From Home Furnishing Business
Many of my discussions with retailers are around the lack of traffic and resulting lack of customers. There is a search for the best way to advertise, best way to present the merchandise, best selection, and best on and on. Are we making it too complicated? What happened to the times when you sold Mr. and Mrs. Consumer just like you sold their parents and sometimes their parents? What caused this commitment to purchase?
I realize that as the industry moved from mom & pop stores with the owner at the front door to multiple stores with professional sales managers there had to be a loss of that connection. We have lost the merchant class that prided themselves on maintaining that relationship.
In presentations, social media is touted as opening up communications connecting the world, but what about the furniture retailer and their customers?
But back to my discussions with retailers—the first step is to simplify the discussion. For example, let’s take Virginia Beach. How many households? 650,000. What price points do you sell? Upper/Premium. Primary customers? 35-65+ / $75-250k = 195,000 households. What psychographic clusters (lifestyles) have you best attracted? About 80,000? How many of them are your customers? Do you sell at least every eight quarters? 16,000. Now, how do you touch everyone of these consumers, 3x per year—without “selling” them—to remind them that you can assist them in creating a beautiful home? It’s fairly easy to get down to one on one, isn’t it?
Why bother? Simply put, this consumer household represents a revenue stream of $45,000 over their lifetime. For every $1.0m in revenue, you need 1,000 customers that consistently buy from you. The following are the statistics.
Thoughts of the aftermath of the wave of acquisitions in the manufacturing sector that saw the transfer of ownership from family to nameless equity firms that had better ideas to wake up the stodgy furniture makers caused trepidation.
In the past year, the industry has watched as Bob’s Discount defied industry norms and skipped over the nation from Chicago to Los Angeles, opening multiple stores in the same week. And Art Van reorganized with significant personnel shifts and exits. At the same time, cornerstones of furniture retail such as Rooms To Go, Raymour & Flanigan, and Haverty’s keep their powder dry. What is in the wind?
In the business press, not just the industry press, the performance of the furniture retail sector has been the topic of much discussion. While the “pending” purchase explosion of the millennials will fuel the home furnishings industry, that is after they begin to furnish their first homes, and after they actually make that decision in light of college debt. The decisions may be ten years later than generations before.
But for now, Baby Boomers still have the highest number of households representing 34.4 percent of consumer units compared to 26.8 percent for Generation X and 25.1 percent for Millennials. While the Millennials are inching closer to Generation X in the percentage of consumer units, the percentage of consumer spending for furniture/bedding is still over eight percentage points (7.7 percent) higher for Gen Xers and almost ten points higher for Baby Boomers.
But even with this delayed race to purchase by both generations, the industry in 2018 totaled $106.33b- an increase of 6.8 percent over 2017. Furniture excluding bedding grew a healthy 7.6 percent to $90.2b and bedding increased 2.6 percent to $15.51b.
The generational terminology is tossed around much like our style trends. The table provides the commerce department definition unaltered from marketers that “bend” the definition to match their marketing campaigns.
At the end of 2017, the most current year of consumer expenditure data by generation, Millennials’ total $71.9m and range in age from 21-36 with an average age of 28.5.
The next, older Gen Xers at an average age of 44.3 are smaller in population at 65.7 million but will have the most current impact on the furniture industry.
Baby Boomers at the average age of 61.1 are rapidly retiring but are not showing signs of lessening their influence on the industry.
Why the discussion of demographic trends in an article about retail competition in the furniture industry? Simply put, it is the consumer that will influence the type of retailer that will prosper into the future, and therefore what the market demand will be for retail distribution types into the future. There have always been changes in distribution channels in the furniture retail landscape. Fifty years ago, over 50 percent of the furniture volume was delivered by national chains such as Montgomery Ward, Sears, and JC Penny with the balance of the market controlled by department stores and small mom & pop stores often specializing in weekly finance payments.
