Monthly Issue
From Home Furnishing Business
November 16,
2017 by Jane Chero in Business Strategy, Industry 
When the much-discussed Baby Boomers started their household formation phase in the late 60s, we had turmoil as they began to reject the traditional styles which drove brands, such as Ethan Allen and Thomasville, to acceptance toward upstarts, such as Scan Design, Storehouse, and Crate & Barrel. Yes, with every generation, retailers and manufacturers must adapt their merchandise, value statement, and retail experience.
However, today the industry is in transition, reluctantly bidding goodbye to the Baby Boomers and also with reluctance greeting the Millennials.
This ambivalence is creating a lost opportunity – Generation X. While not as significant in terms of households (27.5%), Gen X represents as much of a force with furniture purchases (34%), as the Baby Boomers. Unlike the Baby Boomers, they will continue to increase in terms of percentage of furniture sold.
First, let’s find some reassurance that the Millennials are not that much different from all generations. Specifically, their home furnishings must communicate who they are and a sense of style.
Yes, there is a difference in what defines style in terms of product, but this is always the case, as society moves forward.
However, the industry must master how they want to communicate in terms of media and their dependence on the internet, as their first shopping stop. For now, they are focused on the non-traditional channels, but are willing to consider these channels, as well. It will be a challenge, but nothing the industry can’t overcome.
But, what the most immediate concern should be is Generation X. They are here now and they are purchasing 33% of all furniture/bedding and are growing. We need to concentrate on this forgotten generation. What makes them different from their parents?
The attitude toward furniture is the same, as is the reasons for purchasing. However, while depending upon the Internet, they are very much into magazines (10.8%), in fact, 5X greater than their parents.
The input of friends is more important, which accounts for the increased influence of social media.
Generation X is buying form the regional chains, moving from independents which the Baby Boomers prefer. However, they have embraced the mass merchants as well. They are still satisfied with their buying experience, but not as much as their parents.
The challenge is this generation. The retailers can focus on the Millennials later. For the next decade, this generation will determine our success.
November 16,
2017 by Jane Chero in Business Strategy, Economic News, Industry
The home furnishings industry is in a transition with total growth forecasted to be 3.4% this year, which would be an above average performance for all retail sectors. Next year, Impact Consulting projects a similar forecast of 4.1% (HFB October issue forecast). So, what is the problem? In the last decade, a proliferation of retail formats has emerged to attract an ever-changing consumer. Whether it is price, experience, or convenience, each format attracts a different, but overlapping consumer group.
The traditional distribution channels of Independent furniture stores, department stores, and national merchants, which decades ago controlled more than 90% of all furniture sales, have declined to less than 50%. Capturing that volume has been new retail formats with new value propositions or new ways to satisfy the consumer’s need for creating an environment to enhance their lives.
Traditional channels have themselves morphed into different formats with different product categories. In fact, the loss of product categories, such as small appliances to the mass merchants, has eliminated traffic to the stores. Gone are the days of the credit stores, which ensured a continuing contact with the consumer. This loss of product categories and credit solutions removed an element of loyalty.
The result is fragmented distribution at retail. The accompanying graphic illustrates the distribution of purchasers.
In 2017, Regional Chains have gained share of consumers, which is best illustrated by the expansions of retailers such as Bob’s Discount and Art Van. Department Stores have lost share to both independents and regional chains. Retail Verticals have been combined with Lifestyle and have grown, as Ashley HomeStores have expanded their brand presence. The resulting retail environment is a complex competitive network with each retail format competing for the consumer expenditure.
Unlike the previous 20 years, the Baby Boomers are not the dominate generation in the furniture retail sector. While still a force, purchasing 34.7% of furniture and bedding in 2016, the growth trend is downward. The children of the Baby Boomers, Generation X, represent 34% of the total expenditures and are still in a growth mode, as their children are beginning to leave the home and the consumer is adjusting for the empty nest phase. The emerging Millennials, in size, will eventually dwarf the Baby Boomers and are still in the household formation phase.
The challenge for the furniture retailers is to satisfy all generations, the largest but declining sector, the Baby Boomers, while satisfying the unique needs of Generation X, which will continue to grow. Accomplishing this, while anticipating the future Millennials, can be a challenge. The following addresses some of the differences between each of the generations.
