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From Home Furnishing Business
December 12,
2016 by Jane Chero in Economic News, Industry 
As with the nation, the constant question is, “When will we get out of the morass?” Finally in 2012, industry sales for furniture and bedding reached 2008 levels only to inch forward, with 2015 finally seeing growth above 5%. The excitement was short-lived with growth slowing below 4% with the most recent quarter below 2%.
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.
December 12,
2016 by Jane Chero in Business Strategy, Industry
By Bob George
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.
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!
December 12,
2016 by Jane Chero in Home Office, Product
By Larry Thomas
Almost left for dead after the Great Recession, the home office category is in the midst of a robust rebound, thanks to renewed interest in working at home and a revival of styles that look nothing like the massive executive desks that once dominated the grouping.
Producers say that, while relatively few homeowners are setting aside a dedicated room for a home office, home office furniture is being purchased for family rooms, great rooms, bedrooms and other spaces that can be partially devoted to an office. That trend, in turn, has caused a move away from large office furniture collections and into more eclectic looks, which mirrors recent trends in upholstery and casegoods.
“There doesn’t seem to be any appetite for the old 12- to 14-SKU home office collection,” said Karl Eulberg, executive vice president of sales, marketing and merchandising at Martin Furniture. “We’re selling a lot of the smaller collections with no more than six or seven SKUs.”
Eulberg and other executives said that, in addition to a desk, current collections now commonly include a credenza, a hutch, a couple of file storage pieces, a bookcase, and not much else.
“Products in demand are bookcases that are as fashionable as they are functional,” said David Petersen, vice president of marketing at Stanley Furniture. “They serve to disguise a home office inside of a family room.”
Steady Growth
According to research conducted by Impact Consulting, parent company of Home Furnishings Business, the home office category accounted for $3.28 billion in sales in 2015, which was a healthy 4.54% ahead of 2014.
The growth rate wasn’t quite as fast as total furniture sales (excluding bedding), which grew 4.89% last year, but the category’s share of total furniture sales essentially remained steady at 4.18%.
For the first three quarters of 2016, the home office growth rate hasn’t been quite as robust -- 3.17% -- but the category maintained a 4.15% share of the total furniture market with $2.5 billion in sales.
Producers say that desks remain the most popular home office item, although writing desks and other smaller-footprint models are increasing in popularity.
Research by Impact Consulting shows that, among consumers surveyed in the past year, 23.9% said they preferred a writing desk – the same percentage as executive desks. The next most popular was a desk with a hutch, preferred by 20.3%, while an L-shaped desk was the choice for 17.9%. The venerable roll top desk was preferred by a mere 1.6% of those surveyed. (Graphic 1)
Design Matters
Hank Long, senior vice president of merchandising and design at Hooker Furniture, said that while the traditional 72-inch executive desk continues to outsell 66-inch models by about 3 to 1 when being purchased for dedicated home office rooms, desk sizes as small as 48 inches are gaining in popularity.
“These work well in bedrooms and other smaller rooms,” Long said of the 48-inch models, noting that 60-inch models, especially in writing desks, also are good sellers because they’re suitable for a family room or other larger multi-purpose spaces.
“Traditional with updated finishes still is our strongest category,” he said. “But we are having success with transitional and contemporary with more sophisticated finishes.”
Long and other executives said non-brown finishes with names such as graphite, stone and gray also are gaining ground.
The Impact Consulting survey showed that 50.4% of consumers have traditional-styled home office furniture, followed by 37.4% with contemporary. All other furniture styles scored in the single digits, with country/rustic at 4.1%, transitional and mission/shaker at 3.3% each, and cottage at 1.6%. (Graphic 2)
Eric Shupack, president of Furnitech, which sources its products from Brazil and sells primarily through the e-commerce channel, said one of his company’s hottest looks is an engineered graphite Italian veneer finish that recently was added to some transitional home office pieces.
“We can’t keep it in stock,” he said of the graphite finish. “I’m thinking of making it an option on every desk in the line.”
Although Furnitech’s home office products are largely transitional and contemporary styles, Shupack also said he has noticed less interest in large, multi-piece collections.
“People just don’t seem to have the space for a full office ensemble,” he said. “I think there’s an opportunity for multi-function pieces that can go into apartments and other smaller living spaces.
