FurnitureCore
Search Twitter Facebook Digital HFBusiness Magazine Pinterest Google
Advertisement
Ad_HFB_EMarketPreview

Get the latest industry scoop

Subscribe
rss

Monthly Issue

From Home Furnishing Business

Bet on Black

Let’s talk about ways to keep furniture stores out of Red.

“Lowest price” might appeal to consumers shopping for furniture, but the competition among home furnishings retailers to meet that goal is killing bottom lines at a lot of stores. Particularly in case goods, our product essentially has seen price deflation over the past two decades. Over that time, furniture’s consumer price index is flat, while other consumer goods sectors’ have risen. This article takes a look at ways retailers can add to the top of the line—and maybe plug a few cracks where money is leaking and shaving already slim margins—with a particular focus on merchandise protection sales, delivery and returned product.

SELLING PROTECTION

A dirty little secret about furniture retailing: Some stores’ margins are so slim that the only way they make money is through the sale of product protection plans. We’ll spend some time here, since even if your store isn’t desperate, those plans can give you a little more breathing room on the bottom line. Protection is a concept with which other sectors are doing pretty well.

“I purchased a television from Best Buy a few weeks ago,” said Joe Milevsky, CEO of Acworth, Ga.-based consultancy JRM Sales & Management. “I asked about the percentage of customers who buy warranties.

They said it was 12 percent of most big-ticket purchases—not even big-ticket, anything over $50.

“To me, it’s providing a high level of service, and it’s necessary addition to profit for any retailer. I don’t believe it should be forced on somebody, but it should always be presented in a positive light.” John Egger, CEO of Profitability Consulting Group, is blunt with his clients about protection sales.

“If your team isn’t averaging closing on protection for 4 percent of sales, you have a problem,” he said. “It’s a profit center that takes extreme discipline. It can’t be an add-on, it needs to be presented in an educational way.”

Egger’s last point is of particular importance, and one naturally shared by providers of product protection. We asked a few about how retailers can get more out of their protection sales. They agreed that slapping a plan on the table at the end of the sales process is not the best strategy.

That makes it a hard sell, and consumers shy away.

“Where many store associates fall short is they try to make the protection sale an add-on,” said Chris Taylor, director of sales for the furniture and rent-to-own channels at Protect-A-Bed, whose mattress and bedding protection products are in more than 7,000 storefronts nationwide. “To me, the way to do is that the same questions you use on educating the customer to buy furniture are the same ones you use to sell protection. ‘What don’t you like about your existing mattress? Part of the reason you’re here looking for a new mattress is that you didn’t have a protector on the old one.’ It’s about getting more life out of your mattress.

“The cardinal sin—you make the sale and then ask, ‘Oh, did you want to add a protector to that?’ Use the questions you’re asking to encompass all the consumer’s needs. It’s all one sale.” Bringing up protection at the end of the sale rarely succeeds, agreed, Tim Vaughan, national accounts sales director at Guardian Products. He suggests incorporating protection when a salesperson is pre-qualifying a customer’s needs and/or describing what the store offers—in home design, next day delivery, etc.

“A savvy salesperson is proud of their store’s offerings and basically assumes the protection sale while asking questions whose answers help the customer realize the need for protecting their investment,” Vaughan said. Alan Salmon, president of Montage Furniture Services believes sales associates must focus on the true value of the protection plan.

“Do not oversell it—‘don’t worry, it covers everything,’” he said. “No, it doesn’t.

Everyone loses in that scenario, except the RSA. There is coverage in there that will be of value to the vast majority of people at some time during the term of the plan. If RSA’s do their discovery effectively they should tailor the value to the needs of the consumer.”

CLOSING ON PROTECTION

We asked protection vendors if they have a sense of the close rate on protection sales as a percentage of total sales for their clients.

“We have some ways of ball-parking performance based on a dealer’s sales, or estimated sales, and most dealers are pretty open about their performance,” Salmon said. “The most common way this is measured is as a percentage of total sales rather than an attachment rate, i.e. five plans sold on 10 furniture sales equals a 50 percent attachment rate.

“As a percentage of total sales, 5 percent is considered good performance, and 7 percent is leaderboard. Our best guess at an industrywide level is 3 percent of sales.” Guardian’s Vaughan gave a similar number for a likely average nationally—2 to 3 percent—for gross sales of furniture protection sold on sales of all furniture, including upholstery, case goods, area rugs.

He added that mattress accessories/pads are a higher percentage relative to the mattresses sold—especially when in a specialty mattress.

“All retailers value and therefore promote protection differently,” Vaughan said. “Some stores sell 6 percent to 9 percent of total furniture sold, and some are 1 percent or under.”

Taylor at Protect-A-Bed said the answer varies widely, and on a number of issues: whether the retailer’s measuring the performance of the category; and the compensation model that is or is not in place to encourage protection sales. He added that Protect-A-Bed’s offerings don’t vary from the traditional protection model.

“Our approach is that (bedding protection) is a product driven sale, and it’s good for mattresses the customer already owns,” he said. “As a product-focused provider, we’re looking to give a tangible benefit. We give the consumer a lot of options to choose from. There’s no if in what we do— here’s what happens when a human body sleeps on a mattress.”

How can retail sales associates handle objections to adding protection to the consumer’s purchase?