SILENT GENERATION (AGES 71-88)
While representing 13% of the households, surprisingly they consume 8.2% of the furniture expenditures. This generation, especially the younger segment, is pioneering the concept of “aging in place.”
However, this generation still has a lot of living to do. As the other generations cluster, over a third (36%) intend for their next purchase to be leisure travel, followed surprisingly by a new car (29.5%). Furniture falls at the bottom (7.9%) of their plans. One could assume they are going to visit their kids by plane or car. Hopefully, this will generate second bedroom purchases in the succeeding generations.
This generational cluster, as would be expected, has a different attitude toward decorating and home furnishings. By far (43.8%), they believe their “home furnishings should be practical and meet my basic needs for comfort.” Obviously, they are not concerned (3.8%) with their home furnishings communicating their success and reflecting a sense of prosperity.
Unfortunately, the reason for their purchase was replacement (47.5%), reflecting a quality issue. The other reasons were in line with other generational clusters: desire for new furniture (25%) and redecoration (23.8%).
Like all consumers, the first step in the furniture purchasing process starts on the internet for research (45.8%), but the visit to the store (53.3%) still is favored by the majority.
The use of designers (10.4%) remains an important first step, a characteristic this generation shares with their grand or great-grand children. Input from their friends (7.1%) is also important.
Before this generation starts the buying process, the advertising media having the most influence was the local newspaper ads (29.7%), followed by the internet/email (20.8%). The other advertising media that excelled with this generation was radio ads (6.8%) -- more than three times the rate for all consumers.
As would be expected, this generation remains loyal to the independent retailer, with almost one-third of purchases made in this distribution channel (31.2%). The interior decorator channel is almost twice (7.5%) as likely to be the channel of choice. Only the mass merchants were not favored (13.8%) compared to all consumers. Old doesn’t necessarily mean frugal.
Looking to the future, the Silent Generation would most likely shop the Independent retailer (42.3%). However, the intent to shop the internet (18.0%) increased from the actual purchase. Also, the Interior Design sector saw an increase (14%). Could this be an indication of more of a “personal shopper” need?
The Silent Generation was the group most pleased with their shopping experience, with 35% ranking it excellent, and a nil response below a 3 on a scale of 1-7. As far as furniture shopping is concerned, they are not the “grumpy” generation.
Specifically, what they were pleased with in their most recent shopping experience was ease of shopping, which ranked the best (51.2%). The lowest was product knowledge of sales associates (40.3%), still higher than all consumers. The older generation likes the furniture retail experience.
Why did this consumer purchase the furniture they purchased? Overwhelmingly, it was due to the quality (35.1%).
What does the furniture retailer need to do to continue serving this consumer segment? For the most part, the industry has done a good job from the Silent Generation’s perspective. While not a significant part of the industry volume, it is a segment that has disposable income and is willing to pay for quality and service.
BABY BOOMER GENERATION (AGES 52-70)
This generation, which represents 34.8% of the households and about the same in consumer spending for furniture (34.7%), is an important, but declining segment of the furniture purchasers.
This generation is facing a significant transition as they contemplate retirement. Their choice - whether to age in place or downsize to a retirement community - involves a purchase decision.
However, like the other generations, their first choice in the list of intended next expenditures is leisure travel (37.5%), followed by a new car (35.19%). A furniture purchase, unfortunately, is the last of their intentions (5.7%). They are saddled with the “brown furniture” that was the preference of their generation, but their children don’t want it, and the consignment shops are avoiding this furniture. So, the decision is just to keep what we have. Unfortunately, in downsizing, the scale of their furniture doesn’t work. This decision of what to do with the old furniture becomes a problem.
Unlike the Silent Generation, the Baby Boomers still want furniture that communicates “who I am and reflects my sense of style” (35.1%). However, the Baby Boomers still have the need for home furnishings which “are practical and meet my basic needs for comfort” (28.6%). This consumer is still attached to this more traditional/formal furniture, but is contrary to these statements and provides an opportunity to influence their decision to purchase. A great trip lasts 7 days, but a new power/motion sectional lasts a lifetime – maybe.
