Monthly Issue
From Home Furnishing Business
May 17,
2017 by Jane Chero in Economic News, Industry 
This is the first in a two-part series on Mobility in America. Part 1 featured on the following pages, focuses on the profile of “who” is moving. Part 2 in the upcoming June issue will detail where people and moving and what motivates them to move.
Once a nation of movers, Americans are increasingly less likely to sell their homes or leave their apartments and move across the country or even down the street. With only 11.2 percent of people moving from 2015 to 2016, American mobility is at an all-time record low. Since the 1950’s, mobility has plummeted almost 50 percent – from 21.2 percent of the population changing residence – down to 11.2 percent in 2015 to 2016 (Table A). While the previous decade’s stagnant change in residence can be owed partly to the economy, this downturn has been steady for over forty years.
Because a move often spurs a furniture or home furnishings purchase, the question for the industry then becomes, who is moving? According to the Census Bureau, many of the movers are non-married, under 35 renters, many with children. The closer to the poverty level, the more likely a person changes residence. This article is a snapshot of current movers and what factors might determine mobility at this time in America – age, marital status, owning versus renting, and poverty status.
Age of Movers
By far, younger adults moved the most from 2015 to 2016. Twenty-three percent of 20 to 24 year olds and 20.1 percent of 25 to 34 year olds moved last year – double that of 35 to 44 year olds (11.1 percent) (Table B). With increasing age, the percentage of an age group’s mobility declined significantly.
For example, less than 4 percent of adults over age 55 moved between 2015 and 2016.
Fifty percent of all persons changing residence 2015 to 2016 were split evenly between children (24.9 percent) and young adults 25 to 34 (25 percent) (Table C). Of the 35.1 million movers, 23.7 million (67.3 percent of all movers) were under the age of 35.
Marital Status
Marital Status plays a major role in a person’s desire, ability and necessity to move (Table D). Not surprisingly, 17.2 percent of separated people moved in 2016 with never-married people following close behind at 15.8 percent. Eleven percent of divorced individuals moved last year, while only 7.4 percent of married individuals changed residence. Widowed individuals tend to stay put with only 5.1 percent in the category moving.
Table E shows that at 37.4 percent, single, never married people were the highest category of movers from 2015 to 2016. In the same time span, married individuals were the greatest portion of nonmovers at 41.5 percent.
Owners vs. Renters
Just over one-third of the population lives in renter-occupied units. As expected, renters of housing units change residence much more often than owners of housing units (Table F).
Of the 108.2 million renters from 2015 to 2016, 24.8 million were movers (22.9 percent), compared to just 5 percent of owners. Only 10.3 million people in owner-occupied units moved last year, while 196.4 million homeowners remained in the same residence.
Renters accounted for more than two thirds (70.6 percent) of movers from 2015 to 2016 (Table G).
Poverty Status
Although 13.5 percent of the population is below 100% of poverty (Figure 1 and Table H), 22.6 percent of movers were these lowest income households.
Americans at 150% of poverty (incomes over $36,450 for a family of four) accounted for 66.4 percent of movers from 2015 and 2016 and 79 percent of nonmovers.
Americans with higher household incomes (above $36,450 for a family of four) are choosing to stay in place – only 9.6% moving in 2016. As Table I shows, the poverty category with the lowest income had the highest percentage of Americans move over 2015 to 2016, 18.6 percent of those below 100% of poverty moved over last year.
The series continues in the next issue.
May 17,
2017 by Jane Chero in Industry
- Larry Thomas
Founded in 1844, high-end case goods and upholstery producer Harden Furniture is believed to be the oldest furniture manufacturer in the United States, and the company’s current CEO, Greg Harden, is the fifth generation of the Harden family to run the company.
Harden oversees a campus in McConnellsville, N.Y., that employs about 225 people and includes a log yard, sawmill and kiln, in addition to the customary assembly, finishing, packing and shipping lines.
He recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about the challenges facing the solid wood category, in particular, and the residential furniture industry, in general. He also discussed the company’s decision to remain independent, despite the constant pressure on the top and bottom lines.
Home Furnishings Business: Do you still see a lot of growth potential for the solid wood category?
Greg Harden: We think there’s a lot of potential for it. The percentage of consumers who prefer solid wood is significantly higher than the amount of solid wood sold in the industry, and that suggests we should be realizing some opportunities that we haven’t taken advantage of. I think solid wood is a little underrepresented at retail.
HFB: What will it take to increase the category’s presence at retail?
