Monthly Issue
From Home Furnishing Business
July 28,
2015 by in Business Strategy, Industry 
Mattresses remain a key profit center for home furnishings retailers.
By Bob George
The bedding category, the focus of this month’s issue of Home Furnishings Business, must be important since we normally do not devote a total issue to a single product category.
Yes, indeed. Mattresses represents on average 17.3 percent of sales for retailers with between $5 million and $25 million in sales revenue and 23.9 percent for retailers with $100 million or more in sales revenue. There are significant variances with some of the smaller retailers eliminating the category while others are reaching 25 percent or more.
The additional revenue is an obvious reason we emphasize the category. However, from a strategic perspective, a more important reason is the vulnerability if that revenue is lost. Simply put, the category is an easy product to sell. It requires limited space, is easy to deliver, and has manufacturer-supported returns. Mattresses also have relatively good margins—47 percent to 52 percent depending on the size of the retailer. More importantly, however, is that it is a profitable business. Challenge your accounting team to develop a pro forma on your bedding category. I am confident you will be pleased with what you find.
So what is the point? The point is that you, the retailer, may not realize what you have until you lose it. There are more than 4,700 freestanding bedding stores in the United States. Obviously this includes the giants like Mattress Firm that has grown more than 60 percent in the past year. But it is also made up of smaller two- and three-store businesses that hope to get the attention of the acquirers. However, until that happens, this group is content to continue in a good-return business model.
Bedding is an easy product to sell. It requires limited space, is easy to deliver, and has manufacturer-supported returns. Mattresses also have relatively good margins.
What does this mean to the traditional independent furniture retailer?
In larger markets the proliferation of Sleepy’s or Mattress Firm stores has become a common occurrence. In smaller markets the surge is coming. This surge, however, is not so much with the major players. Rather, it is with the small two- or three-store entities.
Now ask your accounting team for the impact of losing 30 percent to 50 percent of your bedding business. These results will not be pleasing. You will see your vulnerability.
So what to do? The answer—do it yourself. Many traditional retailers are finding success with freestanding sleep stores – branded with their names.
Based on our research, there is a consumer segment of plus or minus 30 percent that has a preference for this retail model. Why? The consumer sees such freestanding mattress stores as places with fast service, knowledgeable sales associates, and a wide product selection.
Remember, sometimes the best defense is a well-executed offense.
July 28,
2015 by in Business Strategy, Industry
A fairy tale offers the happy ending of a full 40 winks.
by Sheila Long O’mara
Once upon a time, there was a busy mom of three boys on the prowl for the perfect bed. Far from a princess but not quite a hobo, this mom craved the fairy tale ending of a peaceful, complete, restorative night’s sleep.
A night filled with sweet dreams, soft pillows and crisp sheets. An early morning awakening met with the surprise of a full 40 winks and the energy that only a full night’s sleep can deliver. Pure bliss, right?
Mattresses and the right marriage of such has the magical power of giving consumers that happy ending (get your mind out of the gutter) at the end of a long day at work.
This month’s Home Furnishings Business delves into the bedding category and how to capture consumers on the hunt for a new mattress. Speaking to them in terms that matter and helping them solve an important problem—sleep deprivation—can create life-long customers.
Everyone needs a sleep surface. It’s the one sure category in our industry that consumers seem to be constantly in the market for.
In the O’Mara house of five, it’s a revolving cycle as to whose bed is up for replacement. By my count, I’m pretty certain it’s the master bedroom’s turn in the rotation.
When you see me walk through the door, just go ahead and toss a fluffy blanket in my direction and allow me to nap my way through the mattress selection. Personal experience has shown me mattress selection isn’t a quick, in-and-out process.
Once I’ve made my way through the store acting like a modern-day Goldilocks, I’ll be ready and eager to discuss the benefits of each of my narrowed down choices. All the while through my naps, I’ll be dreaming of the perfect bed on which to sleep over the next eight years.
I’m not that different from any other customer that walks through your door. Sometimes the technical specs bore me, and sometimes the idle chit chat can be too much.
Romance it just a bit. Tell me a story of how sleep can improve my health. Studies show sleep makes you feel better, work smarter, more creative, live longer and have a healthier sex life. Who can argue with any of that?
