State of the Industry

December 12, 2016   by Jane Chero in Economic News, Industry   

The forecast that follows shows a rebound to 4.5%, which is in line with others in the industry.  However, I must admit that our forecast was done a week before the Presidential Election, with the expectation of the results baked in.

Since the election, we have reviewed our forecast and cannot find any justifiable reason to modify it.  We share this predicament with others.  The anticipated drop in the stock market happened, but reversed within 48 hours.  Mortgage rates have increased because of uncertainty, which will impact our industry, but not as much as consumer confidence.

As a nation, the consumer population is segmented into age groups that are buying furniture and those that are out of the market.  In fact, many demographic groups have not returned since the great recession.

Obviously, the promise of doubling the GDP with new job growth is music to our ears, but what action will produce this change?

The thought of tariffs on imported goods, whether the Far East or Mexico, will impact distribution.  Does this signal the return of domestic production?  If so, where will the capital investment come from for the new plants?  More importantly, from where will the workers come?

There are more questions than answers.  What is sure is that the facts are real.  As a magazine serving the industry, we are committed to understanding and informing.

What Next?

December 12, 2016   by Jane Chero in Business Strategy, Industry   

This will be a year of indecision, risks, opportunities, and crisis. When written in Chinese the word crisis is comprised of two characters, one representing danger and the other opportunity.

The traditional furniture industry is facing significant challenges with alternative channels, such as etailers and lifestyle stores encroaching on the middle and upper price points while the mass merchants with powerhouses like IKEA have an undeniable attraction to the consumer that is looking for lower price and more utilitarian furniture.   In 2017 furniture sold through the traditional channels will fall below 40% of the total industry.  Does this constitute a crisis?

The immediate unrest in the country will settle down.  However, as we progress through the year, for the individual manufacturer and retailer, crisis will emerge.  The way you approach that crisis will determine the long term survival of your company.

Retailers, secure with their position in the market, will be challenged by new competition.  What has happened in larger markets will now begin to occur in the middle markets as regional chains expand to maximize performance.  This challenge will require management to go back to the foundation of their business and examine what has made them successful and determine if the new competition is offering more.  Gut feeling will not suffice.  However, facts, such as what percentage of consumers considered their brand (brand awareness) before they made their purchase and how many consumers considered their brand, but didn’t shop are important.   It is a fact that the consumer shops fewer than two stores when making their purchase.  As always, just as important is the percentage of consumers who made a purchase after shopping (close rate).

The next level of understanding is how your target consumer perceives your brand in terms of price, service, selection, and all the many factors that influence their purchase decisions.  The first step in dealing with a crisis is to know yourself and your competition.  Then danger can become opportunity.

Manufacturers, challenged with distribution as new retailers enter a market, find their existing market share is being impacted.  Often complicating the situation is the new retailer who is a good partner in another market.  Historically shared distribution enabled by broad product lines was the solution.  Today, however, manufacturing economics often preclude that as a strategy.

Again manufacturers must challenge their basic distribution strategy.  There are 409 distinct markets in the United States in which 95% of all furniture is sold.  What is the combination of retail partners who will maximize their market share?

Again, it is a case of making a crisis an opportunity by defining a clear path to success.  The one thing that you can be assured of is that your competition is waiting to turn your crisis into their opportunity.  

Planning for 2017

December 12, 2016   by Jane Chero in Business Strategy, Industry   

Planning for 2017
By Tom Zollar

This issue presents The Power 50 and our theme is The State of the Industry. Having spent 40 years in this business, I am well aware how much the list of top retailers has changed over that time. Many of the ones that zoomed to the top are now gone, almost like they burned themselves out getting there and could not maintain their success. Others that had steady, if not spectacular growth seemed to survive the ups and downs of the economy, to continue prospering. It has been said many times that staying on top is often more difficult than getting there. Yet some organizations tend to always be at or near the pinnacle of their area of endeavor.

In sports, names like Patriots, Crimson Tide, Buckeyes and others readily come to mind as teams that have consistently been on top of their game year after year. Everyone in each league plays by the same rules, their fields and equipment are pretty much the same quality, they have the same list of plays or strategies to draw upon and they all want to win their games. In our business, we all work under pretty much the same rules, have the same advertising opportunities available, carry relatively the same merchandise and want to sell as much as we can. So why so some continue to prosper while others don’t? Obviously they manage their business/team better, but how?

