Monthly Issue
From Home Furnishing Business
February 21,
2017 by Jane Chero in Business Strategy, Industry 
By Bob George
I have just completed my semi-annual pilgrimage to the city in the desert, a place created by the power of marketing and, more specifically, advertising. It is somewhat ironic that one of our major marketing events occurs in a place that is our major competition for the consumer’s disposable income – leisure travel. This is the number one answer when consumers indicated where they would allocate disposable income.
I realize that many of the visitors to Las Vegas are business-focused as opposed to vacationers. However, the selection was motivated by the promise of “fun city” rather than a destination to conduct business while having some fun on the side. No one anticipates that intention in High Point even though the Market Authority expends a great effort to provide some diversions.
Why does the consumer pay homage to the glittering strip that most locals avoid? The fact is that it is the “aspirational” satisfaction that the consumer seeks. This is the marketing genius of Las Vegas. There is something for everyone. From the time that one deplanes it is the noise of the slots and the oversized video screens that provide glimpses of the glamour that waits just down the strip. Yes, Las Vegas lives up to its reputation as Sin City, providing access to gambling and adult entertainment. Many may sample the fringes. However, most are content just to be in the presence of the city.
Now what does this have to do with furniture and advertising, the focus of this issue? Simply put, Las Vegas has mastered the art of transporting the consumer for the moment to a place that evokes a perception of escaping the “everyday.” Can we do this for the furniture consumer, spotlighting the excitement of the “reveal” when their customized new living room is delivered and placed in the home? Just read the positive comments on the real time delivery surveys. If we are honest, it is similar to the “James Bond – 007” feeling that we experience when we walk through the lobby of a glamorous hotel or restaurant. That is marketing!
As it is in Vegas, this requires segmentation of our consumers, recognizing that each consumer cluster has specific aspirations. We cannot mix aspiring needs with the more practical needs of low prices in conjunction with long term financing. The consumer group that lives for the “deal” is a small percentage of our target. There are many more consumers that aspire to a beautiful room or a comfortable functional environment. The majority of our messaging, however, is about “What a deal we have that is over by Monday!”
What is the penalty for our not creating that aspirational consumer? A Consumer Price Index of 71 compared to 100 in 2010 shows that we lost $32.8 billion in six years by undervaluing our product in the eyes of our consumer. This is more than double our growth rate. It may be time to consider an industry campaign such as “Got Milk” to communicate our product. I know we tried this 25 years ago and failed because industry leaders could not compromise. Maybe the pain now will overcome our individual egos.
February 21,
2017 by Jane Chero in Business Strategy, Industry
Furniture industry veteran Lorri Kelley became president of contemporary furniture resource BDI Furniture last summer, taking the reins from the company’s founder, Bill Becker, who is remaining with the company as design director.
Kelley, who was executive vice president of sales and marketing at Palliser Furniture immediately prior to accepting the BDI post, brings three decades of furniture industry experience to the job. She recently spoke with Senior Business Editor Larry Thomas and Editor in Chief Bob George about why she took the post and the challenges and opportunities BDI is facing.
Home Furnishings Business: What attracted you to the job?
Lorri Kelley: It was a true honor to be asked to step in and lead the company. I absolutely loved my role at Palliser. We were a fabulous team and I loved every minute of it. Palliser and BDI share a good number of the same retailers, so when I was traveling ... I could see BDI on the floors and was aware of their impeccable reputation. As Bill Becker and I started talking about this opportunity, I was very flattered, number one, and secondly, what was so exciting for me was that BDI had so many great retail partners. When I was asking them about their BDI experience, it was glowing. The remarks that I got from the retailers centered on about how much of a pleasure it is to do business with BDI, how much they respected the leadership, the thought that went into the product development, and salability of the styles. They loved talking about just how successful they were partnering with BDI. That is rare.
I was expecting the other shoe to drop. (laughs). So when I was asking what the company could do better, it was just ‘bring us more product,’ because the product sells. The service is exceptional. The quality is great. The designs are obviously good. And the relationships are good. BDI has that exact same philosophy, so it blended well with my own philosophy on how I build relationships with retailers.
HFB: Has it been a difficult transition to a design-driven company, given that many furniture manufacturers have more price-driven business models?
LK: It really hasn’t been a big change for me. Product design is critically important to the assortment. It certainly has to be product that is well designed with great quality, and the research is done to make sure what you are designing and bringing to market has a purpose and will be successful. So I didn’t really see a major diversion here when I joined BDI. This company is known for its exceptional design. One of its core values is driven by design and sweating the details to make sure we produce a product that is not only beautiful, but its functional and incorporates great technology.
HFB: What challenges and opportunities do you see for BDI?
