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From Home Furnishing Business

Cover Story: Home Furnishings Business 8th Annual Power 50 Retailers

Interestingly, while the story appears to be the expansion of the regional chains, the fact is that what used to be referred to as “alternative channels” are fast becoming the channels. While most of the noise in the press has been around e-commerce and its growth, the fact is the growth of the retail verticals, such as Restoration Hardware, and the manufacturing vertical, such as Ashley Home Stores, are making significant gains.

The future will see the blending of channels. Many of the e-commerce players are venturing into brick and mortar, experimenting first with pop-up stores and retailer partnerships.

Many traditional furniture retailers have hedged their bet by incorporating Ashley Lifestyle stores with their own brands to better serve their markets. Several of the large independents (multiple markets in the same states) have significant Ashley lifestyle stores in their footprint.

 Will other manufacturers venture again into the manufacturing direct model in partnership with larger retailers? The model of the hospitality industry should be considered with its multiple franchise brands operated by experienced hoteliers.

But Power 50 is not all about sales and sales growth, but incorporates other measures, such as market share- which measures how well the retailer did compared to the opportunity. Additionally, today the expansion into additional markets must be a factor considered. While decreasing the retailers’ market share because of expanded footprint, the opportunity for future market share must be a factor. Social engagement with the consumer is also an important measure of the retailer’ market presences.

Market share is the most heavily weighted factor determining who makes the list, accounting for 46 percent of the total score. It is determined by dividing the retailer’s estimated sales by the estimated retail sales of furniture and bedding in each of the markets in which the company participates, whether it’s a metropolitan statistical area, micro statistical area, or a rural area. Sales of electronics, appliances, and housewares are not included.

To arrive at a list of home furnishings retailers with the strongest online engagement, we measure by 14 separate metrics. Sources include Alexa, Facebook, MOZ, OpenSEO, Twitter, and Pinterest. On Facebook, for example, the number of “check-ins” and “likes” were among the metrics, as were the number of Twitter followers, Pinterest “pins” and Google Page Rank, just to name a few.

From that data, we used a basic ranking methodology, assigning a numerical value to the ranked list of each metric. (For example, the retailer with the highest number of Twitter followers received a “1,” and so on.)

Then, we arrived at 14 individual scores calculated for each metric. After dropping the two highest scores to eliminate any outliers, the statistical average of the 12 remaining scores was used to calculate the final social engagement score.

The final factor in the Power 50 ranking is retail expansion, which accounts for 15 percent of the total score. Using public records, it measured store expansion and expansion into new markets.

In addition to the Power 50, HFB compiled separate lists that ranked regional chains, large independents, vertically integrated retailers, and independents with sales of less than $50 million in a single state.













Statistically Speaking: Millennials Gain Share of Consumer Spending

In 2017, Baby Boomers still had the highest number of households representing 34.4 percent of consumer units, compared to 26.8 percent for Generation X, and 25.1 percent for Millennials (Table A). Although Millennials are inching closer to Generation X in consumer units, the percent of all consumer spending is still over 10 percentage points higher for Gen Xers and almost 15 higher for Baby Boomers. After years of Baby Boomers controlling the majority of furniture and bedding spending, the market has now spread to Generation X and Millennials, who combined account for 56.9 percent.

As shown in Table B, Millennials have entered into adulthood and continued to form households – growing their share of consumer units. At 25.1 percent in 2017, Millennials percent of consumer units has jumped 2.2 points in just one year, while the older generations (including Generation X) decrease.

In 2017, U.S. households spent $7.8 trillion in the U.S. economy with Baby Boomers controlling 36.1 percent of all total consumer expenditures, followed by Generation X at 32.3 percent. While Millennials still control only 21.4 percent due to lower average household incomes and still smaller numbers, this generation increased its share of total spending by 3.9 percentage points 2014 to 2017 – up from 17.5 percent in 2014. On the flip side, both Generation X and Baby Boomers have decreased share as numbers rise for Millennials (Table C).