“That’s where the training, and the retailer’s commitment to the category, comes in,” Taylor said. “If you don’t set expectations, it gives salespeople little incentive to overcome objections.”

He also believes attachment rates don’t tell the whole story. “There are two key factors: average unit selling price and attachment rates,” Taylor said. “The one metric that captures both those factors is the percentage of retail sales. Divide Protect-A-Bed sales by the value of overall business, the sales of the category that it was designed to protect.

“Why that’s important, generally speaking, is that the margin on protection business us higher than many other categories on the floor,” he said. “If you put importance on it, you’ll get performance out of it.”

Customer objections to buying a protection plan generally go back to the core issue of not incorporating the idea early on in the sale of the product to be protected— or not mentioned at all.

“Sometimes customers have objections, but most of the time, when it’s not sold, it’s because it was never brought up,” he said. “That’s the number one reason protection doesn’t get sold.”

He believes its important to acknowledge objections along the lines of “Yes, we have heard about other negative experiences but we here at …”

Break down the cost in little bites: Point out that protecting the sofa for five years is $1 per month; and that furniture is frequently the shoppers third or fourth largest investment—they insure their house and car don’t they?

“Reemphasize the biggest features for that particular customer, which should have been discovered through successful pre-qualifying,” Vaughan said. “And again, the protection concept cannot be introduced at the end of the sale—customers are turned off.”

Salmon said if sales associates have done the discovery properly they ought to be able to handle much of what comes up in the way of objections. It also helps to find some success stories previous shoppers have had.


 

GO YOUR OWN WAY?

Some retailers are exploring the possibility of formulating their own protection plans.

“The advantages are that they may save money up front, and they can treat their customers differently if they’d like,” said Vaughan. For example, “Mrs. Smith has been buying from them for 20 years and she spills bleach on her sofa (no one covers) but she wants it taken care of—they can.”

There are challenges there, he added. Does the retailer have the customer service staff there to handle all claims? Will they have to say “Yes” more often—when they say “No,” the retailer gets the blame, not Guardian or a similar third-party provider. “Maybe most important is, do the states they sell in require the programs sold to be underwritten by an insurance company, if the retailer should go out of business?” Vaughan said. “This is an increasing mandate from state commissioners. Is the retailer aware of and capitalized for this?

“We’ve been around since 1977, and just in the last 18 to 24 months we’ve gotten underwritten. There are 16 states where you can’t do business if you’re not underwritten.”

Montage’s Salmon believes the topic of formulating their own protection plans rates a separate article.

“Suffice it to say that there are pros and cons to a self-insured strategy—you own the profits, but you also own the losses,” he said. “From what I have seen and heard, the concept is being sold by some as a no-lose option, but this business is not as simple as some would have dealers believe.”

DELIVERY: TO CHARGE OR NOT

With retail margins what they are, is “free delivery” a concept that’s outlived its time?

Charging for delivery is a scary step for some retailers, but they might take heart from airlines—with few exceptions, you won’t check a bag on an airplane without paying a fee. There was a lot of grumbling, but now its par for the course. If you offer free delivery, make sure you can afford it.

Third-party delivery services “are not running a company for charity, and if you farm it, they’re going to charge enough to cover their expenses,” noted JRM’s Milevsky. “A lot of retailers don’t treat delivery that way. What I see, and that’s from 100 financial statements I look at, is that the percentage (of furniture retailers) that charge anything is low. I’d say the percentage that charge enough to cover the direct expenses of delivery and the indirect cost of things like management’s time is lower.”

There are real costs involved that the retailer has to recoup in some way: fuel, truck maintenance, time for two delivery people, the list goes on.

“We’ve shifted 78 clients to charging for delivery, and not one has gone back,” said Egger at PCG. “Delivery should be a profit center, not a break-even.” Milevsky also believes delivery can be a profit center. Retailers need to break down those costs and develop a charge formula. “That includes accounting for any revenue from delivery charges, payroll for delivery personnel, expenses for running a truck to the customer’s home, and management costs in terms of time,” he said.

“Look at it as a separate P&L statement. A lot of (retailers) rationalize that they can’t charge for delivery because their competition doesn’t do it.

“For my clients, if their margins are inadequate, I’m going to tell them to charge enough for the product to make a decent margin, and then charge for delivery to cover what they’re spending there.” Retailers need to get the full picture of delivery costs, and that includes reading some fine print, said Dan Schneider, CEO of SIB Development, Charleston, S.C.

“They have to really understand their truck leasing, what’s in the lease, what’s not and the extra costs involved,” he said. Also, beware accepting your current arrangements out of force of habit.

“Say a retailer got their first and second trucks from so-and-so, and they’re getting their 100th from the same guy,” Schneider said. “The furniture business is such a legacy business—multiple generations working for the store.

“They’ve formed the same type of relationship with some of their vendors. They’ve been working together so long that they assume they’re getting the best deal, and that’s not always the case.”

PRODIGAL PRODUCT

Merchandise returns leach money out of retail operations in several ways—time, labor and fuel to pick the item up from the customer; a piece of furniture that will only go at a damaged-goods price if it can be sold at all; plus the more intangible aspect of customer goodwill.

