From Home Furnishing Business
As job losses mounted, many consumers cancelled, restricted, or redirected their spending. While the unemployment rate did improve 1.4% in May as stores and companies began the process of reopening, unemployment was 9.7% higher compared to May 2019. In addition, Consumer Confidence was still down 47.5% and the stock market remained wildly unstable. In this article we dive into the impact of three months of the pandemic on consumer spending and retail sales for March, April, and May, comparing the level of impact on different consumer categories. The article also strives to quantify the advantage given to online retailers and brick and mortar stores deemed “essential”, and the devastating impact that advantage has had on brick and mortar businesses forced to close.
The decline in consumer spending for furniture and home furnishings was considerably less than the plummet of retail sales for brick and mortar furniture and home furnishings stores. The difference centers around consumers taking to the internet like never before as well as warehouse price clubs (Sams/Costco) and big box stores (Walmart/ Target) being allowed to stay open while retail furniture stores and other brick and mortar stores deemed non-essential were forced to close. As shown in Table A, with the exception of total retail sales, the steep decline began in March when a majority of the country shut down by mid-month. Propped up by online sites and “essential” brick and mortar retailers, total consumer spending decreased only 6.6% in March, followed by an additional 12.6% drop in April, but rebounded 8.2% in May as businesses began to reopen.
While consumer spending on furniture and home furnishings suffered greatly from March to April (-17.2%), retail sales from furniture and home furnishings stores forced to close dropped a record 50.6% over the same time period. After many closures were lifted in May, sales in furniture and home furnishings stores responded – jumping 98.4% from April to $7.7 billion. And while this jump almost doubled sales over the previous month, May was still 23.4% below May of last year. Consumer spending on furniture and furnishings in all retail channels increased 29.4% in May compared to April. Consumer Spending (All Channels) by Product Type
In March, consumer spending on durable goods stalled almost immediately as most consumers curtailed spending out of either necessity or caution (Table B). Dropping 12.4% the first month of the pandemic, spending on durable goods decreased another 12.4% in April, before jumping 28.6% in May. Due to a massive rise in grocery sales during March as consumers stocked up, consumer spending on nondurable goods increased 3.9% before dropping 14.0% in April. Spending on nondurable goods increased only 7.7% in May. Not surprisingly, as the shelter-inplace orders began, consumer spending on services decreased down 8.9% in March and another 12.2% in April. May increased 5.4%.
Consumer spending on furniture declined 9.5% in March and another 18.3% in April to an annual rate of $99.5 billion. In May, furniture consumption increased 32.8% (Table C) as consumers fled to newly opened stores. Smaller home décor purchases often made over the Internet like clocks, lamps, lighting fixtures, and other household decorative items, still declined 9.5% in March and another 15.9% in April. Numbers in May were up 15.5%. Carpets and other floor coverings fell 17.6% in April and spending jumped 50.4% in May.
Appliances, televisions, and other household consumer purchases also took a major hit during the first months of the pandemic as shown in Table D. Consumer spending on major household appliances fell less than other home products as major home and garden retailers, like Home Depot and Lowes, were able to stay open. Major appliance spending declined 9.3% and 6.2% in March and April before increasing 16% in May. Initially decreasing just 6.2% in March, spending on televisions dropped 11.1% in April before increasing 16.1% in May.
Only falling 3.0% in April, the tools and equipment for the house and garden category fared much better during the quarantine, as many consumers spent time working in their yards, again as building materials and garden stores were deemed “essential” and allowed to remain open. Spending in May was up 12.6%
Consumer spending on personal computers/tablets and peripheral equipment grew 4.6% in March due in part to online learning for students and much of the workforce having to work from home. While spending on telephone and related communication equipment, including cellphones, tanked in April compared to March (-29.7%), consumer spending growth on cellular services remained flat (Table E).
