Monthly Issue
From Home Furnishing Business
December 18,
2017 by Jane Chero in Economic News, Industry 
The top 20 percent of all households make over half (52.8 percent) of all income and pay 78.5 percent of all taxes. This still leaves these households who make over $105,600 per year with 48.6 percent of all disposable income. As would be expected, the lower income families spend a higher percentage of their income on food, shelter, utilities, gasoline, and healthcare, leaving less disposable income for non essentials. However, surprisingly, when it comes to home furnishings and equipment, the disparity in percent of income spent between the ranges does not vary significantly.
The annual mid-year Consumer Expenditure Survey report (mid 2015 to mid 2016) by the Bureau of Labor Statistics divides the 129 million households in the U.S. into 20 percent quintiles of around 25.8 million consumer units each from the lowest to highest earners. Not surprisingly, the majority of income earned before taxes along with the tax money generated and disposable income after taxes belong to households in the top quintile.
Income Groups
As shown in Table A, over three-fourths (75.4 percent) of total income comes from the top two quintiles. The average income for the highest 20 percent is $192,051 before taxes and the second 20 percent of average $82,561. The remaining three income segments make up 60 percent of U.S. households and earn less than $63,800. They account for under a quarter (24.5 percent) of all household income.
The majority of tax dollars, 78.5 percent, comes from the top income segment (Table B). And although the highest earning households pay on average 20.6 percent of their income to taxes, their share of total U.S. income after taxes is still at 48.6 percent, down from 52.8 percent before taxes. Paying roughly 10 percent of income to taxes, the fourth 20 percent quintile has an average of $73,827 of income after taxes – maintaining 23.5 percent share of all disposable income.
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After taxes, the bottom three earning households bumped up to 28 percent of total disposable income but much of it will be swallowed by the essentials like food, shelter and healthcare. (Table C)
Household Characteristics
There are distinct household characteristics that separate the income levels as depicted in Figure 1. Most notable is that the higher the income level, on average the more people in the household. The highest 20 percent have almost double the number of people (3.1 persons on average) compared to 1.6 persons on average in the lowest 20 percentile. This reflects the higher income concentration of married couple families. The top 20 percent also have on average 2.0 earners while the lowest earning households have 0.5 earners. It also shows the lower the household income, the higher concentration of individuals over 65 years and the fewer the number of children. The highest income households have on average three vehicles, compared to less than one for the lowest group. All of these characteristics contribute to the things consumers buy for their households in conjunction with their ability to pay.
Spending on Essentials
Essentials like food, shelter, utilities, gasoline, and healthcare eat up much of the income of lower income families, leaving less disposable income for non essentials. Yet, as stated earlier, when it comes to home furnishings and equipment, the disparity in percent of income spent between the ranges does not vary significantly. Table D shows how the percent of income being spent on most essential goods or services declines as the income brackets increase. As expected, shelter consumes the greatest portion of each income bracket – at 17.5 percent for the highest earners on up to 25.1 percent for the lowest.
While households with more money spend a smaller share of income on essentials, the amount of money spent is much greater. For those in the lowest 20 percent, an average expenditure of food is $3,651 at 15.1 percent of their earnings, while the highest 20 percent on average spends $12,646 – just 11.3 percent of income. For furniture and equipment, all levels of income still spend between 2.6 percent to 3.3 percent of their incomes.
Household Furnishings and Equipment
Among home furnishings and equipment, the percent of income spent on furniture and major appliances are the two largest segments. Aside from the lowest 20 percent quintile at 0.6 percent share, all income levels use between 0.8 and 0.9 percent of their income on furniture purchases (Table E). While the share is roughly the same, the dollars spent differ greatly. With an average annual expenditure of $1,054 on furniture, the highest income segment spends twice as much as the segment below it ($514) and almost four times the amount as the second 20 percent segment ($267). (Note: The Consumer Expenditure Survey conducted by the Bureau of Labor Statistics which is the basis of this article tends to reflect lower average annual expenditures compared to the Personal Consumption Expenditures tracked by the Bureau of Economic Analysis.)