In one of my earliest columns, I talked about Big Ed Breunig’s “Six P’s” of retail that he taught me long ago. He said to succeed in our business you must have:

• Population - People to sell
• Presence – A place they will go to buy from you
• Product – Things they want to own
• Promotion – Ways to get their attention so they visit your store to buy
• Presentation – An easy to shop, visually stimulating environment to show them your goods
• People – Staff that is ready, willing and able to provide top notch assistance to your visitors

Every month he graded the effort in each of these areas and targeted those that did not meet the level he expected for improvement. From this list, he created action plans to continually drive his business forward. What a simple but effective way for an owner/manager to look at his/her business to constantly find ways to improve it.

While every one of these retail elements is critical to our survival and success, in my experience, it is the last four that are the most volatile and in need of almost constant attention or focus from upper management. Are we assorting the right products, displaying them the best we can, advertising to bring in the targeted customer and lastly, are our people providing the best customer experience possible? As a coach, I must say that it always seems to be the last one that gives us the biggest problem. Products, advertising and display are easy to manage compared to people. But, even if we do a stellar job of managing all five of the other areas, if our people fail to deliver, then our business/team fails.

Therefore, in many cases it is the inability to properly hire, manage and motivate people that is the main reason that businesses and sports teams fail to maximize their sales or win total. Jim Collins called it getting the right people, in the right seats on your bus in his book “Good to Great”.

As is often the case, I am not telling you anything you don’t already know or at least suspect. The question is why can some organizations do this better than others? In my experience, it is because the most successful businesses and teams excel at doing the seventh “P” – Planning! Having a solid plan, getting everyone onboard with it and consistently executing it is the key difference I see between highly successful organizations and the “also-rans”.

While most of us do create financial, merchandising and advertising plans at the beginning of each year, many do not spend nearly as much time and effort where it counts even more – their People Performance Plan. This should involve staffing, training, motivating and coaching your team to top performance month after month. It is a lot of work, but it is well worth it and a true differentiator in our markets.

You probably know the original five “Ps”: Proper Planning Prevents Poor Performance (Yes I know there is a sixth one, but I want to be PC). Here is a new six “Ps” to help us focus on this vital part of our preparation process for 2017:

Proper Planning Positively Propels People’s Productivity

One of the biggest mistakes I see many organizations make when they begin the planning process is not establishing goals or performance targets for every department within their organization. Basically, a plan is a map for your business and the two things you must know in order to use a map, are where you are and where you want to go. It is the same with a plan, with the goal being where you want to go or your destination. Once you know that, you can then decide what steps you need to take to get you to it, how to take them and when. That completes your plan.

This month is a great time to create your plan for next year. So here are some ideas about the areas in your business for which you might want to create a Performance Improvement Plan and a few metrics you could target in each:

Sales – This is the first one that comes to mind for all retailers because it drives the business and without it nothing happens. It is also the one we most often see goals developed for by our clients. However, quite often they only deal with total sales volume, which is the product of a lot of things happening together. Increasing/maximizing sales is obviously the main result you are interested in driving, but we find that targeting the things that go into the sale like Closing Rate, Average Sale and Revenue Per Up are better to focus on, because improving them will deliver the result you want. We have also seen goals for Items per Sale, In-Home sales % and Sketch % help get the right things happening on the sales floor. We recommend you look at where you are in all your sales metrics and determine two or three that you think can be improved. Target them on a quarterly basis, changing to new ones as you improve the originals. Just don’t give them too many goals or it will weaken their motivational power. Be sure to reward and celebrate success!

Office – Does your office run so smoothly that you never have issues with orders, paperwork or other processes? If that is the case you are in the minority, yet this is an area where we seldom see goals utilized as a planning or motivational tool. We suggest you find those parts of the office process that seem to constantly be causing issues within your organization and develop solutions for the problems, then set goals for improved performance. Each operation varies as to what part of the sales support, order fulfilment and customer service processes are handled, so it is tough to come up with any universal recommendations. However we are sure that your management team can come up with some good ideas in this area.

Warehouse, Delivery and Repair – There are many performance metrics that can be goaled in the back end of your business. In fact, next to sales, this is the most common area we see clients setting goals, paying bonuses and driving improvement. Perfect Deliveries %, Items Repaired, Open Repair Orders and Deliveries Made, are some of the targeted numbers we have seen. Depending on what systems you are using, you can find several great ways to focus this business area on improved performance and customer service.

Advertising – Most retailers do a good job of planning their advertising expenditures as part of their budgeting process. The best ones do great work in planning their creative to consistently deliver the message they want to targeted customers in their market. What we don’t see as often is a goal setting process that reflects the actual performance of the advertising other than just raw gross sales. While that is of course the major result, it is also good to track and set goals for each promotion that focus on traffic level, revenue per up generated, average sale, cost per customer, advertising to sales % and other meaningful numbers. This is especially true if you have an outside agency managing this process for you. What better way to hold them accountable for spending your money well?