Despite Furnitech’s success in the e-commerce space, the Impact Consulting survey showed that nearly half of consumers said they would most likely shop for home office furniture at an office product store (26.4%) or a traditional furniture store (22.7%). A specialty store was the choice of another 15.4%, while a warehouse club was the choice of 13.6%. (Graphic 3)
Department stores were the choice of only 8.1%, while value merchants were preferred by 7.3%.
Walker Edison’s Midtown
At just 48 inches long, this streamlined writing desk is functional without taking up a lot of space. It is constructed of solid wood and the pullout, drop-down drawer converts into a keyboard tray. It is available in six colorful matte finish options, including Dusty Blue shown here. Others are Slate Gray, Brick Red, Canary Yellow, Black or Classic White.
Somerton Dwelling’s On Your Six
From the company’s iMPROV in G collection, this popular and versatile desk features warm oak veneers with a center drawer front that flips down to accommodate a laptop at a moment’s notice. It also doubles as a console table or server. At 54 inches wide and 22 inches deep, it has a cerused grey oak finish with a blaze red accent inside the drawer.
EuroStyle’s Hart
Designed by Marc Boudreau, this Pinnacle Award finalist in the home office category features sleek contemporary styling and is made of walnut melamine. Available in a black or white desk top, the collection comes fully assembled, except for casters or legs, and the desk features cord management. In addition to the desk, the collection includes a side return, and a two-drawer file cabinet that’s available in two configurations. As a space-saving feature, the desk legs can be removed and a file cabinet can fit under the desk to be used as legs.
Sligh’s Cross Effect
Crafted from quartered white oak veneers in a rich mocha finish, this collection from Lexington Home Brands’ Sligh brand offers an innovative fusion of contemporary and industrial design, featuring striking metal bases, decorative accents and custom hardware in a burnished bronze-finished silverleaf. Asymmetrical styling offers a slight urban edge to the look, enhancing its modern aesthetic and sophisticated appeal.
Legends Furniture’s Joshua Creek
From the domestically produced Joshua Creek collection, this 54-inch writing desk has all the understated charm and appeal of contemporary furniture featured in a Barnwood finish. Designed with simple lines and knotty alder solids and veneers, the company says it is appealing because it imparts a simple, yet elegant state of mind. And at 21 inches deep, it’s designed for compact work spaces.
Furnitech’s FT56CDG writing desk
From the Signature Home collection, this three-drawer, 56-inch writing desk features graphite Italian engineered veneers and a solid Brazilian cherry wood base and leg elements in an ebony finish. Functional as it is visually appealing, the desk features clean contemporary lines. It has three full extension drawers and a generous writing surface.
Flexsteel’s Eastchester
With layered base moldings, a tone-on-tone wood finish, and an open design, Eastchester has an antique yet timeless style. Cherry veneers and poplar wood round out the solid, durable construction, while customizable storage options make it ideal for any modern or urban space. The company says Eastchester is an ideal choice for those who want practical home office furniture with timeless elegance. Shown here are the 72-inch executive desk, and the accompanying 72-inch credenza and hutch.
Martin Furniture’s Hartford
This collection combines bold lines with a weathered, vintage finish and classic style elements. The warm, two-tone rubbed finish gives Hartford the relaxed feel of old world wood and the sophisticated turnbuckle and wire mesh details add a formal element. The collection is suitable for either a classic formal setting or a more relaxed, eclectic home. It includes a power center with two AC power outlets and three USB 2.0 connections.
Stanley Furniture’s Welton
From the Crestaire collection, this bookcase is designed to be fashionable and functional. When combined with the Crestaire desk, it is designed for use in a family room or other room that is not solely dedicated to a home office. The bookcase features two full extension drawers and four fixed shelves.
Hooker Furniture’s Rhapsody
The distinctive base and top design have combined to make this 66-inch desk a best-seller. In addition, the dry wire-brushed finish is on-trend. When used with the matching bookcases and lateral files, it makes for a complete small office without the heavy look of a double-pedestal executive desk.
Parker House’s Hickory Creek
The 60-inch writing desk features a refined rustic finish, built out of New Zealand pine solids and veneers. The desk is wire brushed before a multi-step finishing process gives it a distressed look. This desk is one of eight items that are part of the Hickory Creek modular office group, which allows creation of a multitude of room solutions.
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.
Population
At 69.8 million, Gen Xers trail behind both Millennials and Baby Boomers in size (Table A), but as Table B shows the current adult population of Generation X is higher than the Millennial’s 66 million as many are still under the age of 18. While Gen Xers are still smaller than the living Baby Boomers (74.9 million), they now have more buying power.
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.