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From Home Furnishing Business

Editors Note: Ready-Aim-Fire

In the eighties, management gurus led by Tom Peters, as documented by his book Search of Excellence, stresses a strategy with a “bias for action,” a preference for doing something, anything, rather than sending a question through cycles of analysis and committee reports. The results were good companies on the dust heaps of history. Our industry has many examples starting with manufacturers: Broyhill, Lane, furniture brands and continuing with retailers: Levitz, Wickes and more recently Klaussner, Art Van, Mitchell Gold and more.

It is difficult to watch as incoming manufacturers’ orders significantly fluctuate month-to-month impacting the ability to forecast production six months out. Exacerbating this is the long standing practice that retailers can cancel orders with little recourse. This, added to the manufacturers concern about the recent bankruptcies of industry icons such as RoomPlace and Ruby Gordon, creates a sense of something needs to be done. Likewise, retailers weekly see the very real downward trend of consumer traffic to the stores – down 14% 2019 – 2023. While revenue for the same period is up 10% (top 50% quartile), with net income remaining in the upper single digits due to increase in average unit prices and the impact of volume variances, it is still troubling.

Translating “FIRE-READY-AIM” to what to do will require “STRATEGY-TACTICAL PLANS-EXECUTE.” The first part of strategy is to address the unique trends after the pandemic, specifically: Industry Trends
The GENERATIONAL TRANSITION from the Baby Boomers to Generation X to Millennials (See our feature story from the Nov/Dec 2023 issue.)
NEW COMPETITION from new distribution channels that offer a different retail experience attracting the incoming generations (See the feature story in this issue.)
CHANGING STYLE PREFERENCE necessitating a balancing of both the retailer and manufacturer merchandising assortment (See our feature story from the Jan/Feb 2024 issue.)
• The CHANGING BUSINESS MODEL from independent furniture retailer to direct to consumer and everything in between; What will define success in the next decade?
What is Your Specific Strategy for Each?
It is not a time to base your strategy on qualitative facts (opinions), but quantitative facts (data). Unfortunately, our industry has been oriented to past facts – what worked before. It is not the time to roll the dice. Watch for the incoming.

 

Cover Story: Distribution Channels The Stage Upon Which To Sell

The driving factor of this transition is the consumer and their desire for a different “RETAIL EXPERIENCE.” That is the challenge for the retailer. What is “retail experience?” In the past decade traditional furniture retailers have pursued a strategy of price reductions enhanced with attractive financing. While price is important, according to Home Furnishings Business’ sister company FurnitureCore’s most recent consumer survey, it is number three and declining (16.81% - 14.48%) in the consumer ranking of motivators. Table A compares pre-pandemic (2019) to postpandemic (2023). The rankings are especially different when we consider the emerging generations as shown in Figure 1. What is more important – QUALITY, MANUFACTURER’S REPUTATION or DESIGN (style)?

While these motivators are not the retail experience per se, they are what is expected as part of the experience. Where does the traditional furniture retailer stand on these motivators? With the first— QUALITY— there is a challenge. Quality has declined in the past two decades. The industry can blame the increase in imports, but it is the industry that designs and inspects the quality. The industry can blame the margin demands of the retailer and they, in turn, blame the consumer for price resistance. Nevertheless the consumer price indexes (CPIs) have declined for years compared to other consumer products. Only with the pandemic did we get a bump up. Graphic 2 provides the statistics.

This price increase has resulted in better margin for retailers that created a volume variance in their financials and a better bottom line. Financial Snapshot is shown below.

Unfortunately, this impact has not “trickled down” to the manufacturers. However this will change. This price increase has not impacted quality. However, the consumer will begin to demand change. It is not a fad that the emerging “vintage furniture flippers” are taking donated furniture from outlets such as Habitat’s RESTORE and providing quality to the emerging generation. It is ironic that the generation (Baby Boomers/Silent Generation) that appreciated quality and brand are recycling their furniture to a younger generation (Millennials) that embrace sustainability and are beginning to appreciate quality and brand.

At the retail level, the industry has lost the quality words that were used by retail sales associates such as “eight-way hand tied springs,” 12- step finish, great cherry wood, and so forth. In FurnitureCore’s, ongoing consumer survey only 30% of furniture purchasers knew what an eight-way hand tied spring meant, down from 65% two decades ago.

