You Had Me at Product

January 12, 2016   by in Business Strategy, Industry   

Furniture design matters to consumers, and that’s why it is so important to get it right.

The consumer price index has been stagnant for the last six years. This is great for the consumer, but not so great for the industry.

Those who have been in the furniture industry for some time understand it is all about the product. It is important for newcomers with new marketing concepts and advanced supply chain processes to understand their goals must be tempered by the intricacy of the product and why it sells to a fickle consumer.

While other consumer durable companies, such as the automotive and communications sectors, understand the consumer ignores the practical questions, such as “Did I really need that new phone?” and lines up outside the retailer’s door to be the first to have a product. Unfortunately, consumers of furniture are much more practical with only 31.3 percent buying simply because they want new furniture. Our challenge is to double that number.

Is our challenge the design process? In my conversations with professors and top students in the leading furniture design schools the concept of design trends is a foreign concept. They look to classic design principles of form and function and to the talent of the designer. The residential industry relies on design trends. Why else then would we have so many sleigh beds?

Decades ago the residential furniture industry could rely on carefully updating the classic styles—Chippendale, Louis XIV, Early American and the like. The customer preferred the execution of more refined designs with careful attention to detail. This was combined with multi-finishing steps to carefully maintain the consumers’ preferred sheen. The marketing department’s focus was to communicate the pedigree of the design as well as the company producing the product.

Shift to today and the role merchandising plays in the long-term success of a traditional furniture retailer. Simply put it’s about prices, both the retail price and the wholesale price. When the top quartile retailers are achieving gross margins of 47 percent and the top quartile suppliers are achieving 26 percent gross margin, what is the problem? The problem is the selling price that the consumer will pay for the product. Is that all the consumer will pay?

The consumer price index has been stagnant for the last six years. This is great for the consumer, but not so great for the industry. With no price growth compared to all consumer goods there have been ever-decreasing funds to properly advertise and display the product to the consumer. This fails to create the desire. Thus, the industry has resorted to price as motivation to entice consumers to buy.

The traditional furniture store distribution channel competitors are the lifestyle stores, such as Pottery Barn, Arhaus, and Restoration Hardware (RH). These stores are not bashful about their pricing strategy. Is it because of the world class collateral they execute? Restoration Hardware’s catalogs and magalogs are gorgeous and leave consumers wanting a home that looks the same.

We tried before to create an industry campaign to communicate furniture and the impact our products can have on the consumer’s life. What would one-half of one percent—$350 million—do to enlighten the consumer? Just a thought.

Welcome to 2016

January 12, 2016   by in Business Strategy, Industry   

Welcome to 2016

There’s nothing like a major industry announcement to kick off a brand new year.

And just like that,  2016 came in with a bang that echoed throughout the furniture industry. A mere three business days  into the New Year, and Hooker Furniture Corp. made one of the biggest announcements to hit the industry in the last 12 months.

The company plans to acquire Home Meridian International in a $100 million deal expected to close in the first quarter.

In case you missed it, here’s the gist of the news that will add significantly to Hooker’s stable of brands.

The acquisition of HMI is the largest acquisition in Hooker Furniture’s history, and the move will catapult the company into the top 5 of industry vendors. Not only will the merger create a larger company, it gives Hooker Furniture an entrée into more moderate price points. The acquisition will also open up additional channels of distribution for the company.

As part of the plan, Home Meridian will operate as a division of Hooker Furniture under the leadership of George Revington, current CEO of HMI. Once the acquisition is complete, Revington will become president and COO of the HMI division and report to Paul Toms Jr., chairman and CEO of Hooker.

What’s more, the management team of HMI’s companies is expected to remain on board.

That talent includes Page Wilson, president of Pulaski; Lee Boone, president of Samuel Lawrence Furniture; Shawn Cantrell, president of Prime Resources International; Greg Noe, president of Sourcing Solutions Group and on and on. The HMI management team runs deep and is filled with a breadth of talent and knowledge that will meld nicely with Hooker’s skilled management team.