Merchandising – Merchandising, along with adverting and sales, are the three areas of your business that most drive sales. Yet, we seldom see meaningful goals set for it in most small to medium sized retailers. There are many very critical numbers you can track with your business system that can be goaled to help you plan for improvement here too. Obviously Gross Margin, GMROI and Turn are very important to our business so they are good places to start. There are other areas a buying effort should manage such as freight costs, OTB and Vendor Selection that can also be targeted.

Yourself – So you thought we might forget about you? Remember that unless you develop and strive to make growth goals yourself, it will be tough for you to lead a goal oriented, growth focused team – walk the walk and talk the talk!

Generation X Might Not Be a Bust After All

November 9, 2016   by Jane Chero in Economic News, Financial Reports, Industry   

Historically named the “Baby Bust Generation,” Generation X babies are now roughly 35 to 50 years old and born between 1966 and 1981. Sandwiched between the Baby Boomers and Millennials, Generation X is often overlooked by media and marketers as a worthy target – instead focusing on upcoming Millennials and their future economic influence. Once considered too small in size to make an impact, Generation X is now almost 70 million strong and is the largest generation of consumers alive, ages 21 to 65. Moreover, they are increasing their earning power rapidly with more going toward their home furnishings purchases.

They have been much maligned as a generation of latchkey kids growing up in an era where divorce rates more than doubled. They have been purported to distrust the big corporations they feel mistreated their loyal parents and yet are now taking over the high paying jobs of baby boomers as they retire in record numbers. Gen Xers are revolutionizing the business world with their demands for a work-life balance and place a high priority on their families and homes.

These 35 to 50 year olds also have over 50 percent of the children under 18 – further extending their buying power. With homeownership rates up and furniture expenditures at their highest in years for ages 35 to 44, Generation X is poised to make a significant mark over the next five years and beyond.

As shown in Table C, the population of the “Baby Bust Generation” is now much larger than originally projected due to immigration. With 58.5 million births between 1966 to 1981, Generation X has grown by almost 20 percent (19.3) in numbers.

Although smaller in total population, Gen Xers are the largest adult consumer population at 37.5 percent of adults ages 21 to 65 (Table D).

Income

Gen Xers are in their prime earning years. As Baby Boomers retire more high paying jobs will open up to experienced and ready Gen Xers. In 2015, median income (Table E) was the highest for Generation X 45 to 49 year olds at $76,095, followed by 40 to 44 year olds at $72,143. In addition, the youngest of the Gen Xers, the 35 to 39 year olds, had the fastest growing incomes last year with median income increasing 9.2 percent over the previous year (Table F).

Children

Gen Xers ages 35 to 50 are in their prime family purchasing years for both themselves and their families. Over half (52.9 percent) of children (65.7 million children) under 18 reside in Gen Xer homes (Table G). Over 80 percent of those Generation X households are married couples.

Education

Gen Xers are only slightly less educated than the younger Millennials with 35.7 percent attaining bachelor’s degrees or higher.  For 35 to 50 year old Gen Xers, 38 million have some college or higher degree.

Homeownership

Gen Xers have followed the Baby Boomers in their love of homeownership but were temporarily stymied by the recession. Homeownership among all three Gen X ages is now well above 50 percent with 61.6 percent of 40 to 44 year olds owning a home and 68 percent of 45 to 49 year olds (Table I). With homeownership rates bouncing back, Generation X has dramatically increased furniture spending.

Furniture Expenditures

Last year saw a dramatic increase in furniture expenditures by Gen Xers according to the government’s Consumer Expenditure Survey. The heart of Gen Xers (ages 35 to 44) is spending the most on furniture of any consumer group averaging $672 annually. This survey reflects about 55 percent to 60 percent of furniture expenditures.

With the Baby Boomers aging out of prime buying years and the Millennials still pouring into adulthood, Generation X is the here now for the furniture industry. Industry leaders should keep their focus on this bread and butter generation that may just be the consumers that transition our industry toward real prosperity.

Take 5: Brian Woods

November 9, 2016   by Jane Chero in Business Strategy, Industry   

Retailing veteran Brian Woods became CEO of Jerome’s Furniture on Sept. 7, taking the helm of a San Diego-based, family-owned retailer that has more than doubled in size in the past decade and opened its first stores in the ultra-competitive Orange County/Los Angeles market.

Woods, who most recently was president and chief merchandising officer of Virginia-based Haynes Furniture, talked with Home Furnishings Business about, among other things, his vision for the 13-store chain; tweaks he hopes to make to the product line-up; and the “endearing” company culture that sets Jerome’s apart.  
 

Home Furnishings Business: What attracted you to the Jerome’s post?   