LK: I think the opportunity is to partner with the right retailers and the right distributors to get the word out about BDI. I believe there are not enough folks who know a lot about the company and how beautiful the product line is, and how successful they can be selling it. We need to look at the business model and continue to expand on the product assortment, while not losing the eye for that great design and function. Getting in front of more retailers is one of the main reasons why we expanded our (High Point) showroom. By investing in a larger showroom -- we got lucky and were able to be right across the hallway so our retailers who had bought from us for a long time knew right where to find us – it gave us an opportunity to expand and give the product room to breathe, and showcase them in the manner that they deserved.
HFB: Do the large number of furniture markets make it more difficult to focus on good design since there’s pressure to unveil new product at every show?
LK: Right now, we show only in High Point, so it does alleviate a little bit of that pressure. In my past jobs, we tried to have something new for each market. It became a real challenge to determine what introductions are introduced at what time. At BDI, we have worked really hard with the product design and development team on implementing a process that allows us be a little more forward thinking, which allows for time to do homework, and make sure the products are brought out at the right time to fit the right opportunities. That process will help us to attack each of those High Point shows.
HFB: How are you addressing the apparent lack of interest in the home office category at many retail stores?
LK: I actually look at that as an amazing opportunity. There have been very traditional companies like Aspen and Hooker that have driven a lot of the office business in the traditional executive office settings with the bookcases and the big executive desk. We’re seeing that consumers, particularly younger ones, and even the Baby Boomers, are shifting away the more traditional styling to something that is cleaner. Gone are the days where you need lots of file cabinets because we’re keeping documents electronically. And as a result, people are wanting work spaces that are better suited for mobile devices or tablets. That provides us with a great opportunity.
I also believe that retailers are beginning to shift into the more transitional to contemporary styles. Actually, one of our most successful office collections, the Corridor collection, I would classify as more of a softer contemporary, even making the statement that it could be defined as transitional. But we do see the beginning of a shift away from the big, home office … into something that’s more modular, certainly cleaner, and takes up less space.
HFB: Do you see BDI expanding into other categories such as bedroom and dining room?
LK: I believe in focusing on your core competencies. I think there are a lot of opportunities for us yet in the categories where we have a leadership role, like office, entertainment, media cabinets, occasional, storage and shelving. I think there’s great opportunity for us to continue to focus on expanding that assortment. We want to continue to maximize the categories where we do have a leadership position. For right now, the team is focused on finding ways to continue to own those categories.
There’s a lot of (new) pieces that I think make great sense at it relates to those areas — such as work tables. Not conference tables, but work tables that still allow flexibility. There are a lot of rooms in homes where you need a nice work surface or multi-function cabinets for basic storage. And shelving, I know that has tremendous opportunities. And for media pieces, we’re still watching what’s happening with electronics. We’re constantly looking at how we can take those media cabinets and expand them to address the ever-changing audio and TV markets.
Additionally, I believe that if you design a cabinet that is beautiful, it can serve many places in the home. So we’re designing cabinets in that credenza category that allows for multiple uses within the home. Maybe you might want to use it as a dresser, or you like more eclectic styling.
HFB: Will there be a lot of distribution issues if BDI expands into more traditional furniture stores?
LK: BDI already sells a lot of traditional retailers. And we do a wonderful business with contemporary stores and small to mid-size independents. I don’t really see that changing. I do think there is a market for a softer, transitional styling -- maybe softer contemporary is a better way to say it -- that might broaden the appeal, but again, I don’t really see a distribution issue. We’re very protective of the brand, and we want to make sure we’re partnering with the right retailers who understand what we do. We’ll look at other opportunities that may come up, but I really see us looking to continue to be important to our current partners.
HFB: Does it present any special challenges being a female CEO in a male-dominated industry?
LK: I started in this business when I was 25 years old. I am just used to … being in an industry that has a lot of men in executive positions. There are a lot of very smart women in our business that are serving in a lot of different roles. A lot of people outside this business don’t understand that (because) it’s still dominated by men, even though women are making the buying decisions.
From my perspective, I have been very blessed throughout my career working for some really, awesome men. If there was ever a hint of (sexism), I never really felt that at all. Never did. Not one time. That taught me a lot. n
January 23,
2017 by Jane Chero in Business Strategy, Industry
By Bob George
In the last year, there has been much discussion about the “last mile,” the delivery of product to the consumer. As the major e-commerce players have used free delivery as a differentiator, the traditional industry has had to respond. But this letter is not about delivery, but what happens in that 30-45 minutes between the sales associate greeting and the close before the delivery.
Obviously, it is important that we close the sale with fewer shoppers coming in and the need to achieve that 35% close rate. The pressure is on.
The question is what did we sell the customer? The focus of this month’s magazine is merchandising, the process in which we create the product that entices the consumer to move from a utilitarian purchase to an aspirational purchase. We are confident that the talent exists on the supply side to accomplish that task.
