From Home Furnishing Business
Overall, personal consumption expenditures have risen 41.6 percent post-recession with the majority of consumer spending – roughly two-thirds – absorbed by services and the amount increases every year. According to the government’s Bureau of Economic Analysis (BEA), Healthcare costs now surpass total housing expenditures at $3.10 trillion versus $2.98 trillion in 2018. Combined healthcare and housing consume much of America’s paychecks. Although services will continue to eat away at consumer dollars with rising housing rents and mortgages, overall consumers are confident in the economy. Spending on durable goods is on the rise and has increased by 44 percent since 2009. Consumer spending on furniture alone has increased 7 percent over the last year to $114.6 billion in sales outpacing the growth other home furnishings products.
This article picks up from Home Furnishings Business July 2017 issues’ Statistically Speaking Consumer Spending Update. A comprehensive historical revision to Consumer Spending statistics in the second half of last year by the BEA confirmed what many furniture retailers tried to tell us all along. Specifically, that growth in furniture spending coming out of the Recession ending in 2009 was not as robust has first published (Table A). The Bureau of Economic Analysis lowered estimates of furniture spending beginning in 2011 and which has cumulated to an 8 percent correction that has carried through 2018.
Services, Durable, and Nondurable
Over the last five years, between 2013 and 2018, services have increased to 68.8 percent of consumer spending – from $7.6 trillion to $9.6 trillion in consumer dollars (Table B). Nondurables have declined as a percent of spending, down from 22.2 percent to 20.7 percent during the same time period. While spending for durable goods has not shifted as a percent of consumption since 2013 staying at 10.5 percent, total sales have increased by 22.7 percent.
As shown in Table C, both durable goods and nondurable goods lost tremendous ground from 2000 to 2009 as spending on services skyrocketed by 54.6 percent while consumer spending on housing and healthcare services steadily increased. On a positive note, in the years following the recession (2009 to 2018), durable goods have surpassed growth in services and nondurables, increasing 44.2 percent compared to 44.0 percent for services and 32.9 percent for nondurables.
Top Consumer Spending
Healthcare now exceeds total housing and home furnishings – accounting for 22.2 percent of consumer spending in 2018. The share for total housing and home furnishings has also increased slightly by 0.2 points, mainly due to rising rent and mortgage prices in a competitive housing market. Motor vehicles have dropped spending share by 1.2 points. Meanwhile Americans are eating out more, with corresponding spending on food/groceries consumed at home declining. In 2018, consumers were spending a greater share of expenditures on financial services – up 5.2 percent from 4.9 percent in 2013 (Table D).
Housing and Household Expenditures
Since the recession, renter-occupied housing has surged as the fastest growing housing expense – up 86.4 percent since 2007 (Table E). Both household insurance and owner-occupied housing expenditures have also grown at a fast pace, increasing by 40.8 percent and 47.5 percent respectively. Major household appliances have shown steady growth, while televisions have fallen flat and outpaced by other household spending. Surprisingly, tools and equipment for house and garden have skyrocketed the last few years – jumping 43 percent since 2012.
As Americans are staying put longer, household maintenance spending has grown an average of 4.8 percent a year from 2011 to 2016. 2016 to 2017 saw a dip (-0.8 percent) in housing maintenance but the numbers picked back up last year – growing 3.8 percent. Last year, rents and mortgages both saw a high growth of 4.5 percent and 4.4 percent as supply continues to tighten in many areas. Furniture has shown the most growth over the past year, rising 7 percent after an average yearly increase of 4.6 percent from 2011 to 2016.
Figure 1 itemizes the growth of housing and home furnishing expenditures five years 2011 to 2016 (CAGR), one year (2016 to 2017 and 2017 to 2018) and one year point change.
Furniture and Home Furnishings Products
In 2018 through November annualized, consumer spending on furniture alone totaled $114.6 billion dollars. Major household appliances is the second largest home furnishings spending category at $41.4 billion, followed by clocks, lamps, and lighting fixtures at $39 billion and televisions at $31.7 billion (Table G).
Although window coverings is the smallest of the home furnishings categories, it has experienced the largest post-recession surge in consumer spending – increasing 67.7 percent since 2007.