The combined company will include upholstery manufacturing facilities in Hickory, N.C., and Bedford, Va., showrooms in High Point and Ho Chi Minh City, Vietnam, and eight distribution centers in North Carolina, Virginia, California, China and Vietnam. The company will employee about 900 people worldwide. 

Over the last trailing 12 months ended Oct. 31, the combined companies had revenue of more than $550 million and combined operating income of  $35.6 million.

With that, welcome to a New Year in the furniture industry where the landscape is always shifting.

Here’s to a year filled with good fortune, stronger relationships and great stories!

Cheers!

Rent—The New Dream

December 7, 2015   by in Business Strategy, Industry   

Over the past five years the housing industry has seen the number of renters in all ages and income levels increase.

While the housing market crash was a huge catalyst with staggering foreclosures and short sales, many potential homebuyers are continuing to forgo purchasing and are turning to rentals. Who are those opting to rent today compared to five years ago?

The ages, marital status, and income levels are somewhat surprising. Recently released American Community Survey conducted by the Census Bureau, tracks the profiles of homeowners and renters.

Householders by Age

In the five-year period from 2009 to 2014, every age group saw an increase in the number of households renting versus owning. In addition, age groups under 55 years all experienced double-digit decreases in the number of homes owned.

Total households grew 3.2 percent; however, owner-occupied units fell 1.3 percent while apartment and home rentals climbed 11.4 percent.

For homeownership, the largest segment continues to be the 65-and-over age group, while the under 35 set is the largest rental group. Table A shows the percent of owner and renter occupied units by age group.

The shift in rental versus ownership is unique to each age group.

Under 35 Years—Young Millennial householders under age 35 are traditional apartment renters. More than 68 percent of the age group rent apartment and homes.

These young adults have been slow to form households in the last five years choosing instead to return to parent homes or a roommate scenario. The under 35-year-olds have decreased their ownership of housing by 16.7 percent from 2009 to 2014 while renters have increased 2.0 percent.

Ages 35 to 44—During the recovery from the recession, many young families were squeezed out of the housing market due to tight money and job instability. Table C shows that homebuyers in this age group in 2009 were overwhelmingly home owners—63.4 percent. In 2014 that figure had fallen significantly to 57 percent of the households.

Ages 45 to 54—As many in age group 45 to 54 typically upgrade housing, ownership has fallen 10.3 percent from 2009 to 2014 as renting picks up that loss—gaining 10.9 percent of occupied housing units more than 5 years. However, these mature homeowners still own 68.2 percent of their homes, down from 72.9 percent in 2009.

Ages 55 to 64—While ages 55 to 64, the core of the Baby Boomers, increased the amount of owner occupied housing units by 8.7 percent, renter occupied housing units have risen by 30.7 percent from 2009 to 2014. Only a quarter of these householders rent apartments.

Ages 65 and Over—As Baby Boomers move into the older age group, a rising need for senior and assisted living rentals is occurring. A jump of 21 percent in renters occurred from 2009 to 2014 alongside a growth of 14.7 percent in those owning their own residence. Seniors 65 and over are the largest segment of homeowners and almost 80 percent own their own homes.

Household Characteristics

The mix of household characteristics between owners and renters has changed little in five years. As expected, married-couple families are the majority of owner-occupied housing units— accounting for 60 percent in 2014. Surprisingly, householders living alone make up 27.8 percent of all housing units. The following Table H shows the breakdown of owner and renter housing units by household characteristic 2009 to 2014.

Financial Characteristics of Householders

Overall, apartment dwelling is increasing across all income levels 2009 to 2014. Households with incomes under $100,000 have been slowly migrating away from homeownership toward apartments. For incomes $50,000 to $99,999, ownership decreased by 6 percent while rentals increased 23.9 percent. The number of housing units with income under $50,000 declined in total 3.6 percent, with owner occupied units taking the hit. This income group makes up 65.8 percent of rental units.

