Monthly Issue
From Home Furnishing Business
April 4,
2016 by in Industry 
With the upcoming High Point Market, the furniture industry will focus on new products and services that will propel it forward into 2016.
As strategies are developed, it’s crucial that care is taken to understand we are subject to the echo-chamber effect. In other words, participants at the Market reinforce each other’s perceptions thus reinforcing the decisions that will guide retailers and vendors moving forward.
The danger lies in the fact that the majority of those attending Market represent less than 40 percent of the industry volume. As is illustrated in Graphic A, traditional channels that represented 85 percent of furniture sold 30 years ago have now diminished.
For the most part the traditional industry is focused on competition from each other—regional chains or the independent retailers and vice versa with department stores as the sleeping giant always holding the potential to impact. However, what about the alternative channels, such as the Internet and lifestyle stores? It is not that the traditional industry is oblivious to those channels’ existence, but they are not perceived to be the immediate competition. From the consumer’s perspective, however, they are.
We should note that the suppliers, without much fanfare, are serving alternative channels and obtaining significant volume from the Internet and, to some extent, lifestyle stores. However, these suppliers are inclined to ignore the fact that much of the products are sourced by the retailers themselves. This raises the question of a need for a more robust partnership between the traditional suppliers and the traditional retailers.
When the industry slid into the Great Recession, there was significant concern that this was the end of traditional furniture retailing, especially the Independent channel. The industry did lose a significant number of retailers between 2007 and the end of 2015. Graphic B illustrates.
The downturn ended in 2009, and this year the industry has climbed back to its peak of 2007, as noted in Graphic C.
The question is whether or not the traditional channels of distribution will continue to decline. This decline has impacted not only the furniture stores, but also the broader category of home furnishings stores that include more of the decorative categories. Graphic D illustrates this decline by region.
We have included the floor covering stores to illustrate the impact across all of the home furnishings categories, as well as to identify an opportunity for traditional furniture stores. As can be seen from the graphic the West was, in total, hit harder than the Northeast. This was influenced by the percentage of smaller markets in the West. Graphic E analyzes the impact of the downturn on size of the market.
These are the facts.
However, there were several underlying trends other than the economy that contributed to the industry’s decline. As is always the case, consumers rule and as his or her buying habits shift, retailers need to make adjustments to their game plan to remain competitive and relevant. In a national survey conducted by FurnitureCore, a sister company of Home Furnishings Business, consumers purchased from the channels shown in Graphic F. These statistics closely match the previous chart on sales by distribution channel, but it should be emphasized that this is percentage of purchasers, not purchases.
While much was gleaned from the study, the demographics were most interesting. As can be seen in Graphic G, the older the consumers, the more they preferred the independent furniture retailers. When we inquired as to the reason for this preference, we found that it was not price. It was service and reputation.
Analyzing the same data for those consumers who had purchased in regional chains, we found the retail segment had captured the prime furniture buying segment—the 35 to 44 age set. Graphic H illustrates. Selection and price were most important factors in why the bought where they bought.
If we look at the current enemy of the traditional retailer, the Internet, we find prime furniture buyers (35-44) in age as can be seen in Graphic I. The reasons for the Internet purchase were convenience and selection, especially in the smaller markets.
These findings could be the topic of a total article, but the point is that if the traditional channels are to survive, they must satisfy the needs of their customers.
The next trend is the expansion of the regional chains. As discussed in the October 2015 issue, the introduction of a regional chain into a market impacts the established local dominant furniture retailer capturing between 8 percent and 10 percent market share. This is not enough to destroy the retailer, but it is enough to impact significantly its financial performance. In the promotional to middle price points Rooms to Go and Bob’s Furniture continue to expand, especially Bob’s expansion into the Midwest. Likewise, Havertys Furniture and Raymour & Flanigan are expanding and competing in the middle to upper price segments. With consumers shopping fewer stores—two nationally last year—regional chains in the market usually secure a place on the short list.
