Monthly Issue
From Home Furnishing Business
January 23,
2017 by Jane Chero in Mattresses, Product 
Despite a sometimes sluggish 2016 and an especially tough third quarter, the bedding industry continues to entice consumers with everything from hybrid mattresses that combine innersprings and specialty foam to ultra-plush pillowtop models that dissipate body heat to keep sleepers cool.
Most executives believe the previous year was something of an aberration, caused by the lengthy, heated U.S. presidential election, uncertainty surrounding the combinations of some of the industry’s biggest brands, and temporary turmoil spurred by the consolidation of several large mattress specialty retailers.
But executives say they aren’t deterred, and they’re not holding back on the product introduction front at this month’s Las Vegas Market, when more than 100 showrooms will have new mattresses, foundations, adjustable bases, and a variety of sleep accessories on display.
“The bedding market is still being driven, to some extent, by the commodity (product) strategies of manufacturers and retailers, but if you can stay above that, business is still pretty good,” said Kevin Damewood, executive vice president of sales and marketing at Kingsdown.
The January market at Las Vegas has become the key bedding market of the year because that’s when producers launch the overwhelming majority of their new products. Unlike their colleagues in the case goods and upholstery categories, mattress producers don’t feel compelled to have product introductions four times a year – twice in High Point and twice in Las Vegas – and a number of manufacturers no longer have showrooms in High Point.
According to revised figures compiled by Impact Consulting Services, parent company of Home Furnishings Business, bedding shipments totaled $3.67 billion in the third quarter, a drop of 2.4% from the third quarter of 2015. That represented the first quarter-over-quarter decline since the Great Recession, and since fourth-quarter figures aren’t yet available, it’s not clear if the industry had a positive year.
For the first nine months of 2016, shipments were just 0.9% ahead of the same period in 2015, according to the research.
Kevin Toman, president of Englander, said he believes many of the industry’s second-tier brands (such as Englander) are performing better than the four largest brands because of the consolidation involving Simmons and Serta, who are under common ownership, as well as Sealy and Tempur-Pedic, both of whom are owned by Tempur-Sealy International.
In addition, he said consolidation at retail, which has been driven by acquisition-minded Mattress Firm, has negatively impacted the larger brands more than the second tier.
“The industry is in chaos right now … and I think the second-tier brands are gaining market share,” Toman said. “There’s a real opportunity for brands like us.”
Toman, Damewood and other executives say hybrid mattresses, which combine innersprings and specialty foams such as latex or memory foam, are still selling briskly, as is just about any mattress designed to keep sleepers cool through the use of gel-infused foam or specialty fibers that direct body heat away from the mattress surface.
However, Damewood said Kingsdown is having particular success with its proprietary Sleep To Live diagnostic system, which gives consumers a mattress recommendation after lying down on a diagnostic mattress that makes numerous calculations about pressure points around the body.
Consumers who make a purchase after using the diagnostic system typically spend $2,499 and up, he said, noting that the system now accounts for about 40% of the company’s sales.
A survey of recent mattress purchasers by Impact Consulting asked consumers, among other things, what type of mattress they bought. More than half (53.31%) said innerspring and another 35.67% said memory foam. Only 7.65% said latex foam and 3.36% purchased an air bed. No one admitted to buying a waterbed.
When asked what other mattress-related products they purchased, 54.5% said they bought a box spring or other non-moving base, and 51% said a mattress pad. Nearly 40% said they bought at least one pillow and 35.4% bought a bed frame, according to the survey.
The survey also said only 4.45% also purchased an adjustable base, a figure that surprised many industry executives, given the popularity of the product in recent years and the entry of numerous vendors in the category.
Specialty sleep products supplier Glideaway, for example, said sales of its Comfort Series Lifestyle Base have nearly tripled in the past two years as the company has brought out numerous new designs.
“Glideaway has become a significant player in the adjustable base business in a short amount of a time,” said Dan Baker, executive vice president of sales. “The options we continue to offer across our Comfort Base line are really resonating with consumers. We are excited about our upcoming additions to the line that we’ll unveil at the Winter Las Vegas Market.”
In addition to raising the head of the bed to an almost infinite number of sleeping positions, many adjustable bases have a wide range of other features such as charging stations, massage, pre-programmed settings and even Bluetooth speakers.
When asked where they made their mattress purchase, bedding specialty stores were the runaway winner at 43.2%. Traditional furniture stores were next at 24.55%, and no other format captured more than 10%.
Registering under 10% were mass merchants (8.95%), department stores (8.75%), the Internet (7.85%), and wholesale clubs (6.65%).
And while gel-infused foam is now offered in some mattresses by virtually every manufacturer, the survey showed most consumers didn’t know why it’s there. Less than half (46.75%) answered correctly and said it would make the bed cooler.
Another 26.8% said it would add more support, and 20.85% said it would make the bed softer. And 5.65% said it would make the bed warmer.