Similar to furniture spending, the share of income spent on major appliances does not change much between income levels – ranging from 0.4 percent to 0.6 percent of income, regardless of earnings. Since a refrigerator or oven is more likely to be considered a necessity compared to a new sofa or table, average expenditures do not vary as much with highest earning households spending an average of $482 and the lowest spending $108 (Table F).
Despite the similarity in percent of expenditures spent on home furnishings and equipment among income segments, the vast differences in disposable income put much of the purchases within the top 20 percent of households. As shown in Table G, 65.6 percent of total furniture expenditures come from the top two income brackets with 44.1 percent from the highest 20 percent. Major appliances and home textiles are somewhat less concentrated in the highest 20 percent of households with the bottom three income levels accounting for 40 percent of their total expenditures. At 48.1 percent of total expenditures coming from the highest earning households, floor coverings are primarily being bought by households making more than $105,600.
Middle income families at one time were the bread and butter of the home furnishings industry. Median household income now stands at $55,775. This places the third quintile or 20 percent of consumer units earning between $38,000 and $63,800 purchasing only 17 percent of all furniture. Most of the home furnishings industry, 65.6 percent of furniture purchases belong to 40 percent of households earning over $63,800 annually.
In the next issue: Mapping age with the income.
December 18,
2017 by Jane Chero in Business Strategy, Industry
With this issue, we celebrate those retailers that have achieved a significant presence within the markets they serve (market share). Some of these retailers have maintained their position while expanding their market footprint. Others, with just their sheer volume, have a significant national presence without dominating a single market. At the same time, some retailers with revenue under $50 million are dominant in their own markets.
Without a doubt, traditional furniture retailing is under assault from other distribution channels, yet this has always been the case. I am sure that the Sears and Roebuck mail order catalog was a threat to all retailers. More recently, the “1-800” number segment was thought to be the demise of furniture retailing as we knew it. Yes, we will need to change some of our practices and improve our productivity and I am confident we will do so. As I write this, I am leaving for one of our Performance Groups. This group of furniture store owners will share their best ideas and what is working for them. All members will leave with pages of notes to execute when they return home. These retailers will be here in the future.
As I close this annual exercise of determining this year’s Power 50, rest assured the numbers define who is selected- no thumbs on the scale. I look at the 300+ that made the first cut. I know that some of those just below the cut will make it to the cutoff next year. But most importantly, these 300+ represent over $30 billion in sales or approximately 30% of the market share.
Let’s continue into the future- history is on our side.
December 18,
2017 by Jane Chero in Business Strategy, Economic News, Industry
Even though furniture industry sales are projected to grow by a modest 4.1% in 2018, retailers who made the prestigious Power 50 list compiled by Home Furnishings Business undoubtedly will be disappointed if they don’t exceed that growth rate by a wide margin.
It will take an aggressive, play-to-win strategy to beat those industry projections, but that mindset is one of the factors that landed members of the latest Power 50 on the list in the first place.
But the list is not simply based on annual revenue – that’s why a handful of smaller independents made the cut. Instead, it takes into account factors such as market share, expansion, and social engagement.
Market share, in fact, is the most heavily weighted factor determining who makes the list, accounting for 46 percent of the total score. It is determined by dividing the retailer’s estimated sales by the estimated retail sales of furniture and bedding in each of the markets in which the company participates, whether it’s a metropolitan statistical area, micro statistical area, or a rural area. Sales of electronics, appliances and housewares are not included.
The list gives revenue the second most weight, accounting for 20 percent of the score. Revenues are compiled using publicly-available information or HFB estimates.
The factor getting the third most weight – social engagement – is the most complicated, but accounts for 19 percent of the score. It considers social signals, website metrics, and third-party scoring platforms to arrive at a list of home furnishings retailers with the strongest online engagement, as measured by 14 separate metrics.
Sources include Alexa, Facebook, MOZ, OpenSEO, Twitter and Pinterest. On Facebook, for example, the number of “check-ins” and “likes” were among the metrics, as were the number of Twitter followers, Pinterest “pins,” and Google Page Rank, just to name a few.
