Monthly Issue
From Home Furnishing Business
September 9,
2016 by Jane Chero in Business Strategy, Industry, Internet 
Probably the single greatest impact on the entire retail landscape since the turn of this century has come from the introduction, growth and evolution of the Internet as both a research/educational tool and retail distribution channel. Other articles in this issue and previous ones have outlined the numbers to give you a picture of the depth and breadth of its role. How many use it and what they use it for, gives us great insight into why it has become so important to the shopping process.
This is great information to know and understand, but the main thing it tells us is that the Internet is causing a significant number of potential customers to avoid visiting our stores! That is the major negative we are experiencing at retail. It is really a double whammy for us since not only are people searching for, finding and buying our products on the internet, they are using their research to zero in on where they want to shop, thus significantly reducing the number of stores they will visit. As a result, in addition to losing sales directly to the Internet, it is also helping to reduce the total amount of traffic we have available in our markets.
Obviously the first step we need to take is to develop our own online sales capability. We must do that in order to capture some of the potential lost sales from customers that initially want to avoid visiting our stores. If this sounds to you like “joining the enemy”, then so be it. The internet is here to stay and the amount of home furnishing products sold directly over it is going to continue to grow. We are in the business of selling our products to the people in our market and it does not make sense to just let such a large percentage of them go elsewhere to buy. Especially when the end result can be that we can sell more people and then have the possibility of bringing them into your store when they make their next purchase. If we do not provide this convenience to those that want it, we will probably never see them.
While it seems that very few smaller retailers have taken this route, the numbers are growing and the initial reports indicate that many are having some success with it. The volume is not huge, but they are capturing customers that they would have missed otherwise and in the long run that will benefit them. As their client list grows, so too will their ability to reach deeper into their market and increase their market share. Therefore, find someone to partner with or hire that can put you into the online business and do it soon!
As for the prospect of ending up with fewer people to sell, what could we do to minimize its impact? Perhaps the answer is for us to find ways we can use the internet to expand or enhance our selling efforts to reach and ultimately satisfy more of the consumers that are still available to us in our market. To determine that, we need to focus on what potential opportunities for help the internet could provide us with.
Basically there are only three ways you can grow a retail business: See more people (Increase your traffic), Sell more of the people you see (Increase your closing rate) and/or Sell more to the people you do sell (Increase your average sale). Any of these individually or in combination will build sales. Therefore, let’s take a look at how we might use the Internet to improve or enhance our processes to help us achieve better results in these areas.
See More People (Traffic)
For the vast majority of the people interested in buying home furnishings, the first place they go is the internet. It is where the whole decision making process either begins or at least really gets serious. They use it to get ideas for their home, plus to educate themselves about products, prices and places to buy. Consumers only shop for furniture a few times in their lives so they generally know very little about it and the WEB is where most go to begin their learning process. It is the library they go to study at before the big test, which in this case is the actual shopping and buying experience.
As a result, your web site is absolutely critical! It provides your first impression to as many as 85% of the people who could potentially visit you. You only get one chance at that, so make it the absolute best it can be.
To these potential customers, your site IS your showroom and it needs to make the viewer want to come see it. We know they are looking for product ideas, pricing, specifications and other information. The ease they have finding what they are looking for on your site and the excitement you help them experience will go a long way towards establishing your place in their “Stores to Visit” pecking order. Do all you can to provide visual stimulation through exciting graphics, videos and other tools. Obviously most information they seek must be delivered in text format, but make that the last resort. How do you figure this out? Visit the pros that do this for a living and study what they do! We can’t all be Amazon or Wayfair or other major players, but we can learn from them!
Where you differ is that your main goal is not necessarily to make the sale then and there online, it is to get them to talk with you and ultimately to visit your store! Setting up chats, connecting to design advisors, moving from an online entity to a personal connection is what you want to do. We recommend that you have a dedicated person or team that creates and maintains your online marketing and sales effort.