Initially, consumer spending on groceries jumped 23.0% in March before dropping 12.2% in April. Growth eased up in May increasing 3.2% over April. Spending on restaurant and fast food meals declined sharply beginning in March down 25.4% from February and continuing through April (-30.8%). As restaurants opened in May, growth jumped 24.6%. Clothing and footwear, despite the Internet, also took a huge hit as consumers curtailed much of their spending in March and April – down 28.8% and 28.6% respectively. Interestingly consumer spending on newspapers and periodicals did show an increase throughout the pandemic as many people turned to reading as a way to fill their extra time – up 5.5% in March, 10.2% in April, and 10.8% in May.
Retail Sales by Type of Store Overall retail sales were up 3.9% from February to March before falling 12.4% in April. Total sales rebounded in May by 21.9% as stores reopened but were still 3.4% less than May 2019 (Table G). Furniture and home furnishings retailers felt the brunt of store closures in April – dropping over 50% to $3.8 billion in sales. While retail sales were up 98.4% for those stores in May, sales during May 2019 were still 23.2% higher. Non-store retailers (e-commerce and mail order), had positive growth throughout the pandemic as most consumers turned to online shopping. Warehouse clubs and supercenters comprise about 70% of the general merchandise stores category. Not surprising, this category which for the most part was considered “essential” and allowed to keep doors open, increased by 17% in March before decreasing by 14% in April and then evened out in May – up 14%.
With many consumers quarantined and home during March, April, and into May, sales from the “essential” building material/garden equipment retail stores grew exponentially, increasing an average of 16.2% a month, as many turned to yard work and home projects as a way to stay busy (Table H).
During March and April, retail sales for electronics and appliance stores declined sharply – dropping 13.1% and 48.3% respectively as stores remained closed. In May stores were up 61.5% over April, a number still 31% less than May of 2019. Clothing and clothing accessory brick and mortar stores were among the hardest hit by closures with sales decreasing 42.4% in March, followed by a 74.9% decline in April. Sales rebounded 209.2% in May but still 63.3% less than May of the previous year.
As shown in Table I, gas station sales decreased 7.4% in March and another 21.7% in April as a result of people not driving or commuting to work. Sales increased by 20.4% in May but with gas prices low and many people still working from home, gas sales were 31.5% below May 2019. Grocery store sales jumped 32.5% in March as people swarmed the stores to stock up in the early weeks of the quarantine. Sales fell 12.8% in April before increasing 6.2% in May. As restaurants across the country slowly opened, retail sales among food services and drinking places increased by 38.1% in May after dropping 23.8% in March and 36.6% in April.
Looking at the cumulative impact this year through May compared to the first months of 2019, the brick and mortar distribution channels forced to close during the quarantine still have a long way to go to catch up to 2019 (Figure 1). Through May, furniture and home furnishings stores were still 18.1% below 2019. Electronics and appliance stores and department stores fared slightly worse, down 19.3% and 21% respectively. It will be a few months before data is available to quantify how much of E-commerce’s 16.6% May YTD growth furniture and home furnishings were able to capture.
Residential Construction and Sales Not surprisingly, the housing industry also halted during most of March and April, as shown in Table J. Housing permits declined 5.7% in March and 21.4% in April, but did increase 14.4% in May once many state’s shelter-in-place orders were lifted. Housing Starts also dropped dramatically during March and April, falling 19% and 26.4% before increasing by 4.3% in May. New housing completions have yet to show positive growth – still down 7.3% from April to May. New residential sales were down 14.5% in March compared to February, and another 5.2% in April before rebounding in May up 16.6%. Existing home sales continued negative growth over the previous month throughout the three months – March (-8.5%), April (-17.8%) and May (-9.7%).
As we look to the future, the remainder of the year will be hard for furniture stores as factories just restarted in May. The pandemic is still not fully understood and high unemployment will continue as companies work to adjust to the uncertainty. At press time many states were in the midst of a second resurgence of COVID-19 infections. While many consumers still desire and missed the physical act of shopping and going to retail stores, the preceding few months have shown the necessity and power of e-commerce and online ordering. For many consumer products, the online exposure during the first three months of the pandemic will perhaps permanently change shopping habits. But on a positive note, especially for the furniture industry, the consumer appears to have sorely missed the shopping experience.