GH: I don’t know that consumers, at the point of sale, know what is solid and what isn’t. When I do retail sales training … they don’t talk about solid wood. They talk about wood. In a lot of people’s minds, when they hear the word ‘wood,’ that suggests solid. Our business is about two-thirds residential and one-third commercial, and we actually get a lot better traction with solid wood on the commercial side. They really want solid wood because they understand the advantages and the durability.
There has never been a time in my 36-year career where we’ve spent a much time trying to understand what’s happening at retail. To put it mildly, it seems like it’s a God-awful mess out there. We constantly hear from dealers that their traffic is terrible or their business isn’t very good. And then you look at national statistics that show that sales of home furnishings are up. The industry should be doing a lot better. I know that the (Millennial) generation doesn’t place as much value on home furnishings as prior generations, but at the same time, the research suggests that our products should be a pretty good fit for them.
I recently read about a demographic group called Henrys – High Earners, Not Rich Yet. That demographic wants products made in America, and they want products that have been touched by the hands of a craftsman. They really relate to that. But in our industry’s case, we’ve been advertising nothing but price for my whole 36 years in this business. If all you can talk about is price, that is probably what the consumer is going to respond to.
If you look at other categories of durable goods -- take automobiles, for example -- the better-quality brands like BMW, Audi and Cadillac have a much bigger market share in their industry than better quality goods in our industry. It shows that we’re really doing something wrong in this industry.
HFB: Since consumers are shopping in fewer stores than they did a decade ago, isn’t it also critical to reach them through the internet?
GH: Absolutely. The internet is still a very important source of information for consumers. Even though consumers don’t really feel comfortable buying furniture on the internet, they’re certainly using it to get all the information they need on home furnishings. So, we’ve got to be better internet marketers. Consumers are spending just as much time researching the information they want. They’re just doing less of it at the store.
HFB: In 2014, the proposed sale of Harden Furniture to a Chinese company fell through at the last minute, and you opted to remain independent. Is that still your goal?
GH: Yes, but we have an equity partner now, who has a modest stake in the company. In fact, we probably will close on one and possibly two acquisitions by year-end. One of the realities I face is that … nobody wants to lend money to a furniture manufacturer. In our industry, if you’re going to grow, you’re probably going to have to do it as much through acquisitions as you do organically. Organic growth is really tough to come by.
HFB: Is organic growth especially tough at your price points?
GH: I think so, because we’ve been running up the down escalator for years. (laughs). This industry must gain a little more confidence in itself and start talking more about features and benefits, and the value of wonderful things for the home, and less about price, price, price. We’ve got to move people up in price. We’ve got to move them up to better quality goods.
HFB: You recently began a modernization of your factory. How’s that going?
GH: We’ve got about two-thirds of it complete. We’ve held off on the other third, primarily due to funding, but also because of (our pending acquisition). The acquisition will probably close during the third quarter, and all of their production is going to come into our facility. They’ve got a good deal of the equipment that we have on our wish list.
HFB: Does it present any special challenges being in a region that’s not a furniture manufacturing hub?
GH: There’s a disadvantage in that we don’t have anybody in our local community who knows how to manufacture furniture. It’s particularly tough on the upholstery side. But there’s also an advantage to it because we don’t have any competition for that labor. I know down in Hickory (N.C.) and places like that, the labor market is very tight.
I’m on the New York State Business Council, and we’ve been pushing the state to do more vocational training, which would really help companies like ours.
HFB: How is business so far this year?
GH: I’d say it’s okay. January and February were not particularly good months, but we had a good March. By (April or May), we’re going to be right around last year’s number. We’re not jumping up and down and breaking records … but it should be a good year. One thing that’s holding our industry back is that home sales are down a little and the supply of new homes is well below where it needs to be. But overall, the fundamentals point to us having a pretty good year.
Our business was great last year until about the middle of September. (The slowdown in the fourth quarter) had to be due to the election. Retail in general was pretty soft around the election, and it just took awhile afterwards for it to pick up. Maybe all the folks who were Hillary supporters were in a bit of a funk for a few months (laughs).
HFB: Has the popularity of custom upholstery had a positive impact on your business?
GH: Absolutely. Our upholstery has grown significantly in the last four or five years -- at the expense of case goods. Partially, that’s because we’ve put more emphasis on product development in upholstery, but that’s also what is working at retail. I would say the average retailer has committed a third more slots to upholstery, relative to case goods, than they had at the end of the financial crisis.