Sell More of the People You See (Close Rate)
We have always maintained that If you can get a customer to tell you what they want, you have a much better chance of helping them find it. We also know that if you can show them what they are looking for (or something pretty close), even on a screen, you have a better chance of selling them. Therefore, in many cases you will need to provide a continuation of their internet shopping process. Your staff can do this by understanding that process and learning how to discover what each person has learned and what they have found that they have liked or not liked. To do this they will need easy access to the Internet on the floor. Using it in the selling process must be part of your sales effort and training program. They need to become a partner in the consumer’s search and join them on their journey as opposed to leading the process or just telling them what they should get.
Often we are finding the inquiries coming in from a retailer’s site via email or phone are potentially the best Ups sales people will get each day. However, we also know that not all of your sales people believe that. We recommend that you develop an individual or team that buys in and understand how to communicate via the internet and develop relationships that result in the customer coming in for a visit. The close rate on consumers that have connected to an individual and had a positive experience that brings them into the store looking for that person is probably about 90%. Why give these opportunities to sales people that do not treasure them? Make them matter by only allowing those who have demonstrated they can connect with online customers to deal with them.
Sell More to the People You Sell (Average Sale)
We know that product knowledge and design skills both contribute greatly to average sale. If your customer is going to use the internet to educate themselves, so can you. Part of your training and coaching program should involve using the WEB to learn more about product, sales techniques and design ideas. Your vendor sites can provide a treasure trove of information to help your staff better serve your customers. There are many great design and style centered forums and pages that can raise their awareness of trends in style and colors. All of the buzz words are there, if your people go looking for them. There should be no “down” time in a retail store for sale people, if they have access to the same library their customers are studying at!
We have also found that the better a retailer is at reaching their target customers through email blasts, social media and other online tools, the higher their closing rate and average sale is with those they bring into the store through it. We have had clients that have significantly reduced and even eliminated much of their traditional advertising effort to concentrate on reaching more potential customers via social media and other internet avenues. While total traffic declined, in most cases the increases in revenue per up more than compensated for seeing fewer people. They became much more efficient and effective with those that they did see because they were bringing in much more “qualified” customers!
So the answer is to sell who you can online and then get better at using the internet to reach and connect with more customers that you can get into your store. That is how you can offset the potential negative impact of the Internet and turn it into a positive. No matter what you do, you must tie it all together with your selling process and use it all on the floor consistently.
September 9,
2016 by Jane Chero in Industry, Internet
By Richard Sexton
With online sales continuing to be the primary driver of growth within the home furnishing sector (and all other sectors, for that matter), it's a natural inclination for single or multi-store retailers to aggressively expand into e-commerce or, if they are already online (and who isn't?), to contemplate a significant capital investment in upgrading their virtual presence.
The purpose of this article is not to discourage anyone from e-commerce. Like a well-balanced portfolio, online sales of your home furnishings business should be an important part of your overall growth strategy, especially considering the downside risk of not being in this channel.
However, far too many businesses rush to enter this channel, operating in panic mode, and wind up investing hard-earned capital for negative returns. Even more common is the decision to pull the plug on an e-commerce venture when it is not profitable within the first few months of operation, the most critical time for reinvesting in a new e-commerce launch.
In my 20-year experience as a home furnishings independent retailer, which evolved into a healthy e-commerce business, and in my role as a consultant to other businesses across retail and professional services sectors, some very clear and consistent metrics regularly manifest themselves. I will review some of these critical components of e-commerce and their impact on net margin. Importantly, none of these metrics are specific to a particular business that I've been involved with, which is why the numbers are so compelling. You see them across businesses using different strategies and different capital expenditure plans, yet most arrive at the same conclusion: "We had no idea.” Following are some areas for consideration.
Are You Prepared To Make 5% at Best Over the Long Run?