What about MANUFACTURER’S REPUTATION (brand)? The industry has lost the iconic brands of Broyhill, Lane, and Thomasville while others have been rescued by companies such as Century and Stickley. Why have brands disappeared? Simple. The lack of advertising to the consumer via shelter magazines. An immediate response is, What about digital? The furniture product needs more than a moment on the screen with a low-res image for a consumer to appreciate the quality/design and brand commitment. And finally, DESIGN (style). What the consumer wants. What they find when they visit the store. It is difficult for traditional furniture retailers to move away from the style of their old customers to the new customers that are becoming their prime target audience. Graphic 3 provides the top style preference from FurnitureCore’s consumer research.

The demand for a retail experience catering to consumers seeking a particular style has led to the emergence of new distribution channels. These channels target specific customer segments defined both demographically and psychologically. We refer to these channels as RETAIL VERTICALS, encompassing both manufacturing-based entities such as Arhaus and La-Z-Boy, as well as retail-focused companies such as Pottery Barn or RH. The key differentiator is their control over product offerings.

What else is included in the retail experience? When surveyed, consumers who had purchased furniture within the past 12 months were asked what was important to them in the retail experience, the answer was “everything.” Shown in Graphic 4 is the range of importance by generation (the range from 1-5 with 5 being the most important).

As can be seen, advertising becomes increasingly important with younger consumers. Likewise, the younger the consumer the more important financing options become. The older the consumer the more important value becomes. Likewise, the older the consumer the more important reputation becomes. Service is more important to older consumers, and finally the older the consumer, the more important the interior of the store becomes. There is a significant deviation in demographics between markets. The challenge of the retailer is to tailor the retail experience to the demographics of their market footprint by generation as shown in Figure 2.

The consumer has a choice of distribution channels in which to purchase their furniture. Because of the infrequency of furniture purchases, the choice is influenced by their past experiences, word of mouth or advertising. Based upon current research, the first step in the purchase process (52.5%). The consumer conducts Internet research and then goes to the store to see what is available (23.2%). Obviously, the path to purchase differs for each consumer. Additionally, there are influences along the way. Table C breaks down the process by generation.

Once the consumer has completed the research process, they start the shopping process. Currently that process is fast, with the majority taking less than two weeks. Gone are the days when decorating was like savoring a fine wine. The time -starved consumer wants to get it done. Table D presents the statistics.

Graphic 5 documents the shopping process from the short list to the final purchase. How did each distribution channel fare in the competition for the consumer’s furniture spend? Graphic 5 presents the composite of specific retailers across the nation assigned to distribution channels and shows how each distribution channel compared. Let’s discuss each of the steps in the process and how the various distribution channels performed INDIVIDUALLY.

Did Not Consider First, BRAND AWARENESS (considered). Brand awareness is achieved over the long term from customer experiences, word of mouth and consistent advertising. Graphic 6 compares each of the distribution channels.

The first observation is how aware the consumer is that furniture can be purchased at mass merchants (home improvement/value retailers/warehouse clubs). With. 80% of consumers using the Internet for research during the shopping process, it was only a matter of time before they started buying online. The emerging RETAIL VERTICALS whether manufacturing-based (manufacturing verticals) or retailbased (lifestyle/style verticals) are distinguish themselves by controlling their merchandising assortment and focusing on a narrow demographic segment. From the graphic it appears they have less brand awareness. However, when measured against their consumer target, the brand awareness improves to the 60-70% range. In terms of awareness, traditional furniture channels perform evenly, with independents holding a slight disadvantage.

Considered Not Shopped Moving to the LOYALTY or EFFECTIVENESS of CURRENT ADVERTISING of those that CONSIDERED BUT NOT SHOPPED we begin to see the competitive advantage emerge.

Shopped not bought/shopped and bought The next step in the process is to ENGAGE AND PURCHASE. It now becomes a measure of the effectiveness of SALES MANAGEMENT and the appeal of the MERCHANDISE ASSORTMENT. Graphic 7 presents the comparison by distribution channel. In summary, the alternative channels are more effective in achieving the sales. However, they are attracting only 28.8% of the purchase share as indicated in Graphic 8. In today’s furniture industry, the traditional furniture retailer and the manufacturers that support them are faced with two competitive threats. The normal competition between other independent retailers and regional chains and the new distribution channels focused on furniture (retail verticals) and the general merchandise retailers trying to capture a share of the furniture market (Graphic 9). A retailer must understand their performance in attracting consumers within their distribution channel as well as their performance in the market against other distribution channels.