From that data, we used a basic ranking methodology, assigning a numerical value to the ranked list of each metric. (For example, the retailer with the highest number of Twitter followers received a “1,” and so on.)
Then, we arrived at 14 individual scores calculated for each metric. After dropping the two highest scores to eliminate any outliers, the statistical average of the 12 remaining scores was used to calculate the final social engagement score.
The final factor in the Power 50 ranking is retail expansion, which accounts for 15 percent of the total score. Using public records, it measures store expansion and expansion into new markets.
In addition to the Power 50, HFB compiled separate lists that ranked regional chains, large independents, vertically integrated retailers, and independents with sales of less than $50 million in a single state.
December 18,
2017 by Jane Chero in Economic News, Industry
Rapidly changing consumer work patterns and even more rapidly changing technology are continuing to drive the home office category, despite the move toward designing homes with more open floor plans.
Such floor plans typically don’t allow for a dedicated home office space, but producers say that doesn’t seem to have crimped sales. Instead, consumers are creatively developing spaces for multiple uses in their homes. And producers say some are even buying home office furniture with no intention of setting up a home office.
“People are finding ways to integrate office pieces throughout the home,” said Lorri Kelley, president of office and entertainment furniture resource BDI. “That’s why we’re designing pieces that are more modular in nature. We are making sure that our product offering will fit into a variety of rooms, for a variety of functions in a variety of layouts.”
She said increasing real estate costs, and the ease of conducting meetings and collaborating with co-workers without everyone being in the same room is decreasing the need for workers to go to a company office every day. Instead, she said many are choosing to work from home at least part of the time.
“We know the category is going to continue to grow just for that reason,” said Kelley. “That just makes the development and integration of these types of products even more important.”
Consumer research by Impact Consulting Services, parent company of Home Furnishings Business, showed that, among recent purchasers of home office furniture, nearly half (46.4%) use their furniture for work when they’re not in their regular office. Another 42% said they use it for home and family business, while only 11.6% said it is used for a home-based business.
Nearly 60% of those surveyed said the furniture was going in a room specifically set aside for a home office, while 42% said their office was in a room also used for other functions.
Tim Donk, director of marketing at Legends Furniture, said he believes the increasing use of rooms for an office and other functions is contributing to strong sales of his company’s writing desks. Such desks will more easily blend with almost any type of room décor, unlike the large executive desks that once dominated the category, he said.
“We do really well with our 60-inch writing desks … and the matching bookcases,” he said. “The bookcases are something that can be used virtually anywhere. They don’t even have to be in an office.”
Among consumers in the Impact Consulting survey, some 26.1% said a writing desk was their preferred style of desk, which was second only to an L-shaped desk at 27.5%.
Corner desks came in third at 15.9%, and executive desks were next at 14.5%. They were followed by desks with a hutch (8.7%), a secretary (4.4%) and roll-top desks (2.9%).
Donk said he was surprised by the strong showing from L-shaped desks, given the trend toward smaller living spaces and the reduced need to accommodate desktop computer towers and large amounts of storage space for paper files and books.
“It’s always interesting to see how furniture industry trends are driven by electronics,” he said. “We used to sell a lot of computer desks, but back then, almost everybody was using a desk top, and there were no smart phones.”
Desks with an adjustable-height feature that allows the user to stand while working wasn’t included among the survey choices, but Kelley said that style is rapidly gaining in popularity. In fact, BDI and other producers, notably resources such as Twin-Star and Turnkey, are devoting increasing amounts of time and showroom space to develop these products.
“We have been exceptionally pleased with the (sales) results from our standing desks,” Kelley said. “It will be significant part of our product development strategy going forward.”
She said the adjustable-height feature is being marketed as a health benefit, noting that many health experts now recommend that office workers stand 45 minutes to an hour in the morning and afternoon. Kelley, who uses an adjustable-height desk in her office at BDI’s headquarters in Chantilly, Va., said they also help alleviate neck and shoulder cramping that can result from long periods of sitting “hunched over a computer.”