Table H shows the percentage of housing units owned versus rented by income group for 2009, while Table I shows 2014—depicting the apartment growth in the two lower income groups.

Return to Homeownership

At the end of the second quarter in June, the rate of homeownership fell to its lowest level in 48 years, 63.5 percent. Several indicators point to homeowners taking back some market share in 2016 and beyond. The job market is improving, homebuilding is gearing up, and credit is projected to loosen. Household formations are currently growing by leaps and bounds. Census Bureau figures show year-over-year household formation topping one million for three straight quarters. Both owner occupied homes and rentals should benefit.

Most Americans have looked at homeownership as part of the American dream. However, many Millennials have witnessed during the recession and recovery the darker side of homeownership and see home buying as a risky investment. They may be slow to go all in.

Unlocking Growth

December 4, 2015   by in Business Strategy, Industry   

The furniture industry is on track for a 5.5 percent increase this year, and all signs currently point to a strong 2016, too.

Following years of an uneven recovery from the recession, the furniture industry has picked up steam this year. Industry sales are performing better than expected in 2015, and all indicators point to seeing similar growth in 2016.

This year the industry is on track to grow 5.5 percent with the sale of furniture increasing 5.3 percent and mattress sales growing an impressive 6.8 percent. This is higher than last year’s projections of 3.7 percent growth for 2015 with furniture sales growing 3.6 percent and mattress sales increasing 4.4 percent. Next year should deliver similar growth with industry sales of 5.5 percent.

Surprising Growth

Demographics determine the number of possible furniture industry consumers. However, economic catalysts are the external factors that drive consumers to buy furniture. Historical patterns and expected economic developments of these catalysts come together to form a forecast. Sometimes historical patterns are interrupted by other unexpected external occurrences, and retail sales either grow or decline.

So what indicators and catalysts changed to push projected industry growth of 3.7 percent to 5.5 percent?

Employment was a key driver. More people went back to work more quickly than originally predicted. At the end of October, the unemployment rate fell to 5 percent. Year-to-date the average rate has totaled 5.6 percent, which is down from 6.2 percent through all of 2014. It was expected to fall, just not as significantly.

Low and steady interest rates gave the industry a boost, too. The Federal Reserve’s decision throughout the year to hold the prime rate steady at 3.3 percent and the drop in 30-year mortgage rates from 4.2 percent at the end of 2014 to 3.9 percent came as good news to consumers. Most economists felt a rate hike was due in 2015, but those predictions have now been pushed out to mid-December or next year.

The ups and downs of the stock market give consumers the jitters. Consumer confidence has been sensitive to the ups, and especially the downs, of the stock market. Coming out of the recession, market fluctuations kept consumers financially uneasy and certainly less confident. The volatility of the stock market has still been present this year; however, consumers seem less reactionary than in the past thereby lessening the market’s impact on consumer purchases.

The price of gasoline is always a key factor for consumers. Energy prices have long been a consumer ouch point. One of the big surprises this year has been the extended period of cheaper gasoline. It’s estimated by the U.S. Energy Information Administration that lower gasoline prices will save American consumers and business more than $120 billion dollars this year compared to 2014 when consumers used nearly 137 billion gallons of fuel.

Consumers buy when they feel more confident about the economy and their personal situation. Consumer confidence is a primary factor in consumer spending. This year, consumers have remained confident with the index averaging 98.5 through October (1985-87=100). Ranging from a low of 91 in July, the index has reached highs of 103.8 in January and 102.6 in September. In October the index fell to 97.6, which is still a confident number, and in November, the index took another slide to 90.4.

2016 Should Stay on Track

Although numerous external factors, including global geopolitical instability, could derail the U.S. economy next year and impact the furniture industry’s growth, many economists see the U.S. economy study enough to stay on path. Demographic factors are strong going forward as Millennials age into their household formation years. Employment is solid, personal income is growing and consumer spending is on the rise.

