Monthly Issue
From Home Furnishing Business
June 19,
2017 by HFBusiness Staff in Economic News, Industry 
With Mobility in America at an all-time historical low and only 11.2 percent of people moving from 2015 to 2016, what drives the current movers and leads them to change residence? Picking up from the “who” of last month’s article, we now dive into “why” people have moved since 2000 and take note of both the growing and declining trends. Two major reasons to move, jobs and a desire or need for new or different housing, took hits during the recession. Since the end of the recession, jobs and housing have gained traction again as reasons for mobility. However, as shown in the previous month’s article, Americans need more than a healthy economy and a recovering housing industry to propel them to move.
Table A shows that for 42.2 percent of the 35.1 million movers from 2015 to 2016, the biggest reason to move continues to be a desire for new or different housing. Recovering from the recession, job related moves are back up to just over 20 percent of movers since 2006-2007. Meanwhile, over a quarter of American movers (27.4 percent) changed residence last year due to a change in family status.
Moving Reasons Vary by Age
The propensity to move varies by age group as does the reason (Table B). But one thing is certain, the older one gets the less likely he or she is to change residence for any reason. (See Statistically Speaking, April 2017 issue for additional age related moving data.)
Young adults ages 20 to 29 dominated all categories for reasons to move in terms of numbers of adult movers -- the principle reason for moving being housing-related (3.7 million movers). These young movers are starting new households, moving into their own apartments or homes or changing residences for various reasons. Job-related moves also dominated this age group more than any other with 3.0 million moving for employment reasons.
For adults 30 to 44 (a 15-year age span), housing-related moves were by far more important than any other category (3.6 million movers) and almost double employment reasons.
Adults 45 to 64 (20 year span) are a large part of the U.S. population and contain a chunk of baby boomers on the back end. However these older adults were most likely to stay put with 2.4 million movers citing housing-related reasons for moves and only 1.1 million moving because of jobs.
The broad category reasons for moving – Family, Job, and Housing can be further segmented into more specific moving motivators.
Family
Both Divorce and Marriage rates have been on a steady decline since 2000 – lowering a “change in marital status” as a key reason for moving (Table C). Down from a divorce rate of 4.0 in 2000 (rate per 1,000 total population) to 3.2 in 2014, more people are staying married. On the flip side, less people are getting married – decreasing from a marriage rate of 8.2 in 2000 to 6.9 in 2014.
Luckily more people moved to establish their own households from 2015 to 2016 – up to 12.2 percent of all movers from 10.4 percent in 2016 (Table D). Although slow to leave Mom and Dad’s home, more Millennials are venturing out on their own and forming households. This increase should continue steadily over next five years as Millennials age.
According to the National Association of Realtors, between 2008 and 2016 America added an average of 835,000 new households per year. For 50 years prior, it was 1.3 million per year.
Job Employment
Slow job growth this decade coupled with more conservative corporate transfer policies during recessionary times have kept people from moving for a new job or job transfer. However that trend is improving as only 7.8 percent of movers from 2009 to 2010 cited new jobs or transfers as reasons for moves, now up to 10.8 percent in 2016. Also on the rise is a desire to be closer to work and have an easier commute – up to 6.0 percent of movers from 2015 to 2016, almost double that of 2001. Other job related reasons for moves impacting less than 2 percent of movers included moving to look for work or after a lost job or retirement (Table E).
A person was more likely to make an employment-related move based on the type of job (Table F). Professional and Service jobs are geared toward mobility more than any other type of employment, representing 23.3 percent and 21 percent of job-related movers respectively.
Housing
Continuing the historical trend, the strongest reason for a household move for any reason is simply the desire to upgrade to a nicer apartment or home (Table G). These movers represented 17.4 percent of the total in 2015/2016, up from 14.8 percent of movers between 2009 and 2010.
After a slowdown during the Great Recession, the desire for renters to own their own homes is trending up. Bottoming out at 4.6 percent of movers from 2009 to 2010, changing residence in order to stop renting and purchase a home grew to 5.9 percent of movers from 2015 to 2016. Other housing-related reasons for moves 2015 to 2016 included wanting cheaper housing (8.2 percent of movers) and a desire for a less crime ridden neighborhood (3.1 percent).
Other Reasons to Move
Although minor, from 2015 to 2016, both health reasons and a desire for a better climate were listed as reasons for a move, slightly more than previous years, reflecting most likely our aging population (Table H). Attending or leaving college also increased as a reason as Millennials filled universities – jumping from 1.9 percent of movers in 2006/2007 to 3.2 percent in 2015/2016.
While the percentage of Americans moving has been on a steady decline since the mid – 20th century, both the job market and housing industry are on the upswing and Millennials are entering full adulthood. More opportunity and more young adults could give way to higher mobility in years to come.
June 19,
2017 by HFBusiness Staff in Industry
This letter is addressed to those retailers who work on their business instead of those who work in their business. That is not to say that the former retailers do not work, but their focus is on how to improve their performance.