Egger believes minimizing return goods starts at the back end. “If 10 percent of your deliveries require a trip back to the house, that’s huge overhead,” he said. “As independent retailers we have to be more than gracious—we have to be quick and decisive. And you can’t get better advertising than a customer who’s satisfied the first time around.”

Egger suggests 98 percent as a perfect delivery goal: “If you fall below 95 percent, you’re not getting it right.” It’s not all on the back end. Be mindful of overselling on the sales staff’s part.

“What are they telling people you can actually do and not do?” Egger said.

Milevsky said his clients understand the importance of taking the time up front to get it right the first time. Inefficient delivery operations, last-second add-ons add to cost. Are you “selling on approval”?

He also believes that what happens on the sales floor can impact the level of returns. Beware sales associates creating unreasonable expectations on the customer’s part.

“The salesperson says, ‘If you’re not happy, we’ll pick it up,’” he said. “It makes the sales process easier, but adds a lot of stress to the rest of the operation. … A lot of the issues on the delivery side of the business are created by over-selling by the salesperson.”

There’s an educational aspect to selling furniture, especially wood furniture that can prevent returns. “For sure it’s something we have to watch and have to understand how to deal with,” Milevsky said. “If wood looks different than it did in the showroom, that’s nature’s fault.” HFB

Margin on Merchandise

There’s margin, then there’s margin. Operating margin for the entire operation? That’s easy. Determining margin down to each vendor, product category and individual item? Today’s operating systems have the ability to sort that data, but there’s a lot of fine print to read. Read it anyway. JRM Sales & Management CEO Joe Milevsky said furniture retailers should set margin goals for overall business, by category, and by individual product from each vendor, based on what the market will bear.

The number of vendors even a small furniture store might carry can make for a lot of homework on management’s part. “I look at the appliance experience, where you have a handful of manufacturers, and they own everything,” Milevsky said. “You buy a Kitchenaid or Jenn-Air? Guess who owns that—Whirlpool. “A furniture dealer has thousands of resources to choose from, and one problem is we tend to make it more complicated than we need to when we’re putting a package together,” he said. “With the exception of a handful of names, the ‘brand’ is not very important to consumers. She wants something that looks good and will last.”

The good news is that once you know which products are making money on you floor and which are not, there are a lot of choices from which to choose in finding new vendors who might offer more margin-friendly pricing and terms.

“I believe in allegiance to vendors, but if I can’t get the margin I need out of a product, I’m going to look for what I need until I find it somewhere else,” Milevsky said.

John Egger, CEO of Profitability Consulting Group, tries to get retail clients to carry as much private label merchandise as possible.

The idea is that exclusivity allows a margin bump since the product is unique to the store—or at least in the market it serves. When it comes to making more money on each sale, though, it’s

“Retailer, Heal Thyself.”

“The worst person about getting margin is often the store owner—90 percent of the time, he wants to be the cheapest guy in the market,” Egger said. “Owners and salespeople have to realize that if you’re the cheapest on every item in the store, you’re likely to go broke.”

PARTNERING WITH VENDORS

Dan Schneider, CEO of SIB Development, suggests looking for a landed price on goods from vendors to make sure retailers know how much they’re paying for freight. “Can you negotiate terms to get a discount for paying in 10 days or COD?” he said. “There might be manufacturers who need the money right now who would be willing to give up a few points.”

Retailers also can improve margin by honing in on their sales processes—and some vendors are looking to speed that along. Take mattress vendor Kingsdown. Bedding is the most profitable, quickest-turning category overall in the home furnishings sector, but there’s always room for improvement.

The vendor’s “Bed Match” point-of-sale program, in conjunction with a detailed sales process, analyzes a shopper’s size, sleeping habits, particular aches and pains, and preferences to suggest specific mattresses that fit their needs. “The consumer can get fitted to the right bed with measurements based on real science,” said Kevin Damewood, Kingsdown’s executive vice president of sales and marketing. “We’ve found that approximately 60 percent of the people who try this process buy the bed; and the average sale is around $2,700 for a queen size. “At wholesale, the average cost of the product we’re selling for Bed Match is $600 to $625 a piece, so we’re aiming for higher tickets at higher margins.”

When the process is followed, Damewood said the conversation with the consumer doesn’t mention price until a specific mattress and alternatives are found.

In addition, retailers participating in the program can bring a competitor’s mattress to Kingsdown for analysis—with the competitor present at the test—and put that information into the Bed Match system for use at retail.

“We don’t want consumers to think this is contrived science,” Damewood said. “The consumer typically hates shopping for mattresses because they worry about pressure from commissioned salespeople, and so much of the product looks the same.” He identified several types of consumers for bedding: 35 percent to 38 percent of consumers are value shoppers that don’t really care what they sleep on; 15 percent are a luxury brand buyer that will always buy the best; and another 35 percent are buying a new mattress for a health issue, a category that continues to grow.

“To build margin, what you want to do is sell the highest quality bed you can within those categories,” he said. “If retailers continue to improve their sales process, they’ll sell more and have happier consumers. With the Internet and blogs the way they are today, having a happier consumer is a very important thing.”

Plugging the Leaks

There are more ways money can drain from a retail operation than Dan Schneider can count. In most cases, the remedy boils down to paying attention.

Schneider is CEO of SIB Development, a Charleston, S.C. - based consultancy specializing in fixed-expense auditing and cost reduction consulting.

