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From Home Furnishing Business

Cover Story: Will We Ever Put Humpty Dumpty Back Together Again?

After weeks of denials and minimization at the federal level, reality set in and “shelter in place” became a fact. The positives disappeared. The graphic shown below of traffi c into the stores fell precipitously. The statistics are a national sample of a range of free-standing independent retailers. Whatever the market or size of store, furniture retailing in brick and mortar stopped.

The retail activity across all furniture retail outlets, no ma er traditional furniture stores or the broader based home furnishings stores, stopped. In comparison to all other retail, the downturn in furniture retailing was signifi cant. Stocking up on hand sanitizer and toilet paper was in the forefront of consumer purchases. Along with this, consumer prices in April dropped by .8% —the most since the Great Recession—after falling .4% in March. The drop was weighed down by a plunge in demand for gasoline and services, such as air travel. However, furniture and bedding doubled that, falling 1.9% in April and 1.4% in March, which is 12 MAY/JUNE 2020 HFBUSINESS.COM the largest decline since December of 2008 during the fi nancial crisis. One thing you can rely on is as sales soften, furniture retailers will discount.

Where does the industry go from here? Unfortunately, the typical independent retailer cannot withstand a loss of more than 10% of sales before going into the red. The chart below presents the statistics. While the statistics are based upon 2018 fi gures, there will be li le change when 2019 results are completed. Obviously, larger retailers fare be er and can withstand a 23% loss of revenue.

Before this all started, the furniture / bedding industry model was developing some serious cracks. The impact of e-tailing, which emerged in the early 2000s, became a serious concern in the second decade of the new century with a level of 20% in 2019. With declining gross margin per square foot of selling space in the discount chains brought about by overexpansion of stores dictating the closing of stores, the furniture product category’s gross margin became attractive. With Target stores adding furniture collections and Big Lots focusing on the furniture category, the traditional furniture stores felt pressure in the lower promotion price points.

The traditional furniture stores, the home of middle price points and representing 50-60% of industry sales, have migrated into the lower part of the upper price points, forcing the upper end stores to compete at lower margins or close. This upper end collapse has created a market for interiors decorators that provide not only better design, but a shopping assist for the time starved consumers. Serving this market is also the lifestyle stores, such as Restoration Hardward, Arhaus, and Pottery Barn. With smaller stores focused on a target consumer, this segment has expanded. For the last fi ve years, regional chains have expanded signifi cantly, pushing out the small independents in the markets over $50m in furniture/bedding sales. While 2019 saw a decline in expansion, the major shock was the collapse of the Art Van franchise after being acquired. Widely accepted as a failure of execution by the venture capital fi rm, Thomas Lee, the result is still the same. This failure caused the re-emergence of the belief that a national furniture retailer is not possible – Levitz, Wickes – Heilig-Myers. What have Raymour & Flanigan, Haverty’s, and Rooms To Go discovered?

At the writing of this article, the Commerce Department announced that the Home Furnishings category was down 66.25% in April compared to the same quarter last year. For traditional brick and mortar furniture retailers, the reaction was most likely, “I would be delighted with 33% of my 2019 April sales, in that my stores were shu ered.” However, the resilience of furniture retailers came through as they learned how to create VIRTUAL SALES via e-commerce, phone, social media, or by appointment. This 33% compared to last year is the starting point for rebuilding sales volume. It should be pointed out again that this 33% fi gure is signifi cantly below the breakeven point for all furniture stores, which is 10.3% down, as discussed earlier.

Understanding what that future holds is the major questions of furniture retailers as they reopen stores. As of the writing of this article, many retailers that reopened in the fi rst few weeks of May had a pleasant surprise, achieving sales that matched or exceeded 2019.

While the traffic was down 50%, the consumer came ready to purchase with close rate doubled and average tickets up 50%. The question is, will this result hold or is it the pent up demand from the six weeks prior?

To better understand the future, we need to understand the factors that impact the furniture industry’s performance. The chart below presents those factors that statistically influenced FurnitureCore’s Industry Model over the past 30 years. (FurnitureCore is the parent company of Home Furnishings Business.) These factors are presented below with the red highlight on the impacted factors in the past months.

