Monthly Issue
From Home Furnishing Business
October 13,
2016 by Jane Chero in Business Strategy, Industry 
Change is not innovation. External forces such as a new competitor or new distribution channel forces retailers to change. Change is reactive; innovation is proactive. In today’s business climate it is hard to find time to think of ways to innovate.
The starting point must always be the basic measures of the business, the profit and loss statement and the balance sheet. Ideas may be cool, but will they impact the reasons for being in business by generating income and providing long term stability? In Impact Consulting’s Performance Groups the mantra is that owners/management must constantly work on their business, not in their business. Even though it feels quite rewarding to go on the floor and sell a nice order or even jump on the delivery truck and execute the last mile of the sale, other than the occasional “reality check” that owners and managers should do, the focus should be to continue the pursuit of innovations. This applies not only for senior management, but also for all employees. Have we lost the “suggestion box” concept in our pursuit of the digital age?
Let’s play a game and remember past innovations many of which are accepted as “it was always that way.”
Innovation, it’s all about ingenuity – the ability to not only think outside the box, but to translate those thoughts into measurable actions that benefit both customers and the bottom line. This month, Home Furnishings Business focuses on retail innovation by presenting four case studies of innovations being implemented by home furnishings retailers that are improving the bottom line and increasing consumer satisfaction – all of which is leading to better store traffic and more repeat business.
None of these innovations were up and running the day after they were drawn up on the back of a dinner napkin. They took months, and in some cases years of development, tweaking, testing and more tweaking before being fully rolled out. And by the time it was ready to roll out, those involved in its development were already working on the next generation. That’s because innovation also is a process of continuous improvement.
Many innovations are easily visible to the consumer, but some – such as La-Z-Boy’s program that handles delivery and warehousing responsibilities for many of its retail store licensees – are not as noticeable. But they’re just as effective.
Midwest retail powerhouse Art Van Furniture, for example, has found that franchising is an effective way to expand the reach – and better utilize its Michigan distribution center. But the company isn’t handing out franchises like fast-food restaurants. Instead, it is partnering with existing independent furniture retailers who want to convert their stores to Art Van locations.
Pennsylvania-based Wolf Furniture, meanwhile, thinks it has found a seamless way to help consumers get rid of their old furniture – overcoming a major objection to buying new furniture. The retailer has opened consignment furniture stores adjacent to three of its full-line stores, and, in addition to helping overcome objections the company discovered that the consignment business itself can be rather profitable.
And then there’s Mattress Inn, a single-store bedding specialty retailer in Spring Hill, Tenn., who wanted to figure out a way to bring consumers into the store more frequently than once every eight to ten years. So owner Arthur Watkins developed the Fill Station Pillow Kiosk, an in-store innovation that gives the consumer a custom-made pillow in about five minutes. Of course, the consumer needs to test the pillow on one of the store’s many mattresses, and it’s not unusual for that consumer to buy a pillow and a mattress before leaving. Watkins has franchised the kiosk program to eight other retailers, but he recently added a director of business development and is hoping to have 100 kiosks in place in the next 12 months. And soon, he will have the next-generation kiosk ready to go. Just like all of the other innovators out there.
October 13,
2016 by Jane Chero in Business Strategy, Industry
Consumers eager to buy new furniture are often just as eager to get rid of their old furniture – but there’s one small problem.
Unlike car dealers, furniture stores generally don’t take trade-ins, so moving out that old furniture can be a hassle, at best. And at worst, it can’t be moved at all, which may prevent the consumer from making the purchase.
Doug Wolf, president of Pennsylvania-based Wolf Furniture, saw this objection raised far too often and decided to find an answer.
No, he didn’t hire a bunch of car salesmen to begin wheeling and dealing on trade-ins. He developed a completely new business model built around consignment sales.
Called Alleghany Furniture Consignment, the results, he says, have been impressive. Start with a $400 average ticket at 60 points gross margin, and finish with zero inventory costs and minimal warehousing and delivery expenses.
“Our consignments do better than some of our closeouts or our clearance center,” Wolf said. “People feel like consignment products are in better condition and have been better cared for.”
AFC stores are now adjacent to three Wolf Furniture locations, and the consignment businesses are operated separately from the main furniture store. Wolf Furniture sales associates receive a referral bonus if one of their customers brings a consignment piece to AFC, but don’t get a commission from the consignment sales themselves.