Brian Woods: What attracted me was the culture. The culture at Jerome’s is very unique and very endearing, but the brand in the marketplace is also incredibly strong and loyal. Throughout the interview process, whether it was running into strangers or walking in the stores, literally every constituent, whether it was an employee or an outside customer, had positive things to say. There was not a single negative story about Jerome’s. Just the idea of leading an organization with so much brand loyalty was incredible. It was inspiring.

It also was an incredible opportunity to take a very successful model and lead that growth. And I’m a Southern California native, so it was like coming back home.  
 

HFB: Your predecessor more than doubled the store count while he was CEO. Do you plan to continue adding stores? Can you name any specific markets?

Woods: Initially, what I’m really looking at are areas where we can strengthen our current position…strengthen the brand and position us for growth. When growth opportunities present themselves within our current distribution model, then we’ll take advantage of that. There’s absolutely a vision to continue in the growth pace that (former CEO) Lee Goodman set. I’m just looking to take advantage of opportunities as they present themselves.

During Lee’s tenure, he took the company into the Orange County/Los Angeles market. Our brand position in terms of overall percent of sales are definitely slanted more toward San Diego currently. But now that we’ve got our store base there…I’d definitely like to strengthen our position in Orange County and continue to take market share.  
 

HFB: What are the differences between the two markets?

Woods: From our perspective we’re trying to limit the differences between those two markets. We try to standardize as much as we can. We’re doing our best to provide the exact same customer experience whether it’s being sold in San Diego or Orange County. I think there’s opportunities within San Diego as well as the LA market. But we’re really focused around delivering the same exact experience regardless of what store the customer visits.
 

HFB: Are you planning to make changes to the product lineup?

Woods: I don’t want to talk about specific product categories because I don’t want to give away too much information to my competition, but I will say that we’re going to be moving toward better quality goods. There’s some open space with some of the higher-end boutique lines. With the Jerome’s brand, we can bring some of the better quality, higher fashion lines to the marketplace and deliver a very transparent, incredible experience.

Our bread and butter is right down the middle of the road. I would like to bring a larger assortment to attract some of those more fashion oriented customers. I’m looking to draw in customers who have not thought of Jerome’s in the past. And I’m also looking at giving our current, loyal customer base a wider selection.

HFB: How will Jerome’s address the growing competitive threat from e-commerce sites such as Wayfair and Overstock.com?

Woods: This is an area where I’m incredibly fortunate. Our Jerome’s e-commerce experience is by far the best in class. From the assortment we show on the site to our virtual room planner that allows our customer to see what it’s going to look like inside their house, we have an opportunity to expose customers to the Jerome’s experience before they ever pull in the parking lot.

I’m not looking to build an e-commerce site that is separate from the brand at all. I really want to use (our current) e-commerce site as a tool to allow customers to be exposed to Jerome’s anyway they want, whether that’s online or in the store. Well over 50% of our customers are looking online before they ever set foot in a store. We’re seeing triple digit growth in terms of year-over-year increases in online sales. I’m not comfortable sharing what percentage of our sales are online, but I will say that we expect that to continue to grow.

We’re definitely seeing all age groups at least do research online, but the Millennials are more prone to actually make the purchase online. But we want to bring that same experience in-store as well. The goal is to make it seamless between the online and in-store experience. I don’t know which one is leading. It’s built-in competition.

HFB: Are there any special challenges as an ‘outsider’ taking over a successful family-owned business?

Woods: I don’t know if I would use the word challenges. But definitely there’s a dynamic. The family is incredibly passionate and its multi-generational. The culture that lives within Jerome’s goes back several generations. Jerry (Navarra) is still the face of Jerome’s.

I look at it as me needing to adapt to the culture, rather than expecting the culture to adapt to me. (The culture) is the best thing Jerome’s has going for it.

HFB: Will you be making any changes internally to the management team?

Woods: I’m inheriting an incredibly talented leadership organization that is passionate and driven. From that perspective, I’m incredibly fortunate. I’m looking at the opportunities to take what is already working in a very successful business model, and an incredible culture, and strengthen those so that we can continue to deliver a better customer experience in whatever channels we’re playing in. I want to set us apart further and further for the competition and position us for growth.

We’re winning right now, and all the initial opportunities that I’m looking at have to do with continuing to refine and deliver an even stronger customer experience on the foundation that’s already been set.
 

HFB: So it’s safe to assume that Jerry will continue to be the face of the company, and the everyday low price strategy he developed will remain in place?

Woods: Absolutely. Jerry is in every single ad … in English and Spanish. He does it ad lib. There’s no script (laughs).

The everyday low pricing strategy is absolutely what defines Jerome’s. It’s truly the core of who we are and what we do. Literally any initiative we do is really about lining up and strengthening that value proposition.