FurnitureCore, the business intelligence arm of Home Furnishing Business, continuously conducts national surveys to measure the effectiveness of the individual retailer against its direct competitors as well as its secondary competitors from other distribution channels.

How did each distribution channel fare? First, how did they judge each channel by the experience factors listed earlier? All were important, but what channel received the most #1s? From the ongoing survey of consumer purchasers in 2023, Figure 3 shows the findings.

The traditional channels led by regional chains maintain the consumers preference with a third of all furniture purchasers ranking them number one in seven of the eleven factors. However, the RETAIL VERTICALS, which include manufacturers that have established their own retail presence, pose significant competition. Their commitment to continuously updating their physical presentation, including both the building exterior and interior, along with visual displays, greatly enhances the overall retail experience. Moreover, their small store footprint enables them to have multiple stores closer to the consumer compared to the larger destination stores of regional chains.

These consumer perceptions contribute to the consumer decision as they move through the purchase process.

 

What Sells: To Dine For

With economic conditions and consumer confidence outside the industry’s control, manufacturers continue to raise the bar by designing products that generate their own demand. From innovative materials to classic design revivals, here’s a look at what’s selling best in the dining category.

The sustainability story resonates for customers of Greenington Fine Bamboo Furniture, according to Troy Lerew, vice president of sales. “Our Azara dining room collection is a proven success story for our dealers and a perfect example of how we can create beautiful and high-quality furniture using one of the earth’s most sustainable resources, bamboo.” Greenington’s caramelized and exotic tiger finishes are not surface stains, they’re colors resulting from the company’s innovative production processes using only heat, steam and pressure. The result is a selection of natural, solid bamboo tones that are environmentally safe and feature a beautiful grain pattern with continuous color throughout the material.

At Stickley, classic Mid-century modern styling continues its decades-long popularity, as demonstrated by the success of its Walnut Grove collection, explains Aminy I. Audi, CEO and chair of the board at L. & J.G. Stickley. “The broad appeal of its stunning mid-century modern style is undeniable, as our customers continue to remind us.” Mid-century modern looks resonate at Simpli Home as well. “Shoppers appreciate the Malden Bentwood dining chair for its simple elegance and versatility,” says Darcy McGilvery, chief marketing officer of Simpli Home. “Its sleek midcentury design fits seamlessly in dining rooms, kitchens, offices, or sitting areas.” Quick shipping times and solid-wood construction are key success factors at Fusion Designs.

Durable materials and design innovation are driving Bellini Modern Living’s best-sellers. “Consumers are gravitating to Italian ceramic dining tables because they are so durable and highly resistant to scratches and stains,” says Hossein Azimi, chief executive officer of Bellini Modern Living. “But the real beauty of this table is in the return-on-investment retailers enjoy per square foot.”

The return of round dining tables is also notable. “Coaster’s trending sellers in the dining category are large round tables,” says Crystal Nguyen, vice president of merchandising and product strategic planning of Coaster Fine Furniture. “There’s a noticeable trend resurgence in round dining tables, striking the perfect balance of style and affordability. These tables are designed to support the return of family gatherings and face-toface conversations."

Statistically Speaking: Furniture Industry Continues to Face the Headwind of Inflation and Market Instability

Since the end of 2019 when the economic chaos began, furniture industry sales grew 39.7% in current dollars, but only 16.9% in real dollars (Table B).

During this period, external factors were impacting the furniture industry including increasing disposable income, worker shortages, and growing wages and salaries. During 2020 and 2021, the consumers’ newly renewed interest in their homes, aided by government stimulus money, kept furniture sales growth ahead of both disposable income and wages and salaries increases. Especially in 2021, inflation-adjusted industry growth of 12.7% outpaced the real growth in personal disposable income of 3.1% and wages and salaries in real dollars of 4.1%. (Figure 1). But by the end of last year real growth for furniture had fallen to 1.2% compared to 4.2% increases for disposable income and 2% growth for wages. The consumers put their wallets back in their pockets when it came to furniture.