Table G depicts the decline of all the major furniture and home furnishing products from 2007 to 2009 and subsequent rise post-recession. Spending on carpets and other floor coverings, the most affected home furnishings category, has slowly increased since 2012 but still shy of 2007 expenditures. As of November 2018, spending on furniture is 13.7 percent higher than pre-recession amounts in 2007.
As depicted in Figure 2, all home furnishings categories except for televisions exceeded 3 percent average annual growth from 2011 to 2016. Spending on televisions had an average loss of (-0.2 percent) over five years but has rebounded slightly – increasing 4.3 percent last year. By far, furniture and window coverings have shown the most consistent growth from 2011 to 2018.
Table H shows the spending categories with highest increases and decreases from 2017 to 2018. Gasoline and other energy goods top the “winners” list at 13.4 percent growth, followed closely by truck leasing at 13.2 percent. More people are affording vacations and travel as passenger fares for foreign travel are up 12.0 percent. Entertainment is a big winner with motion picture theater ticket sales up 11.4 percent, video streaming and rentals growing by 9.2 percent and newspapers and periodicals increasing 9.0 percent last year.
New auto sales top the list of “losers”, posting a 9.5 percent decline with second place going to spectator sports. Not surprisingly, land-line telephone services have declined by 6.7 percent – placing the spending category third on the list.
The latest comprehensive revisions by the BEA to the U.S. National Accounts have several significant takeaways. First, personal income appears to have been under-reported for years, especially from small businesses. Secondly, the revised savings rate for individuals is no longer at historic lows and is about average to the levels seen since 1990. Also, the relationship between personal spending and income is no longer at historic highs. This all means that our economy may have even more room for expansion than originally thought which should bode well for the furniture and home furnishings industries.
The rise of e-commerce in the furniture industry continues its momentum as many brick and mortar stores search for strategies to compete with giant online retailers. And while many brick and mortar furniture retailers are strengthening their digital presence, their online furniture sales only account for 1 percent of e-commerce furniture totals. Meanwhile, furniture and home furnishings e-commerce retailers celebrate rapidly increasing sales, but struggle with how to become profitable.
It is estimated that 2017 Internet sales of furniture alone from both brick and mortar and pure e-commerce retailers totaled an estimated $19.7 billion or 18.8 percent of the total industry. This article picks up from Statistically Speaking’s August 2016 article The Rise of E-commerce in the Furniture Industry.
Sources: U.S. Census Bureau’s Annual Survey of Retail Trade (e-commerce) and Impact Consulting Services, Inc.’s proprietary FurnitureCore.com Industry Model.
Furniture Industry Sales
The retail furniture industry reached $105.2 billion last year, a growth of 3.9 percent over 2016 (Figure 1).
Of the $105.2 billion industry total, sales can be distributed between (1) brick and mortar stores, (2) e-commerce retailers plus e-commerce sales by brick and mortar companies, and (3) mail order houses. Pure e-commerce retailers are those that do not have physical store locations, like Amazon or Wayfair, or their e-commerce is operated as a separate business unit, like Walmart.com. Additional e-commerce sales from brick and mortar stores total only 1 percent of the total industry.
Last year furniture and bedding sales by brick and mortar stores (non Internet) totaled $83.1 billion compared to $19.7 billion e-commerce (all outlet types), and $2.3 billion from mail order houses (Table A).
As shown in Table B, e-commerce continues to gain a greater share of the furniture industry – jumping from 5.1 percent of sales in 2006 to 18.8 percent in 2017. Meanwhile, brick and mortar share of total sales fell from a 92.2 percent share to 79.0 percent – decreasing dramatically as the economy improved after 2009.
The total furniture and bedding industry grew 3.9 percent last year. It is estimated that brick and mortar store sales of furniture grew only 2 percent while e-commerce retailer sales grew 12.9 percent.
Over the course of seven years since the bottom of the recession in 2009 furniture sales through e-commerce have grown at an annual rate (CAGR) of 22.2 percent compared to brick and mortar retailers at 3.0 percent. Total industry sales have grown at an annual rate of 5.1 percent (Figure 2).
