From Home Furnishing Business
Unfortunately, many small and medium sized retail furniture stores cannot answer these questions positively. Even some larger ones would struggle to hit on half of them. Obviously, the key query of the four is the initial one. Because the result of a proper, formal sales management training effort should be that a store’s sales management team focuses on customer experience, has the right systems/procedures and uses the numbers to coach and drive sales growth. In my experience, fewer retailers today invest in a professional training program for their sales management team than in the past. As a result, most sales managers I meet are self-taught, which in many cases means they were basically trained by the very people they are supposed to manage. I think we can all agree that is not the best scenario since a key component in managing a sales staff is accountability and that is not something that many sales people are apt to ask their manager to provide on the sales floor.
When I started in the business over 40 years ago, there were many programs and providers available for a furniture retailer to choose from that would help their sales managers get started on the right foot. They also helped upper management learn how to coach the coach, which was the key to having consistent success developing great sales leaders for our industry. At the time, the strong domestic vendor structure we had in the USA supported and promoted these programs. As a result, most managers I encountered then had taken advantage of at least one opportunity. While there are still some organizations and consulting companies that offer this type of learning experience for retailers, it seems that fewer and fewer stores are willing to invest the time and money to train their sales managers. We then wonder why it is so hard to hire, develop and keep good sales people in our stores when a key to making that happen is having a strong sales management effort on the sales floor.
In many of the past Coach’s Corner columns we have pointed out what managers should be doing to drive sales performance improvement in your stores. We have presented our thoughts about hiring, coaching and training sales people. Last May we discussed the essence of sales management and the things you need to put in place for it to deliver the results you want. This month I thought we would give you some insight into the elements we think you should have in any sales management program you either provide in-house or receive from an outside supplier. Together with the foundational information presented in last year’s issue, you should have a pretty complete picture of the areas you want to address in your program.
The May 2017 Coach’s Corner article includes details about sales managers being agents of change, the need to develop a high-performance organization and underlying principles your program should address. These will provide a good basis to introduce your program and position it as a part of your total approach to business. Once that is done, our course covers the two major areas critical to managing a sales team: The first is Management Functions, which include decision making regarding policies, strategies and the establishment of your basic structure/systems. The second one consists of the Coaching Disciplines, which are the functions that define the sales manager’s job on a day-to-day basis.
The Management Functions
As we have discussed in many previous articles, there are three key measurements that provide the foundation data for driving performance improvement in furniture stores: traffic (number of UPs), close ratio (number sold versus number seen), and average sale (total volume divided by the number of sales made). A fourth measure — revenue per UP (total volume divided by the number of UPs) — is also important to management for analysis of overall individual effectiveness. Your section on measurement must discuss these in detail, showing how they can be used by managers to determine store and individual potential and establish the service standard for handling customers and begin the goal-setting process. Whatever system you use to track and report these critical metrics must be in place and your managers should be schooled in how to use it, from data entry to report creation.
Managers must participate in developing your store selling strategies, so that they have total buy-in on them and understand why they exist. This will include polices and procedures, plus tactics that lay the groundwork for implementation of the principles and methods in whatever sales program you use. This is where management sets the rules of engagement for the entire selling process, including your UPs System, selling steps, client development and other customer focused elements that your sales team must perform.
Staffing and Scheduling / Recruiting and Hiring
Managers need to be trained on how to use the information from the previous sections to determine how many salespeople are needed to fulfill the selling strategy and to ensure that adequate time is allowed for them to do it with each and every opportunity they encounter. Time related traffic counts must be used to determine when floor coverage is required, and a secure monitoring system should be put in place to maintain the information flow. Once this is known, the next critical step to staffing is recruiting and hiring. Insights need to be given into successful strategies and methods to ensure that sales managers always have resumes on hand from people who want to work in their stores, that they can reach out to when openings develop. Finding good people is a function of good recruiting practices and having high-performance managers.
The Coaching Disciplines
Your segment on goal development must present the principles and methods for motivational goal development utilizing knowledge and information from the previous sections. We recommend developing employee-centered goals as a method for gaining commitment. Goals that your sales people develop for themselves provide them with ownership and create far more motivation then those management gives them. We utilize a workshop to ensure that sales managers employ correct methodology when assisting employees in setting their goals, so that they are meaningful and drive the growth the business needs.