The constant drive for fractional improvement leads to the bottom line, thus achieving the statistics illustrated by the top quartile performance in the feature of this issue. The drive to achieve this level of performance involves every week comparing historical week-over-week as well as that of the previous week. Unlike other non-durable consumer retail, each week it’s “game on” to entice the reluctant consumers into the store. It is like a bicycle – if you stop peddling, it falls over.
As a backdrop to this focus is the noise. The current environment of the economy that is causing consumers to postpone the purchase and other retail models that threaten to capture some of the market share are two of the nagging doubts. There is nothing that will eliminate those nagging concerns. However, having a contingency plan to handle those things that can happen is a beginning. The starting point is a detailed breakeven analysis dividing your expenses into fixed and variable or a combination of both. This is a good exercise. Illustrated to the side is a breakeven analysis for the all-industry model. The result is that an average furniture retailer would withstand a 13% decline and still break even.
What is your breakeven? Commit yourself to improving every variable line item to accepted performance. Consider every fixed expense item for potential cuts. Make your contingency plan to address. If your top line decreases by 5%, 10%, 15%, put it in a sealed envelope. Now relax and return to your daily focus of improving performance, knowing that you have a plan. If necessary, executing a plan will be tough enough without having to develop the plan in crisis.
June 19,
2017 by HFBusiness Staff in Furniture Retailing, Industry
Not a month goes by that another retail concept announces an assault on the traditional furniture supply model. The recent announcement is that Amazon is planning four major distribution centers to serve its anticipated expansion into furniture in order to increase its retail presence. This move on top of the major discount retailers of Target and Big Lots indicate their future stores will have a focus on home furnishings.
This constant evolution of the furniture supply model is not new. In 1886 the upstarts, Richard Sears and Alvah Roebuck, created a mail order company to compete with the general stores in the hinterlands whose model was limited selection and significantly higher prices. While less of a presence today, it has lasted for 131 years.
Innovative concepts have always been part of the landscape. For example in Lebanon, Pennsylvania Richard Levitz introduced a concept that evolved into a national chain that pioneered the “furniture warehouse” concept. This concept expanded for nearly 100 years before liquidation because the consumers wanted to see furniture displayed in “vignettes” in order for them to envision how the furniture would look in their homes.
While there are tantalizing announcements, such as furniture on demand produced from 3-D printers, there are two considerations required when exploring changes to the furniture distribution model. The first is the cost to conceive and deliver to the consumer a product that meets their demands. The second is the ever-changing demands of the consumer – and this is the most important. The fickle consumers are fast to embrace a new concept that they believe will address their perceived shortfall in the current model, only to abandon when the new model doesn’t address another need.
Top quartile retailers are continuously analyzing their financial performance in order to discover ways to increase the bottom line. However, as can be seen from the following article, these improvements are incremental. Major profit improvement can only occur with changes in the total business model. The accompanying table presents the major cost components comparing the traditional model to those that are currently challenges to the status quo.
Furniture Brands International, using the manufacturing vertical concept, was poised to capitalize on its consumer brands by opening, with retail partners, focused stores under distribution agreements. Financial difficulties halted that strategy. However, Ashley Home Store, founded in 1997, had prospered with this concept. It now has over 450 locations in North America with over $3 billion in sales.
This model has the potential for changing the traditional industry model. Financially, it reduces the expense of selling/marketing to retailers since the dealers are captive to the manufacturers. Interestingly, the manufacturing direct concept challenges the perception that the consumer will not wait for delivery. The dealer maintains little inventory at its warehouse. It is only a cross dock transferring to delivery trucks for the consumer. The major challenge is the percentage of consumers who will wait the 20-30 days for delivery when competition is offering same-day delivery.
The manufacturing vertical model relies on the local dealer to execute a local advertising plan supported by a national advertising campaign. This approach, in total, is a more efficient expenditure executed at a higher level of professionalism.
The store footprint of around 30,000 square feet reduces the occupancy cost of display. At this point the lack of selection is not a negative to the younger consumer who prefers a more curated presentation that supports their busy lifestyle.
The challenge is that this model must conform to the perceived retail experience of the consumer, an experience that is constantly changing based upon research from Impact Consulting Services, parent company of Home Furnishings Business. These are the major factors.
While the potential exists to reduce costs which can translate into higher profits or lower prices, the increased risk of relying on a single manufacturer to consistently satisfy the consumer’s perceived needs.
The emerging etailers, using ecommerce as the way to distribute furniture, are challenging the retail sector of the traditional furniture model. Eliminating the brick and mortar of the traditional furniture retailers and utilizing their web presence to entice the consumer to purchase is still a challenge. The need for the consumer to experience the product before making a major purchase is important to most consumers. However, they have still captured 15-17% of total furniture sold.