The survey also showed 24.555% paid $1,000 to $1,999 for their new mattress, the exact percentage that said they paid $600 to $999. Another 22.235% said they paid $300 to $599, and 13.29% said they paid $2,000 to $2,999. Only 8.9% paid $99 to $299, and 6.67% paid $3,000 or more.
Therapedic’s Medicoil HD 5000
The HD 5000 (HD for heavy-duty) is part of a four-model lineup designed for firmness and durability. In addition, it’s nearly totally resistant to body impressions, which addresses a common complaint among consumers buying a pillowtop mattress. Suggested retail is $1,799 in queen.
Tempur-Pedic’s Tempr Cloud Supreme
Designed to be soft on top, but with a supportive core, it features extra-plush top layers of the company’s proprietary memory foam that give it a pillowy feel without a traditional pillowtop design. The core includes additional layers of its proprietary foam that adapt to the sleeper’s weight and shape. Suggested retail is $2,499 in queen.
Sealy’s Posturepedic Premier Hybrid
This best-seller features a mattress that’s half foam, half springs. Memory foam is on the top layers for body-conforming comfort, while specially engineered springs underneath the foam deliver full body support. Suggested retail is $1,399 in queen.
Simmons Beautyrest Black Katarina
This plush pillowtop model put the focus on keeping the sleeper not only comfortable, but cool. Features include a fiber that dissipates heat away from the sleeping surface, a memory foam infused with diamond particles, and a second type of memory foam that relieves pressure points for freedom of movement. Suggested retail is $2,599
Restonic’s ComfortCare Hybrid Signature
Featuring two types of memory foam in the top cushioning layers, this mattress is designed to absorb, store and release heat as needed to keep the sleeper cool and comfortable. The foam layers sit above Restonic’s signature Marvelous Middle innerspring design, which utilizes individually wrapped and zoned coils to minimize motion transfer.
Pleasant Mattress’ Maxx Response Luxury Plus Hybrid
This model features a proprietary 3Mesh ventilation system, Serene foam and Leggett & Platt’s Samson wrapped coil innerspring unit. The company describes it as a “stunning lifestyle product with a tremendous comfort experience.” Suggested retail is $1,999 in queen.
Organic Mattress Inc.’s Duo
The Duo has been a winner for OMI for more than eight years because it allows each sleeper to customize the feel of the mattress. The premium model features three layers of GOLS-certified organic natural rubber that are individually encased in GOTS-certified organic cotton sleeves. Each layer is labeled with their firmness to allow for easy adjustment for comfort and pressure-point relief. Suggested retail is $6,545 in queen.
Kingsdown’s Crown Marquis
From the Crown Imperial collection of hybrid mattresses, this model features multi-level coil construction with layers of micro-coils and a layer of tri-zone wrapped coils to reduce motion. The springs are topped with gel-infused memory foam to keep the sleeper cool. The ticking is a blend of silk and wool for a luxurious hand. Retail price points for Crown Imperial models range from $1,999 to $3,999 in queen.
Classic Brands’ Cool Gel
At 10.5 inches high, the Cool Gel mattress offers a compelling combination of pressure relief support and thermal temperature regulation through gel-infused foam at a promotional price point. Suggested retail is $399.
E.S. Kluft’s Aireloom Sidestich
Part of the Aireloom Karpen Collection, Sidestitch mattresses are constructed with more than 45 pounds of natural cotton, feature more than 560 heritage side stitches and the company’s proprietary designed coils that curve heavy gauge metal into delicate inner springs for reactive support to deliver premium, all-night rest.
Boyd Specialty Sleep’s Broyhill Memory Foam
Made under a licensing agreement with Broyhill parent Heritage Home Group, this 8-inch memory foam mattress sits on a fabric-covered adjustable base with a remote control.
Spring Air’s Grand Award
The company’s flagship Back Supporter line includes this Grand Award model, which features a European waterfall design and retails for $999 to $1,499 in queen.
January 23,
2017 by Jane Chero in Economic News, Financial Reports, Industry
The Consumer Price Index is defined by the Bureau of Labor Statistics as the measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI-U (Consumer Price Index – Urban Consumers) represents all urban consumers, about 89 percent of total U.S. population. This article focuses on the Consumer Price Index from 2010 to 2016. To interpret the CPI note that the base year indexes is always shown as 100. The index for subsequent years indicates the percentage growth over that base year. For example, an index in the year 2013 of 119.3 indicates the price of that consumer item has grown 19.3 percent since the base year of 2010. On the other hand, an index of 86.2 indicates the price of that item has fallen 13.8 percent. Each year represents the growth over the base year.
The prices of consumer items grew steadily coming out of the recession for virtually all broad product categories until 2012 to 2014, when Durable Goods, including furniture, appliances, and electronics, along with Non Durables, and Commodities began to decline. The Services sector, led by skyrocketing medical costs, is the only broad group continuing to see large price increases.