If you are pressed for time and cannot read this article in full, then simply answer the above question. If the answer is "No", then you are finished reading. If the answer is "Yes," then understand that getting to 5% will take a concerted, disciplined approach that requires nerves of steel during downturns and champagne for the upturns!
The Talent You'll Need For Success
For a long-term, viable e-commerce business, here are the functional roles you will need filled:
• Platform development team: This technical team includes integrations with third party platforms, user experience (U/X), navigation, taxonomy (how the categories are arranged) and platform optimization.
• Content team: Using your manufacturers’ images and text will get you nowhere fast, since you will get dinged by Google for duplicate content and you will be offering nothing new to the consumer. You'll need to have a team to customize product descriptions, take new photos if possible, and add unique product attributes.
• Search Engine Optimization (SEO) expert: Google is doing its best to eliminate organic "free" search results. The value of organic traffic is questionable, but its appearance high in the available non-paid space of the search page is still important. I recommend this is done in-house since nobody knows your business like you do. Write in a natural language for SEO and the chips will fall where they may.
• Search Engine Marketing (SEM) expert: Paid search is your best channel for online visibility, but you can burn through your budget in a day if you have not strategically chosen keywords and key phrases to describe your business, products, or services. This is a functional area that can be outsourced to third parties or agencies, but you'll need to be very specific about your budget, your conversion objectives, and your business strategy (brand awareness, defensive positions, campaign enhancement, product sell-through)
• Social media integration: While this is often relegated to a non-critical path, remember that as many e-commerce searches collectively occur on social channels as on the search engines themselves (if you include YouTube as social, which is the second-most popular search property). Social is not just about Facebook posts, it's about usable content such as videos, instructions, reviews, gamification, loyalty programs, and other digital touch points. Social channels are usually the most neglected in the home furnishings sector. This is regrettable since there is so much rich content to be pushed out to potential stakeholders.
• Analytics team: The one engagement discipline more neglected than social media is analytics. This is ironic since your e-commerce business needs to have established metrics and benchmarks for success (otherwise, you are flying blind). You wouldn't have started your brick-and-mortar business without establishing your objectives early on. You had a target revenue/square foot, a target gross/net profit margin and ROI, etc. The digital world allows us to measure all these metrics and many more. With the proper tracking code and tags, every interaction can be tracked, reported, and improved upon. Finding and building on that analytics expertise is challenging (even for a company such as AAA, where I work now). Fortunately, there is a plethora of online training available from Google, Bing, and many other third parties, and this training can be accessed in a sequential learning process.
• Sales team: Fortunately, this is one area that is completely scalable and already takes advantage of in-house expertise. Your sales staff should already be adept at omni-channel sales, transitioning easily from in-store to phone. An e-commerce business will add to the volume, with a lower conversion rate due to the price-shopping nature of online selling. Therefore, you will need to account for the lower close ratio in your sales commission plan. One additional responsibility for your sales staff could be online chat. No fully fleshed e-commerce site should be without chat, especially considering all of the robust functionality that chat brings (drag and drop images, room planning, etc). Whether chat is assigned to sales staff or routed to customer service is an internal decision, but consider that you want chat to act as a value-add, not just a price quoting vehicle, which can backfire on you as a retailer.
• Customer service team: Customer service capabilities will have to ramp up with your new e-commerce business because of the more problematic nature of shipping your orders, as opposed to in-store pickup or local delivery. The margin impact of having a white-glove delivery fulfillment service is considerable, possibly a deal-killer for many, but even so, the e-trailer needs to have resources aligned to the incoming volume of calls that result from fulfillment issues, such as scheduling, shipping damage, product variances and returns. Collectively, shipping and fulfillment issues define the largest chunk of unanticipated costs in a home-furnishings e-commerce business (see "Breaking it Down", below).