Table C shows the annual year-over-year growth of the three outlet types. Note that the rate of e-commerce sales peaked at 26 percent in 2015, but has slowed somewhat over the last two years to 12.9 percent in 2017. Meanwhile, brick and mortar sales have struggled to reach 2 percent growth over the last two years.
Along with furniture e-commerce sales, other home furnishing products – floor covering, window treatments and home accessories – have grown at an even faster pace and surpass furniture in online sales. Consumers are still finding it easier and less daunting to buy home furnishings online without seeing or touching them in a store. Table D shows that while furniture e-commerce sales have grown from over 300 percent since 2009 (bottom of the recession) totaling $19.7 billion last year, home furnishings have grown 489 percent to $27.7 billion in 2017.
Brick and Mortar Stores e-commerce
In many brick and mortar stores, consumers have the option of physically visiting the store and/or using the store’s website to shop and make purchases. The online capabilities and offerings vary by retailer. Although “showrooming,” the customer’s act of checking out an item at a mall, brick and mortar or big-box store, then heading out to buy it from an online retailer, has grown commonplace over the years, the reverse is also true. Many consumers still need to see, touch, and feel an item and will do online research before heading out to a store to make a final purchase. While the success of online retailing among brick and mortar merchants has increased over the years, the e-commerce sales comparison remains vast between brick and mortar stores and pure e-commerce retailers. E-commerce sales among combined furniture and home furnishings stores jumped 200 percent from $367 million to $1.1 billion 2006 to 2016 but furniture stores only held one percent of that volume. (Note: 2017 data has not yet been released.)
Comparing combined furniture and home furnishings stores to other retail brick and mortar companies, furniture and home furnishings stores lag behind in percent of e-commerce sales to total sales but has shown 25 percent growth from 2014 to 2016. Just reaching 3.0 percent in 2016, clothing and clothing accessories stores have the highest volume of e-commerce sales as a percent of total sales among brick and mortar retail store types (Table E).
Mail Order Retailers
Technically the mail order business is a small part of the furniture industry but the lines between mail order and e-commerce are blurring and print catalogs are making somewhat of a comeback as another medium to reach out and touch the consumer. Data from the Census Bureau and Impact Consulting’s FurnitureCore.com Industry Model estimates the furniture mail order business at $2.3 billion in 2017, only 2.2 percent of industry sales. These sales were flat compared to the previous year. And according to the U.S. Postal Service and research by Data & Marketing Assn., in 2016, consumers are getting fewer catalogs in the mail compared to the glory days. In 2016 9.8 billion catalogs of all types reached American mailboxes compared to double that amount in 2007 (Table F).
Despite the gloomy statistics, last year saw evidence that print catalogs are resurging but not in traditional mail order formats. For example, home furnishings e-commerce giant Wayfair produced its first print catalog at the end of 2016 and continues to roll them out. Wayfair claims its catalogs are meant to inspire a lifestyle as opposed to promoting a brand.
Research points to several reasons print catalogs are growing. First, consumers are getting less and less mail overall as the “paperless” movement has become popular and therefore catalogs now stand out in consumer mailboxes. Also, the advertising clutter in email boxes along with saturation in social media has driven companies to give the old fashioned catalog another look. Plus, software ad blockers are causing fewer marketing messages to actually reach the consumer. And finally, research by Data & Marketing Assn. suggests simply that Millennials really do like them.
E-commerce retailers are defined as companies without physical stores competing with brick and mortar establishments. Sales of combined furniture and home furnishings through e-commerce retailers have increased from $7.9 billion in 2006 to an estimated $46.3 billion in 11 years (2006 to 2017) – a growth of 486 percent (Table G).
Growing at an average annual rate (CAGR) of 17.4 percent a year, e-commerce furniture and home furnishings retailers show no signs of slowing down. The two giants in the industry, Amazon and Wayfair, are both looking at ways to incorporate brick and mortar stores into their portfolios. These companies see the desire held by a majority of consumers to see especially higher ticket furniture items in person before making the leap to buy. Along with Wayfair’s entry into the print catalog business, according to Boston Magazine, the company is looking to open its first showroom in an old Marshall’s storefront in downtown Boston. Rather than resist the looming presence of Amazon, mattress manufacturer Tuft & Needle has partnered with the online company to expand its brick and mortar stores using Amazon technology and selling various Amazon products in the stores. These moves could put more stress on traditional furniture retailers.
