Monthly Issue
From Home Furnishing Business
April 11,
2018 by HFBusiness Staff in Business Strategy, Economic News, Industry 
Despite uncertainties over U.S. trade policies (see box insert), imports of household furniture continue to grow in double digits. In 2017, imports of household furniture rose 10.7 percent compared to only 3.8 percent growth in retail sales.
The Great Recession, 2007 to 2009, brought with it a major collapse in international trade – deeply affecting both imports and exports of household furniture. In recent years, growing wages, higher employment, a boost in consumer confidence and a healthy housing market have propelled import growth. Meanwhile, exports have struggled to maintain the initial post-recession climb. This article picks up from Statistically Speaking’s October 2015 article Imports on Upswing.
In 2017 the U.S. ran a $569 billion dollar trade deficit in all goods and services. Household furniture products at $30.7 billion in imports versus only $3.2 billion in exports represented only 3.4 percent of that deficit. Most astonishing, however, is that for all U.S. goods, the ratio of imports to exports was 1.5 while the ratio for furniture products was 9.7, almost 10 to 1 (Figure 1).
World dollar totals of household furniture imports have nearly doubled from $15.58 billion in 2009 to $30.74 billion in 2017 – increasing an average of nine percent a year (Table A). Already just a fraction of U.S imports, U.S. exports of household furniture have failed to continue the upswing experienced from 2009 to 2015 when it jumped over $1 billion. Over the last two years (2015 to 2017) exports have declined by -7.1 percent down to $3.15 billion.
Furniture Imports by Country
Over 200 countries export furniture into the U.S. but only nine represent over 90 percent of the total value coming into this country. China’s furniture exports alone have grown to roughly 60 percent of total U.S. imports – up 19.3 percentage points from 2002 to 2017. China has retained its hold on U.S. Imports through the recession. Since the peak of the recession in 2009, the value of imports from China has grown 98.8 percent to $18 billion (Table B).
Reversing dramatically over the previous decade, Canada’s decline alongside Vietnam’s rise still continues from 2009 to 2017. Vietnam has jumped from 0.5 percent of total U.S. imports in 2002 to 13 percent in 2017, while Canada has plummeted from 18.3 percent to 5.6 percent in the same 15 year period. Canada’s value of imported furniture fell 30.4 percent 2002 to 2017. Mexico has lessened its share of U.S. imports slightly since 2015 – down 0.6 percentage points to 4.5 percent in 2017, but the value of imports has increased by 3 percent to $1.4 billion (Table B and Figure 2).
Of the top countries, Vietnam had the highest growth in furniture exports to the U.S. last year increasing 16.1 percent in dollar value. In the last 15 years Vietnam has come out of nowhere to be the second largest exporter of furniture to the U.S. behind China (Figure 2).
Major Furniture Imports by Material Type
Methodology: Household furniture imports and exports are compiled by the U.S. Census Bureau Foreign Trade Division from more than 200 countries by product type and material.
Wood furniture imports have always been king but are now feeling the pressure from upholstery and metal. It has only been in the past two years that wood imports surpassed pre-recession import levels. But at $11.8 billion in 2017, wood products are still the largest material category among furniture imports but have receded to 38.5 percent of total furniture imports in 2017 – down from 56.5 percent in 2002 (Table C). Conversely both upholstery and metal have been increasing at a high rate, and combined, now account for almost 50 percent (49.2 percent) of all imports as shown in Figure 3.
Purchases of upholstery and metal household furniture from around the world have increased more than 68 percent since 2007. Although it is the smallest imported product category, bedding has catapulted since 2002 – increasing over 2,000 percent. Reaching $1 billion in 2017, imports of mattresses have grown 51.8 percent in just a year. Much of this increase can be attributed to adjustable bed bases and mattresses of cellular rubber or plastics (Figure 3).
Wood household furniture imports totaled $11.8 billion in 2017 and are up 9 percent over the previous year. At a 38 percent share of wood furniture imports in 2017, China still owns the wood category at $4.5 billion, but has lost significant share to Vietnam. Vietnam has grown from less than 1 percent of wood furniture imports to over 25 percent from 2002 to 2017. Canada, once a major player in wood furniture, has fallen to only 6.7 percent of the total. Malaysia and Indonesia continue their steady wood niches but control less than 6 percent of wood imports each (Table D).