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) for all consumer items increased 9.9 percentage points over the last six years – an average of 1.6 percent a year. Meanwhile, the purchasing power of the dollar decreased with time – declining 9 percentage points since 2010 (Table A) Durable Goods has been the worst performing sector in price growth compared to Non Durables, Services, and Commodities (Table B).
Durable Goods prices grew slightly coming out of the recession, but began declining in 2012, and this year are 3.3 percentage points below 2010. With a constant upward trajectory, the price of all consumer Services has increased 14.4 percentage points from 2010 to 2016 –due in part to escalating medical costs.
Housing
Except for home furnishings and operations, housing and home energy costs have grown over the past six years. Both Rent and Home prices have crept up an average of 3 percent (Rent) and 2 percent (Homes) a year – resulting in overall growth of 18.6 and 15.7 percentage points. And while Household Energy prices peaked at an index of 106.8 in 2014, prices quickly fell back down this year to just 1 percent growth since 2010. With Rent and Home prices growing, consumers may have fewer disposable dollars available for Household Furnishings and Operations which are both below 2010’s index by 2.9 percent (Table C).
Furniture and Home Furnishings
Focusing on Household Home Furnishings prices, the accessories category (Clocks, Lamps, and Decorator Items) has the most negative price growth – dropping 29.1 percentage points since 2010 (Table D). Major Appliances is second with a 13.9 percent decline. Furniture and Bedding, Window Coverings, and Floor Coverings all experienced slightly less negative growth – falling between 3.9 percent and 8.8 percent from 2010 to 2016.
Furniture Products
The CPI breaks Furniture into three broad categories – (1) Living Room including Upholstery, Kitchen, and Dining Room, (2) Bedroom including Bedding, and (3) Other Furniture. All three categories are down in price from 2010 (Table E). Bedroom Furniture experienced small price increases leading up to 2012, most likely via Mattresses, but has declined steadily in price since then. Currently Bedroom and Bedding is down 4.9 percent from 2010 prices. Living Room, Kitchen, and Dining Room Furniture peaked at 102.1 index in 2012 before falling to 96.1 this year, a level 3.9 percent below 2010.
Television and Cable
In many electronics categories, the price of the durable good has fallen while the cost of operating that product has increased. For example, Television prices have dropped dramatically, but the cost of programming services has skyrocketed. The price of televisions has fallen 65 percentage points since 2010 or about 16 percent a year. During the same time period, Cable and Satellite Television and Radio Services have jumped a total of 17 percentage points – a roughly 4 percent yearly increase (Table F).
Computer and Electronic Services
Similar to Televisions, Personal Computer prices continue to fall – down 41.6 percentage points in six years (Table G). Surprising to some, Wireless Telephone Service prices are also down, while Internet Services have stayed steady with a slight increase of 0.5 points from 2010 to 2016.
New Vehicles and Gas
New cars and trucks is one Durable Goods area that has seen steady price increases, up 6.8 percent since 2010 (Table H). On the flip side, however, is that while cars have become more expensive, gasoline prices have become cheaper. Gas prices peaked in 2012 at levels 30.8 percent above 2010, but began their decline three years ago. In 2016 the price of gasoline is down 23.4 percent down from 2010.
Food and Beverages
Food, both groceries and restaurant prices, have experienced overall growth from 2010 to 2016 (Table I). Food away from home showed the most growth – increasing 16 percentage points.
Medical and Drug Prices
By far the largest increases in prices come from the Medical Industry (Table J). Aside from Health Insurance which has fluctuated since 2010 with the introduction of Obamacare, all medical services and drug prices have maintained an upward trajectory. Hospital Care alone is up to 30.5 percent in 2010 to 2016. All other physician services, dental services, and prescription drug costs have grown between 16.5 percent and 22.8 percent. Even medical care for your pet is skyrocketing growing over 20 percent since 2010.
Education and Childcare
As shown in Table K, education for all ages along with childcare costs are close behind medical care in services that have sharply increased over the past six years. Up to an index of 126.1 in 2016, College Tuition and Fees have jumped an average of 4 percentage points per year. Consistently on an incline, childcare has increased 14.6 percent points from 2010 to 2016.
The Consumer Price Index clearly shows how consumers are faced with growing prices in the Services area but over the last two years have seen overall declines in durable and non-durable goods. The problem for the home furnishings industry is that prices have been consistently falling since 2012 which may be good for consumers, but not so good for the retailer.
January 23,
2017 by Jane Chero in Industry, Merchandising
Where is the magic in the furniture industry? The majority opinion is that it is merchandising. However, that term is as mystical as anything in the furniture industry. This industry lore is punctuated by references to manufacturers as product men or retailers as great merchants. The success of many manufacturers and retailers is attributed to the talents of those individuals in merchandising, designing, and selecting products that the consumer loves.
