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From Home Furnishing Business
January 12,
2016 by in Business Strategy, Industry 
People are again jumping into the housing market and that could spark furniture sales.
Nothing spurs a furniture purchase like a move to another home.
It can be young people renting a first apartment, first-time homebuyers, or individuals and families making life changes to new abodes. Now that housing mobility has begun to pick up after being stagnant for more than five years, people planning to move are faced with decisions whether to rent or buy an existing or new home or apartment. Included in these choices are decisions on the age and size of the structure and of course the cost.
Mobility Picks Up
During the Recession, people tabled moving plans. As the economy improved, mobility has slowly increased and more people are opting to move. As shown in Table A, 60.6 percent of total U.S. housing units were moved into since the year 2000 and 38.4 percent in the last five years.
Apartments are particularly transient with 70 percent of apartment units moved into within that same five-year period. As expected, owner-occupied housing units are more stable with 20 percent of these units moved into in the last five years, and 56.7 percent since 2000.
Aging Homes
Now that people are moving, what are the housing options? Consumers initially face the choice of purchasing or moving into a new or old property. With housing starts slow to recover from the Recession, people are increasingly faced with an aging housing industry. Table B illustrates the year current housing was built for all occupied housing units. (Note: Rental versus owner-occupied units is not shown separately as data showed no significant difference between the two.)
Particularly startling is that 28.7 percent of all housing is more than 55 years old and 55.4 percent is more than 35 years old. The majority of the housing inventory in 2014 (54.5 percent) was built between 1960 and 1999. Only 2.2 percent of housing units were built in the last four years and a total of 16.8 percent since 2000. Many current and potential homeowners are living in or considering older homes and face ongoing costs of renovations and repairs, which could potentially dip into new furniture expenditures.
Size Matters
One thing is clear, single-family houses keep getting bigger. As shown in Table C, the average size of a new single-family home has grown 17.2 percent since 2000 to 2,657 square feet.
Meanwhile new apartment construction, which peaked in 2008 at an average 1,300 square feet, is holding now at 1,151 square feet.
Housing Costs
The monthly mortgage paid by homeowners has actually fallen somewhat since 2009; however, rents have increased significantly (Table D).
Low interest rates over the last few years have made refinancing existing mortgages and new purchases attractive. In 2014, 18 percent of all owner-occupied housing units were paying more than $2,000 in monthly mortgage payments down from 21 percent in 2009. In contrast, renter-occupied housing units costing more than $1,000 a month grew from 33.4 percent of all units in 2009 to 41.7 percent in 2014.
What percent of household income is being spent on housing? And, what is the acceptable level? According to the Census Bureau, “The conventional public policy indicator of housing affordability in the United States is the percent of income spent on housing. Housing expenditures that exceed 30 percent of household income have historically been viewed as an indicator of a housing affordability problem.”
In all occupied housing units owned or rented (Table E), the percent of residents spending 30 percent or more of household income has fallen from 36.4 percent of all units 2009 to 33.4 percent in 2014, a healthy sign. In addition, monthly expenditures of 20 to 29 percent of household income have as also fallen from 23 percent of units in 2009 to 21.7 percent in 2014.
As shown in Table F,
homeowners spent a significantly less percentage of household income on housing over the last five years. Since 2009, the percent of owner-occupied units with owner’s spending more than 30 percent of their income has fallen significantly from 30.4 percent of houses to 24.8 percent.
Traditionally, renters spend significantly more of their income on housing than owners and the percentages have held steady between 2009 and 2014. In 2014, 47.9 percent of renters spent 30 percent or more of household income on rent, almost double the percent of owners.
January 12,
2016 by in Business Strategy, Industry
Knowing the value of a category can determine how much showroom space should be allocated to it.
By Martin Roberts
Last year, the team at Martin Roberts Design re-planned and re-merchandised more than one million square feet of retail space in 30 or so stores around the country. As a retail designer, I’ve helped hundreds of store owners rethink their showrooms.
When merchants ask me to revitalize their space, they frequently say it’s because it’s not living up to its sales potential. They’re convinced if they can learn the secrets to laying out the showroom more effectively, profits will soar.