The ensuing fifty years has seen almost the final demise of the national chains and the growth of many mom & pop stores, losing the tag of “dirty window stores.” Emerging in the same period was the lifestyle stores, such as Restoration Hardware (RH) and Pottery Barn, and the verticals, dominated by Ashley Home that both produces and sells their own product. But most notable has been the internet or e-commerce retailers which began as entrepreneurial “pesks” policed by manufacturers that vowed not to sell them to major purchasers such as Wayfair that are pursued by manufacturers.
Traditional furniture retailing now controls 24.4 percent of the industry with sales on the uptick with regional chains but declines of 11.4 points with independents. The internet’s beginning with rogue retailers in the late 90’s captured 10.5 percent by 2011 and slowed to 15.6 percent in 2016- but has settled in at 18 percent plus today. Mass merchants (warehouse clubs and superstores) have grown only slightly in share 20.1 percent in 2011 to 20.4 percent in 2016. Everyone can remember the Costco scare that has faded into the past.
While each of these channels could be (and have been) the subject of a significant report we will focus on only the independents and the regional chains.
The consolidation of the industry continues after a cumulative loss of 19.8 percent of stores from its peak in 2007. The trend reversed in 2018 with a gain of 1.8 percent in store count.
As can be seen from the chart, there are almost 5,500 fewer furniture stores and an additional 500 stores in 2018.
Before getting excited, this does not mean a surge of new mom & pop stores. It is more a reflection of a trend that has been around in other retail segments that furniture retailing has avoided — a retail location on every corner. Furniture retailing has long been a destination location. However, with the time starved consumer, the need for a more convenient retail experience has lead retailers to more stores to serve the same markets. According to FurnitureCore, the sister company of Home Furnishings Business, the average household per store location for the Top 300 traditional furniture retailers is $212k households, down 10 percent in the last 5 years. The Top 300 retailers covered a range of $9m-$2.5b.
The demise of the mom & pop stores has been accelerated by the growth of regional chains.
Total furniture retailer sales of all products are estimated at $65.5b for last year. However, these retailers include retailers not classified as traditional furniture retailers. They also include lifestyle stores, such as Pottery Barn.
The Top 100 represented only traditional independents, large independent, and regional chains through consolidation and attribution. These retailers have increased sales by 66.1% percent since 2013 compared to the broader classification, which grew 10.6 percent.
Now, what should your strategy be if you are a traditional furniture retailer? No matter small independent, large independent (sales over $50m – one state), or regional chain with expansion of the mind, changes are coming.
First, let’s start with the “elephant in the room” or maybe we should say the large fish in the ocean. Specifically, those regional chains with national on their mind. Nothing motivates a furniture retailer to expand more than outside capital. With the acquisition of Bob’s Discount by Bain Capital and Art Van by HD Lee Partners, excitement was created in 2016/2017 that resulted in a 5.3 percent increase in market footprint for Art Van and 6.4% for Bob’s Discount. While Bob has expanded by opening new stores, Art Van has combined acquisitions with opening new stores.
Much more entrepreneurial has been Furniture Factory Outlet (FFO Home) with seven additional markets, and typically, in markets under $50min furniture/bedding sales. However, recently larger markets have been targeted.
American Freight, a quiet retailer out of Ohio with the low overhead but high value consumer experiences, continued to expand their market footprint into an additional eleven markets.
Anticipating an acquisition proposal or at least a deterrent to entering the markets, well managed regional chains are filling in their existing markets and moving into adjacent markets. No matter the motive, regional chains are taking advantage of the good market. Also stimulating this expansion is the availability of great real estate deals — catnip to furniture retailers.
Moving into a new environment, Big Sandy expanded into the Columbus market, joining Morris Home, the large independent.
Room Place expanded outside of the Chicago market into Peoria.
Steinhafels expanded its footprint into the outskirts of Chicago-Naperville-Arlington Heights market with a new store in Crystal Lake.
Living Spaces has continued its expansion strategy after San Diego into Austin and now into Las Vegas.
Cardi’s Furniture quietly expanded into New Hampshire in competition with Bob’s Discount.