• Shipping and logistics team: Most e-commerce models typically consist of a blended fulfillment process consisting of direct-from-warehouse and drop shipment. In the furniture world in particular, "drop shipping" can mean several different operations, depending on the manufacturer. Some are perfectly willing to receive and order and ship it anywhere in the country, while I have experienced others who ship only within a retailers predefined market area. At the extreme end, some manufacturers will allow dock pickup only and simply don't want to know where the order is going. The successful e-tailer needs a shipping and logistics team capable of managing inventory onsite or at a third party warehouse. This team also needs to be flexible enough to work around the vagaries of manufacturer sales and distribution policies.
• Management: In addition to the aforementioned talent, entering the hyper-competitive world of e-commerce requires an agile management team that can simultaneously deal with irate online customers, cut-throat competitors, disgruntled manufacturers, and Amazon. Of course you'll never beat Amazon, but you can sell on product expertise and leverage, other core competencies.
Breaking It Down
Let's get down to business and see how much your e-commerce venture is going to make, given the requirements above. We'll start with the assumption that the furniture e-tailer is selling online at some sort of minimum internet price structure (sometimes expressed as "MAP"). These pricing guidelines are released by the manufacturers quarterly, annually, or timed with furniture market dates. They are issued as the manufacturers’ minimum online pricing expectation, and, although there is legal language specifying the voluntary nature of the pricing, the e-commerce business should take them as fact. In our example, we'll start with an MAP of 2.0, about average for the furniture industry. (I have seen a range of 1.6 to 3.0).
Our all-wood handcrafted cocktail table has a MAP of $800 and is sold online with free shipping. To be completely realistic, products sold at MAP are not competitive unless shipping is given away free. You won't even be close to Wayfair or Amazon if this is not the case.
Analysis and Summary
In this example, I've used conservative estimates. Advertising, in the form of paid search, runs from 8% to 12% of revenue, sometimes higher. I used 8% in this scenario. Management costs are also conservative, using a managers' salary of $100k on a $5m business. Importantly, I've not included physical overhead, such as the cost of showrooms, warehouses, and office space. Given the conservative nature of this calculation, you could logically ask "why bother". It's a valid question and one that you need to carefully consider before investing hundreds of thousands of dollars into a nascent e-commerce venture. It's not all doom and gloom, however. Following are four considerations that could move the needle from red to black.
Keys To Making E-commerce Profitable
You game your online business to higher average order values (AOV): Our model doesn't look so good for an $800 sale, but for a $2,500 sale, we are profitable. Why? Because we are always going to be paying a much higher proportional freight cost on lower ticket items. Our shipping to Texas on this new theoretical order would probably be only twice as much as our $800 order, with a CGS of $1,250. That small difference is all it takes to make this sale worthwhile.
2. You leverage existing resources: Your business already has a sales team, customer service team, and delivery staff. You may even have employees with the bandwidth and skill sets to handle other tasks such as social and analytics. This may well work in the short run as you get your business launched, but long-term you'll need dedicated expertise.
3. You sell based on discounts: Another tactic is to take advantage of manufacturers' closeouts and discontinuations. These are usually sold at 25% to 50% off wholesale with no pricing restrictions. Such opportunity purchases can add to your overall margin, but may require that you purchase and warehouse the product in advance.
4. You leverage your brand: One clear advantage most furniture retailers possess is their own longevity and physical presence. If your retail business is still around after the last tumultuous decade, chances are you are an established presence with some brand equity. By leveraging your brand throughout your store and across channels, particularly social, you may substitute this visibility for paid advertising.
5. Accept lower margins: When all is said and done, in the best case scenario, expect net profit of 5% or less. Of course, the net contribution of 5% on a $20m business is significant, as opposed to the higher margins you enjoy in your smaller brick and mortar business, so it's all a matter of perspective. It's a volume-driven business that requires both patience and capital to grow.
You need to carefully consider the strategic implications of launching an online business with the opportunities it presents and the pitfalls and challenges you will encounter. The ever-changing digital retail environment has paid off big for many, but the road is strewn with remains of businesses that did not carefully plan their resources. Consider the performance of Wayfair shown in the following graphic. It’s been a long road.