Furniture retailers are in the business of selling furniture, and top management always pays attention to aspects of that business such as buying goods and merchandising those goods on the floor. Schneider said to beware letting money trickle away by ignoring such “non-core” costs as phone bills, trash bills or monthly maintenance contracts on, say, copy machines.

“Owners often put things like that in the hands of a middle manager with no fiduciary responsibility,” he said. “When you add these spends up it can be tens of thousands of dollars.” Say that person actually does a good job negotiating contracts and payments for services. “You have cases where they never communicate that to accounts payable,” Schneider said. “They have to tell the person cutting the check to be aware of new pricing.”

NICKELS AND DIMES

Schneider said bank fees are something many retailers pay little attention to; or if they do, they might be scared of riling the bank if they think they’re too high.

“Sometimes you get a great rate or line of credit,” he said. “To get that rate you’re required to bank with them, but you might be getting nickeled-and-dimed on ‘treasury fees’ like transaction processing charges.”

How well do you understand the ad rates for you print and billboard advertising?

“You might have a marketing person doing that buying, but they might not have fiduciary responsibility,” Schneider said. “You want a finance person involved in the process. Also, marketing people are creative, they aren’t numbers people.”

And while everyone wants to trust their employees, make sure they’re always working for your business’ benefit, not the benefits sometimes offered by service providers wanting to maintain the account: “Maybe they’re enjoying free tickets to sporting events in town,” Schneider said.

Flipping that coin, Schneider’s seen situations where a service vendor also was a customer at the store. Don’t feel too beholden.

“You might have gotten $1,000 from that sale, but over the years you might be saving $10,000 working with someone else,” he said.

FINANCING OPTIONS

“A lot of retailers leave money on the table by not offering a secondary financing option,” Schneider said. Say a person doesn’t qualify under your regular financing package. “There are plenty of financing alternatives to explore that will handle that business,” he said. “The customer gets the furniture— even if at a higher rate—and you get the sale. You’ve already spent time and money on your marketing and advertising to get them in the door.

If your margins are down 10 percent and you’re letting 30 percent of your customers walk because they don’t qualify, you can offset that right there with a secondary option,” Schneider said Plugging a store’s money leaks can involve very basic things. Take utilities.

“Put Wi-Fi thermostats in all your stores to make sure the heat’s not running all night,” Schneider said. “That cost is about $100 a thermostat—the technology has decreased in price so much. That alone can save thousands of dollars.”

 

More on Delivery

Making the call on whether to perform your own delivery or employ the services of a third party to get the customer orders to their homes depends on two things.

The first—your target for the percentage of sales delivery should cost (in Impact Consulting’s Best Practices survey that is 3.56 percent). The second is whether your own delivery operation makes that goal on a consistent basis. If the answer is “no,” a third-party carrier could well be worth looking into.

“The driving factor is cost,” said Charles Johnson, president of Diakon Logistics, Manassas, Va., whose home-delivery customers include a number of top 100 U.S. furniture retailers. “Is it cheaper to outsource or have your own in-home delivery?” Johnson believes retailers have to look at both “hard” and “soft” costs when making the call whether to keep deliveries in house, or outsource them.

Hard costs include trucks and maintenance, labor, workers compensation, damages to product and insurance. “If an employee drops a $2,000 sofa and it cracks, the retailer eats that,” Johnson said. “If we do it, we pay for it,” adding that an exception would be if there’s a problem with a product that’s contracted for delivery “in the box.”

“Soft” costs aren’t as apparent, but retailers should consider them, especially if they want to manage delivery in house.

“If you have a warehouse general manager who has 40 home delivery people running 20 trucks a day, that takes up a lot of that manager’s time,” Johnson said.

Retailers need to factor that time as a portion of that manager’s salary in gauging the true cost of delivery. The same holds true if someone is doing double duty on delivery and other functions in the business.

REMOTE CONTROL

Control over the delivery process is another issue to consider. “Are you willing to give up control for a third party to be the last person to touch the furniture?” Johnson said. “That’s when choosing the right prospective partner is important.”

A good third party partner’s delivery personnel work for the retailer, as far as the consumer is concerned; and adopt the customer’s delivery process and standards as its own.

“If retailers create a true partnership, that control issue shouldn’t be such a concern,” Johnson said. “Their requirements are our requirements.

They set the standards, and we live by them.”

IN GENERAL

Johnson had suggestions for retailers looking to hone their delivery operation.

“The best measurement of your delivery expense is to look at it as a percentage of delivered retail sales,” Johnson said. If you’re looking at delivery cost as a percentage of overall revenue, which might include product protection, warranties and interest on private paper, you aren’t getting a true picture.

Taking delivered sales, say your goal is to keep delivery cost at 5 percent of those sales. If you’re going over your target, that’s when you look for problems, and if you consistently can’t meet that figure, it might be time to consider working with a third party.

Watch for how other numbers can impact delivery cost, as well, Johnson suggested. Take average ticket. For hypothetical purposes, say one year you had $100 million in delivered sales with an average ticket of $2,000; and the next year you had the same sales with an average ticket of $1,800. That equals more deliveries, with a corresponding increase in your delivery cost percentage.

Multiple deliveries on the same order are a no-brainer when it comes to driving up delivery cost. Maybe the product was out of stock or there was damage; perhaps the sales associate wrote up the wrong box spring for a mattress.