Unfortunately, 40% of the consumers in the Silent Generation bought furniture for replacement. We know furniture should have a definitive life span, but from a consumer’s perspective, the life of their furniture is short. The next major reason for purchase is desire for new furniture (24.4%) – an opportunity the industry can stimulate.
What was their buying process? As with all consumers, the majority of the Baby Boomer generation starts with research on the Internet (51.8%). However, a visit to the store is still favored by many in this generation (40.5%). The brick and mortar stores still have the opportunity to influence the sales. Many of these consumers “scout” the store with no intention to purchase at that time. Retailers, be careful with slighting the “tire kicker.” We only have one time to make a good first impression.
Of all the generational clusters, the Baby Boomers have some use for the local newspaper, especially in small markets.
Interestingly, the Baby Boomers have embraced the internet/email as the number one media to influence their intent to purchase (28.6%). This is not to be confused with social media, which was the major influencer for only 5.8% of this generation. As can be seen from the accompanying table, television/print magazine/direct mail/local newspapers are in a neck-to-neck race for the number two spot.
The Baby Boomers are still the major customers of the independent retailer (33%), followed by the regional chains (20%). Their support of the other distribution channels is comparable, with the exception of the lifestyle stores (6.7%), which they have discovered. Stores such as Pottery Barn, Arhaus, and Restoration Hardware reflect their need for a new style and comfort as they transition from their more traditional/formal furnishings.
Looking forward, they will consider regional chains (33.7%) at a higher percentage than their past purchases, along with the internet (20.5%). The designer channel will also be one which will increase in importance.
As with the older generation, the Baby Boomers are pleased with their most recent shopping experience, with over 60% giving a positive rating (6 or 7) on a scale of 1 to 7.
The Baby Boomers are pleased with the courtesy of the store personnel (46.1%) and less pleased with product display and selection. But overall, it was a positive experience.
What brought the product they purchased to their attention was quality (38.8%), reflecting the attitude of all consumers. The continued identification of product quality, as reflected in the reasons for purchase (39.6% all consumers) is creating a wary consumer.
Functionality is important to the generational clusters, reflected in the increased sale of “power” in upholstery and bedding.
Warranty is of little value to this consumer group, reflecting past experience, as well as an attitude of never buying extended warranty.
GENERATION X (AGES 36-51)
This generation is the overlooked or forgotten generation. While smaller (27.5%) in terms of the number of households, they represent more of the consumer expenditure (34%) than the much-touted Millennials. In many ways, this generation is leading the transformation in furniture retailing. While the Baby Boomers are declining in terms of furniture purchase volume, Generation X will be increasing.
As with the other generations, they have a desire to travel, with over 43% stating this as the number one intent as to a major purchase. While important, the car is slightly below (25.9%) the other generations.
The attitude of Generation X is comparable to their parents, with 34.9% believing decorating/home furnishings should be reflective of “who they are and reflect a sense of current style.”
This generation is contending with furniture replacement (43.9%) as are the other generations. However, compared to the others, they are remodeling and adding to their homes (17.9%). The older end of the generation is seeing the first born depart, freeing up a bedroom for the “man cave” or “she-shack.” All of this creating a demand for new furniture.
How do they go about their purchase? Like all consumers, the Internet (50%) is the first stop in the process. However, it is important to point out 40% make a shop excursion first.
The other important difference is their use of magazines. Print is not dead for this generation. The importance has been confirmed with Home Furnishings Business magalogs, which combine lifestyle editorial content with product to achieve a response rate of more than 9%.
Unlike their parents, few get recommendations from friends and relatives (7.6%). Remember this is truly the Facebook generation.
What is this generation looking for in their products? As with other generations, the number one feature is quality (38.1%), Design and aesthetics (24%) are important, along with comfort (16.7%), but most important is value (11.9%). Consumers are both time and budget constrained.
What advertising media influences them? As compared to their parents, they are more likely to be influenced by the Internet/email (44.6%). The next most influential media is targeted direct mail (15.4%). While more influential (8.0%), social media is next to the bottom, just above radio. Television viewing declined from their parents (12.8%).