Your program must provide managers with specific methods and instruction in how to train adults so new skills will be learned and applied in real life situations. The use of structured, non-threatening role plays ensures that a high percentage of new skills will be internalized by participants. They need to develop a training schedule for new hires which gets them prepared to begin assisting customers in as little as three weeks with high levels of product knowledge and selling skills. Then they need to be prepared to use the following steps to help the new hires and existing staff members become as successful as possible.
Observation as a Management Tool
Observation is your manager’s best tool for determining who and what to coach. Therefore, they need to be trained to use on-the-floor observation of individual performance as a key coaching method. You need to provide guidelines and suggestions to make this concept become part of the store’s performance improvement culture. Observation should be directed by the performance measurements and focused on improving them. This is your key form of visual performance measurement.
Feedback for Performance Improvement
Observation without feedback is a waste of time, because it is feedback that drives behavioral change and performance improvement. Your program must present the paramount importance of daily feedback as a crucial coaching tool in the goal management process. Make sure your managers understand the importance of making goals achievement a primary management and organization focus.
One-on-one meetings are the most effective method to achieve immediate and long-term results. Your program needs to take participants through the structure and format of a one-on-one meeting between a salesperson and a manager. This is where the rubber meets the road and is the most powerful communication opportunity managers have with their staff members, therefore they must be trained how do it right consistently.
Supervisor meetings are all about coaching the coach. Owners and GMs need to be trained to use the same methods discussed in previous chapters, so they can meet regularly to drive improvement to the sales management process for the organization. Your program needs to present strategies that will ensure that the management team works smoothly together and establishes systems for regular high-level communications.
Sales Management Training Summary
We believe that the above list is the bare minimum that needs to be addressed in a sales management training program for the retail furniture business. Any sales manager who becomes proficient in the performance of these factors will be successful, because managing in accordance with these principles, methods and practices will help remove some of the dangerous subjectivity and personal trauma inherent in the process of dealing with individuals from a position of leadership. Performance results dictate outcomes; difficult decisions regarding individuals can be made based on detailed data rather than on opinions and guesswork.
Any program you create yourself or purchase from an outside provider, should be a holistic one that embraces the entire selling experience related to the buying experiences of your customers. If your sales manager has not had any formal training, someone needs to start coaching the coach to help them develop into the sales leader every store needs. As a sales management consultant, I highly recommend that you check out the programs that are available in our industry, find one that fits your store culture, then invest in your manager so they can return the favor by growing your business.
“The term ‘solid wood’ lost a lot of meaning during the flood of imports, starting in the early 2000s with China joining the WTO,” says Gat Caperton, president of Gat Creek Furniture. “Five to 10 years ago, many retailers would say to me, ‘No one cares about solid wood anymore.’ Today, people care again.”
High-quality, high-end American-made furniture should be in demand for a lot of reasons, says Charles Curry, vice president of sales and strategy, Simply Amish. “American ingenuity has created some of the finest products in the world. Is it all about price? To some consumers it is,” he says. “Retailers are smarter than ever, but are losing money by not catering to those buyers who want higher-end product, customized to their exact wants and needs.”
Some of the reasons for the renewed interest in solid wood, says Caperton, are quality and the growing importance of having a healthy home.
“Solid wood is still one of the best building materials ever available,” he says. “It’s long-lasting, beautiful, and repairable. The furniture makers of the past were often called joiners—these are people who knew how to join two pieces of wood together to make something functional and long-lasting.
“Healthy home is about not bringing chemicals into the home. MDF and plywood are potential carriers of formaldehyde and other VOCs,” Caperton adds. “With solid wood, you know what you get, and you know that it’s natural.”
Luke Simpson, president and CEO of Durham Furniture, based in Durham, Ontario, Canada, expects growth in solid wood to continue “as consumers want to own quality more and more.”
“We’re seeing consumers return to heirloom-quality solid wood product after experiencing the shortfalls of lesser quality product,” says Simpson. “For many, ‘solid wood’ includes those products created from wood, including plywood, medium density fiberboard, and veneer. At Durham, solid wood does not include these products—all of our pieces are pure solid wood, including end panels and drawer components.”
Furniture becomes a part of your life, says Curry, “so case pieces that are funky, askew, and aren’t even wood, are akin to putting a rusted, oily engine block in your living room, and using it as a coffee table. Although that’s being sold as steampunk.
“American companies who still manufacture domestically would be well-served, in my opinion, to focus on design, quality, and instead of bludgeoning each other, band together to create a marketing campaign that resonates with American furniture buyers, gets them excited, and gets them into stores,” he adds.