“Some retailers say they’ll eat that cost, but they need to recognize it,” Johnson said, adding that retailers should choose their battles on this topic. “When you make a decision to make a multiple delivery, is it a $600 order or a $4,000 order?” Do you deliver product before taking it out of the carton?

“If the retailer isn’t doing a robust quality control check when a container comes in, say opening one in 10 boxes before authorizing the load for delivery, they can see some return trips,” Johnson said.

Delivery is all about productivity, and if you’re not routing efficiently, you’ll make more trips, or need more trucks.” Johnson suggested that retailers considering one-day delivery perform a ZIP code analysis of where they’re taking 90 to 95 percent of their deliveries.

“You might find that in ZIP code X, you made 10 deliveries last year,” he said. “Your salespeople need to explain if someone lives outside that area, then they’re looking at next-day or five days depending on your operation.”

And, if you offer same-day delivery, actively promoting that service can save money. It might seem counterintuitive, but Johnson said getting the word out on the service increases delivery efficiency by increasing the density of orders going out for same-day delivery. If one customer a day wants it that day, the retailer might have to send a truck out for just a single stop.

Another factor Johnson said to consider with delivery is the number of days in the week when service is offered. “Let’s say you have 50,000 deliveries a year and your offer sevenday delivery,” he said. “If you scale back to six days, you might need more trucks, but they’ll have more density; and instead of going 10 miles per stop, you might be going seven. “You also don’t have warehouse operations, product inspections and other related functions seven days a week,” Johnson said. “You reduce your overhead because you don’t have that staffing seven days a week.”

From the Editor: On a Mission

Here’s the scenario. Four women, one car, and a Friday afternoon and an all-day Saturday shop-a-palooza in Charlotte. Mission No. 1—hit Ikea so one of my friends could make her first-ever trek to the behemoth home furnishings retailer. Mission No. 2—keep aforementioned gal away from her Columbia, S.C., home for about 36 hours so her family could prep for a HUGE surprise party. Mission No. 1 came out of Mission No. 2 in a roundabout way.

Plans were set to run away from our homes and families Friday afternoon, have a great dinner in Charlotte, spend the night and shop all day Saturday before heading home, the suspect—or she might now say victim— decided we should venture out of town early. That way, we could accompany her to Ikea to check out sofa sleeper options for the family beach house. Her decision nearly derailed the entire plan, but that’s another story.

Also on the list of stores to hit—Restoration Hardware and Pottery Barn. RH had a shower curtain she’d been eyeing, and a matelasse comforter that another one in the crowd wanted to see. Don’t ask who was interested in Pottery Barn or even what was on the list there; we only did a quick-moving breeze through the store at SouthPark Saturday afternoon.

It seems like many consumers these days, we became distracted by the apparel and shoe sale racks and new season designs. Those are the stores that captured our attention and some of our dollars. But, I digress. Back to Ikea, simply because it was our first stop of the adventure.

On my best of days, I get overwhelmed in an Ikea store. The stores are huge, have a zillion little “shortcuts” designed to move you quickly from one area of the store to another, and darn near require a map to navigate the floor plan. This particular day required focus. Focus to keep the devious plan on track all the while being distracted by one of my co-conspirators about to burst from keeping the real mission under wraps. She’s like a three-year-old trying to keep a secret!

But here are a few tidbits that I took away from our FOUR-PLUS hours in the Charlotte Ikea. There’s no way one can walk into that store without buying something. It may not be a sofa sleeper—that mission fell way short—but something will always be bought. Maybe it’s the excitement of the hunt or the group shopping or the sometimes shockingly low prices, but the four of us left with a hodge podge of items.

The tally from the four of us looked something like this. Four sets of 99-cent funnels. We all snagged a set of two. Three down throw pillow inserts, a glass salad bowl, plastic kitchen storage containers, five wire bins, four curtain wires and clips for a back porch, a whisk, a set of wine glasses and four sodas to go. The takeaway? You never know what little item will strike someone’s fancy. Sometimes the cash-and-cary items can keep registers singing. By the way. The party was a hit and we all managed to keep the secret.

Publishers Letter: In Pursuit of Excellence

This issue of the magazine focuses on performance. This subject is timely since much of our attention has been focused on the Winter Olympics. These exceptional athletes have trained for and concentrated the last four years or longer on these moments when they perform. The attention to the details of their sport plus the impact of external factors (such as 60-degree weather on the downhill slopes) will make the difference between an athlete winning a medal or not. This is nothing short of mind boggling.

So what does this have to do with furniture retailing?

Much the same as these athletes are those excellence- pursuing retailers with whom I have been fortunate to participate whether as clients or as Performance Group members. Many have known both the disappointment of failing performance and then the exhilaration of the comeback.

What brings about this success after potential failure? There is no silver bullet. Instead it is a process of doggedly pursuing excellence by understanding what impacts profitability and growth. In this issue of Home Furnishings Business, we break down the various revenue and expense elements for today’s retailer. While the bottom line may not be overwhelming, it will provide you a datum by which to measure your operations. Gaining a deeper understanding will allow you, similar to the downhill racer who shaves a tenth of a second off his or her performance time, to trim a percentage from each expense element. That continued effort will allow you to achieve 10 times the average.