The regional chains are the distribution channel of choice (24.1%). Surprisingly, the Internet is less important, compared to both the Millennials and the Baby Boomers. Unlike their parents, they accept the mass merchants as an acceptable retailer for furniture. However, for their next furniture purchases, it appears Generation X would be very likely to consider the lifestyle stores and the internet, and less likely to consider the independent retailer and regional chains.
The reason for the propensity to consider other distribution channels may be found in the satisfaction with their last buying experience. While not negative, it is not as positive (54.4%) as the Baby Boomers. A significant area they ranked lower compared to their parents was the “courtesy of store personnel.” This paints a portrait of a time-constrained consumer who does not have time for a sales pitch and has little patience for a lack of product knowledge (25.4%).
November 16,
2017 by Jane Chero in Business Strategy, Economic News, Industry
Producers say the category is finally showing signs of life after several years of sluggish sales, and is due for a significant rebound. Millennials, for starters, are starting to form new households in earnest, and non-Millennials are starting to feel comfortable about spending money to replace their well-worn existing bedroom suites.
And when they do make those purchases, they’re likely to find an array of finishes that weren’t available the last time they shopped. Not only have gray finishes become all the rage the past couple of years, but the time honored brown finish has taken on a variety of new forms that are nothing like the high-gloss, lacquer-heavy traditional finishes that have been a staple of the category.
“Even in the most sophisticated environments, we see consumers gravitating towards a more relaxed aesthetic,” said Randy Wells, vice president of creative at Stanley Furniture. “We believe there’s a call for finishes that convey the natural characteristics of the veneer or wood species they are applied to.”
And in many instances, that has meant gray finishes – especially the past two to three years. Producers say grays have been prevalent in Europe for many years, but have caught on only recently in North America.
“All of a sudden, it just seemed like everything became gray,” said Geoff Beaston, vice president of case goods at Klaussner. “I am hearing people are tiring of it, but I believe it will be here for quite a while. Just like the classic traditional finishes, I think gray will still be one of the popular finishes.”
And given today’s increasingly sophisticated finish treatments, there are now some brown finishes that have a gray tone, which pleases those who think there’s too much gray in the marketplace and those who can’t get enough of it.
“If you can come up with a finish that is brown to the people who like brown, but yet gray to the people who like gray, they you’ve got a winner,” Beaston quipped.
Research by Impact Consulting Services, parent company of Home Furnishings Business, showed that replacing old furniture was the most frequently listed reason for buying new bedroom furniture, but buying a new house was not too far behind.
In a survey of recent bedroom furniture purchasers, 33.6% said replacing old furniture was the primary motivation, followed by buying a new house, which was cited by 24.9% of respondents. The next-highest motivation was a desire for new style, cited by 19%, followed by a change in family size, cited by 11.4%, and a desire for new function, cited by 11.1%.
To no one’s surprise, a headboard or headboard/footboard combination was the most frequent bedroom furniture item purchased, cited by 56.7% of the survey respondents. But a dresser and night stand were close behind, purchased by 53.6% and 53.1% of respondents, respectively. A chest was purchased by 25.3%, while a platform bed was purchased by 13.4% and a desk by 12.9%.
The armoire, a fairly common bedroom furniture purchase prior to 2000, was acquired by only 9.3% of the survey respondents.
“The bed is still the focal point, and we all want to make that grand statement,” said Beaston.
Increasingly, that statement is being made with upholstery, as upholstered headboards continue to gain market share. Estimates of the market share captured by upholstered headboards vary widely among producers, but they all agree their popularity is not waning.
“Upholstered beds remain an important option in our whole-home collections,” said Wells. “Even if we don’t cover an entire bed, our beds will typically employ some level of upholstery to add a valuable element of texture and softness.”
Bedroom furniture producers also are making a statement by increasing the height of their headboards. No reliable data is available on the number of tall headboards offered by producers, or just how tall they are, but it appears the headboard heights may be limited only their ability to fit into a container (for importers) or a truck (for domestic producers).
“It seems like every time we look at a sample, we say, ‘gosh, we need to raise it a couple of inches’,” Beaston said.
Headboard heights weren’t part of the Impact Consulting survey, but the overwhelming majority of respondents (63%) said it was the bed that initially drew their attention. The dresser came in a distant second, cited by 18% or respondents, and all other bedroom pieces were cited by less than 5% of recent bedroom furniture purchasers.