July 18,
2016 by in Business Strategy, Industry
Many conversations start with furniture retailers bemoaning the absence of traffic in their stores. Even though many are experiencing increases in sales driven by higher close rates and average tickets, they still remember the days of more customers coming through the door. We will not address the reasons, pre-shopping research on the Web and the time-starved consumer, because this area has been covered in previous issues (May, 2016). Our focus is on how to get consumers, while diminished in number, through the front door.
Compared to other retail categories, marketers consider furniture as blessed with universal desire. In no study since the 90’s has the consumer, when asked if his or her home needs redecorating and would that redecorating involve the purchase of furniture, at a minimum 87% of consumers responded with a positive Yes. This finding was according to ongoing research by FurnitureCore, our market research group.
Then what is the problem? What are the barriers that are preventing the consumer from acting on this need? On the horizon we see one of the greatest waves of household formations since the Baby Boomers. This is the emergence of the much-discussed Millennials.
That, however, is the future. Let’s not forget the household formations that haven’t occurred in the last decade as the economy and student debt force a delay in marriage, child birth, and household formations. However, at some point, the youth must emerge from the parents’ basement.
What is the current barometer? According to a just-completed survey, consumers are at various stages of shopping. The following graphic illustrates.
First the bad news: Even though they have an interest in furniture, 52% have no immediate plans to purchase. How can we change their minds? If you watch many of the decorating televisions channels’ “before and after” programs, you would come to the conclusion that someone needs to change their minds.
Unfortunately, according to recent research, only 22.3% of consumers indicate that an advertisement had prompted them to purchase a furniture item if they were not in the market for it. Regrettably, with two-income families and consumers spending less time physically in their homes coupled with the lack of home entertaining, the need to improve the decor is not high on the consumer’s “importance” meter.
One of the major factors in this loss has been obsolesce. With the economic downturn, car buyers kept a new car 71 months as compared to 38 months in 2002. This has created a pent-up demand for cars that has resulted in record sales for cars in the past two years.
What do we need to say about cell phones? Each quarter brings the latest from Apple followed shortly by the latest from its competition. These ongoing modifications distract the consumer from other large expenditures.
The appliance sector has built-in obsolescence with the average life expectancy of a refrigerator at 13 years and a washer/dryer at 10 years. One cannot ignore the non-functioning refrigerator as one would the threadbare arm of a chair.
Nevertheless, we cannot reconcile ourselves to waiting for our turn. However, advertising can be a powerful tool to encourage the consumer to postpone the purchase that car or that cell phone in order to create a great environment for escaping the demands of living.
And now for the action. Those who are finally actively shopping for furniture have made up their minds and will buy furniture. Currently, approximately 15% are in that frame of mind. The obvious advertising activity that is associated with the furniture industry is in place to bring them into the store. That is the infamous promise of substantial discounts with financing so generous that it seems you will NEVER have to pay. And then there is the ultimate, the “going out of business” deal. Unfortunately, according to research, the consumer does not believe this.
Now for the second stage – These include those who are thinking about buying furniture because they need furniture or just want to buy furniture. These consumers should be our target for advertising. Currently, 26.4% of consumers are at this stage. Unfortunately, over half of these consumers will be at this stage next year if furniture dealers do not spur them to action.
What causes this lack of action? The first is the other consumer durables. In the past decade home furnishings has lost 1.8% indexed point of its share of expenditures. Being distracted by that new car, new phone, new appliance, or new entertainment device is a fact
Another approach starts when the consumer was just thinking about a purchase. This involves exposing the consumer to decorating ideas and new products that may pre-sell them on your store.
Finally, the consumer that has just purchased furniture. Currently, this represents 15.5% of the households. Traditional thinking has been that these consumers are out of the market. This is not so. With significant credit lines on credit cards, the consumer can be in the market anytime. According to research, the best performing retailers have consumer purchases from those consumers who have bought in the last 18 months at a 30% level. Yes, these are your best customers, those who have already decided that your combination of merchandise and service are their best decision.