The retail sector has few publicly traded companies for comparison and development of best practices. Our consulting and research allows us to collect comparable data, but this is all under the cloak of confidence. My dream would be to recognize those retailers who have achieved exceptionable performance in each area as well as overall. Our Performance Groups provide that recognition to a small group of peers, but not to the industry as a whole.

It is difficult to strive for excellence without recognition from others.

A Bedtime Story

Once upon a time in a cozy home in the suburbs, there lived a consumer couple who was eager for a better night’s sleep. A busy couple—both hard-working and parents to 2.06 children—they craved a solid eight hours so that they could wean themselves from the three-cup-a-day Starbucks’ Venti addiction. Prescription sleep medications weren’t doing the trick, so the couple decided to follow the advice of a friend and visit the local bedding specialty store in seach of a better sleep experience. At the store, they found a knowledgeable sales associate who was patient, kind and completely understanding of their need for sleep.

The associate explained the benefits and drawbacks of the various types of beds from innerspring to gel to air to memory foam and beyond. The couple “rest tested” a number of options as the sales associate suggested and after not much time later, they had agreed on the best mattress for them. The sale was completed; delivery scheduled and off Mr. and Mrs. Consumer went to await the quick, same-day delivery of their new mattress. Once delivered, the couple fell quickly into the bed where they slept happily ever after.

If only every mattress transaction were as simple and easy as this fairy tale, the bedding retail business would be full of sunshine and kisses every day. According to Home Furnishings Business’ latest consumer survey on mattress purchasing, consumers are for the most part pleased with their latest buying foray into the category.

More than half (53.7 percent) of our consumer panel bought a traditional innerspring bed. That percentage was followed by memory foam with 37 percent opting for that construction. From there, the next closest sleep surface option was air, like Select Comfort’s Sleep Number beds at 5.6 percent. Most of our consumers bought mattresses for the master bedroom (77.4 percent) with guest bedrooms taking a distant second place at 20.8 percent. The top selling size? You guessed it, queen with 46.3 percent landing there.

Second in line was king with a third of the panel opting for the larger sleeping space. Bedding consumers are quite the price-conscious bunch. More than 77 percent spent less than $2,000 for their bedding purchase. In fact, price ranked as the most important factor in buying a mattress following by rest test options, brand and sales associate’s recommendation. Never underestimate the need for consumers to rest test a bed. More than 53 percent spend at least 10 minutes testing out a mattress in the store. Thirty-seven percent of them opt for 15 minutes or longer. A mere 13 percent—a surprisingly high number—shun the rest test completely.

While here in furniture land we spend a great deal of time talking about adjustable bases, temperature regulation and adjustable firmness, the consumer isn’t quite there—yet. According to the survey, those three functions got only a mediocre rating, and very few consumers ranked them “very important” in their purchase consideration.

As with newer trends, those perceptions could all change with education during the shopping experience. Price constraints were a drawback for consumers who considered a memory foam mattress but bought an innerspring instead. More than 35 percent said the price was cost-prohibitive. More consumers bought from a bedding specialty retailer (37 percent) than other retail channels. More than 22 percent bought their new mattress from a traditional furniture store, 16.7 percent bought from a department store and 13 percent opted for a warehouse club. Another 11 percent bought online.

Overall, our consumers were pleased with their shopping experience. More than 62 percent of our panel rated their shopping experience as “enjoyable” to “very enjoyable”. The sales associates’ product knowledge also pulled in kudos with 68 percent saying they were “satisfied” to “very satisfied” with the service.

One missed opportunity among our consumers is the high percentage of sales associates—68.5 percent— who didn’t mention that it can take up to 30 days for a body to adjust to a new sleep surface. That tidbit of information could possibly lower the 18.5 percent exchange rate of new mattresses.

 

What Retailers Say

Simmon’s Beautyrest Munising

“It’s extremely popular due to its ‘best of both world’ construction. With the

cool and conforming layers of Air Cool memory foam topping the trusted and battle tested Beautyrest pocketed coil, our sales force flocks to this bed time after time to appeal to customers from both sides, memory foam and innerspring. Add the fact that our sales force knows this product was built specifically for us and our customers, and you have a homerun collection and a No. 1 mattress.” Retail is $2199.99 for a queen set.

Diane Charles
Art Van Furniture
Warren Mich.


Viva Sleep By Del Sol

“We created our own private label with a local vendor. We call it Viva Sleep by Del Sol. It’s great because it can’t be shopped, it’s a great value, and we offer a lifetime guarantee since it’s by ‘us’. “

Alex Macias
Del Sol Furniture
Phoenix

 

Restonic’s Comfortcare Signature 

The ComfortCare Signature Mattress is a multiple winner of both the Consumer’s Choice Best Buy Award and the Women’s Choice Women’s Certified Award. It’s one of Restonic’s best selling mattresses because it truly offers the best of both innerspring and latex. For the Women’s Choice Award, 96 percent of people who bought this mattress would buy it again. This mattress collection features a consciously casual Bur berry ticking over a layer of individually wrapped micro coils (as well as a layer of supporting individually wrapped coils in Restonic’s Marvelous Middle) along with Outlast technology, TempaGel and a unique Airflow edge for superior temperature regulation throughout the night.