The most important statistics for a retailer are illustrated in Graphic J. Was the retailer considered? If considered was the retailer shopped? If shopped, did the consumer make a purchase? The measurement can easily be accomplished.
The third point centers on the industry in total. Graphic K presents the industry’s share of the three consumer household durables. We should question ourselves as to why we have lost a significant amount of our position in the consumer expenditures race.
The Conclusion
Will traditional furniture retailers survive? The answer is yes, but we may not recognize them a decade from now. We are going through a watershed in our populations as can be seen in Graphic L. Embracing change has been and will always be required. However, the pace has tripled in the past 10 years. Is your organization ready for change?
April 4,
2016 by in Industry
This month’s issue is designed to help retailers compete in an ever-changing marketplace, which really comes down to one of the most basic challenges of retailing—getting people in your market to want to do business with you instead of others or selling your store.
That may sound simple, but accomplishing it has become increasingly harder as the number of options the consumer has to purchase from has grown. Even though you likely have fewer actual brick and mortar home furnishings stores in your area, competition for the consumers in your market has increased dramatically.
Of course, the real game changer has been the Internet, which has not only given consumers the ability to shop outside their local markets, but also allowed them to customize their shopping experience by selecting businesses they see as providing the things that meet their needs. We know that the most important factors influencing a customer’s decision on where they will shop and buy home furnishings products include: selection, price, display, salesperson, service, exterior, reputation, ease, financing and advertising.
It would be great to be able to be perceived as the best at all 11 factors in a market and some of the country’s best retailers achieve that or come close to it. However, it is not possible for most to do that —either due to store type, market size or competitive landscape.
How can retailers maximize their ability to compete? It comes down to having a clear vision of what customers want and what merchants can offer that differentiates stores from others in the marketplace. Once we have that, we must translate it to three areas that most impact our sales success: advertising, merchandising and in-store experience.
Coach’s Corner is targeted at developing the best sales team and selling effort for stores. That said, let’s discuss the in-store experience, and let others help improve your competitive edge in the other two facets of your business.
The consumer experience is the area where retailers can differentiate themselves and become a true competitor. You have already done something right by enticing the customer into the store. Chances are better than 75 percent they have been to your website and that of the competition. Then, they chose your store. They believe you have what they want or they wouldn’t waste their time coming in.
Research shows that between 80 percent to 90 percent of consumers visiting a store can find what they want. That begs the question—why do most stores only sell about a third of the customers that visit?
Simply the in-store experience does not live up to expectations. This is an area where most retailers can improve. To compete in your market, be the best you can be when consumers come through the door. That’s where the game begins.
To start with, it is best to know what the competition is doing and be aware of how they showcase products and treat their customers. Visit them often and have your team do the same. Such information is invaluable in becoming the alpha competitor in a market. Find out what they do, and outdo them. In many cases it won’t be as hard as one might think. Here are some areas to target:
· The exterior of the store is important in setting your customer’s expectations for their in-store experience. A customer’s experience begins when they drive up to the door. If the store looks tired and old, consumers will wonder about your ability to make their home look new and exciting. There are several dynamic and successful store design firms available. Find a store you like, ask the owner who helped designed it and hire them. It will be money well spent.
· Product display and POS are generally the next area to impact a customer’s store experience. When they enter the door, ensure they are drawn into an inviting, exciting environment that intrigues them and begs them to investigate further. The area inside store entries is critical. It is where consumers take in that first impression, and you know what they say about those. Beyond the entrance, offer clear views and walkways so the floor doesn’t look like a never-ending maze. Use color and pattern to indicate selection throughout. Have colorful, graphics-heavy signage strategically placed to answer questions and help consumers visualize the products in their homes. Consider assigning the task to a dedicated merchandising or design team member. Take them to market to buy accessories and see the newest display techniques at the better showrooms.