And while the ability to customize bedroom furniture isn’t nearly as important as upholstery – except at the very high end of the market -- nearly all of the survey respondents said they would be willing to pay extra if they were able to customize. In fact, 25.8% said they would pay an additional $100 to $250, and another 24.2% said they would pay an additional $250 to $500.
Plus, some 14.4% said they would pay an extra $500 to $1,000, while 8.3% were willing to add more than $1,000 to the price tag.
November 15,
2017 by Jane Chero in Business Strategy, Industry
Having just steered International Market Centers through its second private equity transaction in six years, one could forgive CEO Bob Maricich if he wanted to kick back and spend more time at his vacation home in Montana.
But that’s not likely to happen. The 67-year-old Maricich says he isn’t planning to retire anytime soon, and said IMC’s recent sale to a pair of funds controlled by the private equity firm Blackstone presents significant growth opportunities that he and his management team are excited to pursue.
IMC, which was formed in 2011 when the World Market Center in Las Vegas and several major High Point showroom properties were placed under common ownership, now controls about two-thirds of High Point’s showroom space, including the sparkling new Christopher Guy showroom on South Hamilton Street.
And the World Market Center has been adding gift and home décor exhibitors at a furious pace after designating a large chunk of Building C for those vendors.
Maricich recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about IMC’s sale to Blackstone, the growth opportunities the deal presents, and its possible effect on the High Point and Las Vegas markets.
Home Furnishings Business: What changes can buyers and exhibitors expect to see under the new ownership?
Bob Maricich: It’s an extraordinarily positive development for the company and the industry. There’s no question that Blackstone is in the business to grow, and that growth could be in the form of buying something. It could be in the form of building new buildings. It could be in the form of broadening the furnishings and home categories that are in our markets. The total focus is really on improving and making more effective and efficient the buyers experiences. `
At the end of the day, the buyers really determine where market is and how long it is. Even though they don’t pay us anything, we need to treat them as a customer. And that customer focus is how do we improve that experience? Particularly in High Point, we’re looking at some of the things we can do in terms of physical improvements, beautification, and efficiency, so that buyers can be more productive. We’d love to figure out a way to have them stay longer and shop more, but they’re clearly telling us that their time and their money is valuable, and the effort needs to be on the efficiency of shopping.
On our executive team, everyone is a personal owner of the new company. And the quality of management was a significant reason for Blackstone buying the company. So everyone is staying on, and everyone is excited and motivated about the growth opportunities going forward.
HFB: Blackstone has said acquisitions are a possibility. Could these opportunities take the company outside the home furnishings and gift industries, or is there still room to grow in these core businesses?
Maricich: I think there’s a lot of room to grow in those core categories. The definition of home furnishings is broadening. Channels of distribution are broadening. That’s a great opportunity. Then there are the verticals, particularly in Las Vegas, related to gift. We’ve got a great start, but there’s great growth opportunity there. I hope that (the World Market Center) will be fully occupied by the end of next year or early 2019, and that will afford us an opportunity to build another building there.
Our main task is to put buyers and sellers together in the most cost-efficient way. So without a doubt, there are real opportunities to expand the experience with technology. We invested a lot of money researching that, and we’re looking for ways to create value in that regard.
And finally, even though our name is International Market Centers, we’re not a property owner outside the United States. That certainly creates an opportunity as well.
HFB: Unlike the furniture industry, there are several competing U.S. trade shows for gifts and home décor. What special challenges does that present?
Maricich: We’ve done extensive research that clearly shows that buyers and manufacturers want a major show in the eastern United States and a major show in the west. It’s economical. Two shows that are drawing international audiences are better than six or seven regional shows. We’ve got the only truly growing whole home market in North America. The buyers want it because, at a regional show, there’s not enough suppliers to do their shopping. We think we’re the natural home in the west for the gift and home décor industry. Atlanta clearly has carved out that space (in the east), but buyers west of the Mississippi clearly want to come to a western location.
HFB: How did Las Vegas become the premiere market for the bedding industry?
Maricich: I’d love to take credit for growing that (laughs), but that started long before IMC. The bedding people generally are far greater promoters than the furniture people, and part of that promotion is entertainment. They just embraced Las Vegas and everything Vegas has to offer.