While other regional chains have expanded into adjacent markets, many have been content to add presences within their existing markets. Surprisingly, the sleeping giants Rooms To Go, Haverty’s, and Raymour & Flanigan have been content to grow their marketshare and improve their performance. Many question the strategy. However, Rooms To Go’s acquisition of Carl’s Patio venturing into the outdoor category and Raymour’s accumulation of leases could indicate surprises to come.
As formidable as the regional chains are the large independents, often with more revenue than some regional chains, have been content to remain within their states and grow. While there is no state strategy, the fact is that some states are larger than some of the regional markets.
The major strategy with the large independents has been to create a dominance in each market to prevent other regional chains form considering invasion.
The major story has been about the Stevens Point-based Appliance & Appliance Mart as it is in an additional market and adding stores, including some free standing Ashley stores.
Jerome’s continues with its market expansion entering El Centro with free standing bedding stores and expanding store coverage.
City Furniture added an additional market (Sebastian-Vero Beach), plus expanded its store complement by six.
Johnny Janosik expanded into a neighboring market with expansion into Wilmington.
The centerfold map provides a visual perspective.
But what about the independent stores below $50m in revenue? An answer could be a franchise. Slumberland and WS Badcock have long provided a solution. The map indicated their coverage in the Midwest and South. The franchise fees are more than offset by the increased buying power and almost elimination of inventory. Assistance with advertising and store operation support are an added benefit.
Art Van has also supplemented their distribution in smaller markets with franchise operations.
As always, furniture will be sold. Enterprises will continue to find ways to satisfy the consumers’ demands. To survive retailers must be open to change- are you ready for the battle?
That’s what I did to prepare for this column, and it was very eye-opening how consistent the research was and how similar the resulting recommendations were, no matter who was writing the article or what part of the retail industry was being studied. It was reassuring in a way to see that most of what I saw was very much in line with what we have been preaching for the last twenty years, but what really came out of it is that there is no new quick fix or secret recipe to how we can be more successful. It all boils down to consistently being the best you can be at what you do and understanding what that really is in the eyes of your potential customers, so you can maximize your advantages and minimize your disadvantages versus each of your different competitors.
Today the big, bad beasts most home furnishing stores believe impact their marketplace the most, are the online retailers like Amazon, Wayfair and Overstock.com. However, there is also a huge amount of business being taken out of our local markets by the online efforts from other primarily brick and mortar companies like Walmart, Target and others. Sometimes we are so overwhelmed by all we see and hear about the successes of these efforts, that we lose sight of the fact it is predicted that roughly 80 percent of total retail sales over the next few years will take place in a physical store. That number is even higher, more like 85 percent, for the home furnishings industry and probably above 90 percent for much of the better furniture business. Therefore, while we can certainly try to minimize the loss of those sales, we also still need to get our share of the huge majority of the volume that will be available to us in the store.
One of the best ways to keep from losing any more customers to the online monsters, is by developing strategies that take advantage of what you offer the customer that they can’t provide. In the process, we can also learn more about ways to improve our overall effort, so we capture even more of those that choose to buy locally. Before getting down to some specific areas to work on, let’s start with a few common-sense thoughts that I gleaned from all my reading. Nothing new, but some good things to keep in mind as you prepare your strategic plan.
- Don’t chase something you can’t catch — We often tend to get so focused on one competitor or something we see done that looks like a good idea that we spend a great deal of time and effort trying to duplicate or outdo it. In reality, that ground may already have been taken and nothing we do will get us even close to the result we want. Be careful trying to be what someone else already is and try to develop your own unique and exciting approach to anything you try to be or do.
- Don’t try to out-Google Google — This is really an example of the above point but bears mentioning separately to better understand the message. While you should not strive to become another entity, you can and should certainly try to be more like those that are better than you in specific areas. In this case, learning how to handle online sales and customer service from one of the best in the business is a good idea, just understand your limitations and be the best you can be within reason.
- Don’t run from something that’s not chasing you — Similar to the first point, you need to be careful about who or what you perceive as being a real threat to your business potential. As an example, I have seen many stores try to duplicate merchandising selections from Pottery Barn or Restoration Hardware, without realizing that they are possibly not what their current customers are seeking. Again, trying to be something you are not out of fear that a competitor is coming after you can be dangerous if it takes you away from your customer base or reputation in the market. Probably best never to run where you have not walked first!