Donk said he also has an adjustable-height desk in his office at Legends Furniture in Phoenix, but is more skeptical about the long-term prospects for the product. He believes it will continue to gain strength in commercial office settings, but may not catch on in residential use.
“There’s some novelty to it. But I think the jury is still out,” said Donk. “We decided it would not be that strong of a residential item.”
Donk and Kelley are in agreement, however, about the trends in finishes they’re seeing. Suffice it to say the lighter and grayer the better.
“The growth of gray has been remarkable to watch,” said Kelley. “It’s fun to see fashion start to come into furniture, particularly in case goods.”
Donk said the gray finishes that are most popular in the Legends line have a casual rustic feel. “Most of our better-selling writing desks are along the rustic line. The grays still have legs.” he said.
Desks have always been the centerpiece of the home office category, and the Impact Consulting survey showed that more than 59% of respondents had purchased a traditional desk or computer desk in the past two years.
The most frequently mentioned item, however, was a desk chair, which was purchased by 47.8% of respondents. Some 36.2% said they had purchased bookcases for their home office, 15.9% had purchased a file cabinet, and 10.1% had purchased a work table.
In addition, one-third of survey respondents said they spend more than 15 hours a week in their home office, while another 10.1% said they spend 10 to 15 hours. Another 30.4% said they spend five to 10 hours per week, while 26.1% spend less than 5 hours.
December 18,
2017 by Jane Chero in Business Strategy, Industry
The October issue presented the numbers and offered the observation that the faster growing retail options tend to offer a shopping experience that did not include a traditional sales person. It presented the opinion that many of today’s consumers do not feel the need for one and may actually fear having someone sell them something they don’t want, or interfere with their shopping experience. The solution presented was to make sure we are properly communicating the benefits of working with our staff and promoting our services to the consumer, not just our products. Don’t assume they understand the process, because they do not.
In the November issue, we addressed the fact that even though we know how important our staff can be to the customer, over 40% of those that do choose to shop at a traditional retail store end up leaving without buying because they “did not see what they wanted”. Since it is primarily the sales person’s role to help them find what they want, this is a very concerning number. So, we presented some ideas about the fact that many customers don’t even allow our staff to help them when they enter our store by telling them “I’m just looking”. If you can’t properly open the sale and build trust with the customer, then you have little or no chance to close the sale.
The main issue discussed last month was the fact that so many customers leave our stores saying they did not see what they were looking for. While the greeting is indeed the most important element, there is another critical step in the process that perhaps is not being handled as well as it could be by our sales team. Once we get the consumer talking to us about why they came in, we need to properly analyze their needs and wants, then develop a solution that fulfills their dream for the room within whatever physical or financial limitations they may have. Therefore, to complete this trilogy, we will present some of the elements in the needs analysis and development process we use to train our clients to provide for their customers.
This great observation from Stephen Covey summarizes our approach:
“An effective salesperson first seeks to understand the needs, the concerns and the situation of the customer. The amateur salesperson sells products.”
Defining Needs Analysis
Needs analysis is not qualifying. Qualifying customers is a concept of the past. The idea that there are a few questions whose answers can tell us all we need to know to help a customer has been largely responsible for the dismal performance of our industry for decades. There are no such questions and few of us are trained to qualify anyone. Needs analysis and development, by nature of the very words, is a far more expansive process. The goal of needs analysis and development is to satisfy our primary mission to help our customers understand how to use our products to enhance their quality of life and not just how to buy them. Needs analysis is a mission-driven process and lies at the very heart of being a professional salesperson.
Let’s consider how other professionals work with their clients. For example, how does a good doctor, lawyer or dentist do their job? Their business is referred to as a Practice because it is based on a group of clients that they develop over time by providing successful results to them. These people rely on them for advice, recommendations and results that fit their individual needs/wants. However, the steps they go through are exactly the same as the ones sales professionals must go through.