In addition to furniture and home furnishings, other consumer merchandise lines dramatically increased sales through e-commerce retailers. At $59.1 billion in sales, clothing/footwear leads e-commerce retailer sales in 2016 up from $12.9 billion in 2006 – skyrocketing 358 percent. Although not as high as clothing/footwear, furniture and home furnishings experienced the highest growth among e-commerce retailers over two years 2014 to 2016 – jumping 54 percent. Sporting goods sold through e-commerce retailers also continue a positive trajectory, increasing 44 percent in two years and passing the slower growing computer hardware merchandise line (Table H). Note that data for 2017 is not yet available.
Retail Trade Total
Internet sales of all consumer products from all retail types of outlets, whether brick and mortar or e-commerce companies, are estimated to have reached $437.5 billion in 2017 (Table I). It may be surprising to some, however, that these internet sales represent only 8.6 percent of all retail sales for all consumer products (Table J). But Internet purchases continue to make major inroads into many consumer products with no sign of slowing down.
The rapid growth of furniture industry sales by successful e-commerce retailers are challenging brick and mortar stores, but traditional store fronts still offer a customer experience that an e-commerce retailer cannot. But e-commerce companies are quickly moving into areas (for example, store fronts and print catalogs) to challenge the customer experience of traditional brick and mortar retailer.
Understanding the Role Geography Plays
Research is emerging to help both brick and mortar stores and online retailers better target customers. For example, the affluent urban customer has totally embraced the e-commerce experience.
However, in more rural areas where shipping costs are higher and delivery times longer, e-commerce has been slower to catch on. It also appears the less affluent consumer responds better to online sales events. Understanding these economic and geographical profiles will be a feature in a future Statistically Speaking article.
The brick and mortar home furnishings industry is not immune to the worker shortage crisis facing American businesses. Data from the Bureau of Labor Statistics supports the growing need facing companies to attract and retain employees, while adapting their training methods and introducing technology that fills the gap of a smaller workforce.
Successful companies are also looking at ways for technology to enhance the customer experience. Conversational “Live Chat” options are now widespread for online retailers. But technology is also creeping on to the sales floor. For example, home improvement retailers Lowe’s and Home Depot already have apps that can direct you within their stores to the exact location of a product. In addition, for the past year and a half Lowe’s has tested its second generation in-store robot fleet in the San Francisco area to assist customers as they walk in the door. The robots answer questions, are bilingual, and can physically guide a customer to a specific product. Lowe’s claims the robots are not meant to replace the human worker, but rather assist with the more mundane sales information functions leaving more complex questions to the sales personnel.
Labor shortages throughout the U.S. are fast becoming a real issue across all major industries. From farms to factories, employers are having a hard time finding both unskilled and skilled workers. In healthcare, hospitality, and retail industries, companies are struggling to find qualified and available employees.
According to the latest data, the U.S. has 6.3 million job openings and 6.7 million unemployed workers (Table A). In many cases, the skill sets required for the job and/or the wages required by the worker for these open positions do not match with the available unemployed labor force pool in the required geographic area.
Job Openings by Industry
Accommodation (hospitality) and food services is the hardest hit industry with 5.5 percent job vacancy – increasing from 4.6 percent last year (Table B). According to the World Travel and Tourism Council, tourism accounts for over 14 million jobs in the United States and a continued rise in job openings could impede economic growth for the hospitality sector.
Healthcare and social assistance had 1.03 million jobs open in January 2018, the most of any sector, and was among the highest with an open job rate of five percent. Job openings among transportation, warehousing, and utilities jumped 63.1 percent over a year – from 187,000 to 305,000. Retail trade, which includes all furniture and home furnishing stores, had 711,000 jobs opens and a job opening rate of 4.3 percent– up 28.6 percent from the same period last year.