Unlike the wood category, China has very little competition in upholstered goods in the international marketplace (Table E). Although not producing as high a market share, Vietnam has also made great strides in upholstery – growing from $7 million in 2002 to $700 million in 2017 and having a one year increase of 51.2 percent from 2016 to 2017. Once a major player, Italy was the leading exporter of upholstery to the U.S. until 2003 when China surpassed them. Once importing 28 percent of upholstered furniture, now the U.S. imports only 3 percent from Italy.
Even more so than upholstery, China dominates the market in imported metal household furniture with 75 percent market share. China increased from $1.7 billion in 2002 to $5.6 billion in 2017 – a jump of 225 percent in 15 years (Table F). While imports from Canada have grown since the bottom of the recession in 2009, it continues to lose market share to China. Imports from both Mexico and Taiwan have decreased since 2015, but Vietnam has maintained an annual average increase of 38 percent.
Exports by Country
As previously detailed, the U.S. exports $1 in furniture products for every $10 in imported furniture. After rising over 45 percent from the recession (2009) to $3.4 billion in 2015, U.S. exports of household furniture have decreased by 7 percent in 2 years to $3.15 billion in 2017. Only three countries – Canada, Mexico, and China – represent more than 3 percent of U.S. imports. More than half (56.3 percent) of U.S. furniture exports is to Canada (Table G).
The U.S. trade deficit in household furniture grew an additional negative $3 billion dollars last year, from -$24.6 billion in 2016 to -$27.6 billion in 2017. U.S. imports continue to increase from China alongside a growing Vietnam wood manufacturing presence. A poor showing for U.S. exports over the past two years is also troubling. With threats of trade wars brewing, and the U.S.’s dependency on China for its household furniture, the industry does not want to get caught in the crosshairs.
April 11,
2018 by HFBusiness Staff in Business Strategy, Economic News, Industry
As a magazine dedicated to helping our readers succeed by providing strategy for the furniture industry, literally everything we present deals with providing data, analysis, ideas and advice about surviving and prospering in our highly competitive marketplaces. To that end, last April we updated the numbers about the shifting market shares of the major distribution channels to indicate who is taking business and who is losing it.
Since then, Coach’s Corner defined the impact of these market changes on furniture stores and why this might be happening. Over the last few months we talked about what furniture stores might consider doing to stop the share erosion by getting more from the opportunities that they already had, which is the low hanging fruit so to speak. We also discussed how to fight back against some of the tactics that the fastest growing channel has used to scare consumers away from our stores and how to choose the right words to use with our staff and guests, in order to deliver the message that each one wants to hear.
All of these efforts are indeed focused on helping us deal with the various aspects of the war going on in our individual and collective competitive battlefields. There are daily scrimmages, monthly battles and endless minefields to get through in order to survive, let alone win the campaign. We must understand that some of it is out of our control, but a good deal of it is within our grasp. We just need to have the right focus and develop strategies aimed at the day-to-day battles we can win and not waste time on those where we cannot triumph. What I am talking about is concentrating on the one thing we can control and impact daily in our stores, “share of customers”, instead of worrying so much about “share of traffic”. Let’s put that in perspective.
We have been talking a lot about market share over the last few months, which is a very important thing to know, not as a single number, but as a quarterly trend. Where were you two years ago and what has happened each quarter since? Are you winning or losing your competitive battle for share of the business done in your market? Every business needs to determine and understand this critical number because it is indeed the only true indicator of how you are performing in your market war. However, to a large degree, market share is heavily influenced by share of traffic. The number of people in your market that decide to visit your store is the main driver of total volume. In fact, to a great extent, it has been the shifts in traffic that have caused the distribution channel share changes we have been discussing. To survive, you still must do all you can to drive people in your doors, but in most markets, traffic is going to be static or slightly down for most furniture stores.