The need to provide white glove delivery has been a significant expenditure when compared to local delivery by the brick and mortar retailer. To overcome this factor etailers, such as Wayfair, are establishing their own warehousing/delivery infrastructure. While more cost competitive, can it provide the service levels expected by the consumer?
The discount chains are just developing their furniture strategy. Their major opportunity for cost reduction is in the sales process. Relying on consumer-to-self sell will be an interesting experience. While acceptable for bar stools and less expensive product categories, will it translate to more expensive products? It has worked in apparel for all except the premium price points. The integration of the furniture product category into the already-established warehousing/distribution system is the next opportunity for cost reduction.
While new concepts are always exciting, what about the existing traditional model? We have discussed several over the last decade, but have failed to execute. For example:
Suppliers’ prices include delivery, not just the containers, but also small lots.
Delivery directly to the consumer, competing with the etailers.
Suppliers assuming responsibility for communicating to the consumer the uniqueness of their products and relying on retailers to communicate price/value and service.
I could go on, but why don’t we “whiteboard it.” Let’s make existing models
better.
Traditional furniture stores, feeling the relentless pressure from online retailers as well as local competition from vertical manufacturers, warehouse price clubs, and discount superstores, are scrambling to maintain market share. As the furniture industry in total experienced slow growth last year, traditional furniture stores subscribing to an online performance application developed by Impact Consulting Services, parent company of Home Furnishings Business, took baby steps to improve their profitability, eking out minor improvements wherever possible. These are retailers actively involved in managing their businesses. Net income for this group increased only slightly from 3.7 percent in 2015 to 4.0 percent in 2016. Meanwhile, the total furniture and bedding industry slowed growing 3.0 percent 2015 to 2016. (Figure A)
This is the fourth report on Performance Metrics for Furniture Retailing providing a comprehensive look at financial performance in the home furnishings industry via comprehensive data collected throughout the year by Impact Consulting Services, parent company of Home Furnishings Business. This data is collected through Impact’s FurnitureCore application, Best Practices, which provides an ongoing monthly measure of a retailer’s performance. This subscription-based online application allows retailers to compare themselves to other home furnishings retailers and devise a plan to better manage store operations. No individual retailer’s numbers are shared, only composite percentage results. (See methodology for additional criteria used in the retail metrics report.)
The focus of this article’s financial comparisons is two-fold. Results are provided for all participants and reflect the performance of the entire sample compared to last year. In addition, the top quartile results are presented in four retailer size segments for performance comparisons based on revenues – under $5 million, $5 million to $25 million, $25 million to $100 million, and $100 million and over. The top quartile includes the top 25 percent in performance. It should be noted that retailers participating in FurnitureCore’s Best Practices application are retailers focused on improving their company’s performance and does not reflect the industry in total.
The sales ranges not only reflect size of retailer, but in turn the differing operational characteristics the company size brings to profitability. The under $5 million retailers are the surviving Mom and Pops who have developed niches and strategies for staying in business. Retailers with sales $5 million to $25 million have often emerged from Mom and Pop stores and are usually very owner-focused in operations. The larger $25 to $100 million retailers may also reflect similar ownership, but have also developed more tiered management operations adding professional managers, for example in warehousing/delivery functions. The largest sales group, the over $100 million retailers have accounting practices that are often driven by tax strategies.
The overall financial performance of all participants is shown in Table 1. Each portion is further compared to the top quartile in each size segment with more in depth analysis.
Overview of Key Performance Indicators
After a hefty improvement in financial performance in 2015 among the traditional retailers that comprise the statistics in this report, retailers showed only a slight improvement in net income in 2016, up from 6.4 percent to 6.8 percent total. Lacking a clear strategy going forward to combat the pressures from the e-tailers and alternative distribution channels, all areas of the P&L held steady with the only slight improvement being a 0.4 percent improvement in cost of goods sold.
Table 2 gives an overview of key indicators – gross profit, sales expense, general & administrative expense, net operating Income, and credit expense. Last year produced very little improvement in any of these areas. However, the importance of controlling all facets of the business is reflected in the higher performance level of the top quartile retailers compared to all participants. And while these top retailers did slightly better at controlling cost of goods sold, significant to their success was their reduction in sales expense and general and administrative expense compared to the group. Sales expense is comprised mostly of sales force compensation, advertising, and warehouse/delivery expense. The biggest chunks of G&A are occupancy costs (rent/lease) and administrative costs, primarily administrative and managerial salaries.
Each segment of financial performance is presented in more detail below.
Above the Line Income
Total revenue encompasses merchandise sales as well as returns, sales of fabric/leather protection, and delivery income (Figure B). The needle moved very little last year compared to 2015 in all of these areas.
Returns: Merchandise returns (Figure B) represent about 1.3 percent of total revenue for the group, about the same as last year. (Note: Historical 2015 data has been revised from previous reports.) Smaller retailers tend to handle many of their returns outside of the tracking system with voided tickets and even exchanges. Meanwhile larger firms are more likely to document these transactions negatively reflecting on their performance.
