Monthly Issue
From Home Furnishing Business
July 28,
2015 by in Business Strategy, Industry 
Although the housing industry has picked up some steam over the last two years in terms of existing home sales and housing starts, the lagging growth over the last five plus years can be partly blamed on the slow recovery from the recession and partly on the demographics of available homebuyers.
However, all of this is beginning to change on two polar fronts.
At the youngest end, the housing industry is starting to feel the bump from the millennials, the children of the Baby Boomers, as they age into the housing market. On the older front, the Baby Boomers’ changing housing needs are already creating a different kind of housing bump. Both should spur housing growth and subsequently the furniture industry for the next 10 to 20 years.
Millennials vs. Baby Boomers
This year, millennials are expected to surpass baby boomers in numbers and become the largest living generation. The millennials are generally defined as children of the baby boomers born between the early 1980s and the early 2000s. The oldest millennials are entering their 30s and the youngest are still pre-teens. Over the next 10 to 20 years, millennials will pour into the housing and apartment markets and many of the baby boomers (currently ages 51 to 69) will downsize to smaller homes, single-family retirement communities or group housing.
Table A shows how the population will grow and change over the next 10 years with the surge of millennials and the skyrocketing of baby boomers in the over 65 age group. Boomer growth over 65 will total 37.8 percent—increasing at a rate of 3.3 percent a year from 2015 to 2025.
Table B shows the current population of millennials and five age groups from 10 years to 34 years of age. In 2015 the highest population of millennials falls into age group 20 to 24 with 22.7 million people, while age group 24 to 29 is only slightly smaller at 22.5 million. Millennials are just starting to age into their home buying years with 21.7 million in age group 30 to 34.
Projecting out 10 years, Table C shows the age groups millennials will comprise in 2025. Over the next decade, the youngest of the millennials will be leaving college and entering the rental or housing markets and the oldest will be in their early 40s and often upgrading housing. Age group 30 to 34, primarily first time home buyers, is projected to increase 12.9 percent—from 21.6 million to 24.5 million, while the population of 25-to-29-year-olds, prime renting age, shows a slight growth of 2.8 percent. Ages 35 to 39 and 40 to 44 are expected to increase 15.9 percent and 10.5 percent as the older millennials age into a traditional period of housing upgrades.
In terms of net population growth, Table D shows the impact in the next five years of the changing demographics of both the millennials and baby boomers with the middle lower birth-rate population generation X stuck in between. By 2020 people in their late 30s are expected to grow 1.7 million, while age group 30 to 34 has a forecasted increase of 1.5 million—both adding to potential growth in the housing industry.
As the leading edge of the Baby Boomers begin to age into their 70s over the next five years, a need for senior and lifestyle housing will dramatically increase. Already 55-and-over, single-family communities are in rapid growth. An additional 3.4 million people are expected to flow into age group 70 to 74 by 2020 while almost 2 million are added to age group 75 to 79.
Table E further illustrates the dramatic increase in the population of seniors from 2000 to projected 2025. Over the span of 25 years, the number of people between the ages of 65 to 79 is projected to have increased 95 percent. Population projections show 10 years from now that age group 75 to 79 will grow 62 percent, while age group 70 to 74 climbs 47 percent and people in their mid to late 60s will increase by 26 percent.
Housing Costs Climb
As millennials age into the home buying years, the question will become, “Will they be able to afford a home?” Housing prices and apartment rental rates have been on spiraling upward in many parts of the country. If rates continue to grow faster than wages, buyers and renters will be facing housing’s ever-growing demand on their incomes which in turn impacts their ability to not only buy furniture, but all consumer goods and services.
Table F shows the rising cost of home prices from 2002 to 2014. At the peak of the housing bubble in 2007, the median price of a home was $244,950. With the subsequent housing market crash, the price fell 12 percent to $215,650 at the bottom of the recession in 2009. Since 2009, housing prices have climbed dramatically higher than pre-Great Recession days—up 32 percent in 2014 at $284,825. Median home prices have increased an average of 8.2 percent since 2011.