The worker shortage featured frequently in news, jumps out at you in Table C. Between 2019 and 2023 wages and salaries increased 26.2% in current dollars (19.2% inflation adjusted-real dollars) while the number of employed workers grew only 2.2.%.

Population growth took a hit during 2020 and especially 2021 when the pandemic was at its worst. While the country continued to grow, it slowed to only 0.17% increase in 2021, the first time since 1937 that the population grew by less than one million people (Figure 2).

Markets Respond to Economic Upheaval
The nationwide picture of industry sales growth between 2019 and 2023 varied by state and especially by market type, whether metropolitan statistical area (MSA), micropolitan statistical area (Micro SA) or rural communities. Figure 3 gives a detailed overview of industry sales and growth by these market types. Between 2019 and 2023, the industry grew to $150.19 billion dollars, an increase of $42.67 billion dollars over the four years. Over 91% of that growth occurred in MSAs, the best performing markets. MSAs grew 39.9% in sales during the period, while micro statistical areas trailed increasing 37.4% and rural areas designated in 46 states by 36.7%.

The 404 U.S. MSAs control 91.2% of industry sales, a higher percentage than their share of personal income (89.4%) or employed workers (87.6%). Part of this can be explained by consumers living in smaller micropolitan and rural areas travelling to larger markets to shop for furniture, either online or in person. As smaller Mom and Pop furniture stores have closed over the years in smaller areas, local choices have steadily disappeared (Table D).

The cumulative growth in furniture industry sales, personal income, and employment by market type between 2019 and 2023 is further detailed in Figure 4. Of special note is that while employment grew 2% during the fouryear period, that growth occurred in MSAs while Micro SAs and rural areas lost workers. Personal income, however, grew slightly more in Micro SAs and rural areas than MSAs – 18.9% in MSAs compared to 19.5% in Micro SAs and 19.9% in rural areas.

Size of Market Matters in the Furniture Industry
Of the 404 MSAs scattered across the U.S., over 20% of industry sales occur in nine mega markets that each have over $2 billion in industry sales annually. These nine mega markets (names shorted here) are listed largest to smallest: New York (NY-NJ), Los Angeles, Chicago, Houston, Atlanta, Dallas, Washington (DC-VA-MD-WV), Phoenix and Seattle. The largest market, New York totaled $5.59 billion in industry sales last year, and the smallest Seattle, $2.13 billion. Behind these nine markets are 32 MSAs with industry sales between $1 billion and $2 billion annually, that control 29.5% of the industry. Table E shows the percentages and Figure 5 the complete detail of sales and growth of all market sales ranges.

The best performing segments of MSAs during 2019 to 2023 as a group were the second tier MSAs with annual sales of $1 billion to $2 billion. These markets as a group grew 41.1% over the four years, but when adjusted for inflation grew 18.1%. Table F shows the current and real growth of all market sales ranges.

The detail in Figure 5 consolidates the performance statistics of the MSA sales ranges. The external factors impacting the MSA sales range segments between 2019 to 2022/2023 are shown in Figure 6. Of note is that the second-tier markets with $1 billion to $2 billion dollar industry sales had the highest growth in personal income at 21%, compared the largest markets with 16.4% increase. These second tier $1 to $2 billion dollar markets also had the highest percentage growth in employed workers at 3.3%. Looking at population growth, it is interesting to note that smaller markets with $250 million to $499 million had a much higher percent growth in population at 3.1%. Meanwhile, the mega markets over $2 billion posted the lowest growth at 1.1%. Many residents of these mega markets fled to smaller areas due to Covid, remote working opportunities, and social problems within their city cores. Figure 7 features the three top and bottom performing MSAs within each of the seven MSA industry sales ranges. Also noted on these markets are indicators if they were also in the top (T) or bottom (B) three in growth last year in external factors within their MSA. External factors are population, and jobs growth. This illustrates how external factors and industry sales go hand in hand.

Editor’s Note: You Say The Economy is Improving, Where is Mine?

Where is the traffic? It is true that traffic was down in December 4% from 2022 and 15% from November 2023. The fact is that the industry is as nervous as “cats in a room with rocking chairs.” They don’t know where to sit. Looking at those factors that influence our industry, having seven out of 15 factors being positive should give us some degree of confidence. However for the true “North Star,” the consumer, they are holding steady at least through November. We need to remain positive – steady as we go.

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