From Home Furnishing Business
The newest consumers entering the furniture and home furnishings industry, known as Generation Z, are reaching adulthood, but the vast majority are still in their teenage years. While much has been written about their psychographic profiles, research published by the Census Bureau quantifies demographically how these high school and early college age teenagers, regardless of race, are faring better than the previous generation of Millennials at the same age. Generation Z is benefiting from stronger economic times, more affluent Generation X parents, and more stable households. Education also appears to be a big contributor.
In 2010, the Census Bureau’s American Community Survey (ACS) profiled Millennials ages 15 to 19, and newly released ACS 2018 data has done the same for Generation Z at the same ages. Generation Z includes anyone born in 1997 through 2009, although the end date is still under heavy debate. The ACS profile offers changing demographic and household characteristics in these two generations as teenagers, all encouraging for these future Generation Z adult consumers. Last year, Statistically Speaking began looking specifically at Generation Z, also known as iGen, Centennials, or the New Silent Generation. This article compares the core high school and early college ages statistically to Millennials by race, suggesting this new melting pot generation is entering adulthood better prepared and without all of the drama.
Although currently a smaller cohort than the generations preceding it with the end date still under debate, Generation Z accounted for 54.9 million people in 2019 – roughly 17% of the U.S. population (Table A). The newest generation, recently coined Generation Alpha, is currently at 40.4 million people and some demographers differ on the start year – placing the first year at 2012 rather than 2010. The year 2010 reflects the year the iPad was introduced.
Many studies have explored the differences between teenagers today (Gen Zs) and those in the Millennial generation (Figure 1). While Millennials grew up during healthier economic times, the recession hit as many entered the workforce faced with exorbitant college debt. On the flip side, Generation Z has grown up more mindful of the economy and financial issues, making them more realistic and pragmatic.
A big influence on Generation Z has been technology. Teenagers today have grown up in an age of rapid innovation. They do not know a world before mobile technology where everything is immediate. Due to the increased diversity among American teens and access to content around the world, Generation Z appears more interested in and accepting of different cultures and ideology. Because the year span is shorter, there were about 3% fewer Generation Z, 15 to 19-year-olds, in 2018 than there were Millennials in 2010, but they are much more diverse (Table B). The population of both White and Black/African American teenagers in 2018 has dropped 9% from teenagers in 2010, while the number of Hispanics has increased 11% alongside an increase of 17% for all other races.
Possibly for the first time in history, over 85% of all White, Black/African American and Hispanic/Latinos ages 15 to 19 are enrolled in high school or early college, as shown in Table C. The greatest strides have been made among Hispanic and Latino teens, increasing 2.3 percentage points.
Depicted in Table D, private school enrollment is up for Generation Z compared to previous Millennials by 0.5% to 1% for all races. For Gen Z, 16.2% of White teenagers in 2018 were enrolled in private school, compared to 15.5% of 2010 Millennials. As a percent of the total teenage population, Black/African Americans ages 15 to 18 have the highest increase in those attending private school -- 9.2% of the Gen Zs in 2018 compared to 8.1% of Millennials in 2010. Hispanic/Latino teenagers have gained some ground in private school attendance but still only represent 7.6% of their race.
Households with Teenagers
As Generation Z has aged into adolescence, households with teenagers are becoming more diverse. Hispanics and Latino teen households increasing up to 24.6% of teen households in 2018, compared to 21.6% for Millennial households in 2010. The percentage of households with White teenagers has dropped 3.4% alongside a decrease of 1.3% for Black/African Americans over eight years (Table E).
One slowly changing, but important household demographic is more teenage Gen Zs are living in parent married-couple households than Millennial teenagers did in 2010 – up 1.1% across all races. The number of teens living in male household families is up slightly at 8.3% in 2018, compared to 7.9% in 2010 and female households with no husband has dropped down to 26.1% in 2018 from 27.6% in 2010 (Table F).