May 17,
2017 by Jane Chero in Furniture Retailing, Industry
By Larry Thomas
As wood furniture manufacturing began moving offshore in earnest in the early 2000s and the industry became more price-driven, producers of solid wood furniture probably felt like Clara Peller, the snarky senior citizen who starred in ads for Wendy’s in the early 1980s.
A frustrated Peller became famous for asking, “Where’s the beef” when she ordered a burger from Wendy’s competitors. And solid wood producers became frustrated as they lost market share to wood furniture companies using particle board, plywood, MDF and a variety of other engineered woods.
“The term ‘solid wood’ was stretched and pushed in so many directions that is simply meant that it wasn’t hollow,” said Gat Caperton, president of solid wood producer Gat Creek Furniture. “Almost anything qualified as solid wood. It lost its cachet with consumers because the term wasn’t a very believable term.”
But after a decade in the doldrums, Caperton and other players in the category say solid wood is regaining its mojo.
“Clearly, there’s a consumer out there who not only appreciates, but is seeking out solid wood furniture,” said Max Dyer, vice president of marketing for La-Z-Boy Casegoods, which includes the solid wood Kincaid line. “The consumer is gravitating toward all things authentic and genuine … more than I’ve ever seen before.”
And Dyer said that desire for authenticity gives brands such as Kincaid an opportunity to shine.
“There’s an upside for the industry by telling the story and explaining the construction,” he said. “That would benefit not only the consumer, but also the retailers and the manufacturers. It’s an opportunity for our industry to offer better products and educate the consumer.”
Caperton agreed with that sentiment, but said education also is necessary for retailers.
“Four or five years ago, if you told a retailer you were a solid wood manufacturer, they would say, ‘I don’t care. It’s wood.’ But we’ve come off that trend today,” Caperton said. “Solid wood is starting to be a nice point of differentiation to the consumer as a higher-quality product.”
So just how much room is there for solid wood furniture to grow? That’s hard to quantify because no one seems certain of the size of the category.
Dyer, for example, said retailers typically devoted about 30% of their case goods slots to solid wood when he worked in furniture retailing in the 1990s, but he thinks it has dropped to around 5% today. Tom Inman, president of the trade group Appalachian Hardwood Manufacturers Inc., thinks it’s closer to 10% to 12%, but admits that’s an educated guess.
“But I can tell you that it’s growing,” Inman said of the category. “At the last four High Point Markets, there has been more solid wood in showrooms than we’ve seen in a long time, especially at the middle and upper-middle price points.”
But regardless of the category’s current size, Inman agreed that there’s still plenty of room for growth, which is music to the ears of the members of his organization.
And the customers of his members – furniture manufacturers – seem to agree. Caperton, for example, said Gat Creek’s business has improved to the point where the company has been adding workers at its West Virginia factory recently, while Virginia-based producers Bassett Furniture and Vaughan-Bassett have successfully launched solid wood lines to their product mix in the past two years.
Bassett’s solid wood success has come with its BenchMade line of custom dining tables, while Vaughan-Bassett has had noteworthy success with its Artisan & Post line of solid wood bedroom furniture. And Vaughan-Bassett is hoping to build on that success with a solid wood dining line that was rolled out at the April High Point Market.
The April market also saw a major solid wood rollout from Tennessee-based Cresent Fine Furniture, whose solid wood line currently is made at two factories in Vietnam. But the latest addition, a custom dining program, will feature products assembled and finished in Tennessee using “whitewood” components made in Vietnam.
“We believe that our years of expertise in solid wood manufacturing, sourcing and environmentally-friendly finishing will show in the excellent quality and value of the BenchMark dining selections,” said Taylor Condra, Cresent’s president and chief operating officer, noting that the company produced its entire line in Tennessee until 2006. “We still have the spray booths in place, and many of our employees have been with us ten to 20 years or more.”
Although the exact size of the solid wood market remains unclear, research by Impact Consulting Services, parent company of Home Furnishings Business, bolsters the assertion that consumers are beginning to appreciate solid wood and are willing to pay for it.
In a recent survey, 62% of consumers said solid wood was either “important” or “very important” in the purchase decision, and fully one-third of them (33%) said they are willing to pay up to 10% more for their purchase if they know it’s solid wood.
Another 21% said they would be willing to pay 10% to 20% more, while 17% said they would be willing to pay 20% to 30% more for solid wood.