- Look at what others have done to win their battles, like Best Buy, Lowe’s and Home Depot. It is always best to study those that have encountered similar threats to their business and found ways to capitalize on their differences to not only survive but prosper. In their first few years of heady growth, it was estimated that Amazon took almost 30% of Best Buy’s business in home electronics, computers and accessories, which put that company on the ropes. Many predicted its demise, but they remade themselves and came out stronger than ever. Lowe’s and Home Depot also surrendered a good deal of their business initially to the online retailers, but they too managed to survive and prosper. In all three cases a major part of the solution involved capitalizing on their biggest difference – face-to-face contact with real people that can actually help them in their search for solutions to their problems.
- Best question to ask yourself and your team — What would make a customer choose to come to our store when they could go elsewhere or easily buy online? This is really critical to fighting the battle against not only the online retailers but also the other stores in or near your market. Today’s key to success is knowing how to differentiate yourself and then getting the message out to your target customers so they will come in and give you a chance to please them.
So, what is a customer looking for in their shopping experience? For years Impact Consulting Services, parent company to Home Furnishings Business, has conducted what we call Retailer Effectiveness Studies for our clients. Through extensive research we have defined eleven areas that consumers recognize as critical to the store shopping process. Others have defined lists like this as the Value Proposition of the business, which is a great way to look at it. The order of importance that is given to each one varies a bit depending largely on the age of the consumer, but the overall order is relatively similar across most markets. Here are the top five factors you need to be aware of when you look at what you are offering a customer and compare it to your competitors, including online retailers.
- Selection – This always seems to be right up there at or near the top in all of our surveys. Obviously the larger the store the more choice they can offer and the biggest “store’ is perceived to be the Internet. So here you need to do the best job you can at getting your message out about exactly what you offer and targeting it to the customers most likely to be interested in what you carry, because you cannot “out selection” Amazon and be everything to everyone.
- Price – This is a slippery slope with the way product pricing is all over the board. The early perception seems to have been that the best price is always on the Internet, however the public has begun to realize that is not always the case and they still need to shop around. Originally, the two biggest advantages online retailers had concerned the lack of taxes, which is going away, and their offer of “Free Shipping”. It is imperative that you and your staff understand the true cost of buying online and can honestly communicate it with the consumer so they can make an informed decision based on what their comparative final cost will actually be.
- Display – This is one of the areas that your store should have a distinct advantage, since you actually have a display and your customers can see, feel and touch the product before buying it. Research has indicated that this step in the process is extremely important for most big-ticket products, but it is very critical with purchases for the home that involve style, color and texture. Be careful though that you do not get “showroomed” as Best Buy originally did. They turned it to an advantage with the next factor.
- Salesperson – This one is a double edge sword in that many customers do not feel they want a salesperson, but almost all of them really need one. The big advantage here is if you can get the message across that your staff is there to help customers find what they are looking for, to make their experience easier and the result much better. Offering design assistance and in-home services helps, but even though sales people are one of your biggest advantages over online retailers, this is a hard sell to some consumers.
- Service – This is another area where the local store has a distinct advantage over the online retailer. It involves delivery and after the sales support. You must work hard to get the message about the value you offer in this area out to potential customers. They do not understand all that delivery involves and while older customers still value after the sale service, younger ones do not.
There are no easy answers and you need to be vigilant about making sure the message of what advantages you offer your customers gets through to them. That has not changed in the last fifty years. It has just gotten harder to do with all the selection available to the consumer and the tidal wave of information they must process.
Furniture purchases detailed in the Consumer Expenditure Survey (CE) include all indoor household furniture and bedding purchases plus outdoor furniture sold to consumer units. The data excludes all other home furnishings, including lamps, accessories, tableware, textiles, window treatments, carpets and rugs, televisions and major appliances.