As the industry struggles with what is referred to as the “commoditization” which relegates furniture to a utilization status to be used and discarded rather than cherished and passed on to the next generation. As is presented in the Statistically Speaking article, the consumer price index declined for the fourth year while other consumer products have increased 10 percent over the same period.
Can we look to merchandising to bring the consumer back into the store to make aspirational purchases instead of searching for the best price only ignoring the value proposition? Before casting our hopes on merchandising it may be good to define it. The objective of merchandising, whether a supplier or retailer, is to present to the targeted consumer a selection of product that appeals to that targeted consumer and, rising above price, becomes a “must have” purchase. To accomplish this requires a combination of many functional areas all of which are focused on satisfying the goal of enticing the consumer.
The connecting point between the supplier and the retailer is the consumer. Unfortunately, that is the point that is most often ignored. In fact, merchandising suffers from both suppliers and retailers working in silo only coming together at Market to see if the product concept envisaged by the supplier matches the merchandise strategy defined by the retailer. Only later the consumer is engaged by the retailer on the selling floors for the thumbs up or thumbs down. It is too late at that point. Unfortunately, merchandising takes time and money. However, product failure consumes even more money and time.
Planning? Marketing? Who has time for that? Savvy furniture manufacturers and retailers say it’s critical to make plenty of time for merchandising. It’s what separates the leaders from the also-rans. In the home furnishings space, merchandising is critical at both the wholesale and retail levels of the business. A manufacturer’s trendy, but poorly merchandised line that, for instance, fails to address a critical price point, is likely to languish. “If the product isn’t right, then it really doesn’t matter what the price is,” said Pat Watson, vice president of merchandising at Hooker Furniture. “You have to be able to merchandise at certain price points.”
By the same token, a retailer who buys a trendy, well-merchandised line, but displays it haphazardly on the showroom floor is likely to have similar results. “Unless you’re having some kind of a warehouse sale, I don’t see how you can just line up a bunch of sofas and expect to sell many of them,” said Jeff Selik, general manager of contemporary retailer Hillside Furniture.
Retail executives say manufacturers nearly always merchandise their showrooms by collection, or at least by product category. However, the retail merchandising story varies widely. Some retailers set aside dedicated space for major collections — especially if they are licensed collections such as Standard Furniture’s mega-successful Magnolia Home or Klaussner’s popular Trisha Yearwood line. There are retailers who merchandise their sales floors using lifestyle vignettes. South Florida-based El Dorado Furniture is a standout here. Others arrange products by category, by style, by price point, or any combination of the above. “We’re all searching for something that will really entice the consumer,” said Geoff Beaston, senior vice president of case goods at Klaussner.
The Design Story
Design, of course, plays a huge role in any merchandising scheme. And that’s a big reason why manufacturers often urge dealers to display all pieces of high-profile collections together. They argue that good design can’t be fully appreciated if a collection is broken into items and scattered throughout the store. Design-focused displays also give manufacturers and retailers a chance to tell a story – a story they hope will capture the consumer’s interest and motivate that consumer to add a part of that story to the home.
For example, the story behind Fine Furniture Design’s licensed Biltmore collection is one of a fabulously wealthy man – George Vanderbilt – and the magnificent 250-room “country retreat” he built in the Blue Ridge Mountains of western North Carolina in the 1890s. Today, the home and the surrounding Biltmore Estate are open to the public, and the vast property is owned and managed by Vanderbilt’s descendants. “We try to come up with classic designs that reflect what we see at Biltmore House, but are functionally relevant for today,” said Eric Graham, president of Fine Furniture Design.
The design of Stanley Furniture’s newest collection, Havana Crossing, is anything but classic, but it has a solid merchandising story centered around a country most of the world has begun to see only recently. Randy Wells, Stanley’s vice president of creative, said the collection, which will begin shipping to retailers this spring, features a 1950s mid-century modern design that is found throughout Havana today. The city’s unique architecture, he said, gives the appearance that it’s stuck in time. “People fall in love with a story, and there’s a unique story behind each piece in the entire collection,” Wells said. “They can learn about the place (Havana) and the people who live there.”
For that reason the company is urging dealers to display Havana Crossing in a dedicated space, using the storyboards and other material the company has developed that describes the design inspiration for many pieces and discusses the historic significance of several key buildings. “Havana is a very special place that the world should see,” said Wells, noting that a percentage of sales from the new collection will be donated to groups working to restore the city’s historic buildings. Stanley devoted a large chunk of its showroom to the Havana Crossing launch at last October’s market.
Producers say input and inspiration from retailers also is an important part of the process, and Hooker Furniture, for one, takes it a step further by meeting with small groups of dealers once or twice a year to discuss upcoming product launches.
The meetings, which the company calls Dealer Councils, often result in design changes and provide other valuable input, said Hank Long, the company’s senior vice president for merchandising and design.
“We’ve come out with some great product by listening to them,” Long said of the Dealer Council meetings. “You can always learn a lot by listening to your customers.”