In my weekly conference calls with our Performance Groups, I have been amazed at the resilience of the furniture retailers, who discovered new ways to engage customers via phone and email, which resulted in appointments while stores are closed. The results refl ect signifi cant sales during these trying times. The importance of websites that produce inquiries from the engagement applications has led to chat sessions that result in sales, leading to my belief that as the stores reopen retailers will survive.
From this experience, the retailers will embrace new ways to do business. Ecommerce will become a must and not a “maybe”, left to the major players like Wayfair and Amazon.
The business model by necessity must change with the probability of less demand in the near future. ADVERTISING as a % of revenue will decline as the need for the block buster promotions transitions to a continuing relationship with their best customers. SALES EXPENSE could change as less retailer sales associates sell more. The importance of LONG TERM FINANCING will be challenged. Does the retailer need to expand 3-4% of revenue for fi nancing? The bright spot is the consumer demand as can be seen from the graphic below. After an initial blip, the consumer is back on the Internet researching how home furnishings can enhance what is becoming the new normal of being at home. The graphic from FurnitureCore, (the parent company of Home Furnishings Business), is a national sample of a balanced sample of INDEPENDENT furniture retailers. The consumer is waiting for the industry to open.
The many sales tactics that can be utilized, such as selling as part of a seating group or as an individual cash-and-carry sale, will help captivate your customer—but merchandising will be key. As the industry continues to see the growth of Generation X and Millennials as the target audience, retailers will need to shake up their merchandising assortment to reflect their style. Manufacturer Durham Furniture has developed thoughtful solutions for retailers in their bestselling, customizable collection.
“Our contemporary-styled Milestone Collection was designed to reach the next generation of consumers and the interior design community,” said Luke Simpson, president and chief executive officer of Durham Furniture. “The style and design is more in-tune with what the younger generation of consumers are looking for and the mixed media look gives our design partners the diversity in texture and materials that they often seek when designing more contemporary spaces. The group is available in any of Durham’s more than 50 finishes, allowing our customers to express their individual style, a key selling point and benefit of our products on the retail sales floor.” Durham Furniture is not the only manufacturer that embraces the power of customization. Especially in our current climate that is grappling with the realities of newly implemented tariffs compounded by the ongoing Coronavirus wreaking havoc on manufacturing and shipping, American made furniture has found additional momentum. “Simply Amish makes a lot of occasionals, and on our Standard Order end tables, most can be raised or lowered up to 6” without a custom quote,” says Charles Curry, vice president of sales and strategy of Simply Amish. “American made occasional pieces, especially with custom options, are as hard to find as a white buffalo.”
When consumers walk onto the retail sales floor, what are they anticipating for their occasional furniture purchase? While the fastest growing section of occasional furniture is accent furniture, which includes bars, breakfronts, and the like growing 7.1% and exceeding the overall growth of the occasional category at 5.6%, we analyzed the general style that consumers are searching for. According to the same FurnitureCore, Inc. study, when consumers were asked what the style of their most recent occasional table purchase was, a tie was found between traditional and contemporary at 32.47%, followed at 15.58% by country/rustic. The remaining responses where European at 9.10%, mission/shaker at 5.19%, and transitional at 5.19%.
It is absolutely critical we understand that in most cases, we will be faced with a customer that has a much different approach to shopping for her home. It will require us to rethink how we work with them and find creative ways to provide the buying experience they now desire. This is not a completely new problem for us, since our consumer’s needs have been changing dramatically over the past two decades, causing smart retailers to adjust how they sell and service their customers.
The crazy thing for me is that the article that follows was actually written for our March issue and submitted in mid-February. This was before the pandemic hit hard and was in response to the changes we saw happening with the consumer over the last year or so. The impact of the virus and the way it has affected how the consumers returning to the marketplace want to shop, actually makes it a much more relevant and realistic idea. Read what I wrote back in February and see if you agree.
Most consumer research over the last two decades has indicated that for various reasons, many people do not want to spend a great deal of time shopping, even for traditional big-ticket items. While much of the initial search and information gathering is taking place on the Internet, the amount of time they actually spend in stores has been curtailed dramatically. They now go to just over two, instead of the five that were visited in the past. This has reduced traffic in most stores. However, there has also been a growing number that simply choose not to visit any stores and either buy online or through someone else.