Merchandise Protection: Merchandise protection (Figure B) is often an important profitability component for traditional retailers, with the exception of upper to premium dealers, who often consider it a negative. This income usually represents around 3 percent of total revenue, regardless of retailer size, and was essentially flat in sales growth over last year.
Delivery Income: Free delivery (Figure B) has become the expectation of consumers in all retail outlets, and this is especially true for smaller retailers. The best performing companies have still been able to offset this expense as delivery income as a percent of revenue continues to slowly decline. Larger retailers are able to offset this expense at nearly double the rate of smaller companies.
Cost of Goods Sold
An improvement in cost of goods sold for the retailer is accomplished by either “buying better” or simply not having to discount its merchandise so heavily. The total group did neither last year seeing less than 0.5 percent improvement – 51.5 percent COGS in 2016 compared to 51.9 percent the previous year. Larger companies over $100 million outperformed their smaller counterparts; however, no size segment saw much change from the previous year. (Figure C)
Gross Profit
With little improvement in COGS, gross profit also saw only minor growth as well. For all participants, gross profit grew only slightly from 48.1 percent of revenue in 2015 to 48.5 percent in 2016. Top quartile performers among all sales ranges reached gross profits of 51 percent, except for the size range $25M to $100M who as a group struggled to keep up with the entire group at 48.2 percent GP. (Figure D)
The furniture industry’s gross margin is the envy of many retail sectors. Some vertical furniture retailers enjoy higher margins due to their direct sourcing models while electronics and appliance margins can run in the teens. With such healthy margins, why does the furniture industry make so little profit? Tracking how much of it the industry spends on selling the product and running the business brings these low profits into focus.
Selling Expense
A significant 23 percent to 24 percent of revenue is spent on selling expenses (Figure E), and this figure has remained constant last year over the previous 2015. This is the cost of attracting the consumer to the store (advertising), converting that consumer to a purchaser by trained personnel (sales) and successfully delivering that product to the consumer’s home (warehouse/delivery).
Advertising Expense: The cost of promoting product has also remained constant at about 6 percent of revenue (Figure E). Except for very small firms under $5 million in sales, the top quartile companies in profitability held their advertising costs to about 4.3 to 4.5 percent. Advertising channels may differ by size of retailer where larger retailers will use more broadcast/air channels while smaller retailers rely heavily on print media, but the cost results are similar. Very small Mom and Pop retailers are increasingly required to spend more on advertising to attract customers with the top quartile of these small dealers spending around 7 percent of revenue. It is imperative that advertising’s effectiveness be measured on a weekly basis and the only measure is number of visits – or ups – to the store or the website. (Figure E).
Sales Expense: The largest component of selling expenses is the cost of the sales associates, along with the cost of managing and motivating them. Included in sales expense (Figure E) is the sales associates’ commission, as well as sales management, bonuses/contests and similar activities. Overall, sales expense runs about 9.2 percent of revenue. Last year these costs were consistent across the sales ranges for the Top 25 percent of each group.
Warehouse/Delivery/Service: The “after the sale” cost of warehouse/delivery/service is also a significant cost to the retailer. Last year these expenses totaled 6.9 percent of revenue similar to the previous year (Figure E). Often a retailer’s upfront performance is negated by the backend if the retailer is unable to manage it correctly. Many midsize traditional retailers are now outsourcing this function in an effort to bring this cost down.
Store Sales Expense: A small but important selling cost, store sales expense, averages 1.8 percent of sales for the total group. For the most part, top quartile companies do a better job controlling these expenses. Larger companies over $25 million do the best job, spending under 1 percent of revenue on store sales expenses (Figure E). Retail technologies exist to eliminate the sales counter which can cost one percent or more, but can negatively impact the consumer’s excitement for the furniture purchase.
General and Administrative Expense
While not directly touching the selling process, the final piece to profitability is the control of general and administrative expenses. General and administrative expenses are, for the most part, fixed expenses and must be controlled relative to the potential volume. Primary components include occupancy costs – the place to conduct business and the costs to keep it open, the cost of the management team that develops and executes a strategy, and finally the technology and information systems that are essential in controlling the process. These expenses can be as much as the selling expense in some cases and generally vary significantly by the size of the retailer. (Figure F).
Information Systems: Technology costs are staying well under 1 percent for the total group as well as the best performing retailers (Figure F). Even smaller retailers are embracing the implementation and ongoing maintenance of systems necessary to run a business smoothly understanding these systems are critical to profitability. The larger retailers investing more in information systems have achieved an advantage in processing the customer order after the sale, often by transferring the process to sales associates.
Occupancy: Costs for keeping the doors open ran 7.7 percent of revenue for the total group last year, only slightly higher than last year. The best performing companies enjoy occupancy costs around 5 to 6 percent (Figure F). And while very large retailers over $100 million often have the upper hand with the ability to secure the best locations, real estate rents are escalating in prime areas with the top quartile of these high volume companies averaging 9.1 percent in occupancy. Consumers are increasingly placing a priority on location wanting to shop closer to home or visit retailers along their normal shopping routes.