He said a meeting typically involves representatives of 15 to 20 dealers – some of whom may be retail sales associates. Attendees are surveyed individually prior to the meeting, and the results are shared with the group. That often spurs additional discussion, which can result in more ideas for improvement, he explained.
“It’s usually helpful to let them bounce ideas off of one another,” said Long, noting that the subjective nature of design makes it impossible to pin down a “right” or “wrong” idea.
Plus, the relationships fostered by the meetings give the company an edge in what Long calls the “tiebreaker,” when a dealer is trying to decide whether to make room for new Hooker Furniture product or that of a competitor.
“It’s good for all those tiebreakers. When everything else is just about equal, they may be more likely to give it (product placement) to us,” Long said.
Watson agreed that the showroom display is critical from a merchandising standpoint because it often influences how the retailer displays it. He said Hooker Furniture’s merchandising team meets regularly with the showroom design team to discuss how various collections should be displayed. And before a market begins, the sales and merchandising force is provided with a detailed list of the accessories used, names of other vendors used, and even the specific color of the paint and/or wallpaper. That’s because many retailers, especially smaller operations that don’t have in-house merchandising teams, want to replicate what they see in the showroom as closely as possible, he said. “We try to help the showroom designer get the feel of the environment we’re trying to create for the collection,” Watson said.
Selik, for one, encourages manufacturers to use as many vignette displays as possible because it simplifies his job as retail buyer. He said his time at Market is limited. Therefore, a manufacturer that ships him the rugs, occasional tables or other accessories in his displays – or at least gives him the name of the vendor for each product – is more likely to get his attention. “If I can get these items in their showroom, I don’t have to shop for them when I go to High Point or Las Vegas,” said Selik. “It’s a better use of my time … and it makes their stuff look a lot better.”
Selik said vignettes are critical to Hillside Furniture’s merchandising scheme because he believes that it’s really important for people to visualize what it will look like in their home. But he cautioned that it’s also important to merchandise vignettes with items that blend well together and are similar on the price spectrum. “You don’t want a beautiful $3,000 leather sofa with a $149 cocktail table,” he said. “People who can afford a high-end sofa usually aren’t going to want to buy an inexpensive table to go with it.”
New Product Churn
Like many retailers, Selik wants to see new product at each of the five markets he attends every year and many vendors comply – albeit reluctantly. Some furniture manufacturers would like to follow the lead of the bedding industry and concentrate product introductions at a single market (the January Vegas show), but most feel compelled to have something new at each High Point and Las Vegas market.
Beaston, of Klaussner, said “it’s crazy” to plan merchandising strategy that way, but no one has come up with a better idea. And for his part, Graham of Fine Furniture Designs believes such frequent introductions are almost a necessary evil to keep retail sales people motivated to sell a particular company’s product line. “A consumer only shops a furniture store once every few years, but the sales people are there every day,” Graham said. “They need to see something new to keep them interested.”
Licensing Success Stories
One merchandising scheme that has been a tried-and-true winner for Fine Furniture Designs, Klaussner and numerous other manufacturers is licensed collections. While such deals can make product development and merchandising more complex (depending on the level of involvement of the licensor), many have found it’s an effective way to open new accounts and secure more floor space from existing accounts.
“Very few furniture manufacturers have a brand name, but licensing gives us a brand,” said Beaston, whose company has licensing deals with Trisha Yearwood and North Carolina artist William Mangum. “I don’t really care if the consumer knows if her furniture came from Klaussner or not … as long as she buys Trisha Yearwood’s or William Mangum’s furniture.” Beaston said the company is very pleased with both licensing programs, noting that five collections have been launched with Mangum since that line debuted in October 2013, and the company’s third Trisha Yearwood collection will be unveiled later this year. “What it has done for Klaussner is that it has opened people’s eyes to the fact that we are a total solutions company,” he said. “We’re not just upholstery.”
According to Beaston, Mangum and Yearwood are “very much involved” in the product development process and the personal relationships that have evolved between them and the company have been big contributors to the success of the programs. “Nothing takes the place of good product at value. But when we can deliver that with a licensing story, that’s a tremendous competitive advantage,” he said.
Graham agreed, noting that Fine Furniture Designs’ Biltmore products, which are at the upper end of the company’s product line, provide aspirational purchase opportunities. Those aspirations are especially important in reaching consumers in the southeastern U.S., where the majority of Biltmore Estate’s visitors live. However, it has become a destination stop for tourists from all over the world. “There’s an authenticity to it,” he said of FFD’s Biltmore line. “There is a difference between just renting a name … and providing a product that has an air of authenticity to it.”
The Biltmore collection was launched in April 2013, and Graham said the company just signed a five-year extension of the licensing agreement. About 140 pieces are available now, and several more will be introduced at the April High Point Market. He said occasional pieces in the collection have been the best performers of late, but dining room, especially casual dining, is also doing well. Dining rooms start at $2,499 for a table and four chairs.