In another important trend, the teenage birth rate has dropped dramatically for Generation Z teens across all races compared to Millennial teens at the same ages (Table G). The rate for all teenagers 15 to 19 is down to 1.2 births per 1,000 teens in 2018 from 2.6 in 2010. For Black/African American teenagers, the birth rate decreased from 4.2 births per 1,000 teenagers for Millennials in 2010 to 1.9 for Generation Z. Hispanic/Latinos also saw a large drop in the teenage birth rate with the Generation Z rate falling to 1.7 births per 1,000 teens in 2018 – down from 4.3 in 2010.
Teenage Labor Force
Although some researchers have said there are less teenagers today with jobs due to school-focused activities, according to the Census Bureau, the percentages of teenagers in the labor force has increased across all races from 2010 to 2018 (Table H). The percent of both White and Hispanic/Latino teenagers in the labor force has grown by 1%, while 2.7% more of Black/African Americans were part of the workforce in 2018 compared to 2010.
Data shows that Generation Z teenagers are less idle than the Millennial teens of 2010. More teenagers in 2018 were either in school or working. From 2010 to 2018, the percentage of teenagers across all races not enrolled in school and not in the labor force dropped from 5.6% to 5.0% (Table I). Over eight years “idleness” among White teenagers decreased by 0.3%. For Black/African American teens idleness fell by 1.1%, and by 1.5% for Hispanic/Latino teens.
Although many of the percentage increases and decreases comparing Generation Z to Millennials at the same teen ages seem small, these strides are important. No doubt Generation Z appears to be approaching adulthood more quietly, confidently, and better prepared than Millennials. All of these strides will benefit the furniture and home furnishings industries and the economy in total.
After weeks of denials and minimization at the federal level, reality set in and “shelter in place” became a fact. The positives disappeared. The graphic shown below of traffi c into the stores fell precipitously. The statistics are a national sample of a range of free-standing independent retailers. Whatever the market or size of store, furniture retailing in brick and mortar stopped.
The retail activity across all furniture retail outlets, no ma er traditional furniture stores or the broader based home furnishings stores, stopped. In comparison to all other retail, the downturn in furniture retailing was signifi cant. Stocking up on hand sanitizer and toilet paper was in the forefront of consumer purchases. Along with this, consumer prices in April dropped by .8% —the most since the Great Recession—after falling .4% in March. The drop was weighed down by a plunge in demand for gasoline and services, such as air travel. However, furniture and bedding doubled that, falling 1.9% in April and 1.4% in March, which is 12 MAY/JUNE 2020 HFBUSINESS.COM the largest decline since December of 2008 during the fi nancial crisis. One thing you can rely on is as sales soften, furniture retailers will discount.
Where does the industry go from here? Unfortunately, the typical independent retailer cannot withstand a loss of more than 10% of sales before going into the red. The chart below presents the statistics. While the statistics are based upon 2018 fi gures, there will be li le change when 2019 results are completed. Obviously, larger retailers fare be er and can withstand a 23% loss of revenue.
WERE THERE PROBLEMS BEFORE?
Before this all started, the furniture / bedding industry model was developing some serious cracks. The impact of e-tailing, which emerged in the early 2000s, became a serious concern in the second decade of the new century with a level of 20% in 2019. With declining gross margin per square foot of selling space in the discount chains brought about by overexpansion of stores dictating the closing of stores, the furniture product category’s gross margin became attractive. With Target stores adding furniture collections and Big Lots focusing on the furniture category, the traditional furniture stores felt pressure in the lower promotion price points.
The traditional furniture stores, the home of middle price points and representing 50-60% of industry sales, have migrated into the lower part of the upper price points, forcing the upper end stores to compete at lower margins or close. This upper end collapse has created a market for interiors decorators that provide not only better design, but a shopping assist for the time starved consumers. Serving this market is also the lifestyle stores, such as Restoration Hardward, Arhaus, and Pottery Barn. With smaller stores focused on a target consumer, this segment has expanded. For the last fi ve years, regional chains have expanded signifi cantly, pushing out the small independents in the markets over $50m in furniture/bedding sales. While 2019 saw a decline in expansion, the major shock was the collapse of the Art Van franchise after being acquired. Widely accepted as a failure of execution by the venture capital fi rm, Thomas Lee, the result is still the same. This failure caused the re-emergence of the belief that a national furniture retailer is not possible – Levitz, Wickes – Heilig-Myers. What have Raymour & Flanigan, Haverty’s, and Rooms To Go discovered?