A Trend Toward Softer Woods Online
Keith Covey, president of New Ridge Home Goods, an online retailer of birch storage products, has seen a trend toward softer woods, particularly pine, in the online space.
“That is part and parcel to the fact that the price points are more important than the actual wood,” he says of the uptick in pine. “Everybody’s using pine because it gets you to the price point where you need to be.”
New Ridge Home Goods has basically one line, Covey says, and has found its greatest success in what could be thought of as an unusual space—the bathroom. “It’s kind of been an underserved room in the home, [that] the traditional furniture store has certainly forgotten,” he says.
“For us, space savers, bathroom stools, shower stools, ladder shelves, any of the occasional furniture you might find somewhere else, the solid wood end of it has been very successful.”
The Right Price
Price points for New Ridge Home Goods are fairly low. “I would say our key pieces are $99, and that really goes back to the dot-com end of things,” Covey says. “It becomes very crucial to hit those specific price points for folks—$99, $149, $199. You can certainly find products for less money, but we try to do a better product.”
Gat Creek’s bestselling line is called Vineyard. “I created it 17 years ago,” says Caperton. “It’s based on New England Shaker, Arts and Crafts design.” Bedroom cases range from $2,000-2,500 in the collection, with a dining table and four chairs around $2,500-3,500.
The Defined Distinction Bedroom is Durham’s bestseller, with the four-piece collection, including queen bed, nightstand, dresser, and mirror, retailing for $6,500-7,500.
“The combination of solid cherry construction available in multiple finishes, brushed stainless steel bases, and dealer support of the collection have made it a top seller for the company,” says Simpson.
A bestseller for Simply Amish is the casual contemporary Auburn Bay dining table, with a retail price of $3,342 and available in soft maple and six other hardwoods, with custom surface treatments available. Another of their bestsellers is the modern-style Wildwood Cross Base end table, available in walnut and six other hardwoods, retailing for $1,620.
Contemporary Styles, Customization Find Popularity
Caperton describes Gat Creek’s second best-selling line, Sabin, as a contemporary take on classic forms. Their fastest-growing collection, Monaco, is also a contemporary take on traditional.
Contemporary is a bestseller for Durham Furniture as well. “In the last year or so, our bestsellers have been more contemporary than traditional,” says Simpson. “The majority of our contemporary lines have been introduced in the last three years.”
Durham offers more than 40 finishes on their collections and has found customization helps drive sales. “There was a time when solid wood was only offered to consumers the way the manufacturer presented it,” says Simpson. “Today, consumers want their purchases to reflect themselves, so providing customization options is the biggest change we’ve seen in the last few years.”
Designs are getting very creative, Curry notes. “You’re seeing larger American companies do designs that traditionally came out of boutique builders,” he says.
Caperton has seen a shift in colors and finishes, from warm tones to cooler. “Cool tones are grays, whites, and ‘walnut’ brown,” he says. “A secondary trend is away from glossy and thick finishes. People prefer a close-to-the-wood finish. This type of finish looks and feels more natural. Thick or glossy finishes too often remind people of plastic.”
When Veronica Schnitzius came to the United States in 2004 to work on her MBA, her goal was to earn her degree and then return to Colombia. But fate had something else in mind.
While the path up for most executives begins in sales and marketing, Schnitzius started her career as an industrial engineer with KPMG when she returned to Colombia after college to wait for her visa.
Back in the United States—after a brief time with The Leather Center, before it declared bankruptcy—she joined American Leather, also as an industrial engineer, and moved through the ranks to cutting supervisor, assistant production manager, director of product development, vice president of operations, and chief operations officer.
Last October, Schnitzius was named president of American Leather, a company with more than 500 employees and a facility with more than 350,000 square feet.
She recently spoke with Jason Schneider, associate editor of Home Furnishings Business, about her career path, her goals for American Leather, and how the company will continue to disrupt the market.
Home Furnishings Business: Your career has been built from an entry-level position. Besides working for a great company, what led you to take this path?
Veronica: When I was going to college, I had to do an internship, so I got a job here in Dallas with a company called The Leather Center, as an intern. I worked with them for six months, and when I finished my internship, they said they wanted me to keep working with them, but I had to go back to Colombia to finalize my degree.