That didn’t surprise Greg Harden, president of upstate New York-based Harden Furniture. He said his company’s market research “shows that the percentage of consumers who prefer solid wood is significantly higher than the amount of solid wood sold in the industry. That suggests we should be realizing some opportunities.”
Harden, whose company targets the upper-end of the market, said a demographic group that should be targeted by solid wood producers is called Henrys – High Earners Not Rich Yet.
“They want products made in America, and they want products that have been touched by the hands of craftsmen,” Harden said. “They can really relate to that.”
Caperton agreed, but added that marketing a solid wood collection as “heirloom” probably won’t be effective with Millennials, despite their appreciation of quality and authenticity.
“Heirloom is a tough story today with Millennials,” he said. “We just have to communicate that solid wood is more durable and more resilient. It feels like it has a little more quality when it’s a solid wood piece versus something that’s made from MDF.”
And MDF is something that won’t be found anywhere near Gat Creek’s factory.
“We only know MDF by its initials,” Caperton quipped. “We wouldn’t know what it looks like.”
Borkholder Furniture’s Madera
Introduced less than a year ago, this poster bed quickly became a best seller. Shown here in an almond finish, the bed initially is sandblasted to open the grain pattern, and then taken through a 12-step finish process by Amish artisans. This complicated process captures the beauty of the grain and all the nuances of solid wood.
Conrad Grebel’s New Haven
This contemporary solid ash bedroom group features a premium catalyzed varnish finish for ultimate wood protection. Dresser and nightstand drawers have full-extension drawer glides, fully-dovetailed drawers and drawer bottoms that are 3/8-inch thick. Made by hand by Amish and Mennonite craftsmen, it has an approximate retail price of $3,336 in queen.
Cresent Fine Furniture’s Gunnison
Featuring casual transitional styling, this solid poplar best-seller is highlighted by soft rounded corners on the clean-lined case pieces, and functional touches such as a drop-front media drawer in the dresser and a power strip with two USB connections in the nightstand. It is shown here with the optional cedar-lined storage drawers on the sleigh bed.
Durham Furniture’s Cascata
With a nod to mid-century modern design, this solid cherry bedroom collection draws on a design balance between classic Italian elegance and modern creativity. The symmetrical curves of concave drawer fronts and sides are defining design elements. Accented by minimalist nickel hardware, the flowing curves showcase the cherry wood grains.
Gat Creek Furniture’s Alison
This top-selling bed, which is available in twin, full, queen, king, and California king sizes, coordinates with the 13-piece Sabin bedroom collection. The bed and the case pieces are made-to-order and are available in 66 finishes in solid cherry or maple.
Home Trends & Design’s Casablanca
Bringing a sense of timeless sophistication and old world charm to the dining area, this best-seller is made entirely from reclaimed Neem wood. Each exquisite piece features a durable frame-and-panel design with handcrafted details such as hand-turned pedestals and a hand-hewn inlay. This X-pattern inlay, combined with the solid wood construction and antique-rubbed lacquer finish, represents the master craftsmanship of this collection. Approximate retail price is $2,290.
Harden Furniture’s Live Edge
A sweeping V-shaped table leg highlights this best-seller from the Live Edge collection. Shown here in solid curly maple, it also is available in solid cherry, walnut or wormy maple. The starting retail price is about $8,599, but can vary depending on the customization options.
Kincaid’s Weatherford
MacKenzie-Dow Fine Furniture’s Cascadia
Inspired by the Pacific Northwest, this end table, part of a three-table collection, is made of solid Appalachian black cherry and solid American steamed black walnut. Besides the organic look and feel, the design focus is the grain of the lumber "flowing over" the sides of the table, which is a tribute to the many waterways found in this area of the country. Approximate retail is $2,397.
Minnick Wood Products’ Luberon
Named after a French province, this dining set is made of solid oak harvested in France and featuring classic Italian craftsmanship. Highlights include dove-tailed drawer construction, spring-loaded stoppers, and hinges made of iron in a vintage look. The table top is 3.75 inches thick, and the serving cart comes with an Italian marble top as a cutting board.
New Ridge Home Goods’ Beaumont
Combining the quality of solid wood with the price points of RTA furniture, this solid birch shelf features modern cottage styling. Designed to fit into space-challenged spaces, it is available in six water-resistant color finishes. Approximate retail price is $100.
Simply Amish’s Wildwood
From the Modern Farmhouse collection, this canopy bed and nightstand highlights meticulously crafted mitered edges, refined scale, and a balance between modern and masculine design. Made of solid cherry, the bed retails for about $4,400 in queen, and the matching nightstand retails for about $1,410.