WHAT IS IN THE FORECAST?
At the writing of this article, the Commerce Department announced that the Home Furnishings category was down 66.25% in April compared to the same quarter last year. For traditional brick and mortar furniture retailers, the reaction was most likely, “I would be delighted with 33% of my 2019 April sales, in that my stores were shu ered.” However, the resilience of furniture retailers came through as they learned how to create VIRTUAL SALES via e-commerce, phone, social media, or by appointment. This 33% compared to last year is the starting point for rebuilding sales volume. It should be pointed out again that this 33% fi gure is signifi cantly below the breakeven point for all furniture stores, which is 10.3% down, as discussed earlier.
Understanding what that future holds is the major questions of furniture retailers as they reopen stores. As of the writing of this article, many retailers that reopened in the fi rst few weeks of May had a pleasant surprise, achieving sales that matched or exceeded 2019.
While the traffic was down 50%, the consumer came ready to purchase with close rate doubled and average tickets up 50%. The question is, will this result hold or is it the pent up demand from the six weeks prior?
To better understand the future, we need to understand the factors that impact the furniture industry’s performance. The chart below presents those factors that statistically influenced FurnitureCore’s Industry Model over the past 30 years. (FurnitureCore is the parent company of Home Furnishings Business.) These factors are presented below with the red highlight on the impacted factors in the past months.
How do these statistics translate into what industry sales will be for the balance of the year? There is no statistical confi - dence in projecting from these emerging numbers. However, when CONSUMER CONFIDENCE fell to the 86%+/- level, the industry declined 27.9%. Likewise, when UNEMPLOYMENT entered the 14%+/- range, the industry fell 35%. We all remember the 2007-2008 period. HOUSING STARTS, which fell 22% last month, interrupted a 20% growth rate. Housing starts are a factor impacting industry sales in Q4/2020.
In a survey conducted of larger retailers, the majority (35%) believed sales would decline 10-20%, but 20% believed the decline would be 20% or more. From the perspective of these same retailers, the deciding factor will be the consumer attitude. Getting them back into the stores (63%) and creating a clean environment (29%) were their major concerns.
The success of furniture retailers returning to a “new normal” will be determined by the management team being open to new ideas and accepting that it will not go back to what it was before. There were casualties in the Great Recession and there will be as well in the Pandemic of 2020. But furniture retailing will continue.
As a marketing executive, it is time to focus on the next opportunity — those consumers that are “thinking about buying furniture.” Currently, that equals 30%+ of the population that you can infl uence. The decision on how to proceed with engaging these consumers is the question. The media mix varies signifi cantly by the demographics. The message is totally infl uenced by the lifestyle (psychographics). No matt er the strategy, a feedback loop to measure the results is essential.
Most retailers cannot aff ord an advertising expense as a percentage of revenue at 33% as reported by Casper. Financially, 6% is the target. In other words, every message must count. The details around this discussion are contained in the feature. Call to discuss your experience.
And fi nally, to you, the owner or representatives of the owner — the chief executive offi cer: your challenge is more long term, especially in that your company is competing for the consumer’s discretionary spending. Today there are many competing ways for the consumer to spend money. For some discretionary spending is perceived as a necessity. The following recent research presents your challenge.
You can find hope in the emerging generation of furniture purchasers – now make it happen.
Furniture retailers responded creating a web presence. Initially, many were placeholders as there was a “land stampede” for domain names. Now, those placeholders have transformed into signifi cant presentations of not only product, but also the variance in the retailer’s services that make them uniquely diff erent from their competitors. Today, depending upon the merchandise price point, 72% of consumers visit the Internet during the buying process for research.
