2^nd quarter appears to be better. Of course, better assurance is if you can drill this down to your specific market. In that, growth for Midland, Texas was 14.4% for Q1 while growth for Peoria was 0%. See if your market was listed below. Therefore, if your business grew accordingly, hold the till steady.

I know traffic is down. It is for the industry as a whole because the consumer is shopping less stores. What is your close rate? It should be going up along with your average ticket. The consumer coming through the door is ready to buy and confident in what they want. A loss of 7% of traffic can be offset by increasing close rate by 2 points or average ticket of 8% or a combination of both. Don’t overreact. Know all sales management key performance indicators.

The consumer is changing. Yes, we are in the midst of a generation shift. 2017 was the first year that Generation X (65.72M) purchased more than the Baby Boomers (75.5M). What is your Consumer Segmentation (% sold by units and dollars)? Understand your trends.

There is a lot of noise around the future of traditional furniture retailing. This month, the feature Innovation or Disruption makes the point that the industry is competing for the same dollars. Price has become the major competitive element. Is the furniture product such a commodity that design or functionality innovation will not capture the imagination of the consumer?

Has creating beautiful homes for the consumer by knowledgeable retail sales associates been lost to more efficient ways to create a transaction?

The musical chairs we play every day for every decreasing share of the consumers’ disposable income needs to stop.

Your question is, “How?” The answer lies within ourselves, both manufacturers and retailers.

President, CEO, owners set a new course. Call if you want new coordinates.