Vaughan Bassett’s American Maple
Part of the Appalachian Hardwood line, this hot-selling solid maple collection features French dovetail drawers and a smooth acrylic finish on the interior drawer sides and bottom. The collection includes two beds in natural maple, cherry, rustic white and grey finishes. The bed, dresser, mirror and nightstand retail for $2,199.
April 21,
2017 by Jane Chero in Industry, Special Events
Larry Thomas
After upholstery producer Norwalk Furniture was raised from the home furnishings industry graveyard in 2008 by 12 Norwalk, Ohio-area families, the new owners brought in an Atlanta consulting firm called HB2 to advise the company on strategic planning and merchandising. They liked the work of principals Caroline Hipple and Dixon Bartlett so much that they eventually hired Hipple as Norwalk's president and Bartlett as vice president of merchandising.
Taking the reins at Norwalk a year ago has given Hipple a unique opportunity to put into practice the management principles she had been touting. In a recent interview with Larry Thomas, senior business editor of Home Furnishings Business, Hipple discussed why she went to work for Norwalk full-time,
the impact Millennials will have on the company and the furniture industry, and the close-knit culture that has enabled the venerable company to survive and thrive after its recession-induced shutdown.
Home Furnishings Business: What attracted you to the job?
Caroline Hipple: What attracted me was the potential. We have a 440,000 square-foot plant with very sophisticated and advanced equipment. That's the hardware, if you will. The software is this talented team. We get to be a part of the long and venerable tradition of building furniture with this fine craftsmanship. But because of the history and everything that has happened in the last eight years, we get to do it in a new way.
I believe the Millennial is going to change our world over the next 10 years. So, taking advantage of Norwalk's equipment and facilities, and using that skill to innovate and address this emerging market of 80 million consumers is right up my alley. That's why I did it.
HFB: So you see Millennials as a major source of growth in the years ahead?
CH: The oldest Millennial is 35. I think a lot of people erroneously see the Millennial as an Ikea customer or a Target customer. But that's because they were college kids not long ago. But now as they're turning 35, they're having babies, they're buying houses, they're getting married. So now is the time where they are going to start aging into better goods -- and there are 80 million of them! Remember, there were 80 million Baby Boomers, but there were only 42 million GenXers.
The dirty little secret during the recession was that there were also 30 million fewer buyers in the 35- to 50-year-old buying segment. Not only did we have a financial crisis, we also had a dearth of buyers. It was an industry set up for 80 million Baby Boomers. But there were only 42 million GenXers.
That's getting ready to change. But they're not going to buy like the Baby Boomers did. That means you have to have an online presence. You have to have retail experience points. You have to be where the Millennial wants to be met. That's a challenge to figure out how that's going to happen for a special order upholstery company.
HFB: Would you characterize Norwalk as a turnaround situation when you were hired?
CH: I really wouldn't say that. In 2008, Norwalk went away for six weeks. But since it has come back, it has had the best balance sheet that it has seen in decades. So it's not really a turnaround, but a shifting of focus and resources.
HFB: What is the biggest change you've made since becoming president?
CH: What I've had to do is crystallize the management structure into a participatory process that helps us realize the opportunities that are out there. We've been able to see some things and act very quickly because we have this participatory management structure. I'm not coming in from above and saying 'do this now.' Instead, we are working with the head of manufacturing, the head of finance, the head of HR, the head of marketing, and the head of merchandising on a regular basis.
Within six months of me coming on as president, we launched this partnership with Company C with 45 SKUs and a whole market devoted to it. That's very fast for something like that. But it was because of this participatory process where everybody is involved. People need to feel that their opinions are needed, and their ability to execute is needed. It goes faster that way. And it's more fun. Everybody knows what it's like (to be out of business), so they're just so invested in what happens. That's why we've worked hard to make sure there's a participative structure.
I've been to a lot of plants over the years, but there's just something different here in terms of the feeling they have about making it work and making it work well. It's a genuine appreciation for the history, the culture, and the opportunity. That's really a joy for me to be a part of. It's like that (trick) birthday candle that you keep trying to blow out. But that spirit won't blow out. That's Norwalk. It is an incredible spirit that burns inside. We (the executive team) just get to be the keepers of that flame. It's our job to keep that flame burning and find ways to keep it burning brighter.
HFB: Going forward, what are some of the keys to Norwalk's success?