For furniture and bedding expenditures, Millennials continue to step up to spend more of their income on home furnishings than any other generation. While they still control only 24.6 percent of industry sales, the share has increased each year from 20.1 percent in 2014. Gen Xers have slipped in control down to 32.3 percent, most likely due to the smaller size of the generation, but remain close to Baby Boomers’ 34.3 percent (Table D). As Baby Boomers age out of the furniture industry, the influence of Gen Xers and Millennials will continue to grow.

The Consumer Expenditure Survey estimates mean/average consumer unit income per generation, as opposed to median income. As shown in Table E, Gen Xers have experienced the highest average income (before taxes) over the last four years – topping at $95,168 per household in 2016, the highest mean household income of any generation in history. Even with a slight dip from 2016 to $95,032 in 2017, average income for Generation X has increased 12.8 percent since 2014. Although Millennial households earned, on average, 54.2 percent less than Generation X and 28.1 percent less than Baby Boomers in 2017, average income among Millennials has increased 21.1 percent over the last four years and will continue to increase as younger Millennials enter the workforce and form households.

While mean (average) income, which differs from median income and is usually more affected by unequal distribution and tilts toward the top, shows a downturn for all generations from 2016 to 2017, the median income (middle point) from the government’s sister survey, the Current Population Survey, paints a different picture. During the same year, median household income increased 4.0 percent – from $59,039 to $61,372 per household but only 1.8 percent in real dollars. Median income estimates are not yet available at the generational level.

Although the Baby Boomer and Generation X households still earn considerably more than Millennials, the percent of total U.S. income is shifting each year in a positive direction for Millennials compared to older generations. Since 2015, Generation X has decreased its share of total income alongside Baby Boomers, while Millennials continue to grow. Income from Millennials now account for 21 percent of total U.S. income compared to 16.2 percent in 2014 (Table F).

With the highest income and an average age of 44.3, Gen Xers are the industry’s prime consumers (Table G). Now an average age of 60.2, many Baby Boomers have retired or are preparing to retire, while the average Millennial is yet to reach 30 with many earning years ahead. In fact, Millennials have now surpassed Gen Xers in the number of individuals in the U.S. workforce.

The data continues to confirm that Millennials are the most educated generation. In 2017, 73 percent of Millennials were college educated versus 70 percent of Gen Xers and 65 percent of Baby Boomers (Table H).

With higher wages and more disposable income, Generation X has consistently spent more money per household on furniture expenditures in the last four years. Mapping the CEX to the government’s national accounts through Personal Consumption Expenditures shows Generation X spent on average of $993 in 2017 on furniture and bedding which is 21 percent higher than Baby Boomers and 23 percent higher than Millennials. However, Millennial households have rapidly increased their spending – jumping an average of 6 percent a year from 2014 to 2017 (Table I).

Where do different Generations spend money?

Age and generation greatly affect what consumer items people buy and the share of a consumer’s total expenditures allotted for those items. Figure 3 illustrates a few major consumer items bought by each generation and which ones spend a higher percentage of its expenditures on those items.

As housing is a major expenditure for all consumers, Millennials are spending the most (22.5 percent) of their income on rent or mortgage payments. However, as a whole, consumers spent a smaller percentage of their total expenditures on home mortgages in 2017 compared to 2016. As they age, many Baby Boomers are paying off mortgages and simultaneously becoming the largest consumers of home maintenance, repairs and insurance.

Millennials spent more of their income eating out (6.3 percent) than any other generation, while a family-oriented Generation X spends a higher share of their dollars on entertainment compared to other generations (5.8 percent).

Vehicles and apparel were bigger ticket items in 2017 for Millennials and both Gen Xers and Millennials spent the same percentage (2.1 percent) on cellular phones and services. Not surprisingly, Baby Boomers control much of the healthcare spending, averaging 9.4 percent of their consumer spending. Down from 3.4 percent in 2016, Millennials spent less of their money on education in 2017, possibly due to an increasing availability of jobs.