In our May 2017 issue, our cover story offered some insight in the feature entitled, “Is It Just In My Store That Traffic Is Down? – Maybe”. Here is an excerpt from the article: The fact is that the time-starved consumers do not have the inclination to extend the process and enjoy decorating their homes. If we look at the percentage of consumers that consult a professional designer as the first stop, it is small. In discussions with the ever-expanding cadre of “designers” in the industry, it becomes obvious that they are more “personal shoppers” than certified designers.
Indeed, one of the faster growing distribution channels for home furnishings in the last decade has been the independent interior designer. However, as mentioned in the article, the main service many seek from these professionals may be changing from providing design direction to actually doing the shopping, so the client does not have to invest the time in shopping for the right pieces. Certainly, this has always been an attractive aspect of using a designer to assist in the process, but today it seems to have become a more important element.
Last month I presented some ideas about selling and marketing the important problem-solving services we provide our customers. While I did not make the specific point that working with our sales staff also saved consumers time, that would be a benefit they would receive, because someone else would be helping them find what they desire. Unfortunately, I am not convinced that the majority of consumers actually look at it that way. Perhaps thinking that the time spent at the store or communicating back and forth with a salesperson would be time added instead of time spent making their search more efficient.
My point is that we already can provide time saving assistance for a customer. Add to that our ability to handle every other aspect of the process as a one-stop solution provider and the total package should be very attractive to these consumers, IF we could get them to look at it that way. So, one of the key things we can do is fi nd a way to package this and market it. I think that the concept of providing a “Personal Shopper” or “Furniture Concierge” service for our potential clients may be worth considering.
This idea came from a recent story in the Detroit Free Press newspaper about a car salesperson that did exactly that. The service he had provided clients literally became his product, which launched a successful new career for him, basically doing much of what he had done before only packaged in a much diff erent way. Obviously, the goal of presenting this information is for the reader to use it as a launching point for the consideration of new ways to package and promote the services your store already provides. It is NOT intended to encourage salespeople to leave and try to do this on their own, although that could happen!
The article, “Fired salesman disrupts car-buying industry with word-of-mouth ‘concierge’ business” appeared on January 23, 2020. You can find it at https://www. freep.com/story/money/cars/2020/01/23/ fi red-car-salesman-brian-carroll-dealership/4533934002/. Basically, it tells the story of Brian Carroll, a guy who had never been fi red or let go from a job, who after eight years of loyal service and steady sales at the same dealership, was let go as part of a cost saving move. Needless to say, he was devastated and drove home not knowing what he was going to do or how he would support his wife and three sons. He loved selling cars and had worked at several dealerships over the years but knew starting over at a new one, if he could even fi nd an opening, would be very tough.
Then something happened. A guy called wanting a car. Carroll explained to the buyer that he didn’t work at the dealership anymore, but the buyer said he didn’t care. It was at that point Carroll decided he would go solo, however, not as the usual car “broker,” who charges a direct fee to shoppers, but as a car “concierge” who would work on commission. After all, he fi gured, fewer people have time to go to dealerships and many people like the idea of enhanced personal service. So, he decided he would ride a trend of changing consumer expectations in the automotive industry, all by word of mouth.
The rest of the article includes extensive quotes from his clients about how they do not have the time to shop and compare cars. They know for the most part what they want from the start and Carroll is enough of an expert on all brands to give them good guidance if they have questions. The process begins with a call, text or email. After that Carroll conducts a needs analysis and once he is confi dent that he knows what the client is seeking, he begins his search. When he locates some options that fi t the profi le, he can contact the client and set up a time for him to bring the vehicle to them for review. When they buy, the paperwork is often done at the kitchen table instead of having to make a trip to the dealership. Again, saving the client time and eff ort. As one client, a member of a local fi re department said, “For somebody like me who works 24-hour shifts and has an active lifestyle outside the job, with young kids active in sports and school, I don’t always have a day to look at vehicles or another day to sign paperwork, I start at 8 a.m. and I get off work at 8 a.m. If we’re running fi re calls or medical calls all night, I’m not going to want to sit in dealerships. I want to go home and go to bed.”