I had one more year, so I went back [to Colombia] and when I was there, I worked for KPMG as an industrial engineer until my visa came in.
When my visa came in, I came to Dallas to work for The Leather Center; unfortunately, they went chapter 7 seven months into the job. As an immigrant, that’s not a great thing. A month later, I was working here at American Leather and I’ve been here for 16 years in May.
I wish I could tell you it was a plan. It was destiny, you know what I mean? God had a plan for me to come here. My plan initially when I decided to come to the U.S. was because I wanted to do my MBA in the U.S., so obviously having a visa and a job makes it easier to come and start a life here.
When I lost the job [at The Leather Center], I ended up doing the MBA while I was here at American Leather. My plan was to come, work, do my MBA at night, and then in five years I would be back in Colombia. That was my original plan, but it deviated a little bit.
HFB: The usual path up is through sales and marketing. Yours has been through production and product design. What have been the advantages?
Veronica: Advantages? I don’t know, because this job is pretty new to me. I only have been [in this position] six months, so I’m learning a lot.
Understanding the operations and how things happen is good, and now I’m learning the sales and marketing side. I don’t know if that is an advantage, but it’s a different learning you have to go through. I’m more about execution, about what can be done, what we can really commit to.
The only advantage I can think of is maybe credibility with the customer, because somebody in execution, they have done it and they know when it can be done. I know if I’m giving them a delivery date, I have that credibility because I have done it and I’m not just talking about it.
HFB: As a woman in the industry, have you experienced any discrimination?
Veronica: As far as my career in general, there’s still a bias to being a woman, as much as I don’t want to think that. Instead of me complaining about what we have to go through, I guess I try not to think about that; I just do my job, be very professional and show results.
There is discrimination, and there probably always will be. That’s the world we’re in. My job is to show that I’m capable of doing any person’s job—a man’s, another woman’s—and just show results. I don’t want to get too hung up on being a feminist; I want equality for everybody.
I don’t want to look at people based on gender, or the color of their skin, or their accents. Show me what you can do. Show me the results. The final product is [the result of] skills and capability. Because a lot of times, people have the skills, but they don’t want to do the work.
HFB: What changes have you seen in the industry?
Veronica: I would say not as much as you might think, in the sense that this industry is a little less like technology, that changes dramatically. I think people are comfortable with the way they do things.
I think there’s more pressure now for more transparency, what’s in the products. The regulatory aspect obviously is forcing some people to do it. I think that people are more into technology, more into cutting equipment. The employees are changing; after the recession a lot of people got out of the furniture industry because a lot of the manufacturing went to China. Now it’s coming back to the United States.
I think we’re being forced to put more technology on the manufacturing side; that’s just what I’m seeing in the industry. Now it’s harder to get experienced people, and technology is becoming a bigger part of the manufacturing process. As far as the retail side, there are a lot of big players coming along; there’s a lot of consolidation in the industry. Those are some of the things I see.
HFB: American Leather has an extremely loyal dealer base. How will your company assist them with the consolidation trend for smaller retailers?
Veronica: What we’re doing is continuing to learn. What we’re trying to do is help them make sure that we continue to have amazing products, quality, and delivery, and keep working with them on how we market the product, how we make people aware of how to buy there, why local, why American Leather, why the store.
Every dealer is different, and it’s not like there’s one magic bullet that fits all. Our job is being out there, learning, listening to what they’re saying, listening to what they need, reacting, so it’s a win-win formula.
I think there’s still going to be room for big and small, because people buy differently. The big chain stores are for some people, and some people, they hate it. Variety. I think that the biggest thing with the small stores is making sure that they can execute, making sure they can deliver, making sure they can pay the bills.
We always say that we do more dollars per square foot than anybody else, so if they don’t have to have any inventory because we ship fast, it can be more efficient, and they can get more money for other stuff, so that’s our job.
HFB: Is direct-to-consumer via ecommerce or American Leather stores a consideration to contend with a lack of retail partners in the upper/premium price points in all markets?
Veronica: We are continuing to learn how the landscape is changing. We don’t know where things are going to go, but we are going out there, learning, listening, experimenting, moving with the times. We have loyal customers and we want them to be part of that.
HFB: What opportunities for growth do you see for retailers?
Veronica: I think there’s a lot of opportunity. I think a lot of people want to buy online, but they still want the touch, the feel, of a store. I think the opportunity is, how do we make brick-and-mortar work with the digital world. Both are needed.