Table C shows the five industries with the lowest rate of job openings. Government jobs – Federal, State, and Local – had the lowest rate of job openings at 2.1 percent. With rates under 4 percent (3.5 percent and 3.1 percent), job vacancies among Construction and Educational Services still rose 57.2 percent and 42.9 percent respectively from 2017 to 2018.
With 711,000 job openings in January, Retail Trade is struggling to hire and keep sales people. This accounts for 11.3 percent of total job openings – up from 10.2 percent last year. Both Healthcare and Social Assistance and Professional and Business Services make up 34 percent of all job openings – a total of 2.1 million jobs. 12.7 percent of job openings in 2018 (Jan) belong to the Hospitality industry (Accommodation and Food Services) as shown in Table D.
Job Openings by Region
While the South leads the way in total job openings (2.2 million), openings in the Midwest soared in one year to a rate of 4.6 percent – up from 3.7 percent (Table E). As many farms struggle to find workers, job openings in the West jumped 26 percent to 1.5 million jobs from 2017 to 2018 and finished January with a rate of 4.3 percent, while the Northeast has both the lowest rate (3.6 percent) and number of vacancies (1 million).
Civilian Labor Force
The Civilian Labor Force includes persons employed and those unemployed, but actively looking for work. Down 3.2 percentage points from 2006, the current work force (February 2018) makes up 63 percent of the total civilian population over the age of 16 (Table F). Roughly 37 percent of the population over 16 is not considered part of the labor force. This segment – Not in the Labor Force – consists of people who are in school and do not work, those who have grown disillusioned searching for work and not actively looking, and those who choose not to work for various reasons.
As shown in Table G, the unemployment rate has dropped to 4.1 percent in February of this year – the lowest since 2000. Unfortunately, this has not translated into big gains for the employed population. At 63.0 percent, the percent of the population employed continues to stay well below pre-recession levels, while people not in the labor force climbs further, growing 3.2 percentage points from 2006 to 2018 (February).
The labor force historically includes teenagers, ages 16 to 19, as they make up a large portion of the part-time labor market. This year, ages 16 to 19 account for 6.5 percent of the total civilian population over the age of 16, but only 3.7 percent of the workforce. In addition to an unemployment rate of 14.4 percent among teens, many are opting out of summer jobs and represent 11.3 percent of the total persons “not in the labor force.” According to the Bureau of Labor Statistics, teenagers opting out of summer work is not due to laziness, but rather education taking its place. In addition to many school districts either lengthening the school day or academic year, many students are taking summer classes to “get ahead “ – cutting into time for a job.
Not in the Labor Force
Of the 37 percent of the civilian population over age 16 that are not in the labor force, only 5.4 percent actually want a job, but are just not actively looking for one (Table I). This figure represents 5.2 million Americans, down from 6.6 million in 2012, that want a job, but are not in the workforce.
The number of men not in the labor force as a percent of the total labor force has slowly increased over the last decade and beyond. In 2006, only 37.9 percent of those not in the labor force were men. Since then, the number has grown yearly – up to 40.3 percent in February (2018). Conversely, the number of Women as a percent of those not in the labor force is declining. They represent 59.7 percent of those not in the labor force, down from 62.1 percent in 2006. Table J depicts how the percent of the civilian population not in the labor force by sex has shifted over time.
Adding to the worker shortage is that the desire for a job is falling as those not in the labor force keeps climbing. Table K shows the percent of people not in the labor force but still would like a job fell 6.6 percent last year, with women growing slightly more interested in working than men.
With many companies having a difficult time finding qualified employees, real concern is growing over worker shortage. Many older workers are retiring or choosing not to work and there are less young, not as qualified, workers to replace them. As a remedy, some industries are turning to robots, automation, and artificial intelligence to adapt to labor shortages. Through education, training, and pairing human skills with technology, companies may find ways to cope with a smaller labor force.
Despite uncertainties over U.S. trade policies (see box insert), imports of household furniture continue to grow in double digits. In 2017, imports of household furniture rose 10.7 percent compared to only 3.8 percent growth in retail sales.
The Great Recession, 2007 to 2009, brought with it a major collapse in international trade – deeply affecting both imports and exports of household furniture. In recent years, growing wages, higher employment, a boost in consumer confidence and a healthy housing market have propelled import growth. Meanwhile, exports have struggled to maintain the initial post-recession climb. This article picks up from Statistically Speaking’s October 2015 article Imports on Upswing.