“Our sales people tell us (the opportunity to sell old furniture on consignment) will help complete the sale,” Wolf said. “The customer is more ready to pull the trigger on a new furniture purchase.” According to the trade group NARTS, the Association of Resale Professionals, Wolf’s experience is not unusual, noting that the resale industry (which includes antique shops) has annual revenue of about $17 billion. Goodwill Industries alone, the group said, generated $5.37 billion in sales in 2014 from its more than 2,000 non-profit stores -- most of which have furniture.
“The resale market is blossoming, thanks to value conscious consumers,” the group said in a recent report on industry trends. “With an increasing awareness of the importance of reducing pointless waste, we are progressing from a disposable society to a recycling society -- a change that has enormous potential for the resale industry as a whole.”
NARTS estimates there are more than 25,000 resale and consignment stores in the United States.
“Resale shopping attracts consumers from all economic levels,” the association’s report read. “There is no typical resale shopper, just as there is no typical resale shop. No one is immune to the excitement of finding a treasure and saving money,” Wolf has developed a proprietary software package that keeps track of the consignment pieces in each store, and automatically marks down the price of each piece every 30 days. Consignment contracts typically run for 90 or 120 days, but he said most pieces sell during the first month.
If a piece doesn’t sell that quickly, the price goes down 15% after 30 days. After 60 days, AFC takes 40% off the initial price, and after 90 days, it’s 50% off.
AFC then splits the consignment sale price 50/50 with the consumer, and it’s up to the buyer of the piece to get it out of the store. (AFC does make referrals to local delivery services, however.)
If a piece hasn’t sold by the end of the consignment period, the consigner has seven days to pick it up. However, Wolf said such consigners usually tell AFC they don’t want it back, so AFC marks it down further and keeps 100% of the selling price.
The consignment stores are promoted through television and Internet ads as a type of “treasure hunt” where inventory turns over rapidly and “there’s always something new on the floor.”
The key to keeping those bargain-hunters coming back, Wolf said, is finding high-quality consignment pieces. He said AFC turns down about 60% of the pieces offered for consignment because they don’t meet their “gently used” standard.
That means AFC won’t accept anything with torn or ripped upholstery, lots of pet hair, broken or missing hardware, or deep scratches on the wood. And all doors and drawers must work properly.
Once accepted for consignment, the piece is listed on AFC’s website, www.afcshop.com and consumers who have their eye on a particular piece can get alerts on their mobile phone as soon as the price is marked down.
Thus far, Wolf has licensed the consignment software to one other retailer -- Delaware-based Johnny Janosik Furniture, who has operated one consignment store as Delmarva Furniture Consignment since early 2014 -- and is hoping to attract others.
“We’ve been very pleased with it,” said David Koehler, chairman of Johnny Janosik. “As long as a piece is in good condition, it sells pretty quickly.”
He agreed that the key to keep sales humming is to accept only top-quality pieces for consignment.
“It’s not so much about getting traffic through the door. There are always plenty of bargain shoppers or people on a treasure hunt,” Koehler said. “You’ve got to have good consigners willing to sell good pieces.”
In Johnny Janosik’s trading area, he said retirees and Baby Boomers downsizing their homes are often good sources of consignment pieces, as are more affluent consumers who own beach houses or other vacation properties.
Long-term, Wolf hopes to develop the furniture industry equivalent of Kelley Blue Book, the price Bible of the used car industry.
“Most people have no idea what value to place on a piece of furniture,” he said “If they went to 50 stores, they would get 50 different prices. A resource like that would make furniture a much more saleable asset.”
He realizes the myriad of styles and collections would present a huge challenge, but believes it’s important to give consumers at least “a ballpark price” on their used furniture.
“I want to give them an idea of what their existing furniture is worth so they can buy new furniture,” Wolf said
October 13,
2016 by Jane Chero in Business Strategy, Industry
This month’s theme deals with Retail Innovation and new ideas that have freshened up our stale industry in the last decade or so. It is a great subject for us to address because innovation normally involves some changes to how you do things and change is not easy for most of us individually. It is even more difficult to create and drive it within an organization! Most successful businesses embrace change and are able to make it happen within the company, helping them maintain an edge on their competition.
Sometimes in our excitement and desire to embrace new ideas, we rush forward without properly considering if it is actually the best thing for us to do. Other times we might not have the discipline to properly implement a new program. As a result, we can either end up doing something that is not right for us or doing something that is right for us the wrong way - ending up in a way that doesn’t gain the maximum benefit for the change we have created.