· The most critical element of an in-store experience centers on the customer’s interaction with store employees. Many retailers do the other elements well, but fail to maximize the customer’s in-store experience because sales associates are a hurry to sell something as opposed to providing the assistance most consumers are looking for today. The majority of the column’s here have targeted recruiting, training, coaching and managing a customer-driven sales team in your store. Revisit some of them for more information. Following is a list of things consumers want in their shopping experience. Unfortunately, many stores do not offer them consistently. Doing all or at least some will help set stores off in the right direction:
o For years, consumers have said they are afraid of pushy sales associates who are more interested in commissions than solving decorating problems. This is the industry’s reputation, and we have earned it. Make sure the staff is always focused on the outcome a customer wants rather than just on making the sale.
o Today, most consumers entering a furniture store are strongly inclined to say “I’m just looking” to the first person approaching them. They need to interact with a salesperson in order to find out available product and services. That makes the greeting the most important part of the selling process. A great greeting will break through any distrust and kick start a dialog that will result in a positive outcome. A greeting involves more than just words and should include both verbal and non-verbal enthusiasm. Make sure the staff is excited about meeting each customer and shows that enthusiasm consistently.
o The June 2015 issue contained an article on the one thing that will separate a retailer from others in the market. Sketching. More than 90 percent of furniture shoppers say they want their rooms sketched. Yet, only 5 percent say it ever happens. If you do nothing else, revisit that article for more information and train the staff to give the customers what they want—what a novel idea.
o The real low-hanging fruit for most retailers is holding onto customers they have already sold. Today’s consumers are not as loyal to stores they buy from as past generations. Remember that when you have sold someone, you have created a relationship, hopefully one that is also a friendship. Friends stay in contact and so must you. Thank you cards, follow up e-mails, friends and family events, private events all contribute to maintaining this connection. However, real friends send birthday cards, congratulate each other on achievements like graduations, express sympathy when appropriate. The real pros don’t have a client file; they have a friends file.
Most consumers today don’t want to be sold, they want a partner in their search for the perfect room. Be their friend and have fun doing it to maximize results.
April 4,
2016 by in Industry
After a long uphill battle for the furniture industry, furniture and bedding sales have finally met and exceeded the pre-recession peak sales of 2007.
The majority of this positive growth in 2015 has occurred in large Metropolitan Statistical Areas (MSAs), while many Micropolitan Statistical Areas (Micro SAs) and Rural Areas are still struggling to make a full recovery.
The furniture market trudged through eight years of recession and slow growth to finally dig out and surpass its performance in 2007. As shown in Table A, the industry plummeted 17.4 percent in two years, but it took another six years to recover and grow 24.4 percent to sales of $92.2 billion last year.
In both 2007 and 2015, MSAs controled 90.6 percent of industry sales with smaller Micropolitan Statistical Areas totaling 6.2 percent and the remaining 3.2 percent spread among the rural areas (Table B). All three market types are now above 2007 levels. MSAs took a nosedive in 2009 – dropping 17.7 percent as Micro SAs and Rural Areas decreased 14.4 and 13.6 percent.
While the larger markets had the greatest declines, they have also made the biggest comeback – growing 24.8 percent in comparison to 20.4 percent and 20.9 percent in the smaller markets and rural areas.
Number of Markets
In 2015, the industry as a whole finally exceeded 2007 peak sales, but many markets are yet to fully recover. Out of 937 total markets, 533 have surpassed 2007 sales, and 404 are still fighting their way back (Table C). Forty-two percent of MSAs fell short of 2007 levels, and Micro SAs have similar numbers with 43.7 percent below the peak sales of eight years before.
Sales by Markets
Table D shows the percent of industry sales in markets that are thriving versus the markets that are still playing catch-up. The markets exceeding 2007 peak levels account for more than 61 percent of industry sales with MSAs and Micros holding similar outcomes.
MSAs by Region
Breaking up the MSA markets by region, Table E shows the Northeast struggling to return. It is the only region in which the majority of the MSAs are falling short of pre-recession sales.
While more than 50 percent of MSAs in the Midwest and South have recovered in industry sales, the West is topping the country with more than 70 percent of MSAs exceeding 2007 peak sales.