However, creating the product is only the first step in the process. The sales associates must close the sale. This raises an interesting question – What do we sell the consumer? The answer is not, “Whatever they will buy.”
Impact Consulting has just completed an interesting study focused on the age and income of the consumer who purchases specific price points by major product category. The study covered 500M+ transactions that represented $1.2b in sales from a national sample of traditional furniture retailers.
We naturally assume that the more affluent consumers purchase higher price point products. This was indeed the case 10-15 years ago. However, much has changed, especially since the Great Recession. The matrix above presents the percentage of purchasers by age/income for a stationary/fabric sofa at the $400 to $499 price point. As can be seen from the graphic, over 27% of this price point was purchased by consumers with household incomes over $100K. Must be a lot of basement playrooms!
Scary isn’t it? We obviously are not conveying value to the consumer or the consumer does not perceive value. How do we break the commodity cycle? More interesting findings in later issues.
December 12,
2016 by Jane Chero in Business Strategy, Industry
By Bob George
This will be a year of indecision, risks, opportunities, and crisis. When written in Chinese the word crisis is comprised of two characters, one representing danger and the other opportunity.
The traditional furniture industry is facing significant challenges with alternative channels, such as etailers and lifestyle stores encroaching on the middle and upper price points while the mass merchants with powerhouses like IKEA have an undeniable attraction to the consumer that is looking for lower price and more utilitarian furniture. In 2017 furniture sold through the traditional channels will fall below 40% of the total industry. Does this constitute a crisis?
The immediate unrest in the country will settle down. However, as we progress through the year, for the individual manufacturer and retailer, crisis will emerge. The way you approach that crisis will determine the long term survival of your company.
Retailers, secure with their position in the market, will be challenged by new competition. What has happened in larger markets will now begin to occur in the middle markets as regional chains expand to maximize performance. This challenge will require management to go back to the foundation of their business and examine what has made them successful and determine if the new competition is offering more. Gut feeling will not suffice. However, facts, such as what percentage of consumers considered their brand (brand awareness) before they made their purchase and how many consumers considered their brand, but didn’t shop are important. It is a fact that the consumer shops fewer than two stores when making their purchase. As always, just as important is the percentage of consumers who made a purchase after shopping (close rate).
The next level of understanding is how your target consumer perceives your brand in terms of price, service, selection, and all the many factors that influence their purchase decisions. The first step in dealing with a crisis is to know yourself and your competition. Then danger can become opportunity.
Manufacturers, challenged with distribution as new retailers enter a market, find their existing market share is being impacted. Often complicating the situation is the new retailer who is a good partner in another market. Historically shared distribution enabled by broad product lines was the solution. Today, however, manufacturing economics often preclude that as a strategy.
Again manufacturers must challenge their basic distribution strategy. There are 409 distinct markets in the United States in which 95% of all furniture is sold. What is the combination of retail partners who will maximize their market share?
Again, it is a case of making a crisis an opportunity by defining a clear path to success. The one thing that you can be assured of is that your competition is waiting to turn your crisis into their opportunity.
December 12,
2016 by Jane Chero in Business Strategy, Industry
Planning for 2017
By Tom Zollar
This issue presents The Power 50 and our theme is The State of the Industry. Having spent 40 years in this business, I am well aware how much the list of top retailers has changed over that time. Many of the ones that zoomed to the top are now gone, almost like they burned themselves out getting there and could not maintain their success. Others that had steady, if not spectacular growth seemed to survive the ups and downs of the economy, to continue prospering. It has been said many times that staying on top is often more difficult than getting there. Yet some organizations tend to always be at or near the pinnacle of their area of endeavor.
In sports, names like Patriots, Crimson Tide, Buckeyes and others readily come to mind as teams that have consistently been on top of their game year after year. Everyone in each league plays by the same rules, their fields and equipment are pretty much the same quality, they have the same list of plays or strategies to draw upon and they all want to win their games. In our business, we all work under pretty much the same rules, have the same advertising opportunities available, carry relatively the same merchandise and want to sell as much as we can. So why so some continue to prosper while others don’t? Obviously they manage their business/team better, but how?
In one of my earliest columns, I talked about Big Ed Breunig’s “Six P’s” of retail that he taught me long ago. He said to succeed in our business you must have:
- Population - People to sell
- Presence – A place they will go to buy from you
- Product – Things they want to own
- Promotion – Ways to get their attention so they visit your store to buy
- Presentation – An easy to shop, visually stimulating environment to show them your goods
- People – Staff that is ready, willing and able to provide top notch assistance to your visitors
Every month he graded the effort in each of these areas and targeted those that did not meet the level he expected for improvement. From this list, he created action plans to continually drive his business forward. What a simple but effective way for an owner/manager to look at his/her business to constantly find ways to improve it.