How do these statistics translate into what industry sales will be for the balance of the year? There is no statistical confi - dence in projecting from these emerging numbers. However, when CONSUMER CONFIDENCE fell to the 86%+/- level, the industry declined 27.9%. Likewise, when UNEMPLOYMENT entered the 14%+/- range, the industry fell 35%. We all remember the 2007-2008 period. HOUSING STARTS, which fell 22% last month, interrupted a 20% growth rate. Housing starts are a factor impacting industry sales in Q4/2020.

In a survey conducted of larger retailers, the majority (35%) believed sales would decline 10-20%, but 20% believed the decline would be 20% or more. From the perspective of these same retailers, the deciding factor will be the consumer attitude. Getting them back into the stores (63%) and creating a clean environment (29%) were their major concerns.

The success of furniture retailers returning to a “new normal” will be determined by the management team being open to new ideas and accepting that it will not go back to what it was before. There were casualties in the Great Recession and there will be as well in the Pandemic of 2020. But furniture retailing will continue.

Editor’s Letter:  It’s Game Time— Time to Get Your Pitch On

As a marketing executive, it is time to focus on the next opportunity — those consumers that are “thinking about buying furniture.” Currently, that equals 30%+ of the population that you can infl uence. The decision on how to proceed with engaging these consumers is the question. The media mix varies signifi cantly by the demographics. The message is totally infl uenced by the lifestyle (psychographics). No matt er the strategy, a feedback loop to measure the results is essential.

Most retailers cannot aff ord an advertising expense as a percentage of revenue at 33% as reported by Casper. Financially, 6% is the target. In other words, every message must count. The details around this discussion are contained in the feature. Call to discuss your experience.

And fi nally, to you, the owner or representatives of the owner — the chief executive offi cer: your challenge is more long term, especially in that your company is competing for the consumer’s discretionary spending. Today there are many competing ways for the consumer to spend money. For some discretionary spending is perceived as a necessity. The following recent research presents your challenge.

You can find hope in the emerging generation of furniture purchasers – now make it happen.

Cover Story: Will the Retail Experience Become the Advertising?

Furniture retailers responded creating a web presence. Initially, many were placeholders as there was a “land stampede” for domain names. Now, those placeholders have transformed into signifi cant presentations of not only product, but also the variance in the retailer’s services that make them uniquely diff erent from their competitors. Today, depending upon the merchandise price point, 72% of consumers visit the Internet during the buying process for research.

This presents the obvious question, “of the consumers actively considering or shopping for furniture within my market footprint, how many are visiting my website and how many are visiting my store?” Current research updated quarterly via FurnitureCore, the research arm of Home Furnishings Business, measures the stage of shopping for consumers as shown in Graphic A. Obviously these percentages vary by age group with 39% of the 35-54 age group having begun the buying process compared to the other age groups at 30%.

Understanding how many unique visitors come to your website is provided by Google analytics and is well accepted as the most accurate source of this data. Combining this with your store traffi c counts will provide a good perspective of how your advertising is impacting your performance. Graphic B combines all of these statistics into one graphic.

For many retailers, this visual is often a shock when they see the diff erence between those visiting their site and those visiting their stores. However, considering that consumers may visit more than seven websites on average, but only shop 2-3 stores indicates the challenge of bringing customers into the physical store (Graphic C).

Obviously, this statistic varied by age / income reflecting the demographics and depending upon the advertising media used to convey product differences.

Comparing the unique visitors to the retailer’s website to the number of consumers actively engaged in shopping for furniture is just as important. A large defi cit indicates that consumers are not considering the retailer. This factor measures the brand awareness of the retailer. Considering recent fi nancial fi lings by Casper that indicated expenditures of $400M in advertising to achieve 31% added brand awareness emphasizes the challenge. Consumer research that asks which retailers were considered, shopped, and purchased from measures the retailer’s market position. Graphic D presents the findings in a typical market.

