Monthly Issue
From Home Furnishing Business
November 9,
2016 by Jane Chero in Business Strategy, Industry 
By Bob George
We are overwhelmed with the election and this magazine will hit your desk right after the results are in. Don’t stop reading if you are like me - enough is enough. However, there is something that we can take away from all the noise. That is the matter of targeting. The winner is whoever secured success by appealing to specific groups of citizens whose demographics, lifestyle, and psychographics vibrated with the unique vision of what he or she want the United States to be. Making political targeting more complicated is the Electoral College parameters where specific geographic areas require a combination of certain clusters to insure victory.
What does this have to do with furniture retailing? In fact, the process is the same. We often discuss why a national chain cannot successfully compete with the local merchant. Simply put, the local merchant knows his or her customers. The methodology used in political targeting can be applied to improve the performance of both suppliers and retailers. The basic concept is quite simple. The following graphic illustrates.
Each retailer or manufacturer must present to the market a set of core products that appeal to all their customers. In an ice cream shop it is the vanilla, chocolate, and strawberry. This product satisfies a significant percentage of its customers to some extent – some more than others. For some consumers they eat only chocolate ice cream. If that is their choice it’s OK. However, other consumers will search for more of a selection, for instance - rum raisin or mint chocolate. There is a small percentage of customers who will want a more exotic flavor and will order “bacon flavored” ice cream. The challenge is to satisfy each of the consumers in great enough quantities to satisfy the business model.
The obvious first step is the product. However this is closely followed by advertising and the retail experience. Our focus this month is the Buying Process that documents the different approaches by demographics. Statistically Speaking examines the much anticipated millennial. The Coaches Corner explores the retail experiences the consumer seeks. The challenge today is to present an assortment of products in the correct retail environment that will satisfy a large group of customers.
The traditional retailer is attempting to satisfy everyone - selection, price, and service. The competition from other channels, such as lifestyle stores target a very small audience allowing the message to be very clear.
Developing a strategy that serves the core consumer while attracting a more specific consumer can be accomplished. We just need to focus!
October 13,
2016 by Jane Chero in Industry, Special Events
Five years ago, Art Van Furniture plunged into the world of franchising, but the Midwestern retail heavyweight opted for an unconventional business model that exclusively sought out existing furniture store owners as potential franchisees.
Art Van’s management concluded that partnering with an existing independent furniture store that was willing to convert its business to the Art Van store model gave them the best chance to succeed, and after opening 16 franchisees since January 2012, the Michigan retailer is convinced it’s on the right track.
The effort is overseen by Steve Glucksman, senior vice president of strategic development. He recently discussed the franchise division’s success to date and its prospects for the future in an interview with Larry Thomas, senior business editor of Home Furnishings Business.
HOME FURNISHINGS BUSINESS: Why did you decide to embark on franchising, as opposed to an expansion of company-owned stores and distribution centers?
GLUCKSMAN: Franchising, and in particular a conversion strategy is the fastest way to reach communities and guests that are not currently served by Art Van Furniture. In essence, speed to market. Also, in the smaller markets we find the owner-operator model to be very effective and efficient due to the strong ties to the communities and the entrepreneurial spirit that they bring.
We feel that “partnering” with a local “independent” is great for the independent furniture retailer, great for the community and great for Art Van Furniture. A true win – win –win. It allows independent retailers to lower overhead costs by pulling inventory from Art Van's million plus -square-foot warehouse in Warren, Mich., rather than maintaining their own warehouses. Our partners also take advantage of our extensive sales education programs, our integrated three-tiered consumer finance program, buying power and marketing programs.
HFB: Of the 16 franchise locations that have opened (through August), has their performance met the expectations of both Art Van and the franchisee? Why or why not?
GLUCKSMAN: We can’t give you all the numbers, but we can say that each and every franchise has experienced double-digit sales and profit increases while increasing cash flow due to the elimination of their own warehouse. More importantly, our partners are happier because they don’t have to worry about merchandising, advertising and warehousing and can focus on taking care of their guests and sales associates, further fueling growth.
HFB: It looks like the initial group of franchisees primarily has been existing furniture store owners who converted to Art Van. As you expand the network, do you anticipate going outside this group of business owners?