Millennials are flooding the apartment market. The rapid jump in home prices over the past few years is adding to a rising rental market as many potential home buyers are turning to apartments and other rental housing. As shown in Table G, rent rates have increased from $1,042 per month in 2010 to $1,239 per month in 2015 year to date— a jump of 19 percent. Over the last five years, rates on rentals have increased an average of 3.5 percent a year.
The next 10 years is demographically poised to be a high growth time for the housing and apartment markets. The challenge will be providing affordable housing for the first-time millennial homebuyers as well as senior and lifestyle living for baby boomers.
Methodology: Figures reflect data from the U.S. Census Bureau on Population Projections. Note the Census varies the level of net immigration (the difference between those coming and those leaving) to discern its impact on the U.S. population. The findings show that immigration makes for a much larger overall population, while having only a small effect on slowing the aging of American society. If immigration continues as the Census Bureau expects, the nation’s population will increase from 309 million in 2010 to 436 million in 2050 representing a 41 percent increase. The Census Bureau assumes net immigration (legal and illegal) by 2050 will total 68 million. These future immigrants plus their descendants will add 96 million residents to the U.S. population, accounting for three-fourths of future population growth.
July 28,
2015 by in Business Strategy, Industry
Sixty-one years old and still growing. Jerome’s Furniture has been on a store-opening spree over the last few years. Since 2009, the San Diego-based retailer has spread its wings into the Los Angeles market opening six stores—an average of one store a year.
That’s impressive by anyone’s count.
The expansion has introduced the family-owned retailer to a new area and new consumers who continue to welcome the 11-store company with open pocketbooks.
Lee Goodman, president and CEO, joined the retailer in 2005 and was named to his current post in 2007. He took time to share his thoughts on Jerome’s growth with Home Furnishings Business.
Home Furnishings Business: Over the last few years, Jerome’s has opened six stores in the Los Angeles area. What’s been the driving factor for the expansion?
Lee Goodman: We've been selling furniture for 61 years in San Diego. It was time to climb some new mountains. We made our first expansion into the L.A. media market in 2009 when the recession had people jammed up. Real estate deals were plentiful and the right location opened up at the right time. We went for it, and then just kept moving. There's an old adage about growing in times of recession. We did it, and the benefits are really stacking up now that the economy has taken a turn for the better.
HFB: What is the attraction of the L.A. Market for Jerome's?
Goodman: The L.A. media market is comprised of 18 million consumers and is directly adjacent to the San Diego market. That’s a lot of homes to furnish. After the loss of Wickes and Levitz, there really was not a strong competitive player in that market. We couldn't resist.
HFB: What strategies have you put in place to create synergies between San Diego and L.A. Markets?
Goodman: It's not a strategy as much as simply leveraging who we already are. New stores reap the benefits of our strong management team, our distribution center, our powerful vendor relationships. Everything.
Also, our story is a good one. Consumers respond to it. We believe we could successfully tell it in all 50 states.
HFB: What other expansion plans are in Jerome’s future?
Goodman: No big announcement for you today, Sheila, but we will continue to make smart moves as they present themselves.
Learning how to read data, analyze data, and execute action plans to capitalize on data is a big part of a successful future.
HFB: Overall industry big picture thinking. What trends do you see impacting furniture retail in the next few years?
Goodman: The Internet. I know that sounds like an old trend, but it has changed everything, and will continue to change everything.
Business intelligence is huge right now. The community is seeing real pay-offs in their technology investments.
If you don't do those things, somebody else will, and they will eat your lunch.
We are also seeing the return of a lot of on-shore manufacturing. As a retailer that means faster turns, and as an American that just feels good.
July 28,
2015 by in Business Strategy, Industry
A peaceful, inviting mattress department armed with well-trained associates can be a gold mine of sales for retailers willing to treat the category with all the respect its due
By Daniel Beaird
Mattress retailers are selling a good night’s sleep. But consumers typically buy a mattress because life happens, whether it is a marriage, divorce, birth, someone leaves for school or someone comes back home. Bedding is not a want, it is a need, and consumers do not replace their mattresses unless they have to.