Advertising is the process of changing these statistics. Having more consumers considering your store and having more consumers visiting your store after viewing your website is the objective. The advertising strategy of the retailer should be influenced by the media that most influences the consumer target. The leading influencer, according to recent research, is the Internet, followed almost equally by television and magazines combined.

Graphic E presents the findings. Obviously these statistics would vary by age with the younger consumer < 45 years of age, indicating television as 13.25% compared to older consumers 45+ at 17.90%. Again, the retailer must select the advertising media for the consumer they are targeting. For that reason, lifestyle retailers, such as Pottery Barn and RH (Restoration Hardware), use direct mail and social media as these mediums are the preference of the 45 age segment.

Interestingly, from a financial perspective, traditional retailers (independents / regional chains) expend significantly more on television (broadcast). The breakdown as a percentage of sales is shown in graphic F. Beyond the how of advertising is the what? What is the specific message that will most motivate the consumer to select you as the retailer of choice? The messages must start with the why. Graphic G shows the consumer is purchasing replacement furniture (43.95%), and is based upon recent research that explores the most relevant reason for the consumer to make a purchase.

For industry veterans, this is an astonishing statistic as it has more than doubled in the past 20 years. In fact, there was a feeling then that we “built our furniture too well,” and, “should we consider an obsolescence factor?” Unfortunately, a frayed sofa doesn’t create the same sense of urgency as a broken refrigerator. It is, therefore, a postponed purchase.

As can be seen from Graphic G, “desire for new furniture” is just over 27% of purchase motivators. However, for our prime furniture buyer age 25-54, a recent move and remodeling are over 50% of the purchase motivators. The importance of direct mail to influence the new movers is well justified with over 25% of purchases from this demographic. As would be expected, when the consumer’s reason to purchase is driven by furniture replacement, quality (29%) would be the most important feature that attracted the consumer to the product they purchased (Graphic H).

While quality is consistent across all age groups as being of importance, warranty is much more important to the 35-54 age segment, being the segment that have experienced the decline in quality first hand. The opportunity to provide warranty is a significant opportunity to add profitability. A key profitability item in appliances and electronics has not been fully executed in furniture retailing.

While the purchase motivator for new furniture is style representing only 25%, it does present an opportunity for larger tickets and higher margin. Where does the consumer get their style inspiration? Again, the Internet (37.5%) is the primary response, but there are other important infl uences as shown in Graphic I.

As you would expect, for our emerging furniture purchasers (25-34) age group, the Internet is more important. However, retail stores represent less than half. Are we creating the visual experience in our stores?

What ultimately motivated the consumer to purchase? Unfortunately, the manufacturer and retailer reputation contributed less than a third of the motivation (Graphic J). Again, the repeat of quality as the prime motivation was the consensus. From an advertising perspective, the most diffi - cult element to communicate is quality. In advertising, the substitute for quality is brand.

Finally, we must consider the financial aspect of advertising. Unless you have fi nancial backers, such as Casper, you cannot aff ord to spend 33% of revenue on advertising. A percentage in the 5.5% to 6.0% range would be appropriate. The table below (Graphic K) presents the statistics by retailer’s revenue.

Beyond the advertising expense must be the eff ectiveness of advertising. In other words, does your advertising bring the consumer through the door? The most common measure is the cost per up. The industry average can be seen in Graphic L .

As can be seen, the smaller retailer < $5M is at a signifi cant disadvantage. Advertising in furniture retailing today has become more challenging. While the Internet can be a more eff ective medium to communicate considering our time-starved consumer, it is diffi cult to communicate the quality. What is emerging is the direct to consumer brands. These manufacturing direct brands are Omni-channels with unique brands with unique points of diff erences, begun on the Internet and moving to physical stores will be their strategy. The need to expand customer bases will drive the need for brick and mortar.

However, their stores will be customer experience focused. By that, they will be personalized, frictionless, and enjoyable, staff ed by passionate sales associates. The stores will be smaller, less high-price environments focused on brand building assets, such as digital screens. The new retail will be data driven, putt ing the consumer experience first. Maybe the retail experience will become the advertising. We are beginning to serve the experience generation.

