Monthly Issue
From Home Furnishing Business
November 16,
2017 by Jane Chero in Business Strategy, Economic News, Industry 
The home furnishings industry is in a transition with total growth forecasted to be 3.4% this year, which would be an above average performance for all retail sectors. Next year, Impact Consulting projects a similar forecast of 4.1% (HFB October issue forecast). So, what is the problem? In the last decade, a proliferation of retail formats has emerged to attract an ever-changing consumer. Whether it is price, experience, or convenience, each format attracts a different, but overlapping consumer group.
The traditional distribution channels of Independent furniture stores, department stores, and national merchants, which decades ago controlled more than 90% of all furniture sales, have declined to less than 50%. Capturing that volume has been new retail formats with new value propositions or new ways to satisfy the consumer’s need for creating an environment to enhance their lives.
Traditional channels have themselves morphed into different formats with different product categories. In fact, the loss of product categories, such as small appliances to the mass merchants, has eliminated traffic to the stores. Gone are the days of the credit stores, which ensured a continuing contact with the consumer. This loss of product categories and credit solutions removed an element of loyalty.
The result is fragmented distribution at retail. The accompanying graphic illustrates the distribution of purchasers.
In 2017, Regional Chains have gained share of consumers, which is best illustrated by the expansions of retailers such as Bob’s Discount and Art Van. Department Stores have lost share to both independents and regional chains. Retail Verticals have been combined with Lifestyle and have grown, as Ashley HomeStores have expanded their brand presence. The resulting retail environment is a complex competitive network with each retail format competing for the consumer expenditure.
Unlike the previous 20 years, the Baby Boomers are not the dominate generation in the furniture retail sector. While still a force, purchasing 34.7% of furniture and bedding in 2016, the growth trend is downward. The children of the Baby Boomers, Generation X, represent 34% of the total expenditures and are still in a growth mode, as their children are beginning to leave the home and the consumer is adjusting for the empty nest phase. The emerging Millennials, in size, will eventually dwarf the Baby Boomers and are still in the household formation phase.
The challenge for the furniture retailers is to satisfy all generations, the largest but declining sector, the Baby Boomers, while satisfying the unique needs of Generation X, which will continue to grow. Accomplishing this, while anticipating the future Millennials, can be a challenge. The following addresses some of the differences between each of the generations.
SILENT GENERATION (AGES 71-88)
While representing 13% of the households, surprisingly they consume 8.2% of the furniture expenditures. This generation, especially the younger segment, is pioneering the concept of “aging in place.”
However, this generation still has a lot of living to do. As the other generations cluster, over a third (36%) intend for their next purchase to be leisure travel, followed surprisingly by a new car (29.5%). Furniture falls at the bottom (7.9%) of their plans. One could assume they are going to visit their kids by plane or car. Hopefully, this will generate second bedroom purchases in the succeeding generations.
This generational cluster, as would be expected, has a different attitude toward decorating and home furnishings. By far (43.8%), they believe their “home furnishings should be practical and meet my basic needs for comfort.” Obviously, they are not concerned (3.8%) with their home furnishings communicating their success and reflecting a sense of prosperity.
Unfortunately, the reason for their purchase was replacement (47.5%), reflecting a quality issue. The other reasons were in line with other generational clusters: desire for new furniture (25%) and redecoration (23.8%).
Like all consumers, the first step in the furniture purchasing process starts on the internet for research (45.8%), but the visit to the store (53.3%) still is favored by the majority.
The use of designers (10.4%) remains an important first step, a characteristic this generation shares with their grand or great-grand children. Input from their friends (7.1%) is also important.
Before this generation starts the buying process, the advertising media having the most influence was the local newspaper ads (29.7%), followed by the internet/email (20.8%). The other advertising media that excelled with this generation was radio ads (6.8%) -- more than three times the rate for all consumers.
As would be expected, this generation remains loyal to the independent retailer, with almost one-third of purchases made in this distribution channel (31.2%). The interior decorator channel is almost twice (7.5%) as likely to be the channel of choice. Only the mass merchants were not favored (13.8%) compared to all consumers. Old doesn’t necessarily mean frugal.
Looking to the future, the Silent Generation would most likely shop the Independent retailer (42.3%). However, the intent to shop the internet (18.0%) increased from the actual purchase. Also, the Interior Design sector saw an increase (14%). Could this be an indication of more of a “personal shopper” need?
The Silent Generation was the group most pleased with their shopping experience, with 35% ranking it excellent, and a nil response below a 3 on a scale of 1-7. As far as furniture shopping is concerned, they are not the “grumpy” generation.
Specifically, what they were pleased with in their most recent shopping experience was ease of shopping, which ranked the best (51.2%). The lowest was product knowledge of sales associates (40.3%), still higher than all consumers. The older generation likes the furniture retail experience.
Why did this consumer purchase the furniture they purchased? Overwhelmingly, it was due to the quality (35.1%).
What does the furniture retailer need to do to continue serving this consumer segment? For the most part, the industry has done a good job from the Silent Generation’s perspective. While not a significant part of the industry volume, it is a segment that has disposable income and is willing to pay for quality and service.
BABY BOOMER GENERATION (AGES 52-70)
This generation, which represents 34.8% of the households and about the same in consumer spending for furniture (34.7%), is an important, but declining segment of the furniture purchasers.