In 2017 the U.S. ran a $569 billion dollar trade deficit in all goods and services. Household furniture products at $30.7 billion in imports versus only $3.2 billion in exports represented only 3.4 percent of that deficit. Most astonishing, however, is that for all U.S. goods, the ratio of imports to exports was 1.5 while the ratio for furniture products was 9.7, almost 10 to 1 (Figure 1).
World dollar totals of household furniture imports have nearly doubled from $15.58 billion in 2009 to $30.74 billion in 2017 – increasing an average of nine percent a year (Table A). Already just a fraction of U.S imports, U.S. exports of household furniture have failed to continue the upswing experienced from 2009 to 2015 when it jumped over $1 billion. Over the last two years (2015 to 2017) exports have declined by -7.1 percent down to $3.15 billion.
Furniture Imports by Country
Over 200 countries export furniture into the U.S. but only nine represent over 90 percent of the total value coming into this country. China’s furniture exports alone have grown to roughly 60 percent of total U.S. imports – up 19.3 percentage points from 2002 to 2017. China has retained its hold on U.S. Imports through the recession. Since the peak of the recession in 2009, the value of imports from China has grown 98.8 percent to $18 billion (Table B).
Reversing dramatically over the previous decade, Canada’s decline alongside Vietnam’s rise still continues from 2009 to 2017. Vietnam has jumped from 0.5 percent of total U.S. imports in 2002 to 13 percent in 2017, while Canada has plummeted from 18.3 percent to 5.6 percent in the same 15 year period. Canada’s value of imported furniture fell 30.4 percent 2002 to 2017. Mexico has lessened its share of U.S. imports slightly since 2015 – down 0.6 percentage points to 4.5 percent in 2017, but the value of imports has increased by 3 percent to $1.4 billion (Table B and Figure 2).
Of the top countries, Vietnam had the highest growth in furniture exports to the U.S. last year increasing 16.1 percent in dollar value. In the last 15 years Vietnam has come out of nowhere to be the second largest exporter of furniture to the U.S. behind China (Figure 2).
Major Furniture Imports by Material Type
Methodology: Household furniture imports and exports are compiled by the U.S. Census Bureau Foreign Trade Division from more than 200 countries by product type and material.
Wood furniture imports have always been king but are now feeling the pressure from upholstery and metal. It has only been in the past two years that wood imports surpassed pre-recession import levels. But at $11.8 billion in 2017, wood products are still the largest material category among furniture imports but have receded to 38.5 percent of total furniture imports in 2017 – down from 56.5 percent in 2002 (Table C). Conversely both upholstery and metal have been increasing at a high rate, and combined, now account for almost 50 percent (49.2 percent) of all imports as shown in Figure 3.
Purchases of upholstery and metal household furniture from around the world have increased more than 68 percent since 2007. Although it is the smallest imported product category, bedding has catapulted since 2002 – increasing over 2,000 percent. Reaching $1 billion in 2017, imports of mattresses have grown 51.8 percent in just a year. Much of this increase can be attributed to adjustable bed bases and mattresses of cellular rubber or plastics (Figure 3).
Wood household furniture imports totaled $11.8 billion in 2017 and are up 9 percent over the previous year. At a 38 percent share of wood furniture imports in 2017, China still owns the wood category at $4.5 billion, but has lost significant share to Vietnam. Vietnam has grown from less than 1 percent of wood furniture imports to over 25 percent from 2002 to 2017. Canada, once a major player in wood furniture, has fallen to only 6.7 percent of the total. Malaysia and Indonesia continue their steady wood niches but control less than 6 percent of wood imports each (Table D).
Unlike the wood category, China has very little competition in upholstered goods in the international marketplace (Table E). Although not producing as high a market share, Vietnam has also made great strides in upholstery – growing from $7 million in 2002 to $700 million in 2017 and having a one year increase of 51.2 percent from 2016 to 2017. Once a major player, Italy was the leading exporter of upholstery to the U.S. until 2003 when China surpassed them. Once importing 28 percent of upholstered furniture, now the U.S. imports only 3 percent from Italy.