Furniture spending among Millennials in 2017 bodes well for the future of the furniture industry. While each year, Millennials control a greater percentage of industry sales, they also spend a higher percentage (0.9 percent) of income on furniture than any other generation. Paired with the growing wealth of Gen Xers, the furniture industry should continue to thrive. For example, as Millennials continue to find jobs, form households, and increase wages, a 10 percent increase in spending on furniture would add another $2.6 billion to the industry.

Coach's Corner: Proactive Planning Produces Power 50 Performances

The big question I often get is: why do some organizations tend to always be at or near the pinnacle of their area of endeavor and others always lag behind? Well, to use a dreaded sports analogy, there are several teams that readily come to mind as consistently being on top of their game year after year. Everyone in each league plays by the same rules, their fields and equipment are pretty much the same, they have the same list of plays or strategies to draw upon and they all want to win their games. In our business, we all work under pretty much the same rules, have the same advertising opportunities available, carry relatively similar merchandise (at least to our customers) and want to sell as much as we can. So why do some continue to prosper while others don’t? Obviously, the best ones manage their business or team better, but how?

The answer boils down to the fact that they are great at studying how they did and figuring out ways to do it better in every aspect of their game or business. The best teams analyze each area of their game, grade every player’s performance and set targets for improvement in the next game and at the end of the year, for the next season. What training needs to take place, which players or coaches need to be replaced and how they can improve their preparation for each game, are all examined. As a result, they create plans for performance improvement. The best companies do the same thing.

Here are some thoughts that may help you move the needle next year by starting off with a solid plan for what you want to accomplish.

Proper Planning Positively Propels People’s Productivity

One of the biggest mistakes I see many organizations make when they begin the planning process is not establishing goals or performance targets for every department within their organization. Basically, a plan is a map for your business and the two things you must know in order to use a map are—where you are and where you want to go. It is the same with a plan, with the goal being where you want to go or your destination. Once you know that, you can decide what steps you need to take to get you to it, how to take them and when. That completes your plan.

As stated, this month is a great time to create your plan for next year. So here are some ideas about the areas in your business for which you might want to create a Performance Improvement Plan and a few metrics you could target in each:

Sales – This is the first one that comes to mind for all retailers because it drives the business and without it nothing happens. It is also the one we most often see goals developed for by our clients. However, quite often they only deal with total sales volume, which is the product of a lot of things happening together. Increasing/maximizing sales is obviously the main result you are interested in driving, but we find that targeting the things that go into the sale like Closing Rate, Average Sale and Revenue Per Up are better to focus on, because improving them will deliver the result you want. We also have seen goals for Items per Sale, In-Home sales % and Sketch % help get the right things happening on the sales floor. We recommend you look at where you are in all your sales metrics and determine two or three that you think can be improved. Target them on a quarterly basis, changing to new ones as you improve the originals. Just don’t give them too many goals or it will weaken their motivational power. Be sure to reward and celebrate success!

Office – Does your office run so smoothly that you never have issues with orders, paperwork or other processes? If that is the case you are in the minority, yet this is an area where we seldom see goals utilized as a planning or motivational tool. We suggest you find those parts of the office process that seem to constantly be causing issues within your organization and develop solutions for the problems, then set goals for improved performance. Each operation varies as to what parts of the sales support, order fulfilment and customer service processes are handled, so it is tough to come up with any universal recommendations. However, your management team should be able to develop good ideas in this area.

Warehouse, Delivery and Repair – There are many performance metrics that can be goaled in the back end of your business. In fact, next to sales, this is the most common area we see clients setting goals, paying bonuses and driving improvement. Perfect Deliveries %, Items Repaired, Open Repair Orders, Deliveries Made, are some of the targeted numbers we have seen. Depending on what systems you are using, you can find several great ways to focus this business area on improved performance and customer service.