Obviously, this is due to many factors including the share shifts we have previously discussed. But a main cause we don’t often think of is the impact of the pre-shopping today’s customers do on the Internet. We all understand that roughly 20% end up buying online and never enter a store, so that reduces traffic. However, an even bigger impact is caused by the fact that the research they are doing on the Internet is helping the consumer narrow down the stores they want to visit. Our surveys indicate that almost 80 percent of people that recently purchased furniture visited fewer than three stores, with 50 percent of the total going to two or less locations before buying. Before the Internet the average number of stores visited was around five. Do the math: 100 consumers in a market visiting five stores each, generates 500 Ups in that market. If they only visit two each, then only 200 UPS are created – in less than twenty years we have seen as much as a 50 percent decline in potential traffic due to fewer stores being shopped and internet sales. That is not going to change in the future.
Therefore, let’s go back to the basics like we did in November and December, but from a slightly different point of view. What do we need to focus on to drive performance improvement in our stores that will deliver a higher share of the most important asset every retailer has – their customers. Senior management’s primary focus must be on what happens with the ones that do end up visiting the store. So let’s discuss ways to better understand and improve our share of customers.
In order to have any hope of improving a performance, we first must to find a way to measure it. We believe that the best sales metric we have to measure share of customers is revenue per UPS, also referred to as performance index. This number provides a clear and concise picture of how the store and each individual performs with the opportunities we give them. Since revenue per UPS can also be calculated by multiplying Close Rate X Average Sale, it is truly capturing the two most important elements of our interaction with potential customers on the sales floor. It actually reports the ultimate sales contribution that results from staff interactions with each person. Simply put, the higher the number, the more share of customers is being achieved.
As with all prime indicators, revenue per UPS only helps us track what is happening, it does not give us any answers. Similar to GMROI, it points out where we may have issues, so we can ask better questions and know where we need to dig deeper to find answers. For them we need to look closely at the two major factors that determine share of customers - How many of the people we saw did we actually sell and how much did we sell each one - close rate and average sale. So here is a brief update on where we think these numbers should be going for furniture retailers in general.
Close Rate - Remember when someone enters your store they are not yet a customer, only a guest or visitor. They must buy something from you in order to become a customer of your store. So, the first thing we should focus on is closing rate. The good news is that these people who narrow down their store visits to two or less are much more likely to buy in one of those locations than those who shop more places. The raw odds of closing someone visiting five places, is one in five or 20 percent. If they only go to two, then the odds go up to 50 percent for those visitors. Therefore, since about half of our traffic now shops less than two retailers, our chances of selling those people should have greatly increased. We can calculate that if your close rate potential on those visiting more stores is say 20 percent and it is 50 percent for those seeing less than two, then your overall potential for the store is between 30 percent and 35 percent. Based on what we have been seeing over the last decade, this scenario holds true. Those stores that were previously closing in the low twenties are now climbing up into the low thirties and those that were doing in the mid-twenties are now achieving results at or above the mid-thirties. Our advice is to look at this number. If you have not seen it increase dramatically in the last few years, you need to take a hard look at your hiring, training and sales management programs, because you have lost share of customers by not achieving the potential increases others have enjoyed.
Average Sale – Once you know you are creating customers at an acceptable rate, you need to focus on how much you sell each one. Let us note that historically many have looked at this number as a reflection of share of customer and we can understand that since it does directly indicate how you did with those customers you created. As such, it is possibly a more critical number to your success or failure than close rate, but we cannot forget that first you must sell someone, before you can sell that person more.
Average sale is also a statistic that is heavily influenced by your store’s advertising, merchandising and selling strategy. Obviously stores that sell higher end goods should have a higher average sale than those selling more promotional price points, However, I have often seen stores that heavily promote financing on lower priced goods build higher tickets, rivaling those carrying better goods. In addition, those stores that have a well-managed and successful in-home program will always have higher average sales than those that don’t, no matter what price level they carry.
With that in mind, we have seen a great deal of change in this statistic over the past two decades. It shrank a bit during the down turn, but ever since the consumer came out of the recession, we have seen steady and, in some cases, rather dramatic growth in average sale at all levels. The consumer today wants what they want and seem more willing to pay for it than a few years ago. Those lines that have custom order capability and particularly those that can deliver product quickly are doing quite well. Many promotional companies have successfully added better goods to their assortment. Others have added options such as upgraded cushions and power or functional features that have raised price points. The growth in premium mattress and adjustable base sales has also contributed to this trend in many stores.