Four or five companies now have significant market share, and when they moved there (to Vegas), all of a sudden all of the smaller companies and the e-tailers went there. Once you get a core of leaders, it solidifies the category. They’re able to spend a lot of promotional money to draw a national audience.
But the same dynamic applies to that industry as it does to the furniture industry and the gift industry. We need to take care of the buyers. We need to keep the buyers energized and make sure they’re productive.
HFB: It’s clear that fewer furniture buyers are coming to all markets today. How to you address that?
Maricich: This notion of being a whole home market is really valuable to buyers. There’s a real need for that effective, efficient shopping experience. When we ask buyers what categories they’ve purchased, it’s heavily weighted to those who are buying for multiple categories.
I think you’re seeing a lot of challenges for traditional furniture manufacturers with not only the generational change, but with the change in channels of distribution. What we’re seeing is an industry that’s growing at two or three percent, but that’s highly deceptive because you’ve got a part of the industry that’s growing rapidly, at 10 or 15 percent, and you’ve got part of the industry that’s flailing and going backwards. Just watch and see who’s expanding their showroom. There’s somebody who’s playing to win -- somebody who is spending money to make their showroom compelling and a destination. The day that people that can come to a High Point market, and open their door and expect customers to walk in, that’s well behind us.
HFB: In the wake of mass shooting in Las Vegas, have you made any changes to your security plan?
Maricich: We’ve always been security conscious. But we’re going to do a better job of making them more visible, so people will see that there is a really significant security presence.
High Point is a very different challenge than Las Vegas because there are so many buildings and multiple points of entry. In Las Vegas, the last two markets, we have started registering people outside the courtyard and having a single point of entry. Now that we have that in place … we can beef up security to almost an airport level if we have to. We don’t think that’s necessary, but we have that flexibility.
HFB: In High Point, there’s a proposal to build a minor league baseball stadium, apartments, a hotel and other development just north of the downtown market district. Are you supportive of this effort?
Maricich: We are unequivocally supporting it. It’s a fantastic idea. I’m frankly troubled that there’s some hesitancy that seems to be coming from the county government. The wrong answer is to do nothing. Now, you have a ring of almost urban blight. It creates kind of a vacuum in downtown High Point, where there are no restaurants, no after-hours places, no dynamic of excitement, even during market. The stadium idea and the vision that (High Point University President) Nido Qubein has articulated is phenomenal. It will be a catalyst for more and more of the kind of growth that the downtown area needs…and that will be good for the market.
October 26,
2017 by Jane Chero in Business Strategy, Industry
Watching the news on the aftermath of the storms, with the mountains of household items, building materials, and worldly possessions, my frugal side kicked in. I don’t know, but if I was in the same situation, I would be concerned with salvaging furniture. However, some of the casegoods appeared to be of better quality. I mentioned this to a non-furniture industry person and this statement brings me back to reality, “Everything is made of particleboard and when it is wet, it is ruined.” I guess my vision of carefully constructed pieces is a part of history until I remember Stickley, Harden, and others.
With that thought, I went into the research to better understand why consumers made their last furniture purchase. The graphic below presents the statistics from Impact Consulting Services, parent company of Home Furnishings Business, most recent consumer survey:
WHAT WAS THE PRIMARY REASON YOU DECIDED TO MAKE YOUR MOST RECENT FURNITURE PURCHASE?
Furniture Replacement has more than doubled, as the reason to purchase, in the past 15 years. Along with other consumer durables, the furniture industry has executed a product strategy, which assumes the consumer does not have an expectation of durability. Along with washers/dryers at 2-4 years and refrigerators at less than 10 years, we joined the disposable economy.
Without a doubt, the prices for furniture are stagnant, as can be seen from the Consumer Price Index (minus 2.3%), covered in the preceding forecasting articles.
The major question is, “Is that what a consumer wants?” Yes, the major appliance brands pursued the strategy using offshore contractor plants to produce their products at the lowest price. The results, the premier brands – Viking, Wolf, Subzero – captured the quality position with higher prices.
Will our industry segment into two quality standards, one for the “curb” in two years and the other for a lifetime of enjoyment? Let’s give the consumer a choice and not just believe they want cheap.