CH: First, we have to have innovative products and fabrics. As a design-oriented, affordable, special order upholstery company, we have to have a really productive fabric line, which means everything has to be beautiful and useful.
Second, we have to meet the Millennials where they want to shop. We have to have great retail partners to accomplish that. I think it's really important to stay flexible and responsive. So managing that culture to be flexible and responsible allows us to manage all the change that is going on.
This is not your grandmother's or your mother's Norwalk. It has the great history of making great product and servicing retailers, but we have a chance to be fresh, innovative and really look at the world quite differently. That's why I'm so excited to be at Norwalk.
HFB: What happened to the Norwalk retail stores that were open when the company ceased operations in 2008?
CH: There were 72 franchised and corporate stores before 2008, but those franchise agreements were voided when the company went away. But many of our former franchisees and licensees just kept the name up and kept going. So you will still see Norwalk stores today (about 30 to 40), but those are independent retailers.
One of my biggest challenges is to make sure that all independent retailers know that Norwalk is a viable manufacturing partner. You don't have to have a whole store (of Norwalk products). A lot of retailers don't consider Norwalk because they think you have to have to be part of a franchise system. That's the main reason I advocated taking that first-floor showroom in High Point with those large windows, as well as our very visible space in Las Vegas. We wanted those showrooms to be big billboards to change the notion that you can't buy into the Norwalk system as a regular retailer.
HFB: Is it a disadvantage having your factory located in Ohio -- far away from upholstery manufacturing hubs in North Carolina or Mississippi?
CH: We think it might be an advantage. Dixon and I travel all over the world, so it's not like we are not exposed to (the latest trends and designs.) In our plant, what we want are artisans and craftsmen who can make the best product. We have master craftsmen, some of whom have been here for 20, 30 or 40 years, and we've started apprenticeships so younger people can work with them. We are creating our own community. It's an important place to work in our community, and people know it and revere it.
We're not on the 1-40 corridor (in North Carolina), so we're not competing for those same employees.
HFB: Is 'Made-In-America' an important part of your marketing strategy?
CH: We source as close to home as possible, not because we are jingoistic, but because we believe it makes strong community. Our reclaimed springs are from Indiana; our foam comes from Indiana; our wood frame parts come from the Amish factories all around us. And as much as possible, we source our textiles from the U.S. We are very conscious and intentional about creating community around us.
To a large degree, our retailers love that notion. But the 'Made in America’ is a part of a bigger strategy of creating community and local sourcing. That's more powerful, we believe, than just 'Made in America,' because that gets bandied about so much.
April 20,
2017 by Jane Chero in Business Strategy, Industry
Competition in furniture retail has moved from a simple game of tic-tac-toe to a multi-dimensional game involving more than one player and more than one board. A key characteristic of 3D tic-tac-toe is that it decreases the likelihood of a tie.
When furniture retailing occurred in a single market among family owned entities, while aggressive, the results, like in tic-tac-toe, was often a tie or a short time advantage reversed in a later move.
The equalizer of all is the economy. The great recession created havoc, resulting in a loss of almost half of the 60,000+ furniture stores in the period 2007 to 2015.
While this purge is behind the industry and growth has resumed achieving a compounded growth rate of 4.1% CPGR in the last five years, the competitive turmoil continues.
Much of this competitive activity was instigated during the downturn as the exiting of smaller retailers created perceived opportunities for the larger independents and regional chains. Additionally, the changing consumer buying process of shopping fewer stores (1-2), down from 4-5 a decade ago, encouraged retailers to open more stores in a market. Moving away from a “destination store” to “stores of convenience” significantly changed the business model of the traditional furniture retailers.
The change of the traditional business model has created a need for additional revenue. As more stores were added in the market, often in higher real estate cost areas with more dramatic store exteriors, occupancy costs had to accelerate. The traditional thought of adding occupancy and advertising costs elements together suggested that with a better location and outstanding facility, advertising cost could be reduced. Unfortunately, the need to attract a declining base of shoppers put pressure on the advertising expenditure. Additionally, the explosion of exposures from digital, either social media or email, diluted the power of television and almost eliminated the print alternatives
The impact of competition has not been as much from the individual competitor as from new retail concepts that better satisfy the consumer demand for a different retail experience. The graphic illustrates the share of furniture and bedding sales by distribution channel broken down by traditional and emerging channels.