Certainly they have to greet and establish trust with their prospective clients. Next, they proceed to the critical phase of needs analysis and development to determine what treatments or actions will deliver the best result for their clients. To do that they ask a great deal of questions and do tests or research to make certain that they understand the situation and determine the real needs. Would you become a client of one of these professionals if they merely gave you a quick answer before understanding your problem? It would be like a doctor saying “Take two aspirin and call me if you don’t feel better tomorrow.”
Retail customers need to give a professional sales consultant a lot of information in order to help them solve the issues the consumer brings to the store. In most cases, just like with a doctor, most customers do not know what information the sales person needs to have. So, as with these other professionals, our sales staff must have a method of discovering the real truths. A doctor asks questions about symptoms to determine the root cause of the problem. We also have to ask questions to find out the real needs and wants of our customer.
Our business is driven by the needs of our customers to create beautiful homes. Therefore, the need lies in the home, not in the store. Solutions can be found in the store, but if your staff is ever tempted to think of a customers’ need for some item or a thing in your store – have them STOP and THINK of this basic principle. The need is in the home. In order to understand the need and offer a solution, you must deal with the home first.
Getting Started
In order to get started, it is often helpful to ask some key questions about where the customer is in their buying journey. Getting an idea of what they have already done and seen will help the sales person catch up with them and be more of a partner as they go forward. It can also shorten the discussion time needed by determining if they have actually found something they like or at least have a good picture in their mind of what it could be. The following questions are examples of what has worked well for many such as; “Have you been shopping long?” and “What stores have you visited?” Or, “Have you been online?” “Whose sites have you visited?” and “Did you visit our website?” Other questions to ask are; “Have you seen anything you liked?“ “Where was it?” and “What did it look like? Do you have a picture or can we bring it up on the screen here in the store?”
These questions will help us determine not only where the customer is in the shopping/buying process, but how she is approaching the task of finding new furniture. Many customers already have a good idea of what they want when they enter the store. If we can determine this early in the process, it can make the rest easier, particularly if the customer can give us specific guidance about what she is looking for by showing pictures from a magazine or website. If not, they can often accurately describe it or even give us a brand, style name or number that can be researched. In fact, many may even have gone on your store’s website and selected products to look at prior to visiting your store. The quicker we can find that out, the better.
However, do not assume that they will tell us! Remember the fears and lack of trust they bring with them to the store. We will usually have to find a way to get this information from them, it will not automatically be volunteered until they trust us and we ask them these questions.
Making the Key Needs Analysis Request
After learning where they are in the process and determining if they have already found something they like, no matter what we learn, the best way to really dig into needs analysis is to ask the customer to tell you about their room.
This is the starting point of all product needs analysis. It can only happen after we have earned the right to ask for this information, by virtue of completing a successful greeting and earning a level of trust from the customer regarding not being sold something she doesn’t want or that isn’t right.
This is what is called a “high-gain question”, which means that it is one simple question, which will return a lot of important and useful information to us. In addition, it will reduce the total number of questions we have to ask to get all of the information needed to help this customer achieve her goal.
Sketch the Room
We feel very strongly that the most effective needs analysis tool we have at our disposal is the sketching process. Only by making a visual representation of the room can we share a common understanding of exactly what the problem is and what the customer wants to have happen. You have heard that “a picture is worth a thousand words” and that has certainly been proven true here.
Sketching is a very detailed process previously addressed in the June 2015 issue of HFB in an article titled “Sketch to Build Sales”. I highly recommend that you go to our website (www.hfbusiness.com) and click on the magazine tab and dropdown menu for past issues to review this information so you have a better understanding of this important element of the needs analysis process.
Summary
My intent here has been to give the reader some ideas about the importance of Needs Analysis and offer a few tips about the steps involved. This is by no means a complete dissertation on it, merely something to get you thinking about how it is currently being done in your store and what you might want to do to make it better. Your best solution will always be to bring in an outside, professional trainer that can help your staff improve in this critical area and take better care of your customer’s needs. By the way, if during the interview a trainer doesn’t ask you a lot of very pertinent questions about your situation and what you want to have happen, before they tell you what they will do - don’t hire them!