The definition of consumer unit is closely aligned to households. (As noted in the Methodology, the survey data collected by the CE generally reflects 63 percent of the final furniture industry consumption published by the PCE and tied to the GDP.)
Zeroing in on the prime 35 to 44 consumer age group, Table A shows they spent on average $663 on furniture products in 2017 – the highest of the age segments. Over half of these older Millennials and younger Gen Xers are now homeowners (54 percent). Many older Millennials are just now settling down, making more money, purchasing homes and buying furniture.
But don’t discount the many younger Millennials (ages 25-34) who are also contributing to higher furniture expenditures. At an annual average expenditure of $538, ages 25 to 34 are spending more on average annually than ages 45 to 54 ($517). These younger Millennial purchases are especially important because many reflect single-person households as opposed to dual-income married couples in the 35 to 44 age group.
Younger Baby Boomers are still leaving their mark on the furniture industry with the 55 to 64 age group posting the second highest annual furniture expenditure at $543.
Regardless of age, as with most durable goods purchases, following the money tells a broader story of the purchasing power of higher income households and the squeeze on the middle class. High income earners spent three- to-four-times the level of middle class households in 2017 (Table B). The jump among higher income households – those earning above $100,000 – is quite dramatic. Households with incomes $150,000 to $199,999 spend on average $1,132 a year compared to $770 for those earning between $100,000 and $149,999 – a 61.7 percent increase. High incomes over $200,000 are averaging $1,591.
Marriage and children play a huge role in a consumer’s furniture buying needs. Typically marriage leads to buying a house and furnishings. When kids come along, households have furniture buying needs for years to come as families grow. As Table C shows, young married families starting out where the oldest child is under 6 had the highest average furniture expenditure at $886. These families, often dual-income earners, place a high priority on home furnishings. Most often this is their first home purchase. The next older cohort, married households with children between 6 and 17 years of age spend 12 percent less at $780 annually. At this life-stage additional family commitments begin to compete for household dollars – such as expenditures for school activities and sports, dental braces, teenage automobile costs, and private schools among higher income earners.
While married couples with the oldest child under 6 spent the most per consumer unit/household, this segment only accounts for 7.2 percent of the total furniture expenditures (Table D). If Millennials seriously start to embrace the traditional American Dream – get married, have children, and buy a house – it will be a huge boom for the furniture industry. Married couples without children appear to control the largest portion of furniture purchases at 32.3 percent while single consumer units without children spend 25.7 percent. Married couples with the oldest child over 18 only reflect 8.6 percent of furniture purchases as parents plan for the next life-stage – children in college.
Table E shows the annual average furniture expenditures by different occupation type. By far, managers and professionals, with their higher incomes, had the highest average annual expenditure at $740, 41 percent more than the second highest spender, construction workers and mechanics. Construction workers and mechanics spent an annual average of $523 in 2017, slightly more than self-employed workers at $516.
Not only do managers and professionals spend the most on furniture annually, this group also comprises a substantial portion of the U.S. workforce controlling 35.5 percent of total furniture expenditures. Retired Baby Boomers are second, with 16.9 percent of sales. The occupation category that controls the third largest segment of the industry - technical, sales and clerical workers – contains some of the lowest spenders per household at $476 annually; however, their sheer numbers put their industry presence at 13.8 percent of total dollars. Service workers, also among the lowest in expenditures at $407 still represent 10.5 percent of industry sales (Table F).
Where people live also influences how much they spend on furniture each year. Larger cities seem to command the higher salaries, but also higher costs of living. Households in America’s mega markets with over 5 million in population, do not, in fact, spend the most on furniture. As shown in Table G, bigger cities, but not the largest urban areas, with populations between 2.5 million and 5 million – had the highest annual furniture expenditures at $669 in 2017.
Although the larger, densely populated areas spend more per household, the greatest share of total furniture purchases, 21.7 percent, are from households living in mid-sized urban areas with a population of 250,000 to 999,999 (Table H).