There have been significant shifts in the breakdown of sales in the traditional channel. While in total, falling to less than 40% of sales, the independent dealers have lost almost half of their market share. Some of the gains have gone to the regional chains. However, the internet and verticals, such as Ashley Home have been the major recipients. Another major impact has been the free standing bedding specialty stores where now almost 50% of consumers buy in the smaller footprint that promotes their product expertise and significant selection. The table presents the shifts over the past five years.
The internet has been the fastest growing non-traditional channel capturing 19% of total sales by 2015. The rate of growth has declined in recent years reflecting the penetration of the consumer demographic that want to purchase a major consumer durable sight unseen. The major e-tailer, Amazon, has recognized this and, as was reported in the New York Times, is considering brick and mortar stores to facilitate the purchase.
Why have furniture retailers attracted the attention of other retailer sectors? Simply put, it is the growth that has occurred over the past five years when compared to the other sectors. A growth in the furniture and home furnishing stores over the past five years of 24.4% compare nicely to the other retail sectors and total retail as well. Only building material retailers grew more at 30.8%. The table illustrates the comparison.
The other attraction is the significant gross margin when compared to other product categories. The challenge most national retail chains have today is, gross margin generated per square foot of selling space. While multiple store locations increase the convenience of shopping for the consumer, the result is less gross margin per square foot of retail space. The only solution is the closing of stores, which the furniture industry has, to date, avoided. For the top quartile performers, the average gross margin per square foot of selling space is in the $9 range compared to a similar graphic of sales generated per square foot. The graphic illustrates the range by size of the retailers.
Relating these statistics to the average lease costs illustrate our challenge to control store expansion.
While all retail segments are considering the furniture product category to date, only the internet has made any significant inroads. The graphic illustrated the change from 2002.
The bottom line is that the battlefield is littered with mines and booby traps that furniture retailers must consider as they plan their strategy forward. While the traditional furniture retailers have seen significant loss of market share in the past 20 years, there is a 2.0 version of the traditional retailer emerging. More sophisticated in terms of marketing, finance, and technology, this new generation will succeed. The major retailers have concluded that the consumer wants what we have always provided – product displayed with style, delivered and placed in the home by people who care. Now on to the next generation.
Is an Amazon Furniture Store Coming to Your Town?
By Larry Thomas
Furniture industry tongues were wagging furiously last month when a New York Times story briefly mentioned that e-commerce behemoth Amazon has had discussions about opening brick-and-mortar furniture and appliance stores.
The story, quoting anonymous sources, said such stores “would be showcases” for large items that many consumers are hesitant to purchase online without seeing them or touching them.
According to the story, the stores would use cutting-edge virtual reality or augmented reality to give consumers a better idea of how the products would look in their home. And while the Times story didn’t mention it, these stores presumably would not have traditional, commissioned retail sales associates. (The story, which was mostly about Amazon’s difficulties selling groceries online, noted that the company is testing a cashier-less brick-and-mortar grocery operation where the customer’s account is charged as soon as the product is removed from the shelf.)
So if the store was only a product showcase with no sales people, a big key to Amazon’s success with a brick-and-mortar furniture store would be logistics — a category in which the company also claims to be a world-class provider. But while a small item such as an end table or lamp could be easily shipped via FedEx or UPS, that can’t be done with a large item such as a sofa or dining room table because they far exceed the shipping company’s 70-pound weight limit.
And can Amazon deliver those large items the next day — or even the same day — like many brick-and-mortar furniture stores? That’s debatable.
“It’s not so easy to deliver quality assembled furniture to a consumer in that manner. Every internet company has trouble doing same day/next day with large products,” Pat Cory, president of Cory Home Delivery, said in a recent interview with Home Furnishings Business. “It’s very difficult for them to do, and it’s incredibly expensive because of the inefficiencies you have with the loss of productivity on a truck and loss of density on a route. It creates a huge cost increase that most consumers would not be willing to pay.”
But Cory was quick to point out that e-commerce companies such as Amazon and Wayfair “absolutely” could accomplish that feat with two- or three-day delivery in many markets.
The question there, of course, is will our “I want it all and I want it now” culture accept that “slower” delivery cycle? That’s a question that Amazon may well spend millions of dollars to find out.
Cory said Amazon already has opened two enormous distribution centers — as in 3 million square feet each — in central New Jersey just to serve the New York and Philadelphia markets. And while he says they have hired top people away from FedEx and UPS to try to develop their own logistics network, he remains skeptical.
“They came into logistics with a sense of arrogance…like the rest of us didn’t know what we’re doing,” said Cory. “It’s one thing to sell a product on a computer. It another thing to create a supply chain from scratch and be successful at the level of FedEx and UPS. Those are two different worlds.”