This generation is facing a significant transition as they contemplate retirement. Their choice - whether to age in place or downsize to a retirement community - involves a purchase decision.
However, like the other generations, their first choice in the list of intended next expenditures is leisure travel (37.5%), followed by a new car (35.19%). A furniture purchase, unfortunately, is the last of their intentions (5.7%). They are saddled with the “brown furniture” that was the preference of their generation, but their children don’t want it, and the consignment shops are avoiding this furniture. So, the decision is just to keep what we have. Unfortunately, in downsizing, the scale of their furniture doesn’t work. This decision of what to do with the old furniture becomes a problem.
Unlike the Silent Generation, the Baby Boomers still want furniture that communicates “who I am and reflects my sense of style” (35.1%). However, the Baby Boomers still have the need for home furnishings which “are practical and meet my basic needs for comfort” (28.6%). This consumer is still attached to this more traditional/formal furniture, but is contrary to these statements and provides an opportunity to influence their decision to purchase. A great trip lasts 7 days, but a new power/motion sectional lasts a lifetime – maybe.
Unfortunately, 40% of the consumers in the Silent Generation bought furniture for replacement. We know furniture should have a definitive life span, but from a consumer’s perspective, the life of their furniture is short. The next major reason for purchase is desire for new furniture (24.4%) – an opportunity the industry can stimulate.
What was their buying process? As with all consumers, the majority of the Baby Boomer generation starts with research on the Internet (51.8%). However, a visit to the store is still favored by many in this generation (40.5%). The brick and mortar stores still have the opportunity to influence the sales. Many of these consumers “scout” the store with no intention to purchase at that time. Retailers, be careful with slighting the “tire kicker.” We only have one time to make a good first impression.
Of all the generational clusters, the Baby Boomers have some use for the local newspaper, especially in small markets.
Interestingly, the Baby Boomers have embraced the internet/email as the number one media to influence their intent to purchase (28.6%). This is not to be confused with social media, which was the major influencer for only 5.8% of this generation. As can be seen from the accompanying table, television/print magazine/direct mail/local newspapers are in a neck-to-neck race for the number two spot.
The Baby Boomers are still the major customers of the independent retailer (33%), followed by the regional chains (20%). Their support of the other distribution channels is comparable, with the exception of the lifestyle stores (6.7%), which they have discovered. Stores such as Pottery Barn, Arhaus, and Restoration Hardware reflect their need for a new style and comfort as they transition from their more traditional/formal furnishings.
Looking forward, they will consider regional chains (33.7%) at a higher percentage than their past purchases, along with the internet (20.5%). The designer channel will also be one which will increase in importance.
As with the older generation, the Baby Boomers are pleased with their most recent shopping experience, with over 60% giving a positive rating (6 or 7) on a scale of 1 to 7.
The Baby Boomers are pleased with the courtesy of the store personnel (46.1%) and less pleased with product display and selection. But overall, it was a positive experience.
What brought the product they purchased to their attention was quality (38.8%), reflecting the attitude of all consumers. The continued identification of product quality, as reflected in the reasons for purchase (39.6% all consumers) is creating a wary consumer.
Functionality is important to the generational clusters, reflected in the increased sale of “power” in upholstery and bedding.
Warranty is of little value to this consumer group, reflecting past experience, as well as an attitude of never buying extended warranty.
GENERATION X (AGES 36-51)
This generation is the overlooked or forgotten generation. While smaller (27.5%) in terms of the number of households, they represent more of the consumer expenditure (34%) than the much-touted Millennials. In many ways, this generation is leading the transformation in furniture retailing. While the Baby Boomers are declining in terms of furniture purchase volume, Generation X will be increasing.
As with the other generations, they have a desire to travel, with over 43% stating this as the number one intent as to a major purchase. While important, the car is slightly below (25.9%) the other generations.
The attitude of Generation X is comparable to their parents, with 34.9% believing decorating/home furnishings should be reflective of “who they are and reflect a sense of current style.”
This generation is contending with furniture replacement (43.9%) as are the other generations. However, compared to the others, they are remodeling and adding to their homes (17.9%). The older end of the generation is seeing the first born depart, freeing up a bedroom for the “man cave” or “she-shack.” All of this creating a demand for new furniture.
How do they go about their purchase? Like all consumers, the Internet (50%) is the first stop in the process. However, it is important to point out 40% make a shop excursion first.
The other important difference is their use of magazines. Print is not dead for this generation. The importance has been confirmed with Home Furnishings Business magalogs, which combine lifestyle editorial content with product to achieve a response rate of more than 9%.
Unlike their parents, few get recommendations from friends and relatives (7.6%). Remember this is truly the Facebook generation.
What is this generation looking for in their products? As with other generations, the number one feature is quality (38.1%), Design and aesthetics (24%) are important, along with comfort (16.7%), but most important is value (11.9%). Consumers are both time and budget constrained.
What advertising media influences them? As compared to their parents, they are more likely to be influenced by the Internet/email (44.6%). The next most influential media is targeted direct mail (15.4%). While more influential (8.0%), social media is next to the bottom, just above radio. Television viewing declined from their parents (12.8%).
The regional chains are the distribution channel of choice (24.1%). Surprisingly, the Internet is less important, compared to both the Millennials and the Baby Boomers. Unlike their parents, they accept the mass merchants as an acceptable retailer for furniture. However, for their next furniture purchases, it appears Generation X would be very likely to consider the lifestyle stores and the internet, and less likely to consider the independent retailer and regional chains.