Every situation and company is different, so it is difficult in a brief article to put forward recommendations that will work for everyone. However, we have seen some pitfalls on the sales side and can give you some cautionary advice about how to reduce the possibility of having an unintended negative result from bringing innovative new ideas, systems and/or processes into your selling organization.
First off, I must say that personally I am kind of a Geek for new technology and ideas! I love being up to date with my devices, systems and processes and enjoy the challenges of changing things I do for the better. That said, I have found that not everything that is new is necessarily better and some new things that work for one person or company, don’t work well for others. There are many reasons for this, which involve a wide range of issues from ingrained culture or habits to current knowledge or abilities.
One issue we have seen is that somewhere in the pursuit of innovation and change, companies often forget who they are and how they got there. So my main caution is that in the mad rush to embrace change, don’t forget what has worked and abandon any of the things that have helped made you successful in the past. As the old coach once said: “blocking and tackling still win football games!” Here are examples of some pitfalls to consider as you embrace new sales support systems, processes and technology:
Automated Sales Reporting Pitfall
This will open a can of worms, so let’s start with it right away! A critical element of sales management has always been the consistent reporting of accurate sales performance data, so that it can be used to measure each individual’s results on the selling floor. There are three steps to this process: gathering the numbers, organizing/tracking them and most importantly, reporting them in such a way that the sales manager can use them during the coaching process to help improve each person’s performance. In the very beginning, before computers, the sales person wrote down their daily results and gave them to the sales manager who recorded them in a spreadsheet and made calculations to come up with coachable statistics like closing rate, average sale and revenue per Up.
With the advent of computer systems, this process has become more and more automated, in some cases, to the point where no one actually “touches the numbers” until the system spits out the reports. The question is: have we streamlined the process to the point where no one actually takes ownership of the numbers and thus the results?
Don’t get me wrong, I am all for making things easier and cutting out paperwork so we can spend more time with our people and they can focus more on their customers! The point I want you to consider is that when sales people had to write down information on their sales each day, the numbers seemed to matter more to them – at the end of each day they faced how they did. When managers had to get the sheets and input them into the system, they too knew what each person had done and what had happened that day in the store – in real time. Everyone in the process had a role they understood and because of that they were better able to work together, using the reports to determine where and how to improve sales. Isn’t that better than just collecting a sheet of paper off the printer, after the fact, and putting it into a mailbox or worse yet just emailing a file to each sales person?
I can tell you that those retailers who have automated the reporting process but still kept the staff involved in all of the steps, tend to perform better. So be careful just how streamlined you make this important process and make sure that in so doing, you have not watered down the importance of “owning the numbers”.
Selling Process Pitfalls
One of the most exciting things I have seen in the last decade is the use of Tablets on the selling floor to assist and augment the process of helping a customer find the product they want and creating the room/home of their dreams! To me this is one of the greatest potential uses of new technology for the sales person. We know that the majority of people we end up seeing begin their search online and most likely visit many sites including ours, before visiting a store. So in a very real way, we are an extension or continuation of that tech based process and the more we can tie into it the better. We also know that if the sales person has to leave a customer in search of information, they have a greater likelihood of losing that sale. Lastly, having web sites, design ideas and the ability to draw or create a room with the customer on the floor using their tablet provides further excitement and can enhance the process for some customers. All of that said, there are some things you need to keep in mind as you design and implement any selling process technology:
- A critical factor in having technology in the hands of the sales person is obviously their ability to use it “gracefully” and only when needed. Too often I have seen sales people act like a kid with a new toy and focus mainly on showing the customer all it can do instead of on how they can use it to help. Make sure anybody using Tablets/PCs to work with customers is fully trained not only in how to make the device work, but also on how to use it in the selling process – don’t assume they know, they don’t!
- Many people are technophobic or intimidated by technology. They may not be comfortable working with a sales person using technology. In this case it could still be a good support tool to get information, but it should not be at the center of the process.
- One of the things I have personally felt when working with a professional who is using a Tablet to take notes or to help me find something, is that it often seems to be a distraction, with the person spending more effort interacting with it than with me. We are there to create a personal touch in the process otherwise they might as well buy on the internet! Don’t let it get in the way of that happening.