Carroll is now selling 30 to 35 cars a month with a peak of 52. I am not sure, but I think that is prett y darn good, even for a salesman at a good dealership. He has changed the buying experience for all of his clients and according to published research from the industry itself, he is answering the exact needs and wants the consumer has voiced to them. According to Jessica Stafford, senior vice president and general manager of Autotrader and Kelley Blue Book, “Consumers are looking for personalized experiences tailored to their specifi c needs and preferences. Their expectations and demands are gett ing higher.”
That certainly sounds a lot like what all of the research for our industry is telling us. In Carrolls case he had to leave the retail environment in order to provide this type of service for customers. Basically, his clients are all potential clients of the dealerships at which he fi nds them cars. Since he earns a commission from the dealership for each sale, it was not a big issue for anyone involved, as it is a win-win situation for the client, the dealer and him.
The big question is how can we as furniture retailers who already provide all of the services a shopper needs, create a process that develops, supports and markets Furniture Concierges or Personal Shoppers on our staff ? Perhaps for some it will be an enhancement to their existing design and in-home business. For others it may be a designated special team. In my view, this is a way to appeal to customers you are not gett ing and maximize those you are. I believe this is an idea that is certainly worth thinking about. I believe that this is certainly worth thinking about, given the fact that many potential customers do not even want to visit a store now because of the COVID–19 pandemic.
But that hasn’t slowed down the 75-yearold Ploy. He maintains a schedule as rigorous as an executive 20 years his junior, and travels regularly to furniture markets and meetings with customers. “I love what I do,” he says. “I wake up every morning eager and anxious to get to work.” Recently, Ploy made time in his busy schedule to talk with Home Furnishings Business about what keeps him motivated, AICO’s unparalleled success in the past two decades, and his work with non-profit groups such as City of Hope and the American Home Furnishings Hall of Fame.
HOME FURNISHINGS BUSINESS: What is it about the home furnishings industry that keeps you motivated to go to work every day?
MARTIN PLOY: One of the wonderful things about this industry is the fact that there is constant change. This change is the challenge we face every day, and this continues to drive and motivate me more. I’ve always believed that yesterday’s lessons quickly move to the rear-view mirror as we train our eyes on the road ahead. The unpredictability of the day is an exhilarating and stimulating part of my life. I may drive to work with an agenda in mind for the day, but it often changes with the first email or the first phone call. Take5 The one constant is the fact that we still need to work and deal with people. Each employee is unique, and their needs, concerns and efforts make them a part of my daily routine. Sometimes their issues are about business, and occasionally they are even greater -- they are personal. If our staff didn’t feel that I care, then I can assure you that our turnover would be higher and productivity lower.
HFB: Much has been written about the culture at AICO. What makes the culture so unique? What are you doing to make sure it remains intact for years to come?
PLOY: I think our culture has been very solid and appreciated because it is very employee centric. We call it the AICO Family. We encourage new ideas. Each person has the power to make a difference, and we make sure they feel empowered to recommend and create change. Plus, it’s critical that individuals feel respected in our company. We help by giving them the best working environment possible. From the break room to the individual office spaces, to all the available facilities, we prioritize quality and comfort. Their health and well-being are most important, so we provide a complete gym, locker room and showers for their personal use. In addition, we provide excellent employee benefits … and host a fun filled AICO Family Day picnic, an annual Holiday party with recognition awards, a fabulous Halloween costume contest, various employee luncheons as well as our Employee Appreciation Day. And we always have a monthly Employee of the Month meeting. In the end, AICO has a very loyal staff, with over 65 percent employed for more than 10 years, and we have many at 15, 20 and even 25 years. I feel confident that this culture will sustain itself because it is so heavily employee focused. If the culture of a company is strong and positive, it will mark the path to the future.
HFB: The industry has changed significantly since you joined AICO in 2002. How has the company continued to grow and thrive in this rapidly changing environment?