The reason for the propensity to consider other distribution channels may be found in the satisfaction with their last buying experience. While not negative, it is not as positive (54.4%) as the Baby Boomers. A significant area they ranked lower compared to their parents was the “courtesy of store personnel.” This paints a portrait of a time-constrained consumer who does not have time for a sales pitch and has little patience for a lack of product knowledge (25.4%).
November 16,
2017 by Jane Chero in Economic News, Industry
As Baby Boomers (ages 52 to 70 in 2016) are aging out of prime furniture buying years, Generation X households (ages 36 to 51) who are more affluent than ever have picked up the reigns with robust consumer spending – despite a much smaller population size. Couple the Gen Xers with the sheer population size of the Millennials (ages 35 and below in 2016) and the future for the furniture and home furnishings industry looks promising as more Millennial consumers age into adulthood and form households (Figure 1). It is estimated that in 2016, well over one third of Millennials had yet to form their own households, many still in college and others delaying household formation for various personal and financial reasons. The 2016 Consumer Expenditure Survey gives a snapshot of the five adult generations as shown in Figure 1 which also discusses the conflicting end year to be included as a Millennial. This article picks up from Statistically Speaking’s February 2015 article Age Shift Impacts Furniture.
Baby Boomers still have the highest number of households representing 34.8 percent of consumer units, compared to 27.5 percent for Generation X, and 22.9 percent for the up and coming Millennials. Though smaller in size than the Baby Boomers, Generation X continues to gain influence and make its mark in the U.S. economy alongside the fanfare of Millennials entering adulthood and peak buying years.
In 2016, U.S. Households spent $7.42 trillion in the U.S. economy with Baby Boomers controlling 37.2 percent of all total consumer expenditures and Generation X close behind at 32.8 percent. Millennials, with lower average household incomes and smaller numbers, control only 19.4 percent of the total (Table A). Regardless, with almost 10 million more consumer households, Baby Boomers still outspend Generation X – despite growing incomes for Gen Xers.
For Furniture and Bedding expenditures, Millennials are stepping up to spend more of their income on home furnishings than any other generation, but still control only 22.4 percent of industry sales. Generation Xers are closing in on Baby Boomers as the generation that controls more industry sales, 34 percent, compared to 34.7 percent for Boomers. As Baby Boomers age out of the furniture industry, the influence of Gen Xers and Millennials will continue to grow.
As shown in Table B, Generation X had an average household income (before taxes) of $95,168 last year, the highest mean household income of any generation in history. Gen Xers households earnings on average are 19 percent higher than Baby Boomer households and 45 percent more than Millennials. Of importance is that Generation X has the highest number of earners per households, 1.7 earners, compared to Millennials, 1.5 earners. As Millennials age and grow in the workforce, rising incomes paired with numbers of consumers will increase their 19.4 percent share of consumer spending dramatically.
With the highest incomes and an average age of 43.3, Generation Xers are prime consumers (Table C). At an average age of 60, many Baby Boomers have retired, while a majority of Millennials who have entered the workforce are gaining more purchasing power at an average age of 28. In fact Millennials have now surpassed Gen Xers in the number of individuals in the U.S. workforce.
Shown in Table D, Generation X represents the bulk of families with children. They have an average of 3.2 total people per household and 1.2 children under 18. Millennials, however, are starting to have children at a higher pace averaging 0.9 kids under 18 per household – bumping up the average size of a Millennial household to 2.6. Baby Boomers still have an average of 2.1 persons per households, most likely reflecting leftover Millennials still at home for younger Boomers.
As would be expected, only 33 percent of Millennial households are homeowners, but that number is increasing daily. Generation X has not quite embraced homeownership like their parents, with 62 percent owning their own residence compared to 76 percent of Baby Boomers (Table E).
As shown in Table F, ethnic diversity continues to grow the younger the generation. For heads of households, Hispanics or Latinos have become the second largest segment after Whites, Asian, and all other races – increasing from 9 percent of Baby Boomers to 18 percent of Generation X and Millennials in 2016.
The data continues to confirm that Millennials are the most educated generation. In 2016, 71 percent of Millennials were college educated versus 69 percent of Gen Xers and 63 percent of Baby Boomers (Table G).
Although Baby Boomers account for a greater percentage of consumers’ spending, Generation X consumers spent more per household with an annual average expenditure of $68,532 in comparison to the $61,204 of Baby Boomers (Table H).
Staying in line with overall expenditures, Generation X also spent more money per household on Furniture Expenditures in 2016. At an average annual furniture expenditure of $744, Generation X spends on average 24 percent more than Baby Boomers and 26 percent more than Millennials. (Note: The Consumer Expenditure Survey (CEX) projects total furniture industry expenditures at a lower rate than the Personal Consumer Expenditures (PCE) survey conducted by the Bureau of Economic Analysis, which is tied to the GDP. Mapping the CEX to the PCE reflects a more accurate picture of expenditures shown in 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 these items. Figure 2 illustrates a few major consumer items bought by each generation and which generation spends a higher percentage of their expenditures on those items.