Best of luck in selling sleep. Remember it’s not always about the price tag. Many folks would sell their first born for better sleep health.
July 15,
2015 by in Business Strategy, Industry
The furniture industry is bouncing back from the Great Recession, however, furniture still faces stiff competition from other consumer expenditures.
The battle for the almighty consumer dollar is on, and the competition comes from a variety of places where people are choosing to spend their hard-earned money.
While the furniture industry has made great strides to recover from the Great Recession, consumers are spending an increasing amount of money on Consumer services and “lifestyle expenditures”— leaving fewer dollars for furniture and other durable and non-durable goods.
The largest services expenditure, housing, has steadily increased over the last 15 years and shows no signs of slowing. Housing is followed by healthcare, food services and accommodations, and recreation. Although consumers have these growing demands on their money, furniture is fighting back from the recession to regain share being taken by other durable home furnishings products like major appliances and televisions that have outperformed the furniture industry in past years.
Consumer Services vs. Goods
Consumer demand for services, primarily housing expenses and utilities along with healthcare, have increased their share of personal consumption expenditures over the last 15 years. During that time furniture, within the durable goods category, has decreased. Table A shows the shifting of goods and services from 2000 to the first quarter of 2015.
Services added 3.7 percent to its share of personal consumption, while durable goods, including home furnishings, motor vehicles, appliances and televisions, fell 2.5 percentage points. Non-durable goods, like food and clothing, as a group also lost 1.7 percentage points.
Rising Costs
As shown in Table B, money spent on housing, including rent, utilities and other vendor, has risen at a rapid pace since 2000—up 85.6 percent in the first quarter of 2015 while consumption of furniture rose 33.3 percent.
Unlike furniture, which felt the impact of the recession with an 11 percent drop in 2009, housing services expenditures only slowed its upward momentum. On a positive note, furniture has climbed 20 percent since the peak of the recession, while housing increased 18 percent.
In addition to housing, personal consumption of healthcare did not decrease due to a poor economy. Consumers were faced with increasing costs of housing and healthcare on smaller budgets. As the economy recovers and budgets increase, sales of home furnishing products are rising along with consumer services expenditures.
Table C shows the rise of consumer services expenditures from 2000 through the first quarter of 2015. Like housing, healthcare expenditures have grown exponentially—increasing 126 percent in 15 years. Although dropping slightly in 2009, money spent on food services and accommodations and recreation increased by 93 percent and 77 percent. Consumers decreased spending on transportation during the recession by 7 percent, but have grown 21 percent since 2009.
Consumer Home Furnishing Products
In addition to the rise of consumer dollars going to services, the furniture industry has also faced major competition from other home furnishings products.
Table D details the furniture industry’s growth in share of the three major home furnishings product categories—furniture, major household appliances, and televisions. Furniture has lost share over the last 15 years, only slightly to major appliances, but sharply to the rapid innovation in televisions.
Furniture and bedding continues to claim the largest share of the three home furnishings product categories at 56.2 percent but has lost six market share points, primarily to televisions. Since 2000, total personal consumption of furniture products has grown 33 percent at an annual rate through the first quarter of 2015 to $99.5 billion, just above the growth rate of appliances.
Appliances have also lost market share slightly to televisions, falling from 24.8 percent to 22.3 percent between 2000 and the first quarter of 2015. In terms of growth, the $39.4 billion major appliance industry has the lowest rate of the three home furnishings categories at 32 percent.
The innovation in Ttelevisions has been the major home furnishings consumer expenditure story early on, growing from 13.1 percent of the home furnishings category to 21.5 percent over the 15-year period.
The television segment has more than doubled since 2000, growing 141 percent. However, as Table E shows, most of that growth occurred before and during the recession. Since the recession, the furntiure industry has outperformed both televisions and appliances, growing 20 percent since 2009 compared to 9 percent for appliances and 4 percent for televisions.
If the housing market continues to improve and the economy does not falter, furniture should regain some of its momentum against other competing consumer products.
Methodology
Personal Consumption Expenditures (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy. The data is compiled by the Bureau of Economic Analysis, a division of the U.S. Department of Commerce.