But industry experts say bedding sales are the retailers to lose because consumers do not want to go from store to store looking for the best deal. They do not want to be confused by so many choices, but that’s what some face.
“The manufacturers have muddied the waters,” said Sherry Sheely, owner of Sheely’s Furniture & Appliance in North Lima, Ohio. “Consumers can’t cross shop.”
The mattress category remains a powerhouse for furniture retailers, and continues to log year-over-year increases.
Preliminary data for 2015 shows that during the second quarter, mattress sales climbed 6.5 percent to an estimated $3.33 billion when compared to second quarter of last year. Year-to-date sales grew 7.1 percent to $6.73 billion when compared to the first half of 2014.
While bedding tends to be a purchase consumers make out of need, there are some ins and outs that can create confusion.
Manufacturers want to be the only brand on a retailer’s floor. But carrying multiple manufacturers, as most retailers do, offers a better variety for consumers, increases competition between manufacturers and makes the store a diverse competitor in its marketplace.
So, consumers rely on service provided by retailers and they do not want to encounter sales associates incapable of providing good advice after looking at all the manufacturers on the floor.
Selling Health
Whether consumers come into a store looking for an advertised special, a brand name or a specialty sleep product, they need help finding a mattress to provide them with the best quality sleep, according to a Mattress Matters study from the Sleep to Live Institute and Duke University.
The study took seven mattresses with different support characteristics and 128 healthy, pain-free adults in a 16,000-night sleep study, and asked them to choose, unaided, the one they thought would give them a good night’s sleep. It found that the choice of mattress did affect the quality of their sleep, and also that the subjects in the study did a very poor job of choosing the right mattress by themselves.
“The findings from the Mattress Matters study are remarkable,” said Dr. Andrew Krystal, director of the insomnia and sleep research program at Duke University’s School of Medicine. “After analyzing the subjects, we discovered that there is a statistically significant correlation between how mattress support affects sleep quality, pain and daytime function. We were also able to document that participants were generally unable to select the best mattress for their sleep needs.”
“For the first time we’re able to show the scientific link between mattress choice and a person’s health and well being,” added Robert Oexman, D.C., director of the Sleep to Live Institute. “Buying a mattress is a major purchase.”
Sleep to Live Institute scientists and engineers developed the bedMATCH system based on the Mattress Matters study. It is a diagnostic system using statistical measurements and calculations to help consumers pick the best mattress for them, regardless of brand or price point.
Consumers had trouble identifying the best bed for them with only seven models present in the study. Now imagine a showroom floor full of mattresses.
Consumers need help in choosing a mattress. Do retailers want to help consumers choose a mattress that gives them the best night’s sleep. or are retailers focused on closing the most sales at the highest margins? Retailers say it is usually not an issue because high-end products matched to consumers generally provide them with a better night’s sleep and higher profitability.
Sheely’s sales associates start by asking diagnostic questions in the quest to sell a good night’s sleep. They are there to educate consumers about how mattresses adjust to their bodies.
Qualification is necessary, and getting the answers to important questions to narrow the mattresses down before taking consumers to the first mattress. This avoids confusion later in the process by showing too many beds.
“Most consumers enter looking for the least expensive mattresses, but price point is secondary,” said Sheely. It is especially important to educate consumers who are buying a mattress for their child, whose body will change significantly in a short time period and who also needs much more sleep than their parents.
“The sales associate can find ways to help the customer prioritize the purchase,” said Sheely. “The consumer is then looking for something that is good for their health instead of a low price.”
According to Kevin Damewood, executive vice president of sales and marketing with Kingsdown, there are four types of mattress consumers: the loyalist, the transitional shopper, the problem solver and the commodity shopper.