I think the opportunities are to make the process where there’s less friction for the end consumer, where they want to go in the store, spend time in the environment at retail stores. Make it easier for the end consumer to have a reason to go to the store. Those are things that you cannot get online—they cannot give you the touch, the feel of it, the comfort of it. The personalization of it is not as easy online.
HFB: Production innovation requires investment in an industry known for knock-offs. Why the American Leather commitment?
Veronica: For us, it’s like “why not?”—the opposite. For us, innovation is what’s going to separate us, what is going to differentiate us from the competition. Innovation is part of the core of this company; it’s the DNA of the company. Speed, innovation, quality, and people—those are the four pillars to us.
Why the commitment? We don’t want to be like anybody else. We want to keep separating ourselves, so we keep giving our customers an advantage.
If we’re like everybody else, it’s just a question of price, and it’s not just about price—consumers want value, they want something different, they want special. That’s what innovation can provide.
We in the company are very excited about the future. We want to continue to grow the products that are innovative for our customer. We’re going to continue to disrupt the market—being faster, bringing things that nobody else is wanting to do.
We want to be that company that people [look at our products and] say, “Wow, that’s cool.” I want them to be copying us because we don’t want to be copying others.
We will forget for the moment, these brick and mortar retailers that have a physical presence that we can drive by and consider the silent invaders of the Internet. Okay, this is not a new story. Depending upon what product categories are included, 15-20% of all furniture and bedding is sold on the internet.
The initial invasion of the internet was facilitated by the traditional retailers. While the industry was slow in establishing a web presence, often treating the new media as just an electronic “yellow pages,” they created a placeholder with address, and store hours, and brands sold.
With the help of pioneers such as FurnitureDealer.net and Micro D, many retailers have an outstanding web presence — a necessity in that 70%+/- of all purchasers visit the web to research price prior to shopping. The result is less stores shopped (UPS) but a better informed, ready-to-buy customer.
In the research process, the consumer stumbled across the early internet pioneers and was enticed by price and to some extent, selection. They defied industry assumptions that a consumer would buy without seeing/touching the product. We should have learned from the decades earlier experience of the 1-800 number invaders. Traditional retailers drove consumers to the e-tailer sites through advertising, giving the internet players an opportunity to cash in on the traditional retailer’s advertising.
The e-tailers grew from small renegades to behemoths like Wayfair and Amazon. They launched their own advertising with messages such as, “big items ship free” that are changing the basic business model of the industry.
Many traditional retailers have started to fight back by executing their own internet strategy. Today, the results have been minimal with their internet strategy producing less than 3% of total sales. However, the overall contribution could be more when the internet/brick and mortar strategy is combined. A physical presence should be a strategic advantage.
The latest battle tactic that is emerging from the digital invaders is online decorating assistance. Companies such as Laurel and Wolf should cause the traditional concern. The industry has long embraced the fact that if a sales associate secures a visit to the home, the close rate increases by two times and the average ticket does likewise. For years, the home plan was a standard in the Impact Consulting Training Program, and still is. However, the resistance from retailers that “my sales people will not do it” is the problem.
Before the online decorators seize the advantage, should traditional retailers create a “home plan” for the Internet?
From our historical experience, the invaders will not go away. We just need to fight back.
The industry is expected to grow 4.1% to $107.4B in 2018 (Table A).
This growth rate will place Home Furnishings in the top quartile of all retail distribution channels with an expected growth rate of 12.5% by 2019 (Table B). This growth rate is being driven by the demographics of the 25-44 year olds that are entering their prime home furnishings buying years.
While this is good news for the industry, there is a bad news component for the traditional segment of the industry. While the traditional segment share of the consumer’s furniture expenditure has declined, this opportunity will not be overlooked by other alternative distribution channels.
The independent dealers that had lost 11.4% of their market share by 2016 from 2011 will continue to decline. Impact Consulting Services, the parent company of Home Furnishings Business, believes there will be another 2% decline in 2017 once numbers are finalized.
The reason for the battle is the attractive gross margin that remains in the product category compared to other consumer products.
While the gross margin is attractive for the traditional brick and mortar retailer at 48-49% for retailers over $10M, many of the invading distribution channels will be targeting the total margin between first cost and the delivered price to the consumer at 70-78%. This restructuring of the total channel has been a viable strategy for many years.