What Sells: Floor Show

Without question, social media has impacted how consumers are influenced by home trends from designers showcasing their most recent project to personal friends posting photos of their latest décor purchases perfectly positioned for their Instagram feed. A simple search of ‘rugs’ on Pinterest leads consumers not just to images suggesting the latest colorways and layering techniques, but where to purchase the product online. This vein of social media grew from simply influencing consumers to directing them to online retailers. The good news is that the exposure has driven sales in the category.

“The rug industry has grown and impacted the economy greatly thanks to the growing interest of consumers towards interior decoration and the rise in remodeling activities,” says Paola Bradfield, Tayse marketing supervisor. “There is no doubt the revolution of technology and easy access to information and products that are one click away from purchase has also significantly increased sales and influenced our industry by raising standards of quality and trend awareness.”

Based on consumer research conducted by FurnitureCore, Inc., the research arm of Home Furnishings Business, consumers were asked where they made their most recent rug purchase. The largest cluster reported purchasing their rug online at 30.77%. Luckily for the traditional retailer, the second largest cluster at 25% reported making their most recent rug purchase at a traditional furniture store. Mass merchants were next at 17.31%, followed by home improvement stores at 15.38%. The remaining 11.54% purchased from a floor covering store. With consumers who are armed with research and online influence, retailers need to have the necessary product knowledge on hand to convince customers to make in store purchases in order to maintain marketshare and negate online purchases.

Rachel Fasciani, vice president, licensing and marketing at Momeni, has noted this consumer awareness saying, “We’re seeing a resurgence of interest in better goods in our offerings. Consumers recognize the value of higher quality products while retailers appreciate the opportunity for higher returns.” The same FurnitureCore study backs this and found that consumers are willing to spend a significant amount in order to make a quality purchase that they expect to last for years to come.

When asked how much was spent on their most recent rug purchase, 19.23% of consumers reported a purchase of $800-$1,499. A surprising 7.7% of consumers reported spending $1,500+ on their purchase. The same survey polled consumers and the length of time they expected their rug to stay in their home. The results showed that 46.15% of consumers expect to keep their rug for 5 years or longer. With these statistics coupled together, you can bet that consumers are hyper aware of the quality and durability built into their purchases. Read on to find some of the best-selling and performing rugs in the industry. They’ll be sure to satisfy your customers.

Coach's Corner: Get Credit for the Problem-Solving Services Your Staff Provides

This is the same whether it is a store where what you see is what you can get or one that features endless customization of the products it has available. Granted, the task is more involved in the latter situation, but the basic function is the same – determine the need and provide a solution for it that fits the customer’s look, feel and budgetary considerations.

In essence, we must be problem solvers first and then use our selling/design skills to put the package together. It just does not work to do it the other way around, because if we start selling without first knowing what issues our customer is trying to solve, we will usually fail. Therefore, while most of us look at what we do as primarily a product sales function, in reality we are very much in the business of selling a much-needed service that uses our products to provide the final solutions to our customer’s needs and wants for their home. We need to understand that the act of problem solving is a service, not a product.

The reason this is important is that even though they are similar, product-based businesses are different from service-based businesses in some very important ways. Certainly, both involve customer interaction as part of a process that delivers a result the individual is looking for. However, a product business sells something that the customer can see, feel and touch. I am referring to tangible, physical items that when encountered by the customer can greatly influence the buying decision. We make a great effort in our stores and online to present our products in a way that enables the consumer to visualize them in their own house, which encourages our visitors to want to own them.

We also present features and benefits to answer questions the customer may have to help them better understand the product and assist them in their buying decision. In a service business, the “product” is the value provided by the intangible skills, expertise and time the provider spends delivering the results a buyer wants. In order to sell a service, it is critical that the target audience understands what makes that service valuable to them and why your staff is able to consistently provide it. In many cases, selling a service also requires a somewhat more trusting relationship with prospective clients than selling products does. Being able to get the point across clearly that one size does not fit all, and that each person gets individual, customized solutions adds a great deal of value.