The collection is being produced at FFD’s factories in China, and Graham believes that provides some peace of mind for the Biltmore licensor, knowing the company is not using third-party outsourcing. “We’re not just going out and finding somebody to make it for us, and slap our name on the box,” he said. “We’re using our factories and our warehouse, which has about 30,000 pieces of furniture ready to go at any time.”
Licensing, of course, has its risks. Just look at the licensing deals Paula Deen lost a few years ago when she was accused of making racially-insensitive comments (although Universal Furniture and its sister company Craftmaster stuck with her, and the program has done well). However, some furniture licensing deals have been spectacular flops. (Think Elvis and Sponge Bob.)
But neither Graham nor Beaston have had any hint of such problems with their programs, and they have no reason to believe that will change. Graham said the prestige of the Biltmore brand and the great reputations of the Vanderbilt family erase those worries. “It’s not going to do us any harm,” he said. “They’re not out there getting DUIs or going to prison. They’re just being good stewards of the property they own.”
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The answer to the question, “How do you merchandise?” is often a loose series of comments that leaves the inquirer with the perception that the magic cannot be revealed without the statement, “If I told you, I would have to kill you.” Home Furnishings Business corralled two leading industry participants, each of whom could be referred to as a “product man” or “merchant,” to get the straight story. However, both of these individuals would reject the label, insisting that it takes a team to execute merchandising and it does.
Building the Perfect Beast
Merchandising a stationary upholstery line may seem like a magical combination of creative thoughts, clairvoyance, luck or maybe even directions from some alien intelligence. Clearly, creativity is critical and working hard to find a style with sales velocity has a bit of luck attached to it. However, there is much more to finding the winning recipe for an upholstery product portfolio.
To start, a clear understanding as to whom you want to sell and an understanding of the key items needed to start a product portfolio to address your audience becomes the first step. This is where your due diligence on your competition becomes critical. You either have to zig where they zag, or do what they do at a better value (not only just cheaper which gets you into a pricing box, but also with better sales/marketing support or better operational support). Be disciplined to build the fundamental merchandising scheme with products to hit the “good, better, best” formula.
Many elements of style, shape, or scale attract the buyer(s). With this in mind, as you research the competition by style and price point rationale, ask why these items sell as well as they do. Is it the overall silhouette, comfort level, cover application, scale, function, price, or a combination of several of these elements? Use this information to build into your styling as the models are being discussed and planned for development or purchase.
As the designs are selected, close attention to every component used to develop the model is weighed to help reach the cost target (to hit the selling price with appropriate margin). Do you select softwood plywood, strand board, hardwood plywood, or even solid wood for the frame construction? Each has it’s own attributes, but can vary in cost by as much as $50 added to the frame cost. Which one is more readily available from a reliable source, which one can be replicated in the factory more efficiently with automated equipment, which gives you a stronger frame with less labor – and still hits your cost for the target selling price?
Foam and filling materials (cut fiber) are key components whose cost varies greatly. A set of foam for a sofa can range in cost from $65 up to $100 depending on the density, ILD (Indentation Load Deflection), and size needed for the model. Review solid foam versus coil/foam seat cores for costs/comfort relationship. Seat cores have a ratio to hit the target comfort based on the ILD which is a measurement of the hardness of the foam, the weight or density (how much chemicals/materials are used in the foam to increase its cellular strength), and the dimensions of the seat core. Care in selecting the right foam for the model at the right comfort/durability and cost is very critical. Foam is also used to pad out the frame along with bonded fiber and other such materials. Likewise the type (virgin fiber, mixed fiber, short staple, long staple, slickened, number of crimps per inch, for example) and amount of filling materials (used in the backs and/or arm pillows) has to be justified to achieve the look, comfort, and durability to hit the target cost.
One of the largest purchased components is the cover. The cost of the cover varies based on the amount needed models’ cutting and sewing pattern (is it a match pattern, is it a chopper, is it up the roll), the base cost of the cover (if a top grain leather with a split match is used, it can be as much as 65% of the total build cost of the item), the yield on cutting of the cover and, of course, the sewing labor. In selecting the cover one must keep the price point in mind, but get the maximum look, feel and durability that you can afford at each price point level. Paying close attention to color, patterns, and textural trends is important to maximize your item’s look and differentiate it from the competition. The old axiom, “the cover sells the bones” is a true statement.
Other components that warrant attention in the costing and product line build-up are:
Seat suspensions – do you use eight-way hand tied, drop-in coils, webbing, sinuous wire, drop-in sinuous wire. Each has a cost implication and a comfort/durability consequence
Back suspensions – sinuous wire, webbing, or elastic sheeting
Scale or size – the larger the item the more components used
Legs – made into the frame, screwed on; solid wood, resin, plastic, metal. Legs can range from a few dollars for each piece to as much as $14-$16 each piece (heavily carved and multi-finished).