This trend to collapse the channel is a significant challenge to the traditional manufacturers/suppliers to the industry. Increasingly they will be forced to solicit business from the alternative channels at a reduced margin. As the traditional industry consolidates, the entire selling process, such as markets four times per year, and territory sales representatives, will be pressured to cover more territory. An alternative strategy could be to pursue becoming a manufacturer vertical, such as La-Z-Boy and Ashley.
UNDERSTANDING THE BATTLEFIELD
Now we should understand the battlefield. The total furniture/bedding sold can be segmented into 982 markets, however, 95 percent is sold in 402 distinct markets. This foundation fact is the key strategic element in developing a plan to capture market share.
Each of these markets, dependent upon size, has a furniture retailer(s) presence that pursues the consumer. While the industry assigns different descriptions to the varying distribution channels — mom and pop, lifestyle, regional chains — the consumer selects where they want to shop based upon product selection / value / retail experience, along with eleven other factors that influence their shopping and ultimately the purchase decision. The challenge for retailers is to entice them into the stores by anticipating the expectations of each age group. Table D illustrates the current performance.
As is obvious from the table, no distribution channel has a dominant performance.
As would be expected, the millennial gravitates to the Internet, but more so to the mass merchants which includes IKEA along with Target and Wal-Mart in the mix as well. As these retailers expand their offerings, as Target is doing, they will become a major competitor for the traditional furniture retailer.
However, Generation X considers mass merchants but has an allegiance to regional chains and independent dealers as a retailer of choice for their furniture purchases.
Baby Boomers, along with the Silent Generation still prefer the local independent furniture dealer along with the regional chains.
The challenge for the traditional retailers is to facilitate that migration from the Baby Boomers they have served for decades to their children, Generation X. Yes, they need to anticipate the change required to meet the needs of the Millennials but for the next decade Generation X will purchase 40% +/- of all furniture purchased.
Now that we have defined the terrain of the battlefield and the population that needs to be satisfied, we will discuss the combatants.
UNDERSTANDING THE PARTICIPANTS
For the purpose of the article, we will forego the discussion of the mass merchants and recognize that 38.8 % of all consumers will consider this channel; 13.8% will consider but not shop; 21.9% will shop but not buy; and 25.5% will shop and buy.
For those markets with an IKEA, the statistics will be 29.1% will consider, 17.3% will consider but not shop, 19.9% will shop but not buy, and 33.7% will shop and buy.
Prior to the meltdown, Furniture Brands International (FBI) in 2017 was executing a plan to open in total 400 stores for each of its recognized consumer brands. The failure to execute could not be attributed to a failed retail strategy, but to a massive consolidation attempt. Ashley Furniture HomeStores has executed the strategy and now is the largest furniture retailer with 567 domestic stores, both corporate and individually owned operations throughout the nation (see map).
The basic differentiation of these retailers are that they design and produce their product either in their own plants or through contract plants that produce their exclusive product. There are four major players with the two major focused in the promotional/middle price points selling to consumers through their stores or with retail partners (Ashley only) under an exclusive distribution agreement.
Ashley, a manufacturer vertical, has 567 stores that cover 286 markets for a market footprint of approximately 74% of all furniture sold. Value City/American Signature, a retail vertical, operates 117 stores that cover a market footprint of 26% of industry volume.
In competition with these value driven stores are other retailers with a different business model — using a franchise model. Badcock &more participates in 141 markets covering 19% of the industry volume along with Slumberland with 86 markets covering 7% of the market. It should be noted that Art Van is utilizing this franchise model to expand into smaller markets while using company owned stores in larger markets.
The map illustrates the coverage and conflicts.
As can be seen (Map 4), the national presence of Ashley with competition on the East Coast with Value City and Badcock &more.
La-Z-Boy and Ethan Allen, retail verticals, focus on the upper/premium price points representing 28% of all furniture sold. La-Z-Boy covers 155 markets with its 299 stores and a market footprint of $80B in upper/premium sales. Ethan Allen covers 124 markets with 187 stores and a market footprint of $256B in upper/premium sales.
The opportunities for better end product should grow as the as the discount department stores (Target, etc.) commoditizes the product resulting in disposable product. Other upper end brands, such as Stickley Home Stores, may meet this need for better product. It will be interesting to measure the results of Furniture Rows venture into better goods.
The new distribution channel (lifestyle stores), such as Pottery Barn and Restoration Hardware, are the direct competition to these upper end manufacturer verticals.