Even more so than upholstery, China dominates the market in imported metal household furniture with 75 percent market share. China increased from $1.7 billion in 2002 to $5.6 billion in 2017 – a jump of 225 percent in 15 years (Table F). While imports from Canada have grown since the bottom of the recession in 2009, it continues to lose market share to China. Imports from both Mexico and Taiwan have decreased since 2015, but Vietnam has maintained an annual average increase of 38 percent.
Exports by Country
As previously detailed, the U.S. exports $1 in furniture products for every $10 in imported furniture. After rising over 45 percent from the recession (2009) to $3.4 billion in 2015, U.S. exports of household furniture have decreased by 7 percent in 2 years to $3.15 billion in 2017. Only three countries – Canada, Mexico, and China – represent more than 3 percent of U.S. imports. More than half (56.3 percent) of U.S. furniture exports is to Canada (Table G).
The U.S. trade deficit in household furniture grew an additional negative $3 billion dollars last year, from -$24.6 billion in 2016 to -$27.6 billion in 2017. U.S. imports continue to increase from China alongside a growing Vietnam wood manufacturing presence. A poor showing for U.S. exports over the past two years is also troubling. With threats of trade wars brewing, and the U.S.’s dependency on China for its household furniture, the industry does not want to get caught in the crosshairs.
As a magazine dedicated to helping our readers succeed by providing strategy for the furniture industry, literally everything we present deals with providing data, analysis, ideas and advice about surviving and prospering in our highly competitive marketplaces. To that end, last April we updated the numbers about the shifting market shares of the major distribution channels to indicate who is taking business and who is losing it.
Since then, Coach’s Corner defined the impact of these market changes on furniture stores and why this might be happening. Over the last few months we talked about what furniture stores might consider doing to stop the share erosion by getting more from the opportunities that they already had, which is the low hanging fruit so to speak. We also discussed how to fight back against some of the tactics that the fastest growing channel has used to scare consumers away from our stores and how to choose the right words to use with our staff and guests, in order to deliver the message that each one wants to hear.
All of these efforts are indeed focused on helping us deal with the various aspects of the war going on in our individual and collective competitive battlefields. There are daily scrimmages, monthly battles and endless minefields to get through in order to survive, let alone win the campaign. We must understand that some of it is out of our control, but a good deal of it is within our grasp. We just need to have the right focus and develop strategies aimed at the day-to-day battles we can win and not waste time on those where we cannot triumph. What I am talking about is concentrating on the one thing we can control and impact daily in our stores, “share of customers”, instead of worrying so much about “share of traffic”. Let’s put that in perspective.
We have been talking a lot about market share over the last few months, which is a very important thing to know, not as a single number, but as a quarterly trend. Where were you two years ago and what has happened each quarter since? Are you winning or losing your competitive battle for share of the business done in your market? Every business needs to determine and understand this critical number because it is indeed the only true indicator of how you are performing in your market war. However, to a large degree, market share is heavily influenced by share of traffic. The number of people in your market that decide to visit your store is the main driver of total volume. In fact, to a great extent, it has been the shifts in traffic that have caused the distribution channel share changes we have been discussing. To survive, you still must do all you can to drive people in your doors, but in most markets, traffic is going to be static or slightly down for most furniture stores.
Obviously, this is due to many factors including the share shifts we have previously discussed. But a main cause we don’t often think of is the impact of the pre-shopping today’s customers do on the Internet. We all understand that roughly 20% end up buying online and never enter a store, so that reduces traffic. However, an even bigger impact is caused by the fact that the research they are doing on the Internet is helping the consumer narrow down the stores they want to visit. Our surveys indicate that almost 80 percent of people that recently purchased furniture visited fewer than three stores, with 50 percent of the total going to two or less locations before buying. Before the Internet the average number of stores visited was around five. Do the math: 100 consumers in a market visiting five stores each, generates 500 Ups in that market. If they only visit two each, then only 200 UPS are created – in less than twenty years we have seen as much as a 50 percent decline in potential traffic due to fewer stores being shopped and internet sales. That is not going to change in the future.