Administrative Expense: The largest chunk of administrative expense is management salaries along with bonuses, professional fees, and insurance. Overall administrative fees can total 8 percent to 10 percent of revenue on average for all retailers. Top quartile small Mom and Pop stores run higher at over 10 percent. Larger retailers over $25 are keeping their salaries down to 7 to 8 percent (Figure F). The high cost of hiring managerial positions is often a difficult decision but can often produce big results with the proper personnel.
Credit Income and Expense
Retailers acting as credit houses are disappearing and what was once a key area of profitability is now a crucial place to control costs. Net credit expense totals 2 percent to 4 percent of revenue for the top quartile regardless of size and 3 percent for all participants (Figure G). From our perspective, credit is a selling expense that has emerged as a perceived necessity to generate consumer traffic. But in our experience, less than 30 percent of consumers opt for offered credit promotions.
Net Income (Percent of Revenue)
After deducting an average of 0.3% of revenue resulting from other income and expenses, including insurance and taxes, net income crept up to 4.0 percent in 2016 for the total group, up from 3.7 percent in 2015. For the top quartile in each size range, small improvements in all areas of cost of goods sold, sales expense and general and administrative expense added up to much higher net income for these top performers. Depending on company size, net income reached 8 percent to 12.4 percent among the top 25 percent. (Figure H)
Summary
The slow growth in the furniture industry this year is reflected in the flat financial performance of traditional furniture retailers. And lacking any new strategic direction to combat the onslaught from online retailers and other local distribution channels, management in these active and performance-focused companies realize they have their work cut out for them. Keep in mind our numbers are only guidelines to stimulate thought and discussion of how to profitably run a retail operation. We caution any specific retail figures, to be comparable, must be compiled to conform to these classifications.
We believe an ongoing focus on a company’s statistics is the path to high performance. It is not achieved in a month, but is part of a continuing process. Such a process is greatly enhanced with membership in a retail performance group that allows for open and frank discussion with peers of the barriers to achieve certain objectives.
While the overall industry statistics indicate slow but steady growth, many retailers are achieving exceptional results. We challenge you to be one of those. Home Furnishings Business is committed to providing input to your process.
May 17,
2017 by Jane Chero in Business Strategy, Industry
This month’s issue is dedicated to Sales Management, which is of course the focus of this column. Over the last few years we have presented many aspects of this critical function within your retail organization, touching on things like recruiting, training, performance measurement and coaching. Interestingly, I don’t believe that we have ever truly defined some of the basic principles, beliefs and understandings that are the basis of every successful sales management effort. So, this column will pull some information from the beginning of our Sales Management Training Guide that is intended to set up the proper foundation for any program a client implements in their store. Sometimes going back to review the basics is a valuable way to assess where you are and where you need to go with your current efforts.
The question the title of this article presents, is based on what is meant to be a humorous commentary about what a sales manager ends up doing much of the time in most retail stores. Unfortunately, it is often a more accurate depiction of the situation than any business owner would want it to be. The reason is that many mangers get so wrapped-up in solving the daily issues of their staff, that they lose sight of their real role which is to provide performance leadership that consistently improves the team’s results and actually makes all of their lives better.
There are many reasons this happens, but the biggest one is that most managers are normal human beings that just want to be liked by others, and a lot of what it takes to be a great manager and leader, might be perceived as running contrary to that goal. I am talking about setting up and maintaining two of the most important principles of performance management: accountability and discipline. It takes dedication and courage to take a stand on very important issues. Most of us tend to negotiate and give in more than we should which dilutes our management efforts and reduces our impact as a leader. In the end, we allow our sales floors to become “Democracies” where everyone has a vote and we do whatever the majority (or in many cases just the strongest personalities) wants.
While that might be a good way to run a country, it is a terrible way to manage a performance team. Yes, you most certainly want to listen and take input from your players. They, along with your customers, are indeed your most valuable source for feedback to improve how you do things. Getting your staff’s “buy-in” for what you do is extremely important. But, in the end, it is not absolutely necessary. I have always thought that most businesses need to be Benevolent Dictatorships in order to maximize their results and be as effective as possible at whatever they do. Your sales floor is no different. Jack Welch said, you need three people to run any business: a visionary to set the course, a business person to run it and oversee how things work, and lastly an SOB to make it all happen! If you are in business for yourself you must at times be all three. Your sales manager is certainly someone who has to make things happen and therefore will be called upon at times to make some tough decisions and do the “dirty work”. That is what you pay them to do.
In order to make the right decisions and run your sales effort properly, management has to have the right basis to make these judgements. They must be principle based and everyone on the team needs to understand and believe in the same things in order to build a strong culture that delivers great customer experiences and develops solid client relationships consistently. Here is the foundation we give our managers to help them be successful leading a performance based, selling effort at their stores.