Together these channels are just over 40% of total furniture sales. We have broken these retailers into three segments- National Presence, Regional Chain Expending, and Regional Chains: Grow or Be Acquired.
National Presences (More than 53 Markets – Revenue over $100M)
There are eight independent/regional retailers that have achieved somewhat of a national presence.
Of these retailers both Farmers Furniture and American Freight have increased their market footprint in excess of 20%. Market share of Rooms To Go and Slumberland, control more than 10% of their market footprint (total market).
While other retailers have begun to expand into additional markets, both Rooms To Go and Haverty have proceeded with a deliberate pace.
Regional Chains Expanding (10-52 Markets – Revenue over $100M)
For those retailers in more than 10 markets with sales in excess of $100M, it has been a year of growth for some.
Within this group, both Art Van Furniture and Bob’s Discount Furniture have accelerated growth. Art Van, via acquisitions and expansion, and Bob’s Discount through expansion.
Many of these retailers have market penetration in their price points in excess of 10%.
Art Van expansion has been significant as was Bob’s Discount in 2017. Chicago was the first market for direct competition between the two. However, with the acquisition of Levins and Wolf there will be more opportunity to compete.
Bob’s Discount has taken the aggressive strategy, skipping over to the West Coast to engage Jerome’s, Living Spaces, and MOR Furniture For Less. While Art Van has limited expansion within six hundred miles to utilize existing warehouses/transportation, Bob’s Discount has established new warehouses to enable future expansion.
Big Sandy has moved outside of West Virginia, a state they dominate, to enter the Columbus, Ohio market. The existing competition of regional chain, Morris Home, and local independent, Front Room, will present a competitive challenge.
Grand Home Furnishings continues its growth with a dominant position in excess of 20% market share.
While shown as competitive, both Room and Board and Baers are major participants in the upper/premium market and do not compete with the more middle price point retailers.
Regional Chains – Grow or Be Acquired
Those regional chains that are in more than four markets with sales over $100M are faced with the dilemma to grow, defend, or be acquired.
Each of these retailers are powerhouses in their respective markets, having, in most cases, dominant market share. As the expanding retailers consider their expansion, each of these players will be a barrier to their expansion plans.
In Wisconsin, Bob’s Discount has entered several markets in competition with Steinhafel’s. Obviously, Chicago has become a hotbed of activity with both Art Van and Bob’s Discount entering the market in competition with Room Place and Darvin’s Furniture.
In the North East, Bernie & Phyls, Jordan’s, and Cardi’s Furniture are vying for the consumer furniture expenditure as indicated by the red shading on Map #2, Grow or Be Acquired.
In the last year Furniture Factory Outlet has increased their market footprint by over 130% along with Living Spaces with more than 120% with an additional expansion into Texas just announced.
While operated as separate entities, the Berkshire Hathaway companies when combined easily fall into the category of national presence with a presence in 20 markets and a market footprint of 14% nationally. With that presence they easily could be an acquirer and be included in the national presence category.
Regency Furniture is a silent participant, expanding by acquiring. From its base acquisition of Marlo Furniture, it has acquired Mealy Furniture and is continuing its growth.
Jerome’s has expanded from its San Diego base into Riverside and Los Angeles and will be a formidable competitor to the new expansion of Bob’s Discount.
City Furniture is continuing to expand in a very competitive market against Kane’s and Eldorado.
American Furniture Warehouse, a dominant player in Colorado, has entered the fray in Phoenix and just announced plans for Houston.
HOM remains a dominant force in the Minnesota market, sharing the space with Slumberland, Becker Furniture World, and Schneiderman.
Hanes Furniture, while having a traditional furniture presence in Virginia Beach, has a national presence with its The Dump brand. While a different business model, it is a significant competitor to both upper/premium retailers as well as the more middle market.
We should not neglect to identify those powerhouse retailers that dominate their markets for any expanding retailer. These retailers typically, with more than 20% market share are difficult to unseat. The major retailers with a national presence with difficulty attain 5.8% market share. This fact should weigh heavily on the decision to acquire versus expand. Obviously, dominant market share is relative in relation to market size. The graphic is provided for strategic thought.
It is a critical time for retailers to decide their critical path. It is attractive to consider being acquired especially if there is no ownership/management identified. Likewise, it is attractive to expand to increase the potential value of the company. Expansion capital may be difficult to find without loss of equity. And the final thought is to stand a fight. All viable, all with risks and rewards.