As housing is a major expenditure for all consumers, Millennials are spending a higher percentage (22 percent) of their income on rent or mortgage payments. For rent alone, 37.6 percent of total spending comes from Millennials. For homeowners, Generation X spends the highest share of their expenditures on mortgage interest (6.6 percent). As they age, many Baby Boomers are paying off mortgages and simultaneously becoming by far the largest consumers of home maintenance, repairs and insurance. Last year 45 percent of these consumer expenditures were by Baby Boomers.
Millennials spend more of their income eating out than any other generation but due to population size, Gen Xers and Baby Boomers control almost 70 percent of the total dollars spent. In family-oriented Generation X, households on average spend far more than any other generation on entertainment – roughly 38 percent of total entertainment expenditures.
Cell phones, vehicles, and education are bigger ticket items for Millennials, while Gen Xers and families spend more of their incomes on apparel and shoes. Not surprisingly, Baby Boomers control much of the healthcare spending, averaging 9 percent of their consumer spending.
Perhaps the most important statistics for the furniture industry is that while Millennials currently control 22.4 percent of furniture industry sales, they also spend a higher percentage (0.9 percent) of income on furniture than any other generation. This should bode well for the industry as Millennials continue to flood into household formations. Couple this with the growing wealth of Gen Xers and the furniture industry has the demographic profile for growth in the future.
November 15,
2017 by Jane Chero in Business Strategy, Industry
Having just steered International Market Centers through its second private equity transaction in six years, one could forgive CEO Bob Maricich if he wanted to kick back and spend more time at his vacation home in Montana.
But that’s not likely to happen. The 67-year-old Maricich says he isn’t planning to retire anytime soon, and said IMC’s recent sale to a pair of funds controlled by the private equity firm Blackstone presents significant growth opportunities that he and his management team are excited to pursue.
IMC, which was formed in 2011 when the World Market Center in Las Vegas and several major High Point showroom properties were placed under common ownership, now controls about two-thirds of High Point’s showroom space, including the sparkling new Christopher Guy showroom on South Hamilton Street.
And the World Market Center has been adding gift and home décor exhibitors at a furious pace after designating a large chunk of Building C for those vendors.
Maricich recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about IMC’s sale to Blackstone, the growth opportunities the deal presents, and its possible effect on the High Point and Las Vegas markets.
Home Furnishings Business: What changes can buyers and exhibitors expect to see under the new ownership?
Bob Maricich: It’s an extraordinarily positive development for the company and the industry. There’s no question that Blackstone is in the business to grow, and that growth could be in the form of buying something. It could be in the form of building new buildings. It could be in the form of broadening the furnishings and home categories that are in our markets. The total focus is really on improving and making more effective and efficient the buyers experiences. `
At the end of the day, the buyers really determine where market is and how long it is. Even though they don’t pay us anything, we need to treat them as a customer. And that customer focus is how do we improve that experience? Particularly in High Point, we’re looking at some of the things we can do in terms of physical improvements, beautification, and efficiency, so that buyers can be more productive. We’d love to figure out a way to have them stay longer and shop more, but they’re clearly telling us that their time and their money is valuable, and the effort needs to be on the efficiency of shopping.
On our executive team, everyone is a personal owner of the new company. And the quality of management was a significant reason for Blackstone buying the company. So everyone is staying on, and everyone is excited and motivated about the growth opportunities going forward.
HFB: Blackstone has said acquisitions are a possibility. Could these opportunities take the company outside the home furnishings and gift industries, or is there still room to grow in these core businesses?
Maricich: I think there’s a lot of room to grow in those core categories. The definition of home furnishings is broadening. Channels of distribution are broadening. That’s a great opportunity. Then there are the verticals, particularly in Las Vegas, related to gift. We’ve got a great start, but there’s great growth opportunity there. I hope that (the World Market Center) will be fully occupied by the end of next year or early 2019, and that will afford us an opportunity to build another building there.
Our main task is to put buyers and sellers together in the most cost-efficient way. So without a doubt, there are real opportunities to expand the experience with technology. We invested a lot of money researching that, and we’re looking for ways to create value in that regard.
And finally, even though our name is International Market Centers, we’re not a property owner outside the United States. That certainly creates an opportunity as well.
HFB: Unlike the furniture industry, there are several competing U.S. trade shows for gifts and home décor. What special challenges does that present?
Maricich: We’ve done extensive research that clearly shows that buyers and manufacturers want a major show in the eastern United States and a major show in the west. It’s economical. Two shows that are drawing international audiences are better than six or seven regional shows. We’ve got the only truly growing whole home market in North America. The buyers want it because, at a regional show, there’s not enough suppliers to do their shopping. We think we’re the natural home in the west for the gift and home décor industry. Atlanta clearly has carved out that space (in the east), but buyers west of the Mississippi clearly want to come to a western location.
HFB: How did Las Vegas become the premiere market for the bedding industry?
Maricich: I’d love to take credit for growing that (laughs), but that started long before IMC. The bedding people generally are far greater promoters than the furniture people, and part of that promotion is entertainment. They just embraced Las Vegas and everything Vegas has to offer.
Four or five companies now have significant market share, and when they moved there (to Vegas), all of a sudden all of the smaller companies and the e-tailers went there. Once you get a core of leaders, it solidifies the category. They’re able to spend a lot of promotional money to draw a national audience.
But the same dynamic applies to that industry as it does to the furniture industry and the gift industry. We need to take care of the buyers. We need to keep the buyers energized and make sure they’re productive.
HFB: It’s clear that fewer furniture buyers are coming to all markets today. How to you address that?