Therefore, let’s go back to the basics like we did in November and December, but from a slightly different point of view. What do we need to focus on to drive performance improvement in our stores that will deliver a higher share of the most important asset every retailer has – their customers. Senior management’s primary focus must be on what happens with the ones that do end up visiting the store. So let’s discuss ways to better understand and improve our share of customers.
In order to have any hope of improving a performance, we first must to find a way to measure it. We believe that the best sales metric we have to measure share of customers is revenue per UPS, also referred to as performance index. This number provides a clear and concise picture of how the store and each individual performs with the opportunities we give them. Since revenue per UPS can also be calculated by multiplying Close Rate X Average Sale, it is truly capturing the two most important elements of our interaction with potential customers on the sales floor. It actually reports the ultimate sales contribution that results from staff interactions with each person. Simply put, the higher the number, the more share of customers is being achieved.
As with all prime indicators, revenue per UPS only helps us track what is happening, it does not give us any answers. Similar to GMROI, it points out where we may have issues, so we can ask better questions and know where we need to dig deeper to find answers. For them we need to look closely at the two major factors that determine share of customers - How many of the people we saw did we actually sell and how much did we sell each one - close rate and average sale. So here is a brief update on where we think these numbers should be going for furniture retailers in general.
Close Rate - Remember when someone enters your store they are not yet a customer, only a guest or visitor. They must buy something from you in order to become a customer of your store. So, the first thing we should focus on is closing rate. The good news is that these people who narrow down their store visits to two or less are much more likely to buy in one of those locations than those who shop more places. The raw odds of closing someone visiting five places, is one in five or 20 percent. If they only go to two, then the odds go up to 50 percent for those visitors. Therefore, since about half of our traffic now shops less than two retailers, our chances of selling those people should have greatly increased. We can calculate that if your close rate potential on those visiting more stores is say 20 percent and it is 50 percent for those seeing less than two, then your overall potential for the store is between 30 percent and 35 percent. Based on what we have been seeing over the last decade, this scenario holds true. Those stores that were previously closing in the low twenties are now climbing up into the low thirties and those that were doing in the mid-twenties are now achieving results at or above the mid-thirties. Our advice is to look at this number. If you have not seen it increase dramatically in the last few years, you need to take a hard look at your hiring, training and sales management programs, because you have lost share of customers by not achieving the potential increases others have enjoyed.
Average Sale – Once you know you are creating customers at an acceptable rate, you need to focus on how much you sell each one. Let us note that historically many have looked at this number as a reflection of share of customer and we can understand that since it does directly indicate how you did with those customers you created. As such, it is possibly a more critical number to your success or failure than close rate, but we cannot forget that first you must sell someone, before you can sell that person more.
Average sale is also a statistic that is heavily influenced by your store’s advertising, merchandising and selling strategy. Obviously stores that sell higher end goods should have a higher average sale than those selling more promotional price points, However, I have often seen stores that heavily promote financing on lower priced goods build higher tickets, rivaling those carrying better goods. In addition, those stores that have a well-managed and successful in-home program will always have higher average sales than those that don’t, no matter what price level they carry.
With that in mind, we have seen a great deal of change in this statistic over the past two decades. It shrank a bit during the down turn, but ever since the consumer came out of the recession, we have seen steady and, in some cases, rather dramatic growth in average sale at all levels. The consumer today wants what they want and seem more willing to pay for it than a few years ago. Those lines that have custom order capability and particularly those that can deliver product quickly are doing quite well. Many promotional companies have successfully added better goods to their assortment. Others have added options such as upgraded cushions and power or functional features that have raised price points. The growth in premium mattress and adjustable base sales has also contributed to this trend in many stores.
Therefore, similar to close rate, but to an even greater extent, if you have not seen a fairly dramatic increase in your average sale over the past few years, you are missing the boat and need to take a hard look at your advertising, merchandising and selling efforts, because you are not getting your fair share of the business that is available to you.
In summary, if you have not been moving these last two numbers higher over the past few years, chances are that you are losing your war for share of customer and market. Driving improvement in these metrics and as a result the all-important revenue per UPS figure, is the only way to combat against decreasing share of traffic and increase your share of customers.