This presents the obvious question, “of the consumers actively considering or shopping for furniture within my market footprint, how many are visiting my website and how many are visiting my store?” Current research updated quarterly via FurnitureCore, the research arm of Home Furnishings Business, measures the stage of shopping for consumers as shown in Graphic A. Obviously these percentages vary by age group with 39% of the 35-54 age group having begun the buying process compared to the other age groups at 30%.
Understanding how many unique visitors come to your website is provided by Google analytics and is well accepted as the most accurate source of this data. Combining this with your store traffi c counts will provide a good perspective of how your advertising is impacting your performance. Graphic B combines all of these statistics into one graphic.
For many retailers, this visual is often a shock when they see the diff erence between those visiting their site and those visiting their stores. However, considering that consumers may visit more than seven websites on average, but only shop 2-3 stores indicates the challenge of bringing customers into the physical store (Graphic C).
Obviously, this statistic varied by age / income reflecting the demographics and depending upon the advertising media used to convey product differences.
Comparing the unique visitors to the retailer’s website to the number of consumers actively engaged in shopping for furniture is just as important. A large defi cit indicates that consumers are not considering the retailer. This factor measures the brand awareness of the retailer. Considering recent fi nancial fi lings by Casper that indicated expenditures of $400M in advertising to achieve 31% added brand awareness emphasizes the challenge. Consumer research that asks which retailers were considered, shopped, and purchased from measures the retailer’s market position. Graphic D presents the findings in a typical market.
Advertising is the process of changing these statistics. Having more consumers considering your store and having more consumers visiting your store after viewing your website is the objective. The advertising strategy of the retailer should be influenced by the media that most influences the consumer target. The leading influencer, according to recent research, is the Internet, followed almost equally by television and magazines combined.
Graphic E presents the findings. Obviously these statistics would vary by age with the younger consumer < 45 years of age, indicating television as 13.25% compared to older consumers 45+ at 17.90%. Again, the retailer must select the advertising media for the consumer they are targeting. For that reason, lifestyle retailers, such as Pottery Barn and RH (Restoration Hardware), use direct mail and social media as these mediums are the preference of the 45 age segment.
Interestingly, from a financial perspective, traditional retailers (independents / regional chains) expend significantly more on television (broadcast). The breakdown as a percentage of sales is shown in graphic F. Beyond the how of advertising is the what? What is the specific message that will most motivate the consumer to select you as the retailer of choice? The messages must start with the why. Graphic G shows the consumer is purchasing replacement furniture (43.95%), and is based upon recent research that explores the most relevant reason for the consumer to make a purchase.
For industry veterans, this is an astonishing statistic as it has more than doubled in the past 20 years. In fact, there was a feeling then that we “built our furniture too well,” and, “should we consider an obsolescence factor?” Unfortunately, a frayed sofa doesn’t create the same sense of urgency as a broken refrigerator. It is, therefore, a postponed purchase.
As can be seen from Graphic G, “desire for new furniture” is just over 27% of purchase motivators. However, for our prime furniture buyer age 25-54, a recent move and remodeling are over 50% of the purchase motivators. The importance of direct mail to influence the new movers is well justified with over 25% of purchases from this demographic. As would be expected, when the consumer’s reason to purchase is driven by furniture replacement, quality (29%) would be the most important feature that attracted the consumer to the product they purchased (Graphic H).
While quality is consistent across all age groups as being of importance, warranty is much more important to the 35-54 age segment, being the segment that have experienced the decline in quality first hand. The opportunity to provide warranty is a significant opportunity to add profitability. A key profitability item in appliances and electronics has not been fully executed in furniture retailing.
While the purchase motivator for new furniture is style representing only 25%, it does present an opportunity for larger tickets and higher margin. Where does the consumer get their style inspiration? Again, the Internet (37.5%) is the primary response, but there are other important infl uences as shown in Graphic I.