Maricich: This notion of being a whole home market is really valuable to buyers. There’s a real need for that effective, efficient shopping experience. When we ask buyers what categories they’ve purchased, it’s heavily weighted to those who are buying for multiple categories.
I think you’re seeing a lot of challenges for traditional furniture manufacturers with not only the generational change, but with the change in channels of distribution. What we’re seeing is an industry that’s growing at two or three percent, but that’s highly deceptive because you’ve got a part of the industry that’s growing rapidly, at 10 or 15 percent, and you’ve got part of the industry that’s flailing and going backwards. Just watch and see who’s expanding their showroom. There’s somebody who’s playing to win -- somebody who is spending money to make their showroom compelling and a destination. The day that people that can come to a High Point market, and open their door and expect customers to walk in, that’s well behind us.
HFB: In the wake of mass shooting in Las Vegas, have you made any changes to your security plan?
Maricich: We’ve always been security conscious. But we’re going to do a better job of making them more visible, so people will see that there is a really significant security presence.
High Point is a very different challenge than Las Vegas because there are so many buildings and multiple points of entry. In Las Vegas, the last two markets, we have started registering people outside the courtyard and having a single point of entry. Now that we have that in place … we can beef up security to almost an airport level if we have to. We don’t think that’s necessary, but we have that flexibility.
HFB: In High Point, there’s a proposal to build a minor league baseball stadium, apartments, a hotel and other development just north of the downtown market district. Are you supportive of this effort?
Maricich: We are unequivocally supporting it. It’s a fantastic idea. I’m frankly troubled that there’s some hesitancy that seems to be coming from the county government. The wrong answer is to do nothing. Now, you have a ring of almost urban blight. It creates kind of a vacuum in downtown High Point, where there are no restaurants, no after-hours places, no dynamic of excitement, even during market. The stadium idea and the vision that (High Point University President) Nido Qubein has articulated is phenomenal. It will be a catalyst for more and more of the kind of growth that the downtown area needs…and that will be good for the market.
October 26,
2017 by Jane Chero in Business Strategy, Industry
Watching the news on the aftermath of the storms, with the mountains of household items, building materials, and worldly possessions, my frugal side kicked in. I don’t know, but if I was in the same situation, I would be concerned with salvaging furniture. However, some of the casegoods appeared to be of better quality. I mentioned this to a non-furniture industry person and this statement brings me back to reality, “Everything is made of particleboard and when it is wet, it is ruined.” I guess my vision of carefully constructed pieces is a part of history until I remember Stickley, Harden, and others.
With that thought, I went into the research to better understand why consumers made their last furniture purchase. The graphic below presents the statistics from Impact Consulting Services, parent company of Home Furnishings Business, most recent consumer survey:
WHAT WAS THE PRIMARY REASON YOU DECIDED TO MAKE YOUR MOST RECENT FURNITURE PURCHASE?
Furniture Replacement has more than doubled, as the reason to purchase, in the past 15 years. Along with other consumer durables, the furniture industry has executed a product strategy, which assumes the consumer does not have an expectation of durability. Along with washers/dryers at 2-4 years and refrigerators at less than 10 years, we joined the disposable economy.
Without a doubt, the prices for furniture are stagnant, as can be seen from the Consumer Price Index (minus 2.3%), covered in the preceding forecasting articles.
The major question is, “Is that what a consumer wants?” Yes, the major appliance brands pursued the strategy using offshore contractor plants to produce their products at the lowest price. The results, the premier brands – Viking, Wolf, Subzero – captured the quality position with higher prices.
Will our industry segment into two quality standards, one for the “curb” in two years and the other for a lifetime of enjoyment? Let’s give the consumer a choice and not just believe they want cheap.
September 4,
2017 by Jane Chero in Business Strategy, Industry
According to a Credit Suisse report, ALL retailers are failing in record numbers. It is projected that 8,640 will close. This is up 40% from its peak in 2008. We will leave this discussion for the October issue on State of the Industry, but will say that ecommerce alone is not causing this Armageddon.
The internet can be the solution to survival for the independent furniture retailer. The major concern today is the absence of traffic that is coming through the door. Instead of defining this as a problem, the retailer needs to embrace the fact that the consumer coming through the door is more informed about what they want and have selected your store as one of the two they have chosen to provide a home furnishing solution. Without a doubt the traffic is down. Statistically, the close rate should be 50% if your performance is average. This is adjusted down for consumers that do not purchase anywhere. It should be in the high 30%. However, the traffic that arrives at your door is ready for you to provide that home furnishings solution.
For retailers their website is the first touch point for the consumer and their store. Even if your store is not first shopped (49%), ultimately it is an influencer on 72% of all consumers that buy. Your website cannot be one and done, but a continuous process of improvement.
As a retailer does with the brick and mortar store when walking the floor critically assessing how to make the merchandise more appealing, questioning retail sales associates’ product knowledge, and evaluating their readiness to assist the consumer, all of these must also be done on the retailer’s website.
Today, the retailer embraces digital. However, is it merely lip service and dollars spent for results? There are many digital vendors willing to provide the magic solution to drive traffic to your store and entice them while they are visiting. The retailer must take a critical look at what is being communicated to prospective consumers via email blasts and presentation on the site. What happens in the digital world should match what happens in the store. Let’s go forward and understand the buying process as it relates to the internet and how to measure digital success.