WAITING FOR THE INVASION
The die has been cast with major regional chains expanding into the large markets (markets with sales over $50 million). The most aggressive is Bob’s Discount playing catch-up with infusion of Bain Capital. The recent acquisition of Art Van by T.L. Lee can only indicate a further expansion of the Michigan powerhouse. The remaining significant players, Haverty’s, Raymour and Flanigan and Rooms to Go, continue to expand, but not at a frenetic pace.
While the industry has not outpaced other retail sectors, the demographic trends of the much-anticipated Millennials have been the focus of many of the larger retailer behemoths. Recent statements by Big Lots and Target have all mentioned furniture in their future expansion plans.
On a daily basis retailers with 75+ year histories are announcing their closings. Their reasons may vary, some because of the lack of a viable transition plans, others because of competition from a more aggressive chain. The fact is that consumers’ shopping habits have precluded the opportunity for many. The consumer’s shopping excursions are often limited to 2+ stores while they are relying more frequently on the Internet to narrow their choices.
At least the furniture sector has avoided the problem of being “overstored.” Major retailers are announcing store closures weekly. Unfortunately, from a strategic perspective, the addition of the furniture category to their product category with its comparatively attractive gross margin could provide an alternative to their lack of gross margin per square foot of selling space.
Bottom line, the larger markets will be a battlefield resulting in 2-3 surviving retailers with multiple locations. This is similar to what happened in the home appliance sector with several major retail entities presenting limited brands competing primarily on price.
The major question for retailers in mid-sized markets is “When will the “war” come to my market?” This is a similar position that building supply and hardware stores found themselves in 20 years ago when the new concept store, Home Depot, emerged on the scene. The question was “How far down the market size spectrum would Home Depot go?” They had the answer shortly when Home Depot came to town along with the copycat competitors, such as Lowes and others.
What should a significant retailer in the smaller markets do besides wait for the inevitable invasion? The first and most obvious action is to be acquired by the expanding retailer. However, at this point the strategy of the expanding retailer has been to establish a presence and then capture market share. The logic is that to modify the culture of the existing retailer to the culture of the acquiring retailer would not be economical.
The rationale of “taking” instead of “acquiring” should be reexamined when considering the challenge of developing effective sales associates and building brand awareness. The cost of attracting, training, and retaining those sales associates who can achieve a close rate of 35%+ and an average ticket of $1,500+ is well over $50,000. In addition, achieving a brand awareness (to be considered) requires an expenditure of 3% to reach a growth of 5 points over a 3-year period. The fact of the matter is that the invading retailer’s market share will level off at about 8-10% and then gradually compete with the existing substantial retailer.
Earlier we have addressed the major expansion of the larger retailers, such as Bob’s, expanding from the Northeast down to Washington, over to Chicago, and on to San Diego. Haverty’s and Rooms To Go, while not being as aggressive, are quietly filling out their distribution capacity.
As in any war, the major concern is the battle map and where the battles are occurring. It is better to focus on the individual markets. There are 401 distinct market areas in which 90.7% of all furniture is sold. Graphic A breaks down the specifics of these markets.
The current focus of expansion is in those markets with over $500M. This represents over 50% of the industry. These markets have the size to support both the distribution infrastructure and the advertising required to penetrate an existing market. Interestingly, the larger the market, the better the per capita demand is for furniture.
While it is somewhat comforting to know that the battle is at a distance, the faint sound of the artillery is enough to give a solid retailer a pause. The strategy to prepare for the coming battle is complex. The first step is to create a dominant market share that would cause the expanding retailer to pause before entering the market.
There are many examples where the dominant retailer is executing this strategy. For example, Steinhafel’s in Milwaukee, a dominant retailer for many years, has expanded its distribution north into Fox Valley (Appleton) and south into the suburbs of Chicago. While Bob’s Discount has entered the Milwaukee market, Steinhafel’s dominance in the immediate market and the expanded market will present a formidable barrier. The map illustrates.
One of the most competitive markets in the United States is the Minneapolis-St. Paul market. The metro area is crowded with HOM Furniture, Schneiderman’s, Slumberland, and Becker Furniture along with a strong Ashley presence. Even without the threat of additional competition, each retailer has expanded its footprint to neighboring markets.
The bottom line is not to wait for the invasion, but to maximize your market share and establish a marketing parameter within your 200-400 mile delivery zone.