PCE is classified by type of product as follows. Goods are tangible commodities that can be stored or inventoried. Durable goods are goods that have an average useful life of at least 3 years. Nondurable goods are goods that have an average useful life of less than 3 years. Services are commodities that cannot be stored or inventoried and that are usually consumed at the place and time of purchase.
Furniture sales in the PCE include sales tax and sales to non-profit institutions.
July 15,
2015 by in Business Strategy, Industry
We recognize the young talent throughout the furniture industry with Forty Under 40.
By Sheila Long O'mara
Ahhhh, The Joys of youth. To have all of the energy and excitement.
The furniture industry is filled with a great collection of energetic folks who are all bright-eyed and eager to tackle the world.
Youngers are filled with exuberance, and that energy offers them the ability to tackle nearly any challenge. Often, people hear exuberance and youth in the same sentence and think carefree and wild. However, the word exuberance comes from exuberant, which means to be very energetic with enthusiasm.
The furniture industry has an abundance of exuberant youth who have taken hold in the business and done great things. That said, we’re honored to celebrate our 2015 slate of Forty Under 40 in this issue.
The list’s foundation was created through industry nominations accepted over the last few months, and the nominations rolled in from across the industry. This year’s list, unlike the one we did in 2013, features retailers AND industry vendors. Both segments offer the furniture business a wealth of talent in a variety of positions including marketing, operations, retail management, presidents and a number of vice presidents.
Members on the list include folks from family businesses as well as those who have jumped into the business having no family ties at all.
The furniture industry is much better and boasts a bright future because each of them is an integral part of the fiber of this great big family.
Our slate is filled with creative, intuitive and downright business savvy individuals who are shaping the furniture industry. They continue to push themselves, encourage their co-workers and push the envelope to move the furniture business forward.
This year’s under-40 set has taken the industry by storm in each of their positions, and I’m certain there will be many innovations to come from the 2015 class of Forty Under 40.
The industry needs to continue listening and learning from these innovators who push the boundaries in search of new ways to conduct business. We need to continue to nurture and mentor them so that they OWN this business when all of us more-seasoned executives have moved to the beach to retire.
Enjoy the list!
July 15,
2015 by in Business Strategy, Industry
The magic tool for hanging onto shopper’s loyalty is available.
By Bob George
It would be wonderful if we could read the consumer’s mind. However, since this ability remains in the world of the supernatural, we are forced to take another approach.
Whether it is industry meetings or one of our performance groups, a key discussion is how to stem the erosion of furniture retailing to alternative distribution channels.
In previous issues we have documented the erosion by distribution channel (May 2015) and by product by distribution channel (June 2015). Now the quandary becomes figuring out what traditional furniture retailers can do about it.
Discussions of what to do often turn to the latest finance offer. No interest and no payment for an ever-increasing time frame. All of this only impacts an ever-decreasing bottom line by 3 percent to 4 percent. Next come the Rubik’s Cube of pricing—50 percent off with an additional 10 percent off if it’s Tuesday, etc., etc., etc. All of these are decreasing the gross margin at the top of the income statement while at the same time causing mistrust with the consumer.
It would be wonderful if we could read the consumer’s mind. However, since this ability remains in the world of the supernatural, we are forced to take another approach, a much easier approach—the consumer survey. We asked a national sample of consumers who had recently purchased furniture to specify the things that were most important to them when buying furniture. Our findings are shown in the accompanying graphic.
We might have expected low prices to be the predominant purchase driver. However, this was not true. It falls in second position with 14.7 percent of consumers choosing low price as the most important factor to them. However, the expectation mentioned most often at 15.9 percent is that the furniture store would provide a good product selection. If we combine this percentage with the 11.3 percent of consumers indicating a desire to see a wide selection of styles and prices, we appreciate the high degree of importance the consumer places on the product selection offered.
The third most important offering a furniture retailer can provide consumers is free delivery, which is cited by 14.5 percent. This is a factor we frequently want to ignore. However, the consumer has spoken on that issue, and he or she expects the furniture to be delivered.
As you consider this data, take a look at the other distribution channels and see how they are responding to consumers. It could be eye-opening. If you would like the next 10 things the consumer wants from retailers, drop me an e-mail, and I’ll send you those.