GLUCKSMAN: Our number one focus is to work with existing furniture store owners on a conversion strategy. Art Van wants partner with independent furniture retailers because they know the business and they are already ingrained in the community. Typically, they share the same entrepreneurial philosophy and family values. They believe in taking care of the guest first, and everything else will come. We know that what we do simply adds value to an already good business and eliminates many of the frustrations and constraints an independent has.
HFB: Until recently, furniture store franchising and licensing has largely been single-brand stores from manufacturers such as La-Z-Boy, Bassett and Ashley. Why do you think Art Van will be successful as a retail brand and franchisor?
GLUCKSMAN: At the heart of it -- we are retailers, not manufacturers. We focus on sales and service, getting her (our guest) what she wants, when she wants it and at a value that works. We (Art Van and our Franchisees) are in the same boat and are aligned on what is important. We have the ability to source from any of the top brands ensuring we stay relevant when it comes to style, quality and value. A single-source store has only one manufacturer and must count on that “factory” to always get it right and whatever else drives them from a manufacturing point of view.
HFB: What are the advantages of becoming an Art Van franchise?
GLUCKSMAN: Founded in 1959, Art Van Furniture has not only survived but thrived in a very competitive market and industry. After nearly 60 years in business (and experience) we have built a powerful brand with strong leadership that has a proven track record of trust, value, style and community. We believe our partners are in business for themselves but not by themselves, our entire team is there for support.
Our experience, knowledge and drive for constant improvement should make us a company that an independent retailer would like to join. We further categorize our advantages into five areas:
Exceptional Supply Chain
1.4 million square feet of a fully stocked warehouse, which allows a franchisee to eliminate its warehouse and inventory dollars.
Best-in-Class in stock position.
Delivery to a Franchisee’s store when and where they want it.
Powerful Marketing and Marketing Support
52-week, high-impact marketing programs and plan.
All creative and materials – franchisee simply pays for media and Art Van takes care of the rest so all your marketing dollars hit the guest.
Digital marketing and digital development
Outstanding Buying Power
Buying power only a top 20 industry leader has.
A hands-on experienced buying team that travels the world looking for the hottest trends, styles and values to ensure a franchisee competes and wins in their market.
Access
Superior Franchise Operational and Sales Support
1:8 Store Ratio for our field support team, the same as our corporate stores
Hands-on help through the conversion process, including store design and project management
Continued support and use of all our systems and knowledge
Education, training and staff development
Weekly Cadence Calls to ensure alignment, understanding and problem solving.
Peer-to-Peer performance group
Use of our 3-tier integrated consumer finance program
HFB: Do you anticipate expanding the network outside Art Van’s core trading area in the Midwest?
GLUCKSMAN: Today we are focused on franchising within 600 miles of our Warren, Mich., warehouse/distribution center. This allows us to bring the greatest value to our franchisees and ensures our supply chain delivers the value that our franchisees expect. When we open a second warehouse/distribution center we plan on following the same strategy.
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 Economic News, Industry
New home purchases spur new home furnishings purchases like no other life event. As home building continues its slow but steady comeback from the recession, new trends in home building are emerging creating opportunity in many home furnishings product areas. Chief among the trends: Single-family homes are getting bigger – much bigger – (Figure 1) and lot sizes smaller.
According to a new HUD report, 477,000 new single-family one-unit houses were completed for resale in 2015, a number that is still only 37 percent of pre-recession levels in 2006. Single-family home building is up 23 percent since 2009 and for the first half of this year, new home completions are up 14 percent from the first half of 2015.
Some trends point to Millennials as they age as well as older, more established GenX families. These trends include an increase in multi-story homes with more bedrooms, baths, and multiple patios, porches and decks. Other trends point to the ballooning senior population downsizing to age-restricted communities with less interest in some design features such as fireplaces, but more interest in comfort features.
Houses are getting bigger and lot sizes are getting smaller
The median size of new homes grew 23.3 percent from 2000 to 2015– increasing from 2,060 square feet to 2,540 square feet according to the new report “Characteristics of New Single-Family Houses in 2015” from the U.S. Department of Housing and Urban Development (HUD). During the same time period, median lot size decreased 4.6 percent from 8,930 square feet to 8,521 square feet or about one-fifth of an acre. Table A compares the percent growth in new house sizes to lot sizes, 2000 to 2015. The drop in 2009 reflects the bottom of the recession.