 

 

 The Beautiful Mattress from Pure LatexBliss

The Beautiful Mattress is the top seller for Pure LatexBliss because the 12 inches of latex is a unique and clear differentiator for the product. Not only does its construction and sleek design elements stand out on a showroom floor, but there is tradeoff between price point and the comfort feel consumers look for. The layers – a 6 inch Talalay Latex pressure relief layer and 6-inch Talalay latex support core – deliver unparalleled support and pressure relief at a competitive price. Suggested retail is $3,500 in queen.

 

Gold Bond’s Smart Series 

This is the company’s first hybrid line and has an ultra-plush feel and contemporary look as well as the support of an innerspring system with the added comfort of a top layer of gel or gel-infused latex. Keeping with company’s mantra of high quality mattresses at lower price points, the collection will feature American-made gel and gel-infused latex components. It is successful because over-spacing the product gives retailers an advantage to operate at a higher margin, because they know Gold Bond’s sleep products are reliable and have consumer value.

 

Passions by Kingdown 

One of the company’s largest lines, Passions offer a variety of constructions, comfort feels, and competitive price points ranging from $599 to $2,099 in queen. Passions boasts more coils than any other brand, more than doubling the number of earlier models to 1,791. With 18 innerspring and foam models, the line is designed to fill a void in the marketplace, offering high-performance mattresses at middle-market price points.



KLUFT’S PLATINUM PREFERRED COLLECTION 

The Platinum Preferred Collection signature look and feel is unlike anything else on the market today. Featuring high-end materials that provide a luxuriously supple feel, the artisan handiwork Kluft is known for and the best in phase-change technology, the collection is consistently a winner for both retailers and their consumers. Suggested retail is $2,499 - $5,000 in queen.


Omi’s Terra

 

 

The Terra is a unique four-sided mattress that offers a supportive plush feel and is favored by consumers for its comfort and versatility. Engineered with a medium firm base mattress and topped with a two-sided removable certified organic rubber 3-inch pillow top, consumers in urban areas have come to know this mattress as the “Guest Topper Mattress”—when they have visitors, they simply detach the pillow top and use it as a guest bed to save space in small apartments. Suggested retail is $5,795 in queen.

Green-Eyed Retailers

By Powell Slaughter

SOME BIG NAMES IN FURNITURE RETAILING MAKE SUSTAINABILITY A PRIORITY

If you think paying attention to sustainability is more trouble than it’s worth at your store, be aware that retailers with far-flung operations believe it’s an investment in the future. And they won’t be shy about letting consumers know what they’re doing. Tamarac, Fla.-based City Furniture, for example, completed its sixth LEED-certified store late last year. LEED—Leadership in Energy & Environmental Design—is the U.S. Green Building Council’s standard for energy efficient building design.

The retailer’s proprietary Kevin Charles upholstery line uses soy-enhanced cushioning, which takes the place of petroleum-based foams; and City also is examining the possibility of converting its truck fleet to operate on compressed natural gas. “We aren’t ‘tree-huggers,’ but it’s the right thing to do balanced with business sense,” City Furniture President Keith Koenig said during an interview at last October’s High Point Market.

ROLLING OUT

Late last year, Ethan Allen, which had fulfilled registration for the American Home Furnishings Alliance’s Enhancing Furniture’s Environmental Culture (EFEC), began extending the program into its retail operation. That process should be complete this year.

“Ethan Allen has certified our entire retail home delivery center operations under EFEC and we are now working on our retail design centers,” said Chairman Farooq Kathwari. “The company has also certified our manufacturing and distribution operations under EFEC, and then took our manufacturing to the next level with the Sustainable by Design (SBD) designation.”

While Ethan Allen used its EFEC experience with manufacturing and distribution for certifying the retail home delivery operations, Kathwari said the retail design centers do present additional challenges, especially the scale of the company’s store network.

“With 150 design center locations it requires more conformity between locations and more statistical sampling to ensure locations have met the requirements,” he said. “We have decided to continually sample the retail locations as a method to ensure that the requirements are being met. To do this we have set the requirements, trained on the requirements, and continue to audit the requirements.

“Another challenge is that our retail segment is staffed differently than our manufacturing divisions that have dedicated associates in place with environmental compliance backgrounds who can lead the EFEC requirements,” Kathwari said. “We therefore, for retail, have a focused auditing and training program in place supported by regional EFEC team leaders. These team leaders were established to help focus the efforts across a region and to also work with the other team leaders to maintain consistency across the division.”

Ethan Allen’s retail training focus is twofold: to establish and maintain the practices to meet certification; and how to communicate to the consumer what the company is doing as a company in being environmentally responsible.

“The relevance to the product seems to be the key driver for retail, more so than the certification itself,” Kathwari noted. “We already started preparing for it and feel confident we can achieve EFEC certification in 2014. We have a training plan and supporting testing plan we are implementing. All our associates see this as an important initiative so as any challenges arise we have a lot of creative energy to find solutions.”

A WAY OF DOING BUSINESS

While Room & Board has a strong customer following that appreciates the responsible way the 15-store, Minneapolis-based retailer does business and the eco-friendly product it carries, going greener was more of a business decision, according to Steve Freeman, the retailer’s vendor resource manager.