All members of the Management team must understand that they share accountability for the continued growth and health of the company. No company can survive without growth for very long. Staying still usually means going backwards as competitors gain a greater share of the market. Growth can be achieved in several ways.
Share of market can be increased through aggressive advertising. This method is costly and involves risk as we seek to find the right combination of media, message and budget. We can also increase our share of market by adding additional facilities -- opening new stores or expanding existing ones. This involves capital expenditures and generally high risk.
Alternately, we can increase our share of customer by instituting sales strategies, practices and methods that concentrate on increasing the amount each customer buys from us today and in the future. Share of customer requires better management of the customers who already shop our store.
There are only three ways to increase sales in an existing furniture store: increase traffic, increase the percentage of customers sold from that traffic, and increase the amount sold to each customer. Increasing any one of these factors will increase total volume. Improving any combination of them will compound the effect even further.
Agents of Change
The sales manager as a key agent of change in any organization. In order to achieve increases in average sale and close ratio, changes are required to many of the methods in use by salespeople. Change is never achieved easily in any organization for many reasons. These reasons are often cultural, with new methods and ideas coming into conflict with long-standing and accepted company or individual practices and policies. It is the responsibility of the sales manager to champion new paradigms in the selling culture.
The principles of sales management below are aimed at aligning the sales manager’s own paradigm so that it will be possible for him or her to bring about changes within the sales force.
High-Performance Organizations
Well-managed organizations with clear visions of the future who have understandable missions that are reflected in the day-to-day work of employees and management, and who share common goals with employees, are usually high-performance organizations.
In such companies, employees can experience a high level of satisfaction and, in many cases, enjoy a high quality of life at work and at home. Owners and stockholders also share in the benefits of such organizations and provide a high quality of support and leadership in return.
Most important, customers who interact with such companies also enjoy the high-quality care and attention to their needs that they seek, developing strong loyalties to both the company and to the individuals with whom they interact. This is true customer satisfaction.
The management principles spelled out here are the basis for a high-performance organization. They are aimed at enhancing the quality of life for all parties.
Underlying Principles
In sales management as in all disciplines, it is as important to be doing the right things as it is to be doing things right. Experience with hundreds of successful furniture stores show that these are the right things for sales managers to be doing.
The following principles underlie all aspects of a solid sales management program:
- Our business is driven by the needs our customers have to create beautiful home environments. We don’t just “sell furniture”, we make people happier in their homes which is a much higher calling.
- Our universal industry mission is to help our customers discover how to use our products to enhance their quality of life instead of just how to buy our products. We turn houses into homes.
- The needs of the customer must always take precedence over the needs of the salesperson. Sales people do not own customers, customers own sales people.
- Sales managers need to manage the right things. Accountability and agreed upon goals are a key element to this.
- People want to be part of a high performing work team. This is universally true, but particularly so for those that will be most successful on your team.
- People have personal goals but lack any structured, organized way of achieving them. It would be great if our schools taught our kids to do this, but they don’t, so you need to help them learn how to create a plan and execute it.
- It is better to be fair, supportive and demanding than to just be nice and allow people to fail. It is like being a parent, do you really want to let your kids fail?
- People require and deserve dedicated, principle-based leadership. Good to great people in particular will only work in this type of environment or culture.
- What is not measured cannot be changed. The best way to show that something is important is to measure it, track it, report it and coach improvement of it.
- Managers manage individual people not groups. Only when each player performs at their peak does a team truly maximize its success.
It really boils down to using these principles to build a selling and service centered culture within your store. Without them you will end up making the wrong decisions and not doing the right things to be successful. Once your culture is in place and you have developed the discipline to consistently do the right things for your clients, life for everyone concerned will be a positive experience.
May 17,
2017 by Jane Chero in Business Strategy, Industry
This common refrain at the April High Point market was consistent with what is happening to traffic. Obviously, the economic results (GDP) for Q1 reflected an anemic .7% increase when compared to 2.1% for the previous quarter and the same quarter last year at .8%. While not a substantial decrease over last year, it was still the weakest quarter in three years.
The furniture industry, including bedding, struggled along at 3.0% (Q1 2017 to Q1 2016), a growth we should be content with reflecting on all retail at 3.6%.
So, what is all the noise about traffic? Traffic has been declining for the past decade as the time-starved consumer relies more on internet research which can be done while multi-tasking late at night when the kids are finally down and there is some “me” time. Statistically, the number is right at two stores shopped before purchasing. This is significantly down from the four to five stores a decade ago.
Unfortunately, the changing consumer buying process has created a segregation of “have” and “have not” retailers, those with the traffic and those that are asking what happened to the traffic. Unfortunately, the easiest thing to blame is the intrusion of the e-tailers into everyone’s marketplace. It is true that this new channel has captured 15-17% of furniture and bedding sales. But, this is not the reason for the decline in traffic. For major furniture purchases, the consumer who purchased on the internet still visited a “brick and mortar” retailer.