From a consumer’s perspective, computers and their hand maiden, the internet, have moved beyond business applications and become essential to daily existence. With the coming of voice commands integrated with artificial intelligence (AI), the prospect of “pepper,” the human-shaped robot designed to be the humanoid companion is not beyond belief.
We are still years away from the time when all of our needs will be dutifully performed by a machine that understands our every taste level. For now let’s understand the consumer’s perception of shopping for furniture on the internet.
In terms of marketing, the first promise of the digital evolution was that the consumer could pursue product information on his or her schedule and not be the target of mass marketing’s continuous bombardment with enticements to purchase. While there is now an abundance of information on the internet for any product, the consumer is still targeted constantly with an estimated 360 impressions daily. With all of this noise it is understandable how one could conclude that the demise of brick-and-mortar retail is inevitable.
While it is painfully obvious that retail stores ARE closing (think HH Gregg and Sports Authority, for example), only a portion of that lost volume can be attributed to the explosion of e-commerce. The truth is that the overzealous opening of new stores was beyond the justifiable increase in demand. Fortunately, furniture retailers, either because of prudence or the lack of capital, did not enter this frenzy of store count expansion. Just as the dotcom bubble tried to translate “eyeballs” to revenue, the concept of more locations in a single market did not directly translate to increased revenue. Now the piper must be paid.
What about the impact of the internet on the furniture consumer? Let’s follow this step by step through the buying process. For a brick-and-mortar store the fear is that the consumer will go on the internet to research furniture and will purchase from someone else. The internet is a given for the consumer to accomplish the research, and consumers simply do not have the time to visit the five to six stores that they did a decade ago.
No matter where the consumer ultimately purchases, the first step (54%) for the majority is to visit the internet before visiting the stores. Graphic A illustrates the sequence steps for the consumer in his or her buying process.
Steps In Buying Process – A
It should be noted that for a significant percentage of consumers (40%) the initial step is still to visit a store before going to the internet for research.
Let’s put a perspective on the fear of e-commerce for the brick-and-mortar retailer. Currently only 11.65% of purchases (not dollars) is made on the internet. Table B breaks down purchases by retail channel.
Type of Retailer Purchased From – B
Let’s understand the buying process beginning with the impact that internet advertising has on the furniture consumer. The internet and, specifically the web presence and e-mail, are indicated by 37.5% of the consumers as the most influential advertising media on the intention to purchase furniture. This percentage is more than double that of other advertising media as seen in Graphic C.
Media - Pie Chart – C
This influence is not to be confused with social networks such as Facebook, Pinterest, etc., which have a number one position for only 8.5% of consumers who purchased furniture. The challenge for retailers is to translate that consumer traffic to the website into traffic into the store.
Furniture is not a commodity product, at least not yet. Less than 30% of consumers consider their furniture purchase as “a practical purchase that meets my basic needs.” The majority of consumers believe their home furnishings must communicate “who I am” and reflect a sense of current style.
Table D illustrates the consumer’s attitude toward decorating and home furnishings.
Table D
Significantly, the number of consumers who ultimately purchased on the internet exceeds the number who purchased in other distribution channels in both the “practical” and “style” attitudes, and only scored less with the consumer who was interested in projecting the image of success.
Today’s consumer is very interested in buying furniture, with over 68% either thinking about a purchase or has already begun the shopping process. The remaining consumers are actively shopping or have purchased. As can be seen in Table E, those who are actively shopping are predominately online purchasers or those who have purchased from brick-and-mortar retailers.
Stage of Shopping – Table E
As would be expected, the female most frequently initiates the first mention of the need or desire for new furniture. No matter if it is an individual or a partnership, with 49% being female or 21% with spousal partners, the ratio is 3 to 1 female. However, when compared to historical research, it represents a significant change from the 8 to 1 female-to-male radio in the 80’s. The information is presented in Graphic F.
Graphic F
However, as seen in Graphic F, the ratio for the internet purchaser increases to 3 to 1 for the female furniture consumers. Unlike other consumer online purchasers, the female has embraced the e-commerce distribution channel.
Graphic G
It is interesting to note that, on average, the internet purchasers shopped more retailers than the brick-and-mortar purchasers. Additional research will be required to understand better the reason for this. Was it to confirm both price and quality before making the leap to purchase online?
Graphic H
A common belief is that the internet purchaser does so because he or she doesn’t want to drive to a distant store. However, the research shows that the consumer who purchases on the internet is as willing to drive to shop for furniture.
Graphic I How Long Did You Shop Before Making a Purchase?
The major perception is that the internet purchaser comes to a decision faster than the brick and mortar consumer. The fact is that 29% of internet purchasers shop longer than one month as compared to 21% for the brick-and-mortar customers. We believe this is connected to the internet purchaser that is driven by selection.
Graphic J How Was Your Last Furniture Buying Experience?
Fortunately for brick-and-mortar retailers, the internet purchase rated their experience 6 or 7, with 7 being rated excellent only 53% of the time as compared to 58% of the time for the brick-and-mortar retailer. As can be seen from the graphic, the internet tended to be more exuberant with 40% being excellent. Are they trying to convince themselves of their decision?
Graphic K Specifically, Experience by Area
As seen from the graphic, brick-and-mortar consumers give the highest ranking (7) for courtesy of store personnel (41.6 %), product knowledge, (33.8 %) and product display (33.9%), but rank almost evenly with ease of shopping and product selection. There is still an advantage to being able to talk with knowledgeable sales associates and to experience a great visual display.