Advertising – Most retailers do a good job planning their advertising expenditures as part of their budgeting process. The best ones do great work in planning their creative to consistently deliver the message they want to targeted customers in their market. What we don’t see as often is a goal setting process that reflects the actual performance of the advertising other than just raw gross sales. While those are of course the major result, it is also good to track and set goals for each promotion that focus on traffic level, revenue per Up generated, average sale, cost per customer, advertising to sales % and other meaningful numbers. This is especially true if you have an outside agency managing this process for you. What better way to hold them accountable for spending your money productively?

Merchandising – Merchandising, along with advertising and sales, are the three areas of your business that most drive sales. Yet, we seldom see meaningful goals set for it in most small to medium sized retailers. There are many very critical numbers you can track with your business system that can be goaled to help you plan for improvement here too. Obviously Gross Margin, GMROI and Turn are very important to our business, so they are good places to start. There are other areas a buying effort should manage such as freight costs, open to buy and vendor selection that can also be targeted.

Yourself! – So, you thought we might forget about you? Remember that unless you develop and strive to make growth goals yourself, it will be tough for you to lead a goal oriented, growth focused team – walk the walk and talk the talk!

Once you have your plan in place, it is critical that you follow it and make sure you are hitting the goals you set each month. There is no doubt that executing a plan is much harder than creating one, so this is where the rubber meets the road. The biggest thing to avoid is giving in, throwing out your plan and going back to just doing what you think is right at the time. It takes discipline and courage to make the hard decisions and stick to your guns. Of course, if you determine that your plan is too optimistic, you may want to adjust, but don’t just discard it.

In retail, the most important areas to plan for and keep an eye on—because they directly impact your sales results—are what I call the Final Four: Product, Promotion, Presentation and People. These are the ones your management team needs to focus on every day, to make sure your plan succeeds. Are we assorting the right products, displaying them the best we can, advertising to bring in the targeted customer and lastly, are our people providing the best customer experience possible? As a coach though, I must say that it always seems to be the last one that gives us the biggest problem. Products, advertising and display are easy to manage compared to people. But, even if we do a stellar job of managing all of the other areas, if our people fail to deliver, then our business/team fails.

As is often the case, I am not telling you anything you didn’t already know or at least suspect. The most successful businesses and teams excel at creating a plan and executing it. Having a solid plan, getting everyone onboard with it and consistently executing it is the key difference I see between highly successful organizations and the “also-rans”.  So, get busy this month and work on planning for your growth and success in 2019. If you don’t plan for it, it won’t happen. Next month I will provide you with a list of some things you may want to include in your plan to help drive performance improvement in your company!

What Sells: Work Hard, Play Hard

On trend open floor plans for homes means that home offices are no longer restricted to a single, dedicated area of the home. Instead, manufacturers are facilitating the trend to allow for more flexibility in their product offerings and where these products will be placed in the home. According to Lisa Cody, Vice President of Marketing at Twin Star Home, “consumers want more flexible spaces in their homes that can serve multiple activities” with products that “can work well in a home office, casual living room, mudroom or kitchen. On top of flexibility, we are in a time where consumers are influenced by technology in everything they do.”

And she’s right. Consumer research by FurnitureCore (the research arm of Home Furnishings Business) shows that among recent purchasers of home office furniture, 47.06% report using a laptop for their work, guaranteeing the fluidity of moving from space to space. The same report found that less is more in these home offices with 94.12% of consumers reporting that both a personal computer and printer are the main items in their work spaces. With the flexibility of smart phones, many other needs have fallen to the wayside (think fax machines and land lines).

Consumers still need an area to set up these items, no matter how technology shapes work life. 47.06% of consumers report that the primary use for their home office is an area to work when they are not in their regular office. Another 29.41% use the area to perform home and family business, while 23.53% report using the space for home-based business , up 11.93% points over 2017.