Millennials are the largest generation since the Baby Boomers, and the generation is filtering into the household formation years. That said, consumers must see a combination of jobs and income to form and maintain households. This segment has been hard hit on the job front and slow to flex its economic muscles. With steady job gains, strong winds are blowing. This generation will impact the economy—and specifically the housing and furniture industries—for decades to come. Over the next five years the 25-to-34 age group will increase by 2.8 million people.

No one questions the relationship of the furniture industry to the housing market. The homeownership rate has been falling since 2004 when 69 percent of the national households were homeowners but dipped below 65 percent in 2015. Apartment rentals are on the rise and homeownership is increasing but very slowly. Regardless, demographics bode well for household formations in both rentals and single family homes next year as low inventory of existing homes for sale come head to head with pent-up demand. New home starts are expected to grow more than 15 percent after 12 percent gains this year, and new home sales increase over 20 percent following 20 percent growth in 2015. (For a more detailed discussion of the profile of the current housing renter versus homeowner, see Statistically Speaking on page 36.)

There’s no way to discount the impact of the consistently falling prices and the consumer’s ability and willingness to buy. The Consumer Price Index for furniture and bedding is on the industry’s side. While all consumer prices rose slightly last year by 0.1 points, the Consumer Price Index for furniture and bedding fell more than half a point—0.6 percentage points—for the third straight year. This means furniture and mattresses are consistently becoming more affordable to consumers.

It’s always a good sign when businesses are hanging out help wanted signs. Furniture stores are back in the hiring business. A final strong indicator for 2016 is that while employment is growing throughout the economy, furniture stores are hiring again, and at a faster rate than other retail entities. This year, the industry is on track to increase furniture and home furnishings store employment by 3.3 percent, higher than the 2.4 percent growth for all other workers.

Could the Economy Get Derailed?

Several global geopolitical events could detail the U.S. economy in an election year, impact the stock market, and slow the furniture industry’s growth—specifically Middle East unrest and global economic slowdown, especially in China.

Of particular concern is the domestic policy of the Federal Reserve in terms of when to raise interest rates and how much. Rate increases could undermine exports by strengthening the dollar or cause volatility in financial markets. Most, however, agree that the Federal Reserve will take it slow and easy. Right now the economy looks solid. Incomes are on the rise and employment is growing. Household formations look promising and the homebuilding industry is full steam ahead. All should point to a positive outlook for the furniture industry in 2016.

Curtain Call

December 4, 2015   by in Business Strategy, Industry   

By Sheila Long O’Mara

My how times have changed.

It wasn’t too many years ago when consumers were clamoring for armoires or closed entertainment centers to house and hide televisions, DVD players and other entertainment electronics. Flip the next few pages, and you’ll find an overwhelming number of consoles jam packed with features to accommodate televisions and all the accessories of today’s well-furnished home theaters.

With the demise of the big box televisions and the onslaught of affordable flat screens, consumers are opting to show off their electronics as more of a status symbol. Gone are the armoires of old that were used to hide the fact that folks watched television and in are the consoles and open wall storage.

The current product direction in the category blends well with the insight from the latest Home Furnishings Business consumer survey that finds consumers like showing off their fancy televisions. More than three-fourths of them—78.9 percent—said closing up their television was not important at all. Only 19 percent said it was somewhat important.

Sixty percent cited consoles as their first choice for displaying their television while another third (33.3 percent) said they’d prefer to hang it on a wall.

Keep in mind that the attraction to consoles is limited by the fact that consumers still want and need storage for DVDs, Blu-ray Discs and CDs. Nearly 81 percent said such storage is either very important to somewhat important to meeting their home entertainment furnishings needs.

According to the Consumer Electronics Association, wholesale sales for consumer electronics are projected to grow this year to $222.7 billion, a 2.4 percent increase from $217.7 billion in wholesale sales last year. Looking ahead to 2016, the association forecast calls for revenues to hit an all-time high of $228.8 billion.

Television sales remain critical as the consumer electronics industry’s third-largest contributor to total industry revenue, with sales of televisions and displays projected to reach $19.4 billion in 2015, on par with 2014, and unit sales projected to reach 36 million, down five percent from last year. Looking ahead, larger screen sizes and innovative display features have more consumers upgrading their video experience.