In summary, the Internet purchaser is a fact of life. The challenge for brick-and-mortar retailers is to make their advantages known to the consumer. Today’s drive in ecommerce is virtual reality to assist the consumer in making product decisions. Will it ever replace a competent retail sales associate?
Without a doubt, the internet has brought about a change much like that of the Industrial Revolution, which moved our society from agrarian to urban in the span of two generations. But what has the internet done to our focus – furniture retailing?
During the past decade, furniture retailers have developed an Alternative Universe. Do not panic! We are not spinning off into science fiction and losing our touch on reality. The advent of the internet forced the furniture retailer to create a virtual store where 72% of all furniture purchasers visit before making a purchase. The furniture retailer had little choice but to establish a web presence. In the early days, some were no more than an expanded “yellow pages,” which were produced by the retailer’s high school-age nephew.
Now, retail sites have expanded from placeholders with the address, brands carried, and store hours to expansive catalogs of every product made by every supplier carried in the retailer’s store. The concept of “the endless aisle,” while important in other industries, lacks importance in the furniture industry. For the furniture retailer, the average time on a site is less than five minutes (for non-ecommerce sites).
The website was envisioned by the early adopters as a way to reduce the cost of advertising. The idea of having consumers visit a website to preview the merchandise when they are ready to purchase furniture, which cost the retailer a fraction of what newsprint and television cost was exciting.
What has transpired is internet research has reduced the number of stores shopped, which has resulted in the industry standard of measure cost per up to increase. Currently, the cost per up average for all retailers is about $14, but can range from $12 to $40 depending upon the size of the retailer. The accompanying graphic illustrates.
In truth, more retailers have not totally embraced the digital advertising strategy and still spend less than one-half percent of sales on internet advertising. The subsequent table presents the expenditure by type of advertising currently.
The question is why continue the older medium and not entirely embrace digital? The fact is, with the current furniture buying consumer, digital has not been as effective as the more established television/print.
For sure, the future, with the approaching millennials, digital will be more effective. Television viewing and newspaper readership are declining. Direct mail, especially targeted demographically/psychographically, with content tailored to the recipient, holds great promise.
A great question for furniture retailers is what is the purpose of their site? If not for e-commerce, what is its objective? For this discussion, let’s put e-commerce to the side.
Most sites today have emerged as super catalogs, which present all products merchandised by the retailer, along with all products sold by their vendors. While this addresses the much touted “endless aisle” that many experts believe the consumer wants, it also challenges the fact that consumers spend less than three minutes on a non-e-commerce site. The graphic illustrates.
It is frustrating for a retailer to create a virtual store in which 72% of his customers may visit, but leave for the most part anonymous. Is this different from most advertising, either by direct mail or television? We should take as a positive the consumer spent more than three minutes previewing your store, the merchandise you carry, and the services you provide.
When designing your website, it is helpful to conceptualize it as a store. Your store design has been perfected over many years and has been effective in guiding your customer through the process of creating a beautiful room. The table presents areas of comparison.
There is nothing like the first impression, whether it be in your store or on your website. The first twenty feet of the store, often referred to as the Landing Zone, sets the expectation for the consumer as to what awaits them. Outstanding visual display of new products, service commitments, and special sales usually greet the consumer at the door. The Home Page of the website is the comparable element. The typical furniture retailer’s website has incorporated slides to present new product – a good solution to establish the style/quality of the merchandise you carry.
Unfortunately, this first impression can deteriorate over time into a haphazard collection of messages and promotions all screaming for attention. Would you let your vendors plaster signs over the windows of your store? Who is the editor of first impressions?
In your store, the important first step is to engage. Tailored to the vision of the store, whether a receptionist or the next salesperson in a rotation, it should be welcoming. The measure of your success on your website is the bounce rate at the home page. Best practices in the industry is an 18%-20% bounce rate for the home page and 20%-40% for the overall website.
There are many variables that impact these statistics, such as the percentage of mobile traffic, Facebook traffic, etc. The key is to measure your site continuously and understand the reason for any changes. The graphic illustrates the weekly monitoring.
Recently, the industry has seen heavy use of a “Pristil,” which is a fancy word for the intrusion of the consumers visit, enticing them to enter a drawing or to provide an email address for future mailings. While this service results in 3% to 5% of consumers doing so, the impact on bounce rate and the quality of the lead has not been accessed.
The next element in the store is for the retail sales associate to establish rapport with the consumer and to better understand what they are looking to purchase – needs assessment. This is a major challenge for the virtual store. While the search engine has been perfected over the past decade, the consumer has a difficult time in communicating what they have in mind. In fact, in our on-going research, when we ask a consumer why they did not purchase from a retailer, a typical response is “could not find what they were looking for” (30%-40%). This is for well-managed retailers. How would internet consumers respond?
The next step is the product presentation. The typical interaction with the retail sales associate and the consumer on the floor is 35-45 minutes. Of that time, about half is involved with the product presentation. A seasoned salesperson would have narrowed the choices for the consumer to 3 or 4 of the most probable selections, along with a step up and step down in price. With each of these choices, there’s a features and benefits story, as well. While a product spec sheet has the same information, it can’t be presented in such a way as to narrow down to a decision.