July 18,
2016 by in Business Strategy, Industry
By Tom Zollar
One of the basic retail facts of life that we have often referred to in this column is that whatever happens on your sales floor is the result of three major business dynamics working together: Advertising, Merchandising and In-Store Experience. I often find that many retailers look at their sales metrics as only giving them the results of their selling effort. When in reality, virtually any sales report you analyze also provides great insight into how your two other important areas are doing. Since the theme of this issue deals with Advertising, we will take a look at ways for you to use some existing sales metrics reports to help you improve the power and focus of your efforts in that area.
As we have often said, your Total Sales Volume = Traffic X Close Rate X Average Sales. Traffic is really the main driver of your sales engine and dramatically influences your results. Without customers there will be no sales or as an old retail axiom goes: “A strange thing happens when you don’t advertise – NOTHING!” That’s a good way to look at it, but in reality the number of potential customers your advertising efforts drive into your store is only part of the equation.
Many retailers end up being a bit short sighted in that they tend to only judge the success of their marketing program on the amount of traffic it creates. However, there is another dynamic of the opportunities it creates that is just as vital and in some cases more important than the QUANTITY of bodies delivered to your doorstep. That is the QUALITY of those that answer your call! In other words, no matter how many people you bring in, if they are not the ones your merchandising and sales effort are targeting, you will never maximize your potential.
At this point you might say: “Well DUH, I know that, but what do I track and how do I analyze it to determine the quality of the Ups my promotions, ads, online presence and events are bringing in?” Of course the main indicator will be your total sales, but that is basically the end result you are looking for from all three of your main business efforts and as we have often said, it is very hard to coach a result because too much goes into it. You really need to break it down into its main ingredients, the “what makes this happen” elements, that can be analyzed and improved.
We have found that the most useful number in your entire sales measurement process is Revenue Per Up or Performance Index as many call it. It is the main indicator of both the effectiveness and the efficiency of your overall effort, with serious implications about each of its ingredients. In the June issue we defined it and briefly discussed how it can be used to help direct your coaching efforts with your sales staff. Several articles last year went into more depth about using it as a sales improvement tool.
To a certain extent, your staff is only as good as the traffic you feed them. So the QUALITY of the Ups your advertising generates has a direct impact on how well they perform. Therefore, by default, Revenue per Up can be a great indicator of how well you are doing at delivering qualified potential customers to your selling team. Similar to its sales use, it can also serve as a value or contribution generated measurement for your Advertising effort. We use it as a “Red Flag” for where we need to focus our sales coaching effort and it works well that way for advertising too. For the most part its best application is as a trend indicator, meaning it can show you the direction you are going and also give you extremely useful comparatives to other previous promotions or events. The latter seems to be its strongest asset for analyzing your advertising program.
As stated, you need to judge your promotional efforts based on both the quantity of Ups generated and the quality or qualifications of those that respond. Therefore, you will need to find a way to get your sales reporting system to produce a report that gives you all the information you need to not only analyze those two important metrics, but also the main elements that create Revenue per Up, which are Closing Rate and Average Sales (remember that CR X AS = Rev/Up). That will allow you to actually drill down further into the data to determine where the weaknesses or strengths exist. Then you can develop a strategy to maintain or enhance the good and improve the bad.
The graph below gives us a dramatic visual picture of how a store’s monthly traffic and Rev/Up have fluctuated over a 12-month period. It also indicated how the two have interacted, since we know that the level of traffic will heavily influence how well a store can interact with each potential customer that comes in the door. This is a great way to get an idea how well your staffing level is handling the fluctuations in traffic load that your advertising and seasonal variations cause. That is always the first thing to look at because if your store is chronically understaffed, then you will see greater fluctuations in Rev/Up as your staff struggles to service the traffic you get in busier months.