Another difference is that products are mostly viewed as returnable if they don’t satisfy, while services are seen as “non-returnable”. You may get a refund, but the time and effort spent has basically been wasted. Therefore, when someone buys a service, it is the expectation of getting the results they want that really closes the deal. Since a person buying a service is paying for a desired outcome, it is critical to focus on the result of the effort in our selling process!

Both of these businesses actually have the same goal of customer gratification they just use different vehicles to get there. In a furniture store it is absolutely critical that they work hand-in-hand on the sales floor. The issue I see is that we often focus heavily on the product selling side of what we do in many important areas of our daily activities and business planning processes. Certainly, any selling system we use in our stores should be aimed at ultimately providing the problem-solving service addressed above, since that is the desired result we need to have for that critical aspect of our business.

In addition, most stores work hard to maintain delivery and customer care departments that solve problems every day for their customers. However, I believe that many furniture stores could do a better job understanding the value of the problem-solving service they provide to customers and find ways to improve how they sell and market it to their target audience.

Here are a few ideas that may help get you started thinking about better ways to sell and market the valuable problem-solving service you provide in your store:

  • In a service-based business, your people and what they do are the product. So, it makes sense to sell them and the importance of their contribution, as much as you sell the value of your actual merchandise. You should develop a features and benefits story to tell about your staff, from your salespeople through the delivery staff. Potential customers need to view them as reliable and trustworthy in order to want to do business with your store.
  • As stated earlier, service businesses are very relationship based. Therefore, it is important to let people get to know your staff and build some initial rapport with them. It is really common sense, but whatever you can do to connect your target audience to your staff such as online biographies and picture boards at the entrance will enhance your ability to make them want to work with you.
  • Since you are providing solutions for your customer’s needs, it is important to show that you understand what their needs are and that you can offer solutions to solve their problems. Prospects should see you as a resource they can rely on to deliver the total results they seek. Testimonials from clients, design articles/essays from staff members and picture boards of successful projects are a great way to get this point across on your sales floor and website.
  • Keep in mind it is not the actual service that the customer really cares about, it is the result it delivers when completed that truly matters. What is going to happen is more important than how it will happen and the way the effort will help them is really the critical issue. So, emphasize the results you can deliver more than the process to get them. Showing them how much their life can be improved as a result of being happier with their home is a great way to do this.
  • Remember that the service you are providing a client is intangible. It can’t be returned and their investment in time cannot be reimbursed. Emphasizing that your design assistance is complementary and part of the total package you provide with the products they purchase can eliminate these issues by reducing any perceived risk involved.
  • Your advertising, marketing and online efforts should strive to create an experience that reflects what your service will provide to the client. You need to identify the issues they expect to run into while creating their dream room and show that your service will solve their problems.
  • Many of your competitors do not offer the services you provide, so use this as an advantage in your market. Online venders, membership warehouses, many discount stores and major chains like Target or Ikea for the most part do not have staff to deliver the total experience you can. Take advantage of this in all of your marketing efforts to separate yourself from the pack and add value to the relationship you offer prospective customers!
  • Make sure all of your efforts answer the important questions your target audience will have, like: What services do you offer? Why are they important to me? What potential problems will they solve? What other benefits will they provide? What does it cost and what should I expect?
  • Be sure to emphasize that you provide one-stop shopping for your products. Using the services you offer, customers will save time and money by not having to get outside help to complete their projects. Your staff members are experts on the merchandise you carry, and they will provide all the assistance needed to create solutions to any problems.
  • Most service companies have found that email, website and social media marketing efforts work best to generate interest from their targeted consumer segments. Having your design staff post pictures of completed projects and testimonials from highly satisfied clients, creates a very powerful message about your ability to solve problems and deliver results. It is also extremely important to gather and post positive Facebook, Google and Yelp reviews both online and in your ads, since this provides support for your “we can do it” message!

Don’t take what your staff does and the valuable services they provide to your customers for granted. Make them a focal point for some of your marketing efforts and get credit for the difference they can make in your customers total experience with your company. I hope this helps you get started.

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