MSA Sales by Region
The percent of markets by region exceeding 2007 sales does not exactly correlate with the percent of region sales by market type as shown in Table F.
Despite the fact that fewer than half of MSAs in the Northeast had sales in 2015 that exceeded 2007, the New York-Jersey City-White Plains MSA (a division of the broader New York CBSA) helped pushed percent of sales in 2015 past the 2007 level for the region. Likewise in the Midwest, the Chicago-Naperville-Arlington Heights MSA division has yet to fully recover impacting the poorer sales performance of its region.
MSAs by industry Sales Range
Segmenting MSAs by industry sales range gives another perspective of market performance. Not surprisingly, the MSAs with industry sales of more than $1 billion are having the highest percent of sales exceeding 2007 levels in 2015 (Tables G and H). With only 14 of the 401 total MSAs, the highest sales bracket exceeded pre-recession sales in 10 of those markets which accounted for 73.7 percent of those industry sales.
MSAs in the top two industry ranges (more than $500 million) were responsible for roughly 63 percent of total sales surpassing pre-recession levels in 2015. All in all, the MSAs within the largest industry sales ranges have pushed the furniture and bedding industry out of the recession.
A sampling of performance of the top and bottom three MSAs by size range is shown in Table I. Texas was clearly regionally among the least impacted during the recession, and Florida among the worst.
Editor’s Note: Sales analysis is provided by Atlanta-based Impact Consulting Services, parent company of Home Furnishings Business. The data is part of a proprietary model that tracks retail furniture and bedding sales at the market level. Sales include bedding, upholstery, bedroom, dining room, occasional, outdoor, and other miscellaneous furniture items. Sales tax is excluded. Data for all years is calculated based on current market geographical boundaries.
April 4,
2016 by in Industry
Area rugs can give bare floors a quick and easy makeover, and they can also be a great anchor for a well-designed living space.
In today’s home furnishings world, a great selection of rugs give retail sales associates a better opportunity for add-on sales. According to the most recent Home Furnishings Business survey of consumers, that’s just how people shop for area rugs—first, they buy new furniture; then, they buy the rug.
Nearly 75 percent of consumers said they chose their furniture first. Each of the consumers had bought a rug within the last 18 months. Another 17 percent said they reversed the purchases and bought the rug first. The other 8 percent bought furniture and the rug at the same time.
Perhaps the most concerning part of the survey for furniture stores is that consumers are bypassing the traditional furniture retailers when buying rugs and turning their attention and money to mass merchants like Walmart and Target.
Thirty-four percent of those surveyed made their most recent rug purchase at a mass merchant. Another 23.3 percent opted to buy from the nearby home improvement center—Lowe’s or Home Depot, for example. Even the Internet wooed a higher percentage of rug buyers at 13.8 percent compared to traditional furniture stores where only 11.3 percent of surveyed consumers recently bought their new rug.
When asked where they shopped for their rugs prior to purchasing, 16 percent said they’d looked for rugs at a traditional furniture store. The mass merchants garnered 29.7 percent of consumers shopping for their purchase, and the home improvement stores were cited by 20.5 percent of rug consumers.
Price sensitivity could have driven many consumers into non-traditional furniture channels for their purchase.
More than 42 percent said they spent between $100 and $399 for their most recent rug purchase. Another 35.2 percent reported they spent less than $100 for their rug. Another 12 percent spent between $400 and $799.
Consumers in the survey seemed clustered around a few trends. Neutral colors—beige, white, black, for example—were bought nearly six times as more frequently than other colors with 66 percent opting for neutral hues. On-trend blues, one of the more popular colors in home furnishings, came in a distant second at 11.3 percent, and greens followed at 10.7 percent.
A myriad of designs and patterns exist in rugs, but the largest segment of our consumer group, 29.6 percent, opted for solid rugs. Geometric designs followed at a distant second with 18.9 percent buying those patterns. Floral designs at 15.1 percent and traditional prints at 12.6 percent followed in third and fourth places.