PLOY: The shopping experience has been dramatically altered by generational changes and constant access to the digital world. Consumers have become far more educated and their expectations are greater than ever. It is our responsibility to be adaptable and have the flexibility to offer different designs that are more targeted to today’s consumer tastes. As you know, we were once known for our ‘Old World’ traditional designs. Michael Amini was able to sling-shot this company forward by offering these heavily carved, over scaled traditional masterpieces at great values. As one of the pioneers in China, he created a company synonymous with unique and original designs at great prices. Then Michael created a look the marketplace didn’t even know it needed -- the brilliance and bling of ‘Glam.’ Our Hollywood Swank collection launched a new era at AICO, and since then, we’ve introduced a diverse catalog of contemporary, modern, urban loft and now elegant and chic transitional furniture. As a designer, Michael has displayed great creativity and flexibility in his ability to answer the buyer’s question of “What’s new?”
HFB: What have been the keys to the success of the Michael Amini/Jane Seymour Collection? What makes it stand out from other licensed collections?
PLOY: Jane is not just a celebrity. Aside from being a world renown actress, she is an artist, author and a mother. She has always shown her commitment to the Michael Amini – Jane Seymour brand by her consistent visits to all of the markets. She’s always eager to engage and even educate customers on the new products. She’s really a part of the sales force and part of the public relations team. The longevity of this collaboration goes back to the launch of Hollywood Swank ten years ago with the introduction of Michael Amini – Jane Seymour, A Design Collaboration. This Glam collection was slow starting, but rapidly picked up steam. And after all these years,it’s still one of our top sellers. It’s just remarkable. This truly helped position Michael and Jane’s acceptance by retailers everywhere, which eventually led to other Glam intros like Overture, Hollywood Loft, Glimmering Heights and Melrose Plaza. There appears to be a greater consistency in the Michael Amini and Jane Seymour offerings that other licensed brands don’t seem to have. The longevity has so much to do with the ability to keep coming out with fresh new collections that reinforcethe brand and resonate really well with retailers and consumers. Today’s recent offerings of Michael Amini & Jane Seymour Living are setting new sales records with multiple collections offering a look of chic elegance, neutral tones and refined transitional designs. It appears that customers like the quiet elegance and subtle details that these designs offer, not to mention the value they represent. We’re also proud of our more recent relationship with Kathy Ireland. She has demonstrated a similar commitment and dedication to supporting the Michael Amini - Kathy Ireland Home Designs brand. Of course, these offerings are more causal and at lower price points. We’re optimistic that this relationship will be as long-lived as Jane’s.
HFB: AICO is well known for its support of several charitable causes – notably the City of Hope. Why is this important to the company?
PLOY: AICO does support several charitable causes, not just City of Hope. We also support industry groups like The American Home Furnishings Hall of Fame Foundation and ADL, as well as (organizations outside the industry) like Jane Seymour’s Open-Heart Foundation. When you are fortunate enough to have the opportunity to achieve and experience the rewards and accomplishments of your efforts, it becomes very appropriate and important to give back. But yes, there is a close connection at AICO with City of Hope. We have many supporters here. There is always a large turn-out for the annual Walk for Hope at City of Hope, benefiting women’s cancer research. (Executive vice president) Chuck Reilly does “Chuck’s Ride,” a hundred-mile fundraising bike ride for COH. Many of our staff participate every year in the West Coast Golf and Tennis Tournament for COH. And more recently, AICO hosted the City of Hope’s blood mobile with over 40% of our employees donating blood. We’re most proud of Michael’s philanthropic efforts, especially the Michael Amini Transfusion Medicine Center at City of Hope. This facility is where blood, platelets and stem cells are collected, processed and stored. Robert Stone, CEO and president of City of Hope said, “That building is the beating heart of City of Hope.” Why are we tied so closely to City of Hope? I think it’s because we have all been touched in some way by cancer and/or diabetes. It is the extraordinary work, research, clinical trials, and new drugs and treatments discovered by the scientists, doctors and researchers at City of Hope that pridefully connects us to this special place.