It should be said that basically the store reflected below is properly staffed and during most months its staff can deal with its workload. However, as you will see, when things like vacations, sick leave and other events reduce your normal staffing level, performance does suffer (particularly when top writers are absent). In this case, we saw that impacting mainly the summer months and December.
Here is the graph and some ideas of what you might look for:
·April – High Ups and Low Rev/Up in this case possibly indicates a good urgency in Ad message which drove people in but did not give them as strong enough reasons to buy. CR was good, AS was low - Look into what deal was offered and whether financing was part of it, something was missing.
·May – Close to being a “Normal” month with average CR and AS. Staff worked efficiently with traffic, consider repeating Ad with some tweaks to build AS.
·June – Traffic dove and rev/Up held steady. Probably should not run this Ad again, it did not drive traffic and even with lower Ups, performance did not improve significantly. Look for something else to do.
·July thru September – Strong traffic for summer season, but poor performance. How much was this due to staffing issues and how much was due to a weak advertising message? This is the biggest opportunity for improvement you have. Therefore, study it and come up with a better plan next year for both areas!
·October – What happened? Traffic tanked and so did performance! When this happens in a traditionally strong month, it is almost always caused by a failed advertising effort. Don’t repeat what you did, come up with a better program next October!
·November – Wow, the perfect storm: traditionally the best business month, ran strongest promotion and was fully staffed! Find ways to repeat this effort if you can!
·December – traffic good but performance dropped. How much was staffing related and how much was caused by a weak advertising effort? In this case it was most likely the former since long term, top writers normally get time off for holidays, which kills performance. Try to mitigate this in the future!
·January – Traffic dropped but performance shot up. Possibly weak urgency in message that failed to drive potential customers into the door, but those that came had a strong reason to buy. Good analysis, however in this specific case the traffic drop was caused by bad weather, not bad advertising. Don’t mess with Mother Nature!
·February – Weak traffic, great performance again caused by weather and shorter month. But we know that our promotion caused those shoppers to buy, so use it again.
·March – Great Traffic, but big drop in performance. What caused it? Some might have been caused by staff overload, but the reason to buy was not strong enough too. Should have been a great month. Give them more reasons to buy next time.
·April – What happened? Traffic off year-over-year, but performance improved. Possibly the urgency of message was not as strong as prior year. Definitely an opportunity to improve! Compare what you did and talk with staff to see what worked and what did not.
The winningest football teams all measure, grade and coach performance improvement in their offensive, defensive and special team’s efforts, because they all contribute to the results on the playing field! You need to do the same in Sales, Merchandising and Advertising. I hope this gives you some ideas about how to study the last but not least area!
July 18,
2016 by in Business Strategy, Industry
With the sophistication of the internet has come the booming growth of e-commerce. The combined furniture and home furnishings industry has been one of the big recipients of this growth second only to the clothing/footwear industry. It is estimated that 2015 internet sales of furniture alone now totals an estimated $14 billion or 15 percent of furniture industry sales. (Source: Impact Consulting Services, Inc. proprietary industry model and U.S. Census Bureau’s E-Commerce Report issued June 2016 covering years 2004 to 2014.)
Furniture Industry Sales
Since the bottom of the recession in 2009, total furniture industry sales have grown 24.1 percent, and much of that growth can be attributed to the rise in e-commerce. Actual brick and mortar store sales of furniture are up 13.8 percent since 2009 while e-commerce has grown by 168 percent. (Table A)
In 2004, e-commerce sales were inconsequential in relation to brick and mortar store sales which accounted for 93.4 percent of the total furniture industry. Over eleven years, the share of e-commerce has grown from 3.2 percent to 15.3 percent in 2015, while brick and mortar sales fell to 82.9 percent of total furniture dollars (Table B).