“We did it mainly because we find working overseas can be difficult at times,” he said. “That’s not to say we don’t have some good foreign vendors. These days, though, the price difference for sustainable doesn’t mean as much cost difference” at Room & Board’s price points.

“We try to keep our sourcing as local as possible, and while we don’t push that, there is a sustainability factor when you look at transportation impact,” Freeman continued. “We’ve done these things just because that’s the way we want to do business. We changed our lighting to LED—there’s a cost to do it, but the payback in energy savings is there over time.

“We’ve gone to re-cycled packaging because it costs us less than taking it to the dump. If you gain a little marketing edge as a result of those things, so much the better.”

CHALLENGES/BENEFITS

What are the costs and challenges involved for a retailer who wishes to move toward a sustainable, environment friendly operation, and what do they need to include in their planning process moving forward? “The costs are variable and a component surrounds the time consumed training our associates,” said Ethan Allen’s Kathwari. “But we have found that with the return on recycling and reducing energy costs at each location, the cost is more of an investment that does generate a real ROI over time.”

Sustainable Furnishings Council Executive Director Susan Inglis said both costs and benefits of flooring sustainable product vary tremendously. “Anything that is certified is going to cost more, but often the choices do not cost more—wood that is legally harvested from well-managed forests, bamboo and other rapidly renewable resources,” she said. “And the benefits are varied, too: There is the matter of an improved future in the long run and in the immediate future. It can be challenging to be concerned about the future—cancer caused by exposure to a toxins off-gassed from furnishings does not show up quite as immediately as flu caused by exposure to a certain virus. “Similarly, the prospect of our grandchildren’s having a very different life from ours because of climate change is hard to imagine. But the benefits of non-toxic and low-impact furnishings include exactly these hard-to-imagine futures: less cancer in our families, and affordable consumer goods even in a future that will include higher costs of insurance, higher costs of food, water scarcity, decreased water quality and other ecological problems.”

In addition to its high-end upholstery business, Mitchell Gold + Bob Williams operates 20 retail stores. Mitchell Gold, co-founder and co-chairman, believes the costs of going green are negligible, especially compared with the consequences of not doing so. He’s fairly outspoken on the topic.

“What is the cost to destroying our environment?” he said. “If you believe in rapture and don’t care, that’s a seriously flawed approach. We are seeing the cost to climate that is wreaking havoc on our lives and businesses.”

FINDING SUSTAINABLY SOURCED GOODS

What are the barriers to flooring ecofriendly goods? Gold summed it up in two words: “Stupidity and greed.” He added that it’s almost impossible to floor 100 percent sustainably sourced goods. “Yes, you can ‘go half-way’—consumers are very interested in having the choice,” Gold continued. “They would rather be shown a range of products including those that respond to their own environmental concerns, than not to be shown any with that sort of story. They actually tend to have more respect for a company that at least offers them a choice.”

Freeman at Room & Board said its easier now to find products made in wood that’s certified as sustainable. “It’s not affecting our pricing a lot, but we’re in the mid to upper price ranges so it’s easier for us to absorb any extra cost,” he said. “Because we stay with product made in the U.S. for the most part, it’s easier for us to make sure vendors are doing what they say they’re doing. “I think some manufacturers think sustainable materials may cost them more than it really will. … I was born a skeptic, so I’ve always asked more questions than some people would like. If a supplier says they ‘can’t,’ there’s someone out there who might be able to get what you want.”

Room & Board’s approach is that environmental responsibility is a by-product of business practices that have worked for the retailer. “We feel we have a strong customer following that appreciates the way we do business, but we did it mainly because we find working overseas can be difficult at times,” Freeman said. “That’s not to say we don’t have some good foreign vendors. These days, though, the price difference for sustainable doesn’t mean as much cost difference” at Room & Board’s price points.

“We try to keep our sourcing as local as possible, and while we don’t push that, there is a sustainability factor when you look at transportation impact,” he continued.

“We’ve done these things just because that’s the way we want to do business. We changed our lighting to LED—there’s a cost to do it, but the payback in energy savings is there over time. “We’ve gone to re-cycled packaging because it costs us less than taking it to the dump. If you gain a little marketing edge as a result of those things, so much the better.”


 

REGULATORY CLIMATE

Air-quality and fire-retardant issues regarding home furnishings have made headlines of late—and could make retailers think about environmental concerns whether they want to or not. “We just went right to CARB 2 compliance even before anyone had to be CARB 1-compliant,” Freeman said. “The same thing is true with all these regulatory issues—we’re staying in front of regulations. Make sure consumers are aware of what you’re doing and why. “Rules and regulations change, new products reach the market. It’s harder for smaller retailers and manufacturers to keep up. They’re wearing all the hats, opening the store, running the day-to-day business.”

HFB

 

“I think some manufacturers think sustainable materials may cost them more than it really will.”

STEVE FREEMAN
Room & Board

 

“All our associates see this as an important initiative so as any challenges arise we have a lot of creative energy to find solutions.”

FAROOQ KATHWARI
Ethan Allen

“(Consumers) would rather be shown a range of products including those that respond to their own environmental concerns, than not to be shown any with that sort of story.”

MITCHELL GOLD
Mitchell Gold + Bob Williams

Magalog
HFB_All_Access
Performance Groups
Got News
HFB Designer Weekly
LinkedIn