- There are some great sketching apps, which could be used to sketch with a customer during the selling process. However, in my experience they are not as quick, convenient nor as effective as a good old-fashion free hand sketch. Sketching during the selling process is meant to be a very simple and quick drawing of the room to help the sales person gather needed information and create a visual representation that will help them solve the customer’s problem. It may be powerful for design customers that are willing to sit down and spend more time on it, but for the vast majority of retail encounters using a Tablet to sketch is too cumbersome and detracts from the process, instead of facilitating it.
Other Potential New Technology Pitfalls
- The Furniture Training Company and several vendors have created extremely useful online programs to assist retailers in their efforts to get sales people trained and keep them up-to-date. Our view is that any quality online training program you use will most certainly help improve performance. However, there is nothing that replaces in-person, face-to-face, sales training. Online and video type sessions are great at presenting information like product knowledge, but it takes hands-on training and coaching to instill the behaviors they will need to consistently apply that knowledge on the sales floor. Don’t think that you can maximize your success with only online training, best if you use both.
I am all for using an automated system to contact customers to set up delivery, get survey responses and/or just to stay in touch. They get the job done relatively well and are better than not having it happen at all. My biggest caution with any of the new technology that deals with the consumer is that we do not let it replace the person-to-person contact and relationship that separates us from the online buying process and turns customers into lifelong clients of a company. Never let an automated system completely replace the personal touch that has built all of our businesses!
October 13,
2016 by Jane Chero in Business Strategy, Industry
By Bob George
This issue’s focus is on innovation, a focus that we plan to repeat each year. We believe that it is important to recognize the impact of game-changing developments that contribute to the future success of furniture retailing.
I have been fortunate to be involved with Impact Consulting’s performance groups over the past decade. A cornerstone of the process is to share “Best Ideas.” Each member prepares a written presentation that describes a best idea expanding upon why this best idea was developed, what was the approach to implementation, and finally the success of the best idea. The members take the process seriously contributing dollars to a winner pool. This pool is won by the idea voted the best by the group. The ideas are often simple and receive comments from the group such as “Why didn’t I think of that?” But more importantly, these ideas are shared with others in the group to be not only implemented, but also improved upon.
As a management consultant attending these meetings with the confidentiality agreement firmly in place causes my mouth to water at the possibilities of sharing with others these unique ideas. However, I resist the temptation and wait for the idea to emerge in the industry and it will because good ideas cannot be suppressed. Fortunately, some retailers give permission to distribute because they know that an idea is worth nothing until it is implemented. Implementation is what differentiates great retailers from good retailers. If the traditional retailer is to survive the onslaught of new distribution models, then innovation or more simply put best ideas, must become part of the ongoing process. Our performance group members are consistently in the top quartile of financial performances. The best ideas that they generate focus on specific financial elements and the results reflect that execution.
We are considering creating an industry-wide “Best Idea” contest. There will be an entrance fee, a panel of seasoned retailers who will judge the entrants, and finally a winner to share the pot. What do you think? This is how innovation occurs – a single idea that evolves to a positive outcome. Why should we leave out the manufacturers? They need to innovate as well.
An Update
As we communicated in the May issue we have changed the structure of our editorial staff to have editors with specific expertise in each area. In that effort we are pleased to announce the following.
Veteran journalist, Larry Thomas, who has covered the home furnishings industry for more than twenty-five years, has joined Home Furnishings Business as business and financial editor. In his new position he will focus on business and financial news and will write feature articles for the monthly magazine. He will also oversee the daily newsletter, Home Furnishings Business Now, and will write additional content for the HFB website, www.HFBusiness.com. Larry’s expertise will add a depth of understanding of the business and finance implications of the issues facing the industry. Please send any information to lthomas@hfbusiness.com.
Home Furnishings Business is pleased to have Trisha McBride Ferguson on our staff as our Product & Style editor. She brings over twenty years of industry experience as a writer and designer. She has worked closely with many leading home furnishings manufacturers. She is also Editor in Chief of our customized retailer magalogs which blend consumer home decorating content with furniture product information to drive retail traffic. Please send information about your product-related news and events to trisha@hfbusiness.com.
September 9,
2016 by Jane Chero in Business Strategy, Industry, Internet
Mention furniture and home furnishings sales sold via the internet, and the focus immediately turns to B2C retailing (business-to-consumer). So it may be surprising to learn that it’s the e-commerce (e-shipments) B2B platform (business-to-business) that has been exploding and generating buzz in the furniture industry.