Throw pillows – size, cost of cover used (matched or chopped), inter-bagged and zippered closed, blown directly into the cover envelope and sewn shut, and the type of filling used (feathers, a mixture of feathers/fiber or fiber) can vary the cost of a pillow from $11 up to as much as $50 each.
Packaging – how much and what type is needed to ensure the item’s arrival to the end user without damage – cartons, shrink wrapped with trays/side suspensions, plastic bag tapped enclosed; costs can run from $10 to $35 in general for the type of sofa pack selected
Replication within the factory – Will the item run efficiently down the line in the factory?
From a manufacturing point of view, working closely with your product development and manufacturing team along with accounting is fundamental to reach your selling prices and margin requirements for the long-term health of the organization. This is also true for retail merchants since they are charged with producing profitable sales across their assortment and maximizing their sales potential by having what their customers want at the price points that entice them.
As you build up the line with key styling staples like roll arm traditional looks or casual pillow top styles, keep in mind developing the line with some product differentiation to entice the buyer(s) to purchase from you. Over the years in the furniture business, we have all witnessed a style jump off the sale chart and, within a few months, weeks or days, the competition has their own versions. These items come along when all the elements of style, scale, comfort, and cover cross at the same time. Learning from these moments is critical as the line is built up. It may be as simple as an added sew line, an attractive pillow combination, the shape of the leg or some other design component. Always keep in mind the price point level for the model and use more intricate shaping, sewing and components to walk up the price points. You want to be able to demonstrate to your buyers your ability to fulfill their price point and style needs without their having to go anywhere else.
As the product portfolio strategy develops it is easy to imagine attacking higher price points since that’s the promise land of margins and, hopefully, velocity. It is much more fun to work with more expensive covers and components than it is to wring out the best look for the least amount of cost in the lower price point arena. One has to be able to take the customer on this journey with the least amount of questioning possible (“We don’t look to you for this price point” is a no-sale statement). The value proposition you have has to be intact even as you walk them up the price point either from a style, scale or cover point view. At the same time, keep a watch on your flank as the competition will try to eat into your base portfolio looks. Shoring up the other price point levels as you take the price points up is the key to maintaining the sales and position of the line with your customers.
As you can see, components, manufacturing and strategy can drive your thinking on the scale, shape, comfort and look of the product line as it comes together. Waving a magic wand would be easier. However, until Harry Potter becomes an upholstery merchandiser, we will have to rely on the old fashion methods.
December 13,
2016 by Jane Chero in Economic News, Industry
A Disappointing 3rd Quarter
For the Furniture Industry
The first quarter of this year in the furniture and bedding industry started off continuing the 5 percent plus growth over the previous year for all quarters in 2015. But as the year wore on, subsequent quarters did not perform to those levels. Quarter two fell to 3.7 percent growth and quarter three fell to 3.0 percent growth over the same quarters of 2015 (Table A). Year-end sales in 2015 totaled $92.5 billion. Third quarter year-to-date industry sales reached $71.5 billion, a 3.0 percent increase over the first three quarters last year.
These numbers reflect a weakening furniture store sales growth (which includes lifestyle retailers) and are in line with the government’s reports of personal consumption expenditures. Retailers are hoping for a bump in consumer confidence in the fourth quarter to help ramp up growth.
Furniture Store Sales
Furniture stores, which include all lifestyle furniture retailers, posted a dismal 1.3 percent increase in the third quarter of this year compared to the same quarter in 2015 (Table B). Retail store sales are at an average quarterly growth of 3.2 percent – down from a 5.7 percent growth (2014 to 2015). Furniture Store sales increased from $14.3 billion in the second quarter of 2016 to $14.9 billion in quarter three, an increase of 4.3 percent.
Personal Consumption Expenditures
Personal Consumption Expenditures for furniture also experienced a third quarter slump this year – increasing 2.1 percent over the same period in 2015. Over the previous six years, third quarter year-over-year growth averaged 4.4 percent. (Table C).
Economic Influencers and Catalysts
Real GDP. The furniture industry, aside from demographics, is driven by economic influencers and catalysts. Gross Domestic Product the measure of goods and services in the U.S., is chief among them. Real GDP growth has continued to decline since the first quarter of 2015 when growth was at 3.3 percent. Growth in 2016 has been steady, but slow, with quarterly averages between 1.3 percent and 1.6 percent (Table D).
Payroll Employment. The number of employed workers (non-farm) was at its highest level in history in October of this year at 149 million. However, employment growth this year has slowed throughout each quarter. In 2015 growth averaged 2.1 percent year over year, but has fallen to an average of 1.4 percent increase in October of this year (Table E).
Consumer Price Index. For furniture and bedding, prices have been relatively stable, falling less than 1 percent from the prior year’s quarter, until the second quarter of this year. In 2016 Q2 prices were down 2.8 percent and in 2016 Q3 down 3.1 percent (Table F).