The furnishing selection is vital to the work that will be accomplished by the consumer in the environment of their choosing. 29.41% of consumers report that the home office is in a shared room and 70.59% of consumers report that their office furniture is not a part of a coordinated set. This trend has triggered a move away from office furniture collections and into a more eclectic look that can easily blend in with shared spaces. If these consumers rely on flexibility to create their work environment, manufacturers must meet that need by creating beautiful pieces that can be integrated into any room. According to BDI’s Matthew Weatherly, associate design director and designer, "the beauty of [BDI’s Office Collections] is the number of components offered, which means consumers can create the ideal set up that works for their space and their office needs. From a smaller, modular set up, to a full executive office suite, BDI brings sophisticated styling and generous features that make any workspace functional and beautiful.”

Desks have long been the heart of the home office. When asked, most consumers reported that their preferred style of desk is an executive desk at 35.29%, quickly followed by a writing desk at 29.41%, and L-shaped desks in third with 23.53%. Trailing behind were corner desks and desks with a hutch, both at 5.88%. Desks with an adjustable height were not included in the survey choices but are up in popularity as they allow the user to stand while working and are marketed as a healthy alternative to hours in a seated position. Though these desks provide differences in functionality, it is clear that the contemporary style is favored by nearly 50% of those polled, followed by traditional style at 29.41%.

Other office furniture staples follow with desk chairs and file cabinets both reported in consumers’ home offices at 58.82% and some 41.18% report that book cases are in their home office space. Work tables have surged in popularity as 29.41% of respondents reported that they are present in their current office set up (up from 10.1% reported in 2017.)

No matter the setup of the home office, more and more people are working from home with their entertainment sources just steps away, if not already in the same room.

Just as open floor plans are trending for the home, entertainment centers have opened up to reflect the technology advancements in the form of a wireless experience. Gone are the days of unsightly cable bunches needed to power home entertainment systems as we welcome Bluetooth and smart devices that consolidate function, like smart televisions with built in DVD players and Wi-Fi connectivity.

Televisions are crucial in the home entertainment case goods category and require consideration for cord management and screen size when it comes to selecting storage devices. Without fail, ‘the bigger the better’ mindset has persisted when it comes to screen size and picture quality, 50% of those polled reported that their primary TV screen in their home is 55” or larger.

While technology advancements move at a pace that will make your head spin, one thing is clear: consumers no longer need to hide their televisions and instead, proudly mount them on the wall as 31.25% of those polled have reported. Consumers’ favored method to display flat screen televisions is to place it on a media console as 43.78% have reported and only 18.75% of consumers prefer to hide their televisions. These televisions are central to the home as 50% of consumers state that the television is placed in the living room and 37.50% report that it is placed in the family room.

With the larger screen sizes and other advancements in technology, manufacturers have to find a balance by updating their product offerings to accommodate for the fast paced electronics industry. Luckily for retailers, they have done just that by offering wall mountable consoles, products with door features that allow remote access yet hide multiple media devices, or produce consoles that double as statement pieces for the room suited to large screens.

Editor's Letter: Consumers – What Do They Want?

The current generation of senior management at least are solidly “Baby Boomers” and have forgotten the transition that they endured with the pre-Baby Boomers – those now in their 70’s-80’s. Several years ago in a senior level meeting, a new member of the executive team admitted his new fiancée was intimidated by the size of their stores and breadth of selection and they shopped at Pottery Barn. No, he wasn’t fired – he was family - but it impressed upon me the difficulty of incorporating the perspective of younger consumers.

The key challenge for traditional retailers will be to allow their retail operations to transition from the Baby Boomers that have served them well for the past 30 years and move forward to serve the next Generation (Gen X 35-45) and the generation beyond (Millennials <35).

The graphic below presents how the new and existing age groups consider furniture attributes during the shopping process.

Major takeaway: the younger generation values comfort more than price, but they still want quality and design (aesthetics).

It is not hard to understand what they want, just ask.

Performance Groups
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