Along with furniture e-commerce sales, other home furnishings products – floor covering, window treatments and home accessories – have grown at an even faster pace than furniture. The table below shows that while furniture e-commerce sales have grown 440 percent since 2004, home furnishings have growth 697 percent to $13.9 billion (Table C).
Brick and Mortar Stores e-commerce
Retail sales of furniture and home furnishings products are sold through three avenues – brick and mortar stores, internet shopping (e-commerce) and finally mail order and other miscellaneous non-store retailing. In the first instance - brick and mortar stores -consumers can physically visit the store or they can often visit the store’s website and make an online purchase. Many of these retailers offer expanded product offerings on their websites not available in stores. While some large brick and mortar merchants have been successful in online retailing of furniture and home furnishings products, furniture and home furnishings stores as a whole have been much less successful with online attempts. These websites serve as much to draw the consumer into the store as to generate online sales. And while e-commerce sales among furniture and home furnishings stores almost doubled from $330 million to $651 million 2004 to 2014, this only increased internet sales to less than one percent of furniture stores volume in 2014.
Comparing furniture and home furnishings stores to other retail brick and mortar companies, furniture and home furnishings stores lag behind in percent of e-commerce sales to total sales, though none are exceeding three percent of sales via e-commerce (Table D).
E-Commerce Retailers
The phenomenon of e-commerce has been the rise of what was once called “Non-Store Retailers”, now referred to as “E-Commerce Retailers” – companies without physical stores competing with brick and mortar establishments. The new Census Bureau study reports sales of furniture and home furnishings through e-commerce retailers increasing from $4 billion to $24.3 billion in ten years (2004 to 2014) – a growth of 503 percent (Tables E).
Along with furniture and home furnishings, other consumer merchandise lines dramatically increased sales through e-commerce retailers. At $46.9 billion in sales, clothing/footwear leads e-commerce retailer sales in 2014 up from $7.1 billion in 2004. By far, the fastest growing products sold by e-commerce retailers, clothing/footwear increased 561 percent over the ten year period. Furniture and home furnishings experienced the highest growth among e-commerce retailers coming out of the recession 2009 to 2014 – jumping an average of 20 percent per year. Sporting goods sold through e-commerce retailers also experienced high growth in the last few years, but electronics and computer hardware have tapered off with sales increasing a yearly average of five percent since 2011 (Table F).
Of the five selected merchandise lines in Table G, clothing/footwear holds the highest share of e-commerce retailer dollars and grew from 13.3 percent share in 2004 to 18.4 percent share in 2014. Furniture and home furnishings also saw a gain in share – finishing 2014 at 9.3 percent. As more merchandise lines like clothing and furniture have increased their internet presence, two broad product areas have lost share among e-commerce retailers -- electronics and appliances and computer hardware. Once the king of e-commerce, computer hardware fell from 15.1 percent share to 6.3 percent in ten years. Electronics and appliances slipped down from 10.8 percent share of e-commerce retailer sales to 9.2 percent.
Retail Trade Total
While internet purchases have made major inroads into many consumer product areas, e-commerce is still a small part of overall retail sales. According to the new government e-commerce report covering years 2004 to 2014, sales from e-commerce for all U.S. retailers, both brick and mortar retailers and e-commerce, for all consumer products excluding gasoline totaled $298.6 billion in 2014. This reflects an increase of 14.3 percent from the year before and a 311 percent change over ten years (Table H). Meanwhile total retail sales, excluding gasoline, grew 30.3%.
According to the Census Bureau, the internet claimed 7.3 percent of all retail sales, excluding gasoline, in 2014, up from 2.3 percent ten years before (Table I).
While the growth of internet sales of some products appears to be slowing, other product areas, like food, are still in their e-commerce infancies. The rapid growth of furniture industry sales by successful e-commerce retailers are challenging the brick and mortar stores and presenting a distribution dilemma for manufacturers. In the next issue Statistically Speaking will continue to address e-commerce and the future customer.