A recently released report from the Census Bureau shows B2B e-shipments within the furniture and related products manufacturing segment (NAICS code 337) is now approaching 51 percent of the value of total shipments or $35.2 billion dollars in 2014. (Source: U.S. Census Bureau E-Commerce Report 2002 to 2014, June 7, 2016). The Census Bureau defines manufacturers’ shipments to include “orders accepted for manufactured products from customers, including shipments to other domestic plants”. While this appears to be double counting in some instances, it does little to diminish e-commerce’s impact on the wholesale furniture industry. (See Methodology and Definitions box for additional information). B2B e-commerce is changing the way manufacturers market and sell their products to both retail brick and mortar customers and online furniture retailers creating increased sales on one hand and distribution channel crises on the other.
E-Commerce across Vertical Furniture Industry Segments
The product categories included in data published by the Census Bureau may differ somewhat between furniture manufacturing shipments, merchant wholesaler shipments, and retail sales; however, the trend in e-commerce is the same. (See Methodology and Definitions box.) As of 2014, e-commerce accounts for over half (50.6 percent) of all furniture and related product shipments – up from 14.4 percent in 2004 (Table A). During the same time period, e-commerce sales of furniture and home furnishings within the retail trade sector increased 503 percent – representing 15.3 percent of total retail dollars. While e-commerce among the merchant wholesale trade of furniture and home furnishings increased steadily since 2004, the share of overall sales have remained stagnant since 2009 – increasing from 14.3 to 14.4 percent.
Manufacturing Shipments
As Table B shows, the total value of manufacturing shipments in the furniture industry took a downturn alongside the economy during the recession. The 2014 value at $69.6 is still 9.9 percent below 2002. E-commerce shipments on the other hand kept an upward trajectory through the recession – increasing a total of 335.9 percent over 12 years. While total furniture and related products manufacturing increased by 15.4 percent since 2009, e-commerce shipments jumped another 70.3 percent to finish 2014 at $35.2 billion.
The percentage of total dollar shipments via e-commerce has climbed from 10.5 percent in 2002 to 50.6 percent in 2014 with the vast majority of growth (313 percent) occurring between 2002 and 2011 (Table C). From 2011 to 2013, increases of e-commerce as a percentage of total shipments tapered off. However, an 11 percent jump in 2014 pushed e-commerce to over half of furniture and related products shipment dollars.
E-Shipments: Furniture Manufacturing vs. Total Manufacturing
While e-shipments have grown at a rapid pace, furniture and related products manufacturers are still lagging slightly behind all manufacturing in the percentage of e-commerce shipments to total (Table D). In 2014, total e-shipments in all industries were 60.9 percent of total manufacturing compared to furniture e-shipments at 50.6 percent. Both total manufacturing e-shipment dollars and furniture e-shipment dollars increased an annual average of 14 percent from 2004 to 2014.
Merchant Wholesalers and MSBO’s
Merchant Wholesalers are wholesalers who sell goods on their own account such as distributors, jobbers, drop shippers, import/export merchants, and MSBOs. Manufacturers’ Sales Branches and Offices (MSBOs) are establishments maintained by manufacturing, refining, or mining enterprises apart from their plants or mines for the purpose of marketing their products. Sales branches will typically carry inventories, while sales offices typically do not. – U.S. Census Bureau
Since the turn of the century, e-commerce has slowly climbed its way into the furniture and home furnishings merchant wholesale trade. Merchant wholesalers weathered the recession well growing 43.8 percent in sales 2002 to 2014 to $76.9 billion while the e-commerce portion of those sales jumped 113 percent to $11.1 billion. MSBOs total shipments at $21.0 billion in 2014 grew more slowly -- 17.3 percent 2002 to 2014. E-commerce shipments from merchant wholesalers alone have increased a yearly average of 7 percent, while furniture MSBO’s have increased by 3 percent.
Although increasing just 30 percent in e-commerce sales from furniture MSBOs over 12 years, e-commerce accounts for 21 percent of furniture and home furnishings MSBOs (Table F) compared to other merchant wholesalers at 14 percent. As a percent of total shipments, e-shipment sales of both merchant wholesalers and MSBO’s have declined since 2011.
With more advanced websites and ordering portals that make it easier for a business to make purchases online, e-commerce should continue to grow as a key part of the furniture industry. Manufacturers look to e-commerce to increase sales and broaden its customer base. This approach, however, presents a challenge to manufacturers in terms of personalized customer service and maintaining that sales rep relationship.