As you would expect, for our emerging furniture purchasers (25-34) age group, the Internet is more important. However, retail stores represent less than half. Are we creating the visual experience in our stores?
What ultimately motivated the consumer to purchase? Unfortunately, the manufacturer and retailer reputation contributed less than a third of the motivation (Graphic J). Again, the repeat of quality as the prime motivation was the consensus. From an advertising perspective, the most diffi - cult element to communicate is quality. In advertising, the substitute for quality is brand.
Finally, we must consider the financial aspect of advertising. Unless you have fi nancial backers, such as Casper, you cannot aff ord to spend 33% of revenue on advertising. A percentage in the 5.5% to 6.0% range would be appropriate. The table below (Graphic K) presents the statistics by retailer’s revenue.
Beyond the advertising expense must be the eff ectiveness of advertising. In other words, does your advertising bring the consumer through the door? The most common measure is the cost per up. The industry average can be seen in Graphic L .
As can be seen, the smaller retailer < $5M is at a signifi cant disadvantage. Advertising in furniture retailing today has become more challenging. While the Internet can be a more eff ective medium to communicate considering our time-starved consumer, it is diffi cult to communicate the quality. What is emerging is the direct to consumer brands. These manufacturing direct brands are Omni-channels with unique brands with unique points of diff erences, begun on the Internet and moving to physical stores will be their strategy. The need to expand customer bases will drive the need for brick and mortar.
However, their stores will be customer experience focused. By that, they will be personalized, frictionless, and enjoyable, staff ed by passionate sales associates. The stores will be smaller, less high-price environments focused on brand building assets, such as digital screens. The new retail will be data driven, putt ing the consumer experience first. Maybe the retail experience will become the advertising. We are beginning to serve the experience generation.
Without question, social media has impacted how consumers are influenced by home trends from designers showcasing their most recent project to personal friends posting photos of their latest décor purchases perfectly positioned for their Instagram feed. A simple search of ‘rugs’ on Pinterest leads consumers not just to images suggesting the latest colorways and layering techniques, but where to purchase the product online. This vein of social media grew from simply influencing consumers to directing them to online retailers. The good news is that the exposure has driven sales in the category.
“The rug industry has grown and impacted the economy greatly thanks to the growing interest of consumers towards interior decoration and the rise in remodeling activities,” says Paola Bradfield, Tayse marketing supervisor. “There is no doubt the revolution of technology and easy access to information and products that are one click away from purchase has also significantly increased sales and influenced our industry by raising standards of quality and trend awareness.”
Based on consumer research conducted by FurnitureCore, Inc., the research arm of Home Furnishings Business, consumers were asked where they made their most recent rug purchase. The largest cluster reported purchasing their rug online at 30.77%. Luckily for the traditional retailer, the second largest cluster at 25% reported making their most recent rug purchase at a traditional furniture store. Mass merchants were next at 17.31%, followed by home improvement stores at 15.38%. The remaining 11.54% purchased from a floor covering store. With consumers who are armed with research and online influence, retailers need to have the necessary product knowledge on hand to convince customers to make in store purchases in order to maintain marketshare and negate online purchases.
Rachel Fasciani, vice president, licensing and marketing at Momeni, has noted this consumer awareness saying, “We’re seeing a resurgence of interest in better goods in our offerings. Consumers recognize the value of higher quality products while retailers appreciate the opportunity for higher returns.” The same FurnitureCore study backs this and found that consumers are willing to spend a significant amount in order to make a quality purchase that they expect to last for years to come.
When asked how much was spent on their most recent rug purchase, 19.23% of consumers reported a purchase of $800-$1,499. A surprising 7.7% of consumers reported spending $1,500+ on their purchase. The same survey polled consumers and the length of time they expected their rug to stay in their home. The results showed that 46.15% of consumers expect to keep their rug for 5 years or longer. With these statistics coupled together, you can bet that consumers are hyper aware of the quality and durability built into their purchases. Read on to find some of the best-selling and performing rugs in the industry. They’ll be sure to satisfy your customers.