I don’t dispute that the showroom layout is vitally important. But before you can configure your space, maximizing sales requires looking at the categories being sold and figuring out what percentage of sales come from each category. Why? Because the amount of merchandise displayed must correspond to the percentage of business done in each category.
In other words, if 55 percent of product sold is upholstery in a 100,000-square-foot store, a retailer should dedicate 55,000 square feet to the category.
The Merchandising Matrix
We use a simple tool called a Merchandising Matrix to help store owners determine how much square footage they devote to each product category. It’s not as complicated as one might think.
First, determine the room set size you use for a category, then multiply it by the number of room sets you display. So for example, if you currently use a 10-foot-by-15-foot room set size for stationary upholstery, and you have 28 room sets, that department takes up 4,600 square feet of floor space, excluding access aisles.
Once the square footage for each department is calculated, it’s time to analyze your sales figures. By determining the percentage of sales that come from stationary upholstery, you’ll be able to compare the amount of space to allot to that department versus the percentage that should be allotted. You may discover you have too much or not enough stationary upholstery in your product mix, and you’ll need to make adjustments. You’ll also determine that in some cases you were fairly accurate in estimating the amount of merchandise for a given category.
One of my home furnishings retail clients adopted the Merchandising Matrix, only to be surprised by the results. He realized that some of his guesstimates for how much product he should purchase were off the mark. In one instance, he thought he needed five or six sets in a department, only to discover that he really needed three. He already had two in the warehouse. In the first month after the store redesign, sales increased by 94 percent, a fair amount of which can be attributed to the new merchandising process.
The Merchandising Matrix chart allows us to give pride of place to products that are doing the lion’s share of the business. I am not exaggerating when I say that this method will radically improve your bottom line, enabling you to achieve higher dollars-per-square-foot.
Purchasing Pitfalls
Throughout my career, I’ve seen too many merchants, like cowboys in the Old West, shoot from the hip when making product purchases. Being strategic and disciplined in displaying the right amount of product per department goes hand in hand with purchasing.
Most retailers start with the best of intentions, shopping list in hand, when Market rolls around. Unfortunately, there are many ways to lose sight of the original plan and start buying emotionally. It’s easy to get caught up in the excitement of Market and make spur-of-the-moment purchases. Or you decide to take advantage of a special, or feel you owe a sales rep a generous order out of friendship.
Following the Merchandising Matrix approach results in well-thought-out purchases because you know exactly how many items will fit in each category of the showroom.
How you use the most valuable asset you have as a retailer—your square footage—can be crucial to your success. You air-condition it, heat it, light it, maintain it, and spend money on real estate, taxes and everything else. Why not adopt a strategy that helps you make the best and most profitable use of your investment?
January 12,
2016 by in Business Strategy, Industry
As a teacher and trainer I have learned over the years that breaking a targeted result down to its basic ingredients is a great way to teach a complicated subject.
For example, in a previous column I discussed ensuring the sales team understands their sales success is tied to a combination of three factors: the number of people they see; the number they sell something to and the amount they sell to each one. Traffic multiplied by the closing rate multiplied by average sale gives you total sales.
By starting out this way you can study each component and help sales associates maximize their results. You can help them understand the relationship between all three they need to develop in order to connect to the highest percentage of the people they see and create the rooms they want with all the products they need to do so.
As owners and management of retail furniture stores, there are basic relationships that we also to understand in order to give sales people the best opportunity to be successful. In most stores, management uses sales reports to analyze and judge the performance of sales associates, when in reality there are three that have an almost equal influence on sales results. They are: advertising, merchandising and in-store experience from display, point-of-sale and sales associate interaction. That said, we might praise or blame the sales staff too heavily for our results. Granted, it is their job to sell what the product to the consumers enticed to the store through advertising and marketing. However, they could be more successful if the product consumers come into the store to see is what they are actually looking for.
Most retailers I have worked with do a good job of flooring saleable products and bringing in consumers. Lifestyle specialists like Pottery Barn and Restoration Hardware have rewritten the retail book and are delivering the in-store visual and buying experience their targeted customers desire netting tremendous success with today’s consumers. Manufacturing verticals from our industry like La-Z-Boy Furniture Galleries and Ashley HomeStores are constantly analyzing and updating their stores’ product mix, floor display and sales experience to maximize success.