Therefore, similar to close rate, but to an even greater extent, if you have not seen a fairly dramatic increase in your average sale over the past few years, you are missing the boat and need to take a hard look at your advertising, merchandising and selling efforts, because you are not getting your fair share of the business that is available to you.
In summary, if you have not been moving these last two numbers higher over the past few years, chances are that you are losing your war for share of customer and market. Driving improvement in these metrics and as a result the all-important revenue per UPS figure, is the only way to combat against decreasing share of traffic and increase your share of customers.
April 10,
2018 by HFBusiness Staff in Business Strategy, Industry
But survey the extra-large kitchens, great rooms and even family rooms of many of today’s homes, and you’re likely to find a dining table and chairs. Granted, it’s probably used for a lot of other activities besides eating, but at meal time, the homework papers and craft projects disappear – only to be replaced by plates, cups and utensils.
So dining room furniture is anything but dead. Producers say the category is still very vibrant, but it clearly has taken a sharp turn away from formal.
“The floor plans in newer homes certainly are more open, so you’re dealing with a space that is being used differently,” said Neil MacKenzie, director of marketing at Universal Furniture. “We’re trying to meet that demand by having something that looks tasteful and elegant, but more functional in terms of everyday use.”
And from the perspective of MacKenzie and other executives, functional usually equals casual.
“We’re still seeing a lot of activity with larger table sizes, but with more casual finishes and a more contemporary, modern look,” he said.
Erin Sullivan, vice president of product development at Fine Furniture Design, said the dining table has become “the central command center of the home,” particularly those with open floor plans that combine kitchen, dining, living and entertainment spaces.
“Casual dining tables serve as more than just a spot for meals,” Sullivan said. “And because of their connection to other rooms, consumers need more choices when it comes to size, finish and fabric options.”
And dining room furniture producers clearly are taking a cue from their upholstery brethren when it comes to customization. And just like upholstery, customization is a rapidly growing segment of the category.
Bassett Furniture, in fact, has an entire factory in Martinsville, Va., devoted to its custom dining program, and even with upgrades that were completed about a year ago, the facility is still running at or above capacity. And Fine Furniture Design has worked with its factories in China to develop a program that offers 14 table base options, 36 finishes, more than 65 chair styles, and more than 200 fabric and leather covers.
“Consumers today want the ability to ‘make it their own’ and express their uniqueness through the products they purchase,” said Sullivan.
Another upholstery trend that has made its way to the dining room is performance fabrics. MacKenzie said Universal is seeing significant demand for such fabrics on dining chairs – largely because they have become more affordable as a dining room option, and it’s simply a common-sense choice. “It’s something livable, as opposed to something that’s lived around,” he said. “After all, when you eat, you’re probably going to spill something once in a while.”
But the open-concept floor plans in today’s homes hasn’t meant weaker demand for smaller sizes of dining tables. If anything, MacKenzie and Sullivan say it has given that niche a jolt because of the predominance of casual styles there.
“Smaller-scale round dining tables are casual in style and versatile in how they are used, whether it’s a casual card game or dinner for four in the family room,” Sullivan said. And in some cases, these tables find their way into a larger, open-concept kitchen, enabling the consumer to “create the dining experience that is just right for you,” she pointed out.
A survey of recent dining room furniture purchasers by Impact Consulting, parent company of Home Furnishings Business, showed that, to no one’s surprise, tables and chairs were the most common formal dining items purchased.
Tables were purchased by 63.89% of those surveyed, while chairs were acquired by 75%.
A buffet or sideboard was purchased by 30.56%, while a china cabinet was brought home by only 11.11%.
Other pieces were cited by 8.33% of buyers, and for Universal, MacKenzie said the company is seeing increases in multi-functional pieces such as bar carts, and bar storage units – often taking the place of a sideboard because of their increased functionality.
When asked the style of furniture in their formal dining room, traditional and country/European tied for the most responses at 22.22% each. Contemporary was next at 19.44%, followed by transitional at 16.67% and country/rustic at 11.11%.
The only other style mentioned was cottage, which was cited by 8.33%.