The loyalist makes up about 15 percent of consumers and represents baby boomers who are loyal to high-end brands. The transitional shopper makes up about 20 percent of consumers and represents millennials who are outfitting their master bedrooms. The problem solver makes up about 25 percent of consumers and represents a combination of generations who are trying to solve aches and pains or a bad back. Finally, the commodity shopper makes up about 40 percent of consumers and is not as concerned about the health benefits of sleep, but more concerned about price.
E-commerce Strategy
Better-informed consumers are looking online to get information about natural products and health-oriented sleep. They may think natural latex is better than a synthetic blend, making it important for retailers to make sure their online presence provides information beyond a low price or just brand names.
Price is important in online sales but it is not the biggest factor in customer loyalty to certain retailers’ websites. Logistics is the most important factor. A product being delivered quickly, undamaged and when promised, gets more praise from consumers than a good price.
Millennials are very comfortable making purchases online and are just beginning their life stages that drive home-related purchases. The shopping behavior of that generation and those to follow will be a driver of online shopping.
Engaging consumers with online offers as well as information is a good way to capture names, addresses and emails of visitors to retailers’ websites. Retailers then, with contact information from online inquiries, can use direct mail to encourage high-end mattress sales.
“Get them to sign up to win a gift certificate to your store,” said Gerry Borreggine, president and CEO of Therapedic International. “Everyone who signs up should win.”
All of the innovations in specialty bedding, whether it is memory foam, latex, airbeds, gels or hybrids, keep retailers scrambling to stay up with the latest trends and not fall short in the face of competition. Before the surge in popularity of specialty bedding, it was believed a showroom needed a minimum of 36 or 37 models to cover the price and feel combinations. And as promotional mattress companies have gotten in on the specialty act, there seems to be no bottom for prices in the category.
But savvy, knowledgeable consumers know they are going to spend more to get quality. Consumers are more willing to walk into stores looking to spend $1,000 or more to buy a luxury product. You get what you pay for, as they say, and a direct-mail campaign can help retailers target these consumers.
“Direct mail is useful for shifting the emphasis away from low price,” said Borreggine. “It’s viewed as a private appeal to the consumer who comes in with it in hand.”
The call to action is the discount. Price is not limited to any specific price point with a percentage off offer. It can be used to purchase a low-cost mattress or a high-end set.
“They need a specific start and end date to appear valid and increase effectiveness,” said Borreggine. Retailers should make the offer non-transferable with no exceptions.
It’s Showtime
Once consumers are in the store, space, or lack of it, is a big concern for retailers trying to make the sale. Presentation has taken on much more importance in big stores and mattress chains recently with the rise in popularity of specialty mattresses. This has increased the size in square footage of the upscale mattress gallery. Anything less than 3,000 square feet compromises a retailer’s merchandise selection. Some national chains are devoting 6,000 square feet or more.
Arranging the showroom floor varies from retailer to retailer depending on space available. Many retailers place the super-premium beds to the front near the entrance and the cheaper, promotional beds toward the back. Having premium beds on display as consumers walk through the door makes the showroom look better. However, if price tags are easily visible, consumers could see the high prices and turn away.
Consumers should be able to see every industry-standard size bed somewhere on a retailer’s floor, including twin, extra long twin, full, queen, king and California king. It is also advisable that every high-priced mattress be displayed with an adjustable base. Sales associates can then incorporate an adjustable bed presentation with these mattresses.
The number of manufacturers and adjustable base models gives retailers plenty of options on how to show their gallery floor to consumers. Their showroom is the most important part of their business.
Sheely’s Furniture & Appliance features 3,100 square feet of space and more than 40 models to choose from, carrying innerspring, memory foam, gels and hybrids. It offers brand names such as Stearns & Foster, Posturepedic by Sealy, Optimum by Sealy, Sealy, Serta Directions, King Koil, Tempur-Pedic and Mattress 1st.
They suggest consumers take their time on each mattress and find their comfort level because consumers will spend one-third of their life on a mattress, and a mattress and boxspring are the only home furnishings purchase they will make that affects their health.
“Make sure it’s the right one,” said Sheely.
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.