These retailers realize product truly drives the engine at retail. Consumers come in search of new furnishings, and how retailers treat product is critical to success. The way a store is laid out, the price points available and the product knowledge that sales associates provide is a major component in the process. You could, and probably do, have the products available to satisfy most customers who enter your store. Problems arise if they can’t find what they want; if a sales associate can’t lead them to what they want or answer their questions; or, if the store neglects to showcase product to in a manner worthy of the asking price. Many consumers will leave the store and go elsewhere to make their purchase, despite the fact they would prefer to get it done with you.
The marriage of merchandising and selling effort is key to success. A key issue that threatens this marriage is the same thing that ends up hurting other unions, a lack of communications between the parties.
Buyers buy, and sales people sell. Unfortunately, they seldom share vital information to help both sides succeed. Don’t make the assumption that the best designers and sales people totally understand what they have to sell and why you bought it. The merchandising team needs to share their wisdom about selected products to the sale team. The sales associates can then turn around and share it with customers. Here are some thoughts about how to do that and fire up your team:
- Have buyers lead the product training effort.
When I was a department store buyer, it was my responsibility to make sure sales associates in 18 stores knew how to use the products and why someone would want to own them. I was required to sell the sales people my products, and it should be your merchandising team’s responsibility to do so in your store. Some questions you need to give them the answers to:
o Why is it there? Why did you add it to your product assortment?
o Who is it for? Who is the target consumer?
o What makes it a value? Outline the price versus quality versus the competition model.
o How should they romance the products? What are the magic words to use when talking with consumers? Highlight new color names, style terms and lifestyle descriptions.
- Things to do to create excitement and understanding of your product assortment with the sales associates:
o Create an information sheet for each new product and/or vignette on the floor with answers to the above questions along with specifications for main products.
o Present and promote a good, better, best sales process throughout the lineup and across vendors. Be sure to discuss other options for customers to consider. Build a solid step-up program on the floor by positioning every vendor and major product within your quality and price point range.
o Celebrate the product. It should be the star of the show.
- Provide a slide show from market trips to generate excitement and anticipation by sharing discoveries with the team when you come home. Previewing trends and new items will not only educate the staff, it will help them better understand the store and its product mission.
- New product preview and rollout to generate excitement. If you are old enough, you will remember the buzz automobile makers generated each year prior to model introductions. It helped create a great deal of excitement and caused people to come into the showrooms even if they did not need a new car. Try to do that with new product. As an example, cover them with sheets and have a product introduction party with your team. Consider doing the same thing for consumers with a private sale.
- Vendor sales meetings for new product. Bring in vendor sales representatives and others to talk about the new products. Outside people tend to be listened to and will provide additional perspective. Be selective though, since some presenters are better than others. Remember it is your show, not theirs.
- Have your sales/design members participate to give their views, key words and selling tips to the rest of the team. Don’t leave your people out of this process. In many of the best stores, there is a sense of pride in the store and the sales team reflects it. They enjoy sharing what they know with each other and helping everyone succeed. Have them sell new products to each other to really get them involved.
- Featured vignette each month. Many retailers, including Nebraska Furniture Mart, have a special spot on the showroom floor where to highlight an exciting new look or lifestyle statement. They change it every month and it becomes a part of most customer visits.
The other critical connection between merchandising and the selling effort is the floor display.
While sales people provide answers and auditory stimulation, product display visually tells the story and answers consumers’ question about whether or not a store can provide the products and expertise to make their home look and feel the way they want it to. As a result, a sales team must understand how and why the floor is laid out and the best ways to use it to work with customers. It is after all their office and the most important selling tool available.
No matter how the showroom floor is laid out—lifestyle, product category or brand galleries—the merchandising and display team should take a role to ensure sales associates understand what has been done and why. They lead the discussion and provide the training on how to use it to sell. The most successful teams have great support people, and they win through communication with each other toward the same goal—making more consumers happy in their homes.
January 12,
2016 by in Business Strategy, Industry
Furniture design matters to consumers, and that’s why it is so important to get it right.
The consumer price index has been stagnant for the last six years. This is great for the consumer, but not so great for the industry.