According to the survey, cherry, mahogany and oak are the clear leaders among the respondents’ preferred wood or finish. Mahogany led the way with 34.75%, cherry was cited by 33.05%, and oak was named by 22.03%
The only others mentioned were maple (6.78%) and pine (3.39%).
When asked how much they would expect to pay for a formal dining room set (table and six side chairs) today, 25% said it should be below $1,500. However, 55.56% said the price should be $1,500 to $3,999, and another 16.67% said they would expect to pay $4,000 to $11,999.
Only 2.77% said they would expect to pay more than $12,000.
April 10,
2018 by HFBusiness Staff in Business Strategy, Industry
Many of those cities and towns don’t have an Art Van store currently, but if CEO Kim Yost’s growth plan is carried out after he retires later this year, that will soon change. And in larger cities, it won’t be just one store. He wants enough stores to become the largest furniture and mattress retailer in that market.
“Our goal is to become number one in all the markets within that 600-mile radius,” he said.
The growth plan has gotten off to a flying start, as the retailer has grown from being present in 28 markets three years ago to 51 markets today. Much of the growth has come from opening new stores, but the acquisitions of Levin Furniture and Wolf Furniture last fall added the key markets of Pittsburgh, Cleveland, Baltimore and Washington, D.C. overnight.
Yost recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about the challenges of such a rapid expansion, the decision to keep the Levin and Wolf names, and Art Van’s expansion into several new product categories.
Home Furnishings Business: What are the major challenges faced by such a rapid expansion?
Kim Yost: One big challenge is finding the right locations. We’re looking for anywhere from 45,000 to 75,000 square feet. Rents have to be at certain targets to achieve our financial thresholds. We look at each city with the view of having enough stores to get to number one in market share. We will buy existing buildings, lease existing buildings or build from the ground up. But going forward, leases (will be the priority.) We’re looking at these Toys R Us stores, as an example, to see what’s available.
Another big challenge is building the team for growth. Art Van has several leadership and sales courses for our team to help that development. As you build the stores, you have to staff them with great talent. We’ve had the opportunity to send in some of the talent from our Michigan headquarters, but that can only take you so far. You’ve got to have great education, sales and leadership courses to transfer your skills and your culture to these markets. And that’s not easy.
The difficulty is transferring your culture from your base to new markets. Culture eats strategy for lunch. You’ve got to realize that each market will have a degree of uniqueness.
HFB: Why did you decide to keep the Levin and Wolf names instead of converting them to Art Van stores.
Yost: Both our new brands have 100 years in business in their respective markets. We conducted an extensive survey in all four markets (Pittsburgh, Cleveland, Baltimore and Washington, D.C.) and came to realize that, unaided, these two brands had equal awareness to what we had in Michigan with Art Van. This is huge. When you’ve been in business for 100 years, like Levin’s, and over 100 years like Wolf’s, you’ve got two- and three-generation purchasers. You don’t want to take that great brand equity and just disregard it.
We’re going to maintain as much of the brand’s strengths as we can, whether it’s people, unique products, services and culture. Our goal is not to assume that one size fits all. In this particular case, we call it the power of three. We believe that by taking the best from Levin’s and the best from Wolf’s – combined with the best from Art Van – and bringing their synergistic secret sauce, we can create this power of three, and maximize the performance of all three brands.
HFB: Going forward, what will be the mix of product exclusively designed for Art Van vs. manufacturer’s brands?
Yost: The majority of our product mix is targeted to be exclusively designed and produced by our current domestic and import providers. We like to work with our current providers and then work from their lines so that the majority of our assortments are exclusive. We can’t differentiate ourselves unless we have a high propensity of exclusively designed and produced merchandise for Art Van.
Here are three examples of private label programs that have been incredibly successful. The new Detroit Sofa line that we’ve developed as a private label is made domestically. We also have a private-label leather line called Roma. And we have an upholstery line that’s one of our strongest, called The Style Collection. That’s also made domestically by one of our current suppliers.
We also have found great success by partnering with national brands like La-Z-Boy and Natuzzi to represent the quality perception from our consumers. There are not a lot of furniture brands that have that great perception like La-Z-Boy and Natuzzi.