As of 2015, over half (58 percent) of new single-family home lot sizes are less than 9,000 square feet or just over one-fifth of an acre. Moreover, lot sizes (cluster homes) under 7,000 square feet increased to 36 percent of new homes built.
Even with the housing market collapse in 2009, new homes have continued to get bigger since 2002. As shown in Table C, only 37 percent of new homes built in 2002 were over 2,400 square feet. Fast forward 13 years and 56 percent of new houses are now 2,400 square feet or larger. Also important is that in 2002, 34 percent of new homes were smaller than 1,800 square feet compared to only 15 percent in 2015.
More Bedrooms, Bathrooms, Stories, and Outdoor Living
As houses have increased in size, more bedrooms have become the norm. Over 53 percent of new single-family homes built in 2015 have four or more bedrooms – up from 38.2 percent in 2009 (Table D). Three-bedroom homes, once the majority in new constructions, have decreased from 52.6 percent to 40.7 percent since the recession – a drop of 23 percent. Homes with more bedrooms create product opportunities, not only for bedroom furniture, but also home office or other alternative uses.
Along with more bedrooms, a big jump has occurred post recession in the number of bathrooms. The percentage of new homes with three baths or more grew by 105 percent – from 23.6 percent of new houses to 41.1 percent in six years (Table E). Multi-story new single family homes are on the rise with 63 percent built in 2015 versus 58 percent in 2009 (Table F). Partly due to declining lot sizes paired with desire for bigger homes, single-story houses were down to 37 percent of completions in 2015.
As outdoor living has become a major feature in many new homes, multiple porches, patios, and decks are trending for the larger homes– up to 46 percent in 2015 from 43 percent in 2010 (Table G).
Laundry Rooms, Fireplaces, and Air Conditioning
As more new houses are being built with multiple stories, laundry rooms are moving out of the basement and off the main floor and up to top floor (second floor).
In 2015, 29 percent of new homes have top floor laundry rooms compared to 16 percent in 2009 – an increase of 81 percent.
A surprising trend especially given the increasing size of new homes is that fireplaces are becoming less important except in the Northeast (Table I). And while over half (51 percent) of the new homes being built still have fireplaces, this is down from 61 percent in 2002. In the Northeast fireplaces are still important – climbing from 62 percent of new homes in 2002 to 66 percent of in 2015.
Air conditioning is becoming the norm across the country with 94 percent of new homes built with AC in 2015 – up from 89 percent in 2002 (Table J). The fastest increase in new houses built with air-conditioning has been in the Northwest and West – both jumping 10 percentage points from 2002 to 2015.
Age-Restricted Developments and Homeowners’ Associations
Another important new trend in new home communities, especially in the South, is the increase in the number of age restricted developments (generally 55+). Although still less than 5 percent of new homes built in 2015, these neighborhoods have increased 54 percent from 2009 to 2015 (Table K). The Midwest and South doubled construction in age restricted developments since 2009 while the Northeast declined 33.3 percent indicating seniors making this lifestyle move want to escape the colder climates. The West showed no growth. The growth in these age restricted communities may partially explain the decline in fireplaces in warmer climates as they become less important to seniors.
New single-family houses are increasingly being built in communities with structured homeowners’ associations (HOAs), except in the Northeast. In total, new homes with HOAs jumped 11 percentage points from 2009 to 2015 – 62 percent to 73 percent. In the South these structured communities are especially important with 81 percent of new homes built in neighborhoods with an HOA. Meanwhile, in the Northeast in 2015, homes built in HOA communities represented only 40 percent of the region’s new construction.
As the population ages, Millennials and Baby Boomers will be defining the trends in new homes. Millennials may enter the home buying process a little later than earlier generations, but the demand will be there. Meanwhile the growth in new senior lifestyle communities is projected to accelerate. If the current new home trends continue, home furnishing product areas in bedroom and outdoor will be a main focus as well as lifestyle furniture designed for senior living.