The final steps of handling objections and closing the sale are best done in person. While “chat” provides an alternative, with over 50% of all e-commerce involved in “chats,” it is difficult to engage the non-ecommerce consumer on-line. The application is inexpensive, but requires a dedicated person to handle all chats.
Obviously, all sites have an “inquiry” function that generates about 1% of unique traffic. The inquiries must be handled within an hour to produce results.
The key to success is to monitor your site and to investigate any changes. While Google Analytics provides a mountain of statistics, focusing on the important ones and relating them to your operation is essential.
We believe the following are important.
Tracking your unique visitors against the purchasers in your price point will provided a perspective of the effectiveness of your advertising, both print and digital. Comparing your visitors to the “ups” in your store is critical. The difference between the traffic to your site compared to your store is the most revealing. While the consumer only “shops” two stores, they visit five to six on average on the internet. If a retailer can achieve a 1:3 ratio, it is outstanding.
The goal is to minimize the clicks for the consumer from the home page to the product in which he or she shows interest. The industry average is 4-5 pages. Understanding how your web design impacts your pages visited is critical.
The industry average of 3-4 minutes on the site confirms the consumer is just previewing your store and not seriously making a decision.
Understanding the different sources of traffic to your site will better allow the retailer to incorporate his website into his overall marketing plan.
Most sites today have been designed for mobile devices. Obviously, the percentage of mobile usage impacts other statistics.
While research shows social media is not very effective in influencing the consumer’s intent to purchase home furnishings, it is very effective in building brand.
The website is an important part of a furniture retailer’s marketing strategy. Creating a positive experience on the website will influence the percentage of time the consumer visits the store to consider a purchase.
For Wichita Furniture founder Jay Storey, the choice was clear. In fact, there really was no choice.
Traffic at his 59,000-square-foot store in Wichita, Kan., was falling fast with no bottom in sight. If he didn’t make a radical change soon, the business he started in 1989 with $5,000 in borrowed money wouldn’t be around much longer.
The only choice was to swallow hard and go digital. That meant replacing a website that contained barely more than the store hours and directions with a full-fledged transactional e-commerce website. And never looking back.
“The revolution is over and the customer has won,” he said, borrowing a quote from a retail pundit whose name has been forgotten. “They are going digital. It’s done. It’s over. We can either get on board with it or we’re done.”
And since he took that leap of faith a little more than two years ago – with a lot of encouragement from his Millennial son, Jordan, the company’s marketing and e-commerce director – the hyper-growth in sales generated by the website has more than offset the decline in store traffic.
Website traffic, in fact, increased more than 50% in 2016, and the company now routinely delivers more than 3,000 pieces of furniture a week.
“Our brick-and-mortar traffic has continued to decrease, but our web traffic has exponentially picked up where the brick-and-mortar traffic has left off,” said Jordan.
Jay Storey said driving that website traffic meant taking another leap of faith by moving a sizeable chunk of marketing and advertising dollars away from traditional broadcast and print ads and into digital marketing.
Today, about 30% of the marketing budget is set aside for digital, and he said the company has been especially successful using Google AdWords, which allows a company to “buy” specific search words. In turn, that gives the user the ability to know who is using Google to search for, say, a recliner, or is visiting websites that include information about recliners.
“One of the beauties of Google is that we’re now able to have that rifle approach where we can target our audience way more than we can from a traditional media standpoint,” said Jordan Storey. “With Google analytics, you can really go into one-on-one marketing.”
And that one-on-one marketing, for example, can result in a Wichita Furniture ad appearing on a non-furniture website when that consumer who was searching for information on recliners moves onto something else on the Web.
“It would probably scare you to know how far Google can take you into their audience,” quipped Jordan Storey. “The truth of the matter is we know who is looking at what, when they’re looking, and where they’re at. And therefore, you have the opportunity to reach them.”
Or as his father puts it, “With Google, you have the ability to find the person with a need, versus spraying (your advertising message) out there and praying that it works.”
Jordan said he especially likes the ability to target specific age groups or other demographic profiles. He said such targeting is typically not possible with traditional media because demographic data is often outdated.
“But digital data is real time. And you can change it immediately if you need to,” he said.
And while Wichita Furniture does ship furniture nationwide – usually smaller parcels that are sent via UPS or FedEx – the Storeys said the biggest benefit of the robust e-commerce platform is the product knowledge it provides consumers, noting the clear majority of them do extensive online research before deciding what store to visit.
“It’s the online education that gets them to transact in your store,” said Jay Storey. “They’re not going to transact as much online because they want to come in and touch it and feel it. But when they walk through the door, they will hold their phone up and say, ‘I want to see this item’.”
Although he wouldn’t disclose specific numbers, Jordan Storey said the improved website has significantly boosted close rates even as traffic has fallen. That has kept retail sales associates fully engaged, knowing that many customers walk through the door ready to buy – and they may walk in with as much product knowledge as the staff.
“It has helped our metrics across the board … close ratios, average tickets, sales per guest, and so on,” Jordan said of the website. “We clearly have a more educated consumer.”
And his once old-school, furniture industry-veteran father knows there is no turning back. He says there is no question that going digital is a huge leap of faith that requires a large investment of time and money, but it’s a necessity rather than a luxury.
“You never will fully grasp the digital world because it changes to fast,” Jay Storey said. “You have to pick and choose where you’re going to go and be the best and what you do. You cannot just be OK at everything.”