While every one of these retail elements is critical to our survival and success, in my experience, it is the last four that are the most volatile and in need of almost constant attention or focus from upper management. Are we assorting the right products, displaying them the best we can, advertising to bring in the targeted customer and lastly, are our people providing the best customer experience possible? As a coach, I must say that it always seems to be the last one that gives us the biggest problem. Products, advertising and display are easy to manage compared to people. But, even if we do a stellar job of managing all five of the other areas, if our people fail to deliver, then our business/team fails.
Therefore, in many cases it is the inability to properly hire, manage and motivate people that is the main reason that businesses and sports teams fail to maximize their sales or win total. Jim Collins called it getting the right people, in the right seats on your bus in his book “Good to Great”.
As is often the case, I am not telling you anything you don’t already know or at least suspect. The question is why can some organizations do this better than others? In my experience, it is because the most successful businesses and teams excel at doing the seventh “P” – Planning! Having a solid plan, getting everyone onboard with it and consistently executing it is the key difference I see between highly successful organizations and the “also-rans”.
While most of us do create financial, merchandising and advertising plans at the beginning of each year, many do not spend nearly as much time and effort where it counts even more – their People Performance Plan. This should involve staffing, training, motivating and coaching your team to top performance month after month. It is a lot of work, but it is well worth it and a true differentiator in our markets.
You probably know the original five “Ps”: Proper Planning Prevents Poor Performance (Yes I know there is a sixth one, but I want to be PC). Here is a new six “Ps” to help us focus on this vital part of our preparation process for 2017:
Proper Planning Positively Propels People’s Productivity
One of the biggest mistakes I see many organizations make when they begin the planning process is not establishing goals or performance targets for every department within their organization. Basically, a plan is a map for your business and the two things you must know in order to use a map, are where you are and where you want to go. It is the same with a plan, with the goal being where you want to go or your destination. Once you know that, you can then decide what steps you need to take to get you to it, how to take them and when. That completes your plan.
This month is a great time to create your plan for next year. So here are some ideas about the areas in your business for which you might want to create a Performance Improvement Plan and a few metrics you could target in each:
Sales – This is the first one that comes to mind for all retailers because it drives the business and without it nothing happens. It is also the one we most often see goals developed for by our clients. However, quite often they only deal with total sales volume, which is the product of a lot of things happening together. Increasing/maximizing sales is obviously the main result you are interested in driving, but we find that targeting the things that go into the sale like Closing Rate, Average Sale and Revenue Per Up are better to focus on, because improving them will deliver the result you want. We have also seen goals for Items per Sale, In-Home sales % and Sketch % help get the right things happening on the sales floor. We recommend you look at where you are in all your sales metrics and determine two or three that you think can be improved. Target them on a quarterly basis, changing to new ones as you improve the originals. Just don’t give them too many goals or it will weaken their motivational power. Be sure to reward and celebrate success!
Office – Does your office run so smoothly that you never have issues with orders, paperwork or other processes? If that is the case you are in the minority, yet this is an area where we seldom see goals utilized as a planning or motivational tool. We suggest you find those parts of the office process that seem to constantly be causing issues within your organization and develop solutions for the problems, then set goals for improved performance. Each operation varies as to what part of the sales support, order fulfilment and customer service processes are handled, so it is tough to come up with any universal recommendations. However we are sure that your management team can come up with some good ideas in this area.
Warehouse, Delivery and Repair – There are many performance metrics that can be goaled in the back end of your business. In fact, next to sales, this is the most common area we see clients setting goals, paying bonuses and driving improvement. Perfect Deliveries %, Items Repaired, Open Repair Orders and Deliveries Made, are some of the targeted numbers we have seen. Depending on what systems you are using, you can find several great ways to focus this business area on improved performance and customer service.
Advertising – Most retailers do a good job of planning their advertising expenditures as part of their budgeting process. The best ones do great work in planning their creative to consistently deliver the message they want to targeted customers in their market. What we don’t see as often is a goal setting process that reflects the actual performance of the advertising other than just raw gross sales. While that is of course the major result, it is also good to track and set goals for each promotion that focus on traffic level, revenue per up generated, average sale, cost per customer, advertising to sales % and other meaningful numbers. This is especially true if you have an outside agency managing this process for you. What better way to hold them accountable for spending your money well?
Merchandising – Merchandising, along with adverting and sales, are the three areas of your business that most drive sales. Yet, we seldom see meaningful goals set for it in most small to medium sized retailers. There are many very critical numbers you can track with your business system that can be goaled to help you plan for improvement here too. Obviously Gross Margin, GMROI and Turn are very important to our business so they are good places to start. There are other areas a buying effort should manage such as freight costs, OTB and Vendor Selection that can also be targeted.
Yourself – So you thought we might forget about you? Remember that unless you develop and strive to make growth goals yourself, it will be tough for you to lead a goal oriented, growth focused team – walk the walk and talk the talk!