Those who have been in the furniture industry for some time understand it is all about the product. It is important for newcomers with new marketing concepts and advanced supply chain processes to understand their goals must be tempered by the intricacy of the product and why it sells to a fickle consumer.
While other consumer durable companies, such as the automotive and communications sectors, understand the consumer ignores the practical questions, such as “Did I really need that new phone?” and lines up outside the retailer’s door to be the first to have a product. Unfortunately, consumers of furniture are much more practical with only 31.3 percent buying simply because they want new furniture. Our challenge is to double that number.
Is our challenge the design process? In my conversations with professors and top students in the leading furniture design schools the concept of design trends is a foreign concept. They look to classic design principles of form and function and to the talent of the designer. The residential industry relies on design trends. Why else then would we have so many sleigh beds?
Decades ago the residential furniture industry could rely on carefully updating the classic styles—Chippendale, Louis XIV, Early American and the like. The customer preferred the execution of more refined designs with careful attention to detail. This was combined with multi-finishing steps to carefully maintain the consumers’ preferred sheen. The marketing department’s focus was to communicate the pedigree of the design as well as the company producing the product.
Shift to today and the role merchandising plays in the long-term success of a traditional furniture retailer. Simply put it’s about prices, both the retail price and the wholesale price. When the top quartile retailers are achieving gross margins of 47 percent and the top quartile suppliers are achieving 26 percent gross margin, what is the problem? The problem is the selling price that the consumer will pay for the product. Is that all the consumer will pay?
The consumer price index has been stagnant for the last six years. This is great for the consumer, but not so great for the industry. With no price growth compared to all consumer goods there have been ever-decreasing funds to properly advertise and display the product to the consumer. This fails to create the desire. Thus, the industry has resorted to price as motivation to entice consumers to buy.
The traditional furniture store distribution channel competitors are the lifestyle stores, such as Pottery Barn, Arhaus, and Restoration Hardware (RH). These stores are not bashful about their pricing strategy. Is it because of the world class collateral they execute? Restoration Hardware’s catalogs and magalogs are gorgeous and leave consumers wanting a home that looks the same.
We tried before to create an industry campaign to communicate furniture and the impact our products can have on the consumer’s life. What would one-half of one percent—$350 million—do to enlighten the consumer? Just a thought.
January 12,
2016 by in Business Strategy, Industry
Welcome to 2016
There’s nothing like a major industry announcement to kick off a brand new year.
And just like that, 2016 came in with a bang that echoed throughout the furniture industry. A mere three business days into the New Year, and Hooker Furniture Corp. made one of the biggest announcements to hit the industry in the last 12 months.
The company plans to acquire Home Meridian International in a $100 million deal expected to close in the first quarter.
In case you missed it, here’s the gist of the news that will add significantly to Hooker’s stable of brands.
The acquisition of HMI is the largest acquisition in Hooker Furniture’s history, and the move will catapult the company into the top 5 of industry vendors. Not only will the merger create a larger company, it gives Hooker Furniture an entrée into more moderate price points. The acquisition will also open up additional channels of distribution for the company.
As part of the plan, Home Meridian will operate as a division of Hooker Furniture under the leadership of George Revington, current CEO of HMI. Once the acquisition is complete, Revington will become president and COO of the HMI division and report to Paul Toms Jr., chairman and CEO of Hooker.
What’s more, the management team of HMI’s companies is expected to remain on board.
That talent includes Page Wilson, president of Pulaski; Lee Boone, president of Samuel Lawrence Furniture; Shawn Cantrell, president of Prime Resources International; Greg Noe, president of Sourcing Solutions Group and on and on. The HMI management team runs deep and is filled with a breadth of talent and knowledge that will meld nicely with Hooker’s skilled management team.
The combined company will include upholstery manufacturing facilities in Hickory, N.C., and Bedford, Va., showrooms in High Point and Ho Chi Minh City, Vietnam, and eight distribution centers in North Carolina, Virginia, California, China and Vietnam. The company will employee about 900 people worldwide.
Over the last trailing 12 months ended Oct. 31, the combined companies had revenue of more than $550 million and combined operating income of $35.6 million.
With that, welcome to a New Year in the furniture industry where the landscape is always shifting.
Here’s to a year filled with good fortune, stronger relationships and great stories!
Cheers!