Want More?
A more in-depth report on the rug category is available for purchase by e-mailing Laura McHan at Laura@FurnitureCore.com
5.7%
Percentage of 2015 industry sales attributed to rugs
$5.29 Billion
2015 rug sales
6.2%
2015 sales growth for rugs
What Suppliers Say
Kas Rugs’ Harbor
Hand hooked in China of polypropylene, Harbor works indoors or out. Suggested retail is $250 for a 5 x 8.
Surya’s Banshee
This hand-tufted rug is crafted of wool and viscose features shimmer. The abstract painterly motif in a soothing palette of neutrals and trending blues makes the rug very versatile and well suited for a variety of spaces. Suggested retail is $877 for a 5 x 8.
Jaipur’s Murray by kate spade new york
Retailers appreciate the ombré effect and the unique look of the hand-knotted rug. The rug is made of wool and eco-friendly bamboo.
Barrister by Capel Rugs
The menswear deign of the rug give it the chops to hold the focal point of a room. Its versatility allows it to fade into the background when paired with patterned décor.
Feizy's Brixton
Shown in Atlantic, the rug is inspired by the paintings of Tobias Tovera, making it an instant fan favorite. Power-loomed durability and a timeless design make this rug perfect for any room. Suggested retail is $422 for 5 x 8.
Loloi’s Fable Collection
The collection, designed by Justina Blakeney, offers chunky texture and vivid colors. The rug has generated interest as not only a floor covering, but also as a wall hanging and other unique uses. Suggested retail on a 5 x8 is $1,019.
nuLoom’s Felicity
Crafted of polyester, the blended soft corals and blues pop in the intricate design. Suggested retail is $179 for a 5 x 8.
Company C’s Passionflower
An all-over drawing of a bursting bloom makes a bold statement in wool. A classic drawing in updated colors. Suggested retail for 5 x 8 is $680.
April 4,
2016 by in Industry
This issue continues our annual focus on the competitive battleground within the furniture industry. In the October 2014 issue, we explored the impact of the expansion of regional furniture chains. Many were moving beyond their state boundaries and challenging other large independent retailers.
Last year, we addressed the larger regional chains that were marching westward in a move to establish a national presence. This month, we focus more closely on the independent dealers—those mom-and-pop stores that have been the backbone of the industry. Today, however, independent retailers represent less than 10 percent of all furniture sold.
The Great Recession led to the demise of many stores; many of them impacted by family succession. There is no one to pick up the reins of the store. The strategy for many of these family businesses was to let the store support the family and the real estate provide for retirement. Unfortunately, today the promise of retirement has not been fulfilled when much of the retail has moved to creating shopping experiences close to the malls. Many family-owned retailers have the burden of high lease rates to support the first generation. The result is an unprofitable financial model. The struggle is similar to agriculture in the early 1900s when the family farm could no longer support two families.
The refrain I hear most often is—say it isn’t so. Folks are curious whether small, independent furniture stores will disappear.
Not necessarily so. The hope may lie in with manufacturer’s retail verticals. We are talking specifically about Ashley HomeStores, Ethan Allen, and Thomasville stores. Yes, many are corporate stores, but there are also multiple units owned by individuals.
I am not pushing any of these, but it is time to redefine the business model. Perhaps, suppliers should assume responsibility for delivery to the consumer after the sale similar La-Z-Boy’s current strategy. Yes, this does mean more of the margin goes to the suppliers’ side, but perhaps they can be more efficient. One-source product supply, another alternative, is like an Ashley store with virtually no inventory at retail. This means significant risk for the supplier, but less markdown loss for the retailer. Assuming responsibility for consumer advertising on a national basis for the retailer is another change that could be considered.
I could go on, but the bottom line is that there is a 60 percent to 70 percent gross margin in the distribution channel. Which entity can accomplish the transfer from the end of the production line to the consumer’s home? It is time to think in a different way. Who is ready to sit down with a whiteboard and diagram the process?