Consumer excitement is driving growth in sales of high-resolution, large-screen televisions. Shipments of such displays are projected to reach 4.4 million this year, driven in part by the market introduction of new technologies.

Large screens continue to gather consumer dollars. As picture quality improves, consumers are turning to larger screen sizes, according to the association. Shipments of televisions larger than 40 inches will account for 63 percent of television shipped this year, a 10 percent increase from 2014.

Televisions are pivotal to the home entertainment case goods category and require a keen eye on shapes, sizes, cord management and component slots.

According to our surveyed consumers screen size is an important consideration when it comes to television purchases. Larger screens rule.

In fact, more than three-fourths (87.7 percent) said the primary television in their home was 37 inches or larger. More than a third (38.6 percent) said they own a television that is 55 inches or larger.

When asked what size television they would consider purchasing in the next six month to a year, 38.6 percent said they’d be in the market for a 55-inch or larger screen. Just under a fourth (22.8 percent) said they have their eyes set on a television between 37 inches and 52 inches.

Want More?

A more in-depth report on the leather upholstery business is available for purchase via e-mail to LauraMcHan@ImpactConsultingServices.com or by calling (404) 961-3734.

Suppliers

Stanley Furniture’s Preserve Pavillion Console

Filled with cleverly concealed, full media functionality, Stanley’s Pavillion console from the Preserve collection offers entertainment storage in a classic design. Multiple shelves, drawers and an electrical outlet allow ease of use of consumer electronics . Suggested retail is $1,919.

Universal Furniture Curated Danbury Console. 

The Danbury console from Universal offers an array of functionality in an appropriately scaled package. The console features a rough-hewn finish and offers consumers a variety of open and closed storage. Suggested retail is $999. 

Drexel Heritage’s Flander Console

Showcased in a hand-painted finish, the Drexel Heritage console’s scale makes it multi-functional for a variety of television sizes. Flexibility is key and the piece includes adjustable shelves, a three-plug outlet and cord management for electronics. 

Suggested retail is $2,299.

Hooker Furniture’s Sloan Console

Part of Hooker Furniture’s Mélange collection, the Sloan console features an open, eclectic look and finish that are adaptable to a number of upholstery colors. It also easily accommodates a 70-inch television. Suggested retail is $2,169.

Legacy Classic Furniture’s Barrington Farm Entertainment Console

The updated classic styling of the Barrington pairs with built-in function to house a variety of consumer electronics. A drop-down top drawer, optional beveled glass or wood door panels and cord management openings add to the ease of use. Suggested retail is $1,599.

aspenhome’s Bancroft  Console and Hutch

The 84-inch size and the additional height with the hutch give the pieces the feel of an entertainment wall. Packed with features, the pair offers an opening for a sound bar, a pull-out shelf for a wireless printer and two outlets creating a complete entertainment solution. Suggested retail for both, $1,899. Console only $999.

Twin-Star International’s Fire Console

A clean contemporary design, Twin-Star’s console offers reversible cabinet doors allowing for a louvered door or plain door option. The console is outfitted with a Bluetooth-capable speaker with optional audio-visual input. The flame effect can be used with or without heat, and the console is also available in a driftwood finish. Suggested retail is $1,129.

A.R.T. Furniture’s Gables Entertainment Wall Unit.

Quite grand in design and scale, A.R.T. Furniture’s Gables six-piece entertainment center draws its inspiration from the Italian art and architecture. The center offers an abundance of storage for accessories and consumer electronics components. Suggested retail for the six-piece grouping is $9,999.

Magnussen Home’s Fraser Wall Unit

Offering consumers the option of hiding electronics, Magnussen Home’s Fraser wall unit features an urban design with rolling barn doors. Solid pine board and battan design makes each piece unique. Suggested retail is $3,499.

Sligh Studio Designs’ Criss Cross Console from Lexington