On average, about 50% of the consumers that purchased furniture visited the furniture store first and then proceeded with research on the internet. The other 50% do their research first and then visit the retailers whose site inspired them. It should be stressed that when not an e-commerce site, the typical time spent on the site is 4-6 minutes, not the in-depth research, but more “this retailer has the style/brands and price points I want”. Only later do they drill down to the specifics. The graphic details the steps and priorities.
It should be stressed that this is not a drawn-out process. In fact, over 50% of it is over and done in less than two weeks.
The fact is that the time-starved consumers do not have the inclination to extend the process and enjoy decorating their homes. If we look at the percentage of consumers that consult a professional designer as the first stop, it is small. In discussions with the ever expanding cadre of “designers” in the industry, it becomes obvious that there are more “personal shoppers” than certified designers.
We should stop berating ourselves about the “retail experience” that we provide consumers. In fact, more than 85% rate their experience above average and 27% rate it as excellent. This is much better than other consumer experience ratings in other retail sectors.
So, where is the traffic? It may be in your competitor’s store. With Impact Consulting’s monitoring of what they define as high performance retailers, the traffic has been constant. The sample is national, including in proportion retailers with sales from $5M to $250M. There has been little change in traffic until the fourth quarter.
But, this volume of traffic is reflecting the growth in industry sales. However, it should be noted that the high performing retailers’ performance was to increase close rate and average ticket.
The lesson learned is to treasure each of those opportunities (Ups) and to transform them to a sale. Unfortunately, the focus on sales management decreases as the retailer’s revenues increase because the owner is further away from the selling floor.
For well-managed retailers, the cost of attracting the consumer into the store is averaging $23/opportunity which translates into $70-$100 for each sale at a 30% close rate, a significant percentage of the gross profit generated on each sale. Visualizing each consumer through the door as a potential loss will focus an owner on the importance of sales management.
So what do we do about it? Read on.
Sales Management:
The Proper Mix of Coaching and Number-Crunching to Keep Business Humming
Sales management is a key function in any wholesale or retail organization that has products or services to sell to a consumer – the elixir in any effort to maximize the business. Most products do not sell themselves, so some sort of sales interaction is necessary.
Managing what, when and how that process happens is an important element of the success or failure of the business. The more competitive an industry and marketplace is, the more critical it becomes. Therefore, since retail home furnishings is often one of the most competitive big ticket arenas in every market, it can be argued that managing the productivity of a retail furniture store’s sales staff is one of the most vital tasks on manager’s ‘to do’ list.
It also appears to be one of the most difficult, since it involves managing people and their behaviors when they work with consumers. Much like creating and leading a highly successful sports team, there are many parts of the process that demand a constant, consistent effort in order to win games.
The retail furniture store’s “playing field” is the selling floor and the “players” are the sales people who are hired, trained and coached to provide the level of service retailers want their customers to receive.
The person responsible for this process in most retail organizations is called the “sales manager” and that person carries the burden of delivering the sales revenue that drives businesses. Since their focus is on the performance results of the sales staff, their function is very much like a coach or manager of a professional sports team, and their primary goal is to deliver as many “wins” or sales as possible.
In many stores, particularly smaller ones, this involves the entire range of management functions from recruiting, hiring and training new people, and managing what happens on the floor, to helping make sales and providing customer service support for the sales team. But in all cases, the most important task should be, as the title says, sales management. This mainly involves training, coaching, motivating and leading the sales team’s effort daily to make certain the store gets the maximum return from the traffic its advertising and marketing programs deliver to the sales floor.
And for countless furniture retailers such as Steve Nye, general manager of Engles Furniture in North Bend, Ore., those skills have become even more critical in recent years as store traffic counts have fallen.
“With lower traffic counts trending each year, we have to sell the consumer more and more often,” said Nye. “I can confidently say customers want the nicer leather sofa with articulating headrests, instead of the one they saw for $499 in your advertisement, and they want the functional adjustable base to go with their new mattress, along with new pillows and sheets. It’s our sales people’s challenge to show them why.”
That puts pressure on sales associates to increase close rates and average ticket, but Nye and other sales managers said those aren’t the only performance measures they look at when evaluating performance.
“I believe in looking at close rate, average ticket, revenue per up, sales volume, fabric protection, and mattress performance to evaluate performance,” said Nye. “They are all individual indicators to focus on improving. If someone else on your team can close at 40% -- the coach-speak is ‘How and what can we do to get you there?’
“When it comes to weak performing situations, I put the most weight on performance index – it tells you everything about a salesperson’s situation when combined with traffic.”
Sara Lawson, sales manager at Infinger Furniture in Goose Creek, S.C., said she closely monitors the close rate and revenue per up for her eight-person sales staff since her store caters to a higher-income clientele and focuses on upper-middle to upper-end merchandise.
“If you can get the revenue and you can get the close rate, everything else kind of falls into place,” Lawson said.