Unemployment Rates
Over the last five years, the Unemployment Rate has declined rapidly – dropping from 9 percent to 5 percent (Table G). From 2011 to 2015, the third quarter each year has decreased an average of 1.0 percentage points. Although only slightly moving 0.2 percentage points from 2015 Q3 (5.2 percent) to 2016 Q3 (5.0 percent), employment is now at pre-recession levels.
Consumer Confidence
Consumer Confidence has not moved more than 6 points in any quarter over the last two years hovering from 95 to 101 (Table H). A confidence level of 100 usually indicates neither extreme confidence nor lack thereof. The year 1985 was chosen by the Conference Board as the base index of 100 because that year showed neither a peak nor trough in the business cycle. Consumer Confidence was at its highest in the year 2000 at 139. Conversely, Consumer Confidence was at its lowest of 39 at the bottom of the last recession in 2009.
Housing Industry
Nothing impacts furniture industry growth perhaps more than home sales both existing and new.
Existing Home Sales. Home re-sales experienced healthy first and second quarters this year growing 5.0 and 4.2 percent from 2015. However, 2016 Q3 dropped 0.4 percent from 2015 Q3. At an annualized rate, third quarter existing home sales totaled 5.3 million units. (Table I).
New Home Sales. Part of the third quarter decline in existing home sales this year is offset by new single-family home sales that surged 23.1 percent in the third quarter to an annualized rate of 599 thousand units. After double-digit growth in 2015, 2016 year started with very slow growth in the first quarter of 1.6 percent. The second quarter rebounded, however, to 14.5 percent increase followed by the third quarter surge (Table J).
Housing Starts. Despite the strong third quarter in new home sales, housing starts did not keep up the momentum. Single-family unit starts increased by only 1.9 percent from 2015 Q3 to 2016 Q3 (Table K). Third quarter annualized starts totaled 759,000 single-family units. On a positive note, September starts were at the highest level since last February and the year should end with over 13 percent growth.
For multi-family units, the picture is not so bright. After a flurry of building in 2014 and 2015, starts are off significantly this year. While the first quarter of 2016 experienced 5.2 percent growth, the second and third quarters have posted negative growth of 9.5 percent and 7.7 percent respectively (Table L).
Many economists are projecting new single-family home building and sales to be strong in 2017, with moderate growth in existing home sales. Much of home buying is by first-time home buyers, the young Millennials who are finally making their move to be the consumers the furniture industry and many others have been waiting to see. But political and economic uncertainty can throw a wrench in at any time.
December 12,
2016 by Jane Chero in Industry, Special Events
The industry has progressed for another year. The year, 2016, was quite different from 2015, as the industry slowed its growth to under 4%. No matter the change, we believe certain key factors remain important in measuring the strength of a retailer. The key methodology is presented below:
Market Share – 46 percent
The estimated industry sales from various published sources for each retailer is divided by the estimated retail volume for furniture and bedding sales in each of the markets in which they participate, whether Metropolitan Statistical Area, Micro Statistical Area, or Rural. Sales of appliances, electronics, and housewares are excluded.
Revenue – 20 percent
This category is based on estimated industry sales for each retailer based upon public published records or estimates based on certain retail parameters.
Retail Expansion – 15 percent
This category measures both store expansion and market expansion. The new stores or new markets are based upon public records.
Social Engagement – 19 percent
This year’s index considers social signals, website metrics, and third party scoring platforms to arrive at a ranked list of home furnishings retailers with the strongest online engagement.
First, we pulled data from Alexa, Facebook, MOZ, OpenSEO, Twitter, and Pinterest for the retailers in our database. The following shows the specific measurements:
Source Metric
Alexa US
Facebook Check ins, Likes, Talking About
MOZ DomAuth, External Links, MozRank
OpenSEO Google BackLinks, Google Page Rank, Google+ Likes
Twitter Followers, Likes, Tweets
Pinterest Pins, Followers
You will note that there were additions and deletions to the factors used. Specifically:
Retail Expansion – A major strategic element today is retailers adding new stores within their markets and expanding beyond their markets.
Industry Involvement – While impacting many retailers, the top performers belong to an association or buying group, resulting in little change in the performance ranking.
Social Media – Pinterest was added in recognition of its increased importance to communication with the consumer. Klout score was removed.
From that data, we used a basic ranking methodology, assigning a numerical value to the ranked list of each metrics. We assigned a one for each record within a specific metric, with one being the “best” score for the highest number of Twitter followers or the highest number of backlinks or the highest Pinterest score.
For all measurements except Alexa, the highest values resulted in a lower score, i.e. the highest Google Page Rank would result in the lowest score. Alexa ranks websites globally and nationally based on estimated website traffic, and the lower the score, the more popular the site.
Thus we arrived at 14 individual scores calculated for each metric. The highest two scores for each retailer were dropped to eliminate any outliers and then, we took the statistical average of those 12 scores. Ranking the scores from lowest to highest created the Power 50 Online Engagement Index for 2016.
Enjoy the lists.