With the majority of larger U.S. urban areas in the Northeast, it is not surprising the region has the highest annual furniture expenditure at $587 (Table I). And even though the South has the lowest expenditures per households at $470, because of the region’s size, the South accounts for 35 percent of total furniture spending – well above the other three regions (Table J)
The Consumer Expenditure Survey selected representative markets to drill down to household characteristics and total household furnishings and equipment expenditures. Figure 1 gives a breakdown of MSAs with the highest amount spent on household furnishings and equipment. St. Louis topping the list with an expenditure of $3,465 might come as a surprise, but is in line with the urban size analysis in Table G. and the high homeownership rate of 75 percent makes sense.
Household furniture purchases are driven by a combination of life stages, with the two highest spenders at opposite ends. The first is young married couples ages 35 to 44 starting out buying homes and having children. The second on the opposite end is seniors retiring, taking stock of their financial good fortunes, making new lifestyle choices, and buying furniture. The problem is these Baby Boomers are aging out of the 55 to 64 age group rapidly, and the younger Millennials have been slow to embrace the traditional married-homeowner-children path. But if the economy can stay healthy, everyone is looking to the Millennials to make up for lost ground.
According to Bryan Sprinkles, sales and marketing manager at John Thomas Furniture, "We’re living in our homes much more casually than ever before. The trend may have started some time ago, yet it’s growing, not going. Part of that has to do with the largest demographic of home buyers being millennials (36% and rapidly growing). They don’t want segmented areas. Instead they want gathering spaces where living, dining, and kitchen spaces are fluid and visually connected.” What are manufacturers doing to create casual solutions to dining needs? Well, it’s not exactly reinventing the wheel, but it is important nonetheless. Sprinkles continues, “We’re consistently reviewing how the scale, shape, function, and fashioning of our designs can work best for shopper’s lifestyles and how we can add value to their buying proposition." Other executives agree. Jonathan Sowter, CEO and founder of Jonathan Charles says, “Customers are consistently looking for more casual dining options; gone are the highly formal separate dining rooms.” He says his product is a best seller "because it has the same scale and amenities as a formal dining table but the design is much more relaxed and appropriate in open layout homes."
According to a FurnitureCore, Inc. industry model developed by Impact Consulting Services, parent company to Home Furnishings Business, when polled on the location of the dining area in the home, 52.34% of consumers reported having a casual dining space outside of their kitchen, 35.51% said that their casual dining space was within their kitchen, another 6.54% preferred a kitchen bar with stools or chairs, and the remaining listed ‘other’ or ‘no casual dining area’ at 5.6%.
Working with a modern finish or style will make all the difference while consumers are searching for their next casual dining piece. It will, after all, need to transcend its intended purpose as a dining piece and become a focal point for a large, multi-purpose room and combine with the other styles and features of the surrounding areas within the home. This is also where manufacturers and designers are able to have a bit of fun with their product design, keeping ahead of trends and anticipating the next big thing. According to Najarian Furniture’s Vice President Michael Lawrence, "Online retailers made way for transitional styles to be sought-after and mainstream over the past few years. We’ve been ahead of the curve and anticipated these shifts by incorporating more of these looks into our line-up, yet find there are still a lot of shoppers looking for contemporary and modern-glam styles that are truly unique, not me-too. Our approach is to work closely with our retail partners and engage in dialog to ensure our finger stays on the pulse of what shoppers are looking for at retail and design accordingly. Our niche has always been, and continues to be, unique, classic, timeless designs. Though we incorporate trendy, transitional styles... classic, timeless designs are consistently our sweet-spot."
Based on the same FurnitureCore study, when asked the style of the casual dining area, a near tie with traditional (32.71%) and contemporary (34.58%) was reported. Following that was country/rustic at 14.95%, transitional at 6.54%, and all others trailing behind. These same consumers have recently purchased casual dining furniture in the past 18 months. When surveyed, most reported that their most recent purchase was a chair(s) at 73.88%, followed by tables at 68.22%. Buffets were popular at 7.48%, China cabinets at 6.54%, and ‘other’ was reported at 12.15% (think wine cabinets, etc.). Now, you’re ready to peruse the best sellers of the category. Happy merchandising!