You have to have lots of secret sauce in your merchandise. You have to have a strong position of uniqueness. It gives you a really good position in the marketplace. If you’re in the middle of the road with your merchandise, you’ll get run over.
HFB: Is your e-commerce effort focused nationally or in local markets?
Yost: Although we can deliver white-glove to all 48 contiguous states, the vast majority of our online sales are where we have existing stores. We believe that’s driven by brand awareness, by having physical stores in high profile trade zones, by the concentration of our advertising, and by our ability to offer in-store pickup.
What we’re finding is that more and more online transactions are being consummated after the store visit. It’s a new phenomenon.
Let me give you an example. They come in. They look at a sofa. They narrow it down to two colors. And when they go home, they make a definite decision on one of those two colors, and they complete the sale online – as opposed to coming back to the store a second or third time.
HFB: Will Art Van’s product offerings expand to include non-durable categories?
Yost: In April, we are going to move down the path of changing our name from Art Van Furniture to Art Van Home. We are going to concentrate a big portion of our product growth and merchandising and marketing growth in a new division called Home.
We will be expanding our flooring galleries in all Art Van stores. We are in the early stages of doing window treatments. And we’re going to expand greatly the traditional home categories – lighting, wall art, tabletop, top of bed and gift. In addition, in our new Home division, we will be launching dinnerware, stemware and glassware relating to six style categories. Online, we will be looking to expand in all rooms and product categories that relate to the home, including storage for the garage, exercise and fitness equipment.
If you need it for your home, Art Van is going to carry it. It’s going to drive traffic – both online and in our stores -- and it’s going to raise the average ticket.
HFB: What was the thought process behind your decision to retire later this year?
Yost: The timing is right. The company is well positioned for growth with our partners at T.H. Lee and the power of three with our brands. The heavy lifting for this next stage of growth is behind us, and it could never be a better time to bring on a new leader with a new vision and new excitement for the next phase of growth. Change is good.
We feel incredibly confident that we’ve got terrific partners, we’ve got an amazing financial foothold, and we certainly have a strong plan for the future with our 600-mile radius and our goal to be number one in all the markets within that 600 miles.
March 12,
2018 by Jane Chero in Business Strategy, Industry
Another element of the Home Furnishings Business vision is to establish a future perspective. In the words of Wayne Gretzky, “to win you need to know where the puck is going, not where the puck has been.” In that light, we should consider the beginning of the buying process before the consumer starts shopping.
Recent research from FurnitureCore, the marketing arm of Home Furnishings Business, provided the insight that 68% of consumers anticipate purchasing furniture this year. Research also tells us that 73% visit the internet to conduct research before beginning the serious buying process. Additionally, 40% scout the store before committing to shopping the 2+/- retailers they want to include in the buying journey. These are the facts.
Unfortunately, many of the planned shoppers do not follow through with their intent. What are their barriers? For the most part it’s the time strapped consumer. However, it is also the fear of beginning. The typical consumer is challenged with the subject of style — what is in style and what is my style? The emergence of eclectic styling where anything goes has not helped the situation.
The next barrier is the layout. As the room sizes decrease or the new open floor plan concepts gain popularity, the consumer is even more design challenged.
This is an opportunity that traditional retailers must seize. It is an accepted fact that with a “home plan” created by a visit of the sales associate to the home, the ticket is four times larger and the probability of closing the sale is 80+%. I am not referring to high-end designer stores but the more mainstream retailers.
Several high preforming retailers, such as Steinhafels and City Furniture, have robust designer programs that generate a significant percentage of their transactions, and yes, they really charge for the process. Again, this is accomplished by trained sales associates, not just interior designers on staff. Many retailers offer the service “free design consultation,” but do they “sell” the process? What impact would having 30-40% of your tickets being generated by home visits? You do the math.
The challenge for traditional retailers is to execute the next strategic change before the other distribution channels. Assisting consumers with in-home design will be the next frontier. The online decorating services, such as www.laurelandwolf.com, are launching major television campaigns offering design service with price guarantees for all products recommended. Wayfair has a special site dedicated to interior design.
Traditional retailers, let’s get there first instead of playing catch-up.