She said it’s not unusual for an Infinger customer to make three or four visits to the store before making a purchase decision, so in this era of lower store traffic, it’s critical to at least convince the customer to pay a return visit if the sale can’t be closed right away.
“I try to encourage them to be aware of their close rate, especially the close rate compared to the return customer rate,” Lawson explained. “The faster you can close them means you won’t have as many return customers. But customer return rate (by itself) is not a good measure.”
And since the counting of those ‘ups’ that are so critical to performance has undoubtedly caused more than a few internal disputes, both Lawson and Nye said it’s essential to have a reliable and accurate system of measuring them.
Lawson said Infinger’s kept a door count manually until last summer, when the retailer installed a DoorCounts camera system that takes a picture of everyone entering the store. She said the photos serve as a cross-referencing tool that help the store’s greeter (known as the concierge) keep track of the sales team’s rotation.
“I’m very fortunate, because I’ve never had an issue where people are either missing a customer coming in the door or they’re cherry-picking,” said Lawson. “The person that they get is the person that they get, and they should try to maximize that.”
She said the DoorCounts system is especially effective during busy periods, and helps the concierge get a returning customer in touch with their sales person more quickly. “It works especially well when you have multiple sales people working with multiple customers. And that happens every single weekend,” she noted.
Lawson is a big believer in using a concierge, and said her store has one on duty seven days a week. Not only does that person greet customers and keep track of traffic, he or she answers the phone and calls sales people for their ups.
“Sales people can be doing other things without having to constantly watch the door,” she said. “But the really great thing with the concierge is that when somebody comes in and specifically asks for (a specific salesperson), they’re able to catch it before it goes too far. You’ve got somebody there who is managing the front door. You’re not missing out or getting mixed up in your rotation.”
Practices such as that keep tensions and employee turnover down, which both Lawson and Nye believe is another critical factor in today’s lower-traffic world.
“The first and most important element to retention is proper training to begin with and ensuring all salespeople have every tool needed to do their job without obstacles,” Nye said. “I think after that, the company culture of growth and success in combination with goals and communication keeps everyone working in the same positive direction. The practices driving that would be consistent training in furniture and selling practices, sales games to keep things fun, comradery and competition between sales people, and individual one-on-one meetings between the sales manager and sales people at least once a month.”
And interestingly, when they’re looking for new sales people, neither specifically targets candidates with furniture industry experience.
“If they had a successful employment experience with a furniture company similar to ours with a customer driven selling system -- I definitely look at that as a big positive,” said Nye, “but I don’t believe in putting too much value on just any previous furniture experience. I’m more interested in learning if they have a strong potential to stick with me through time.”
Nye said he begins evaluating potential sales people as soon as they walk in the front door – literally.
“The characteristics I look for with a salesperson begin with the way they carry themselves when they are greeted at the door by a salesperson and taken to the office to fill out the application,” he said. “Witnessing those interactions tell me quite a bit about an applicant’s connection skills and ability to work well with others.”
Lawson agreed that working well with others is critical, and can be the determining factor in many hiring decisions.
“Seeing them in action is always the best way. I want to see how they communicate, how articulate they are, and how well they know their product,” said Lawson. “And it’s especially important how they interact with their colleagues.”
Although two current members of staff used to work for Bassett, the store’s largest vendor, she also doesn’t put a lot of stock in previous furniture industry experience.
“I used to strive to find someone who had furniture experience, but now I realize it’s more about just being able to handle the floor,” she explained. “I’m looking for someone who can walk in and feel confident enough to be on their own…learn on their own…and is willing to be coached by me and their peers.”
“It’s more of an interest in furniture and an interest in interior design. If you don’t have the interest, then you can’t be effective. You can be the best sales person in the world, but if you have a passion for cars and you’re selling furniture, it’s not going to translate that well. I think people trust you more when you’re passionate about something.”
Instead of looking for furniture experience, Lawson said she frequently recruits sales people from nearby restaurants.
“Because most of the restaurants (near the store) are higher-end, they’re dealing with the same clientele, so it’s not that difficult to transition from being a server or bartender into this type of work. They’re commission-based, essentially, with tips, so it’s not as scary for someone who knows they have to put their best foot forward in order to make money,” she said.
Lawson and Nye also said old-fashioned word of mouth is an effective recruiting tool, although Nye said he’s happy he has needed recruiting tools only sparingly in recent years due to extremely low turnover.
“We provide an environment where people are consistently challenged and learning. This produces personal growth in both abilities and income with accountability and with goal setting to continuously improve – so they don’t want to leave,” he said.
And while Millennials may present special challenges as customers, Lawson said they also present special challenges when they’re applying for sales positions because they often have multiple tattoos and piercings.
“There are so many people who have piercings through their face, and tattoos all over the place,” she said. “There’s totally nothing wrong with it, but we try to … have a little more wholesome look. We’re a family-owned business and we try to maintain a family environment.”
