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Brought to you by Home Furnishings Business
Pioneering
November 30,
2012 by in UnCategorized 
By Home Furnishings Business in on December 2012
Furniture retailers who expect 2013 to be a growth year had best look to their own devices. Slow economic improvement and still-touchy consumers make for a business environment thats strange new territory for a lot of store owners.
Things are looking up overall, but as with 2012, any opportunities furniture retailers have for the coming year are mostly the ones they seize themselves. The overall economy has improved since we gave our last outlook a year ago, but it remains an environment where fancying up ones personal space is far from first on most consumers list of priorities.
While the macro numbers home furnishings retailers look to as indicators for their business prospects are up as 2012 winds down, the coming 12 months remain iffy for the sector as a whole.
Late last month, the Consumer Confidence Index hit 73.7, up slightly from October and the CCIs highest reading since February 2008.
Gross domestic product increased at an annual rate of 2.7 percent in the third quarter over the prior three months, according to the Bureau of Economic Analysis.
In the second quarter, real GDP had increased 1.3 percent.
Despite Hurricane Sandys putting the Northeast at a standstill, the National Association of Realtors reported that October existing-home sales rose a seasonally adjusted 2.1 percent from September; and were 10.9 percent ahead of October 2011. New home sales in October rose 17.2 percent from the prior-year month.
And according to the U.S. Census Bureau and Department of Housing and Urban Development, privately-owned housing starts in October were 3.6 percent above the revised September estimate; and 41.9 percent ahead of October.
More good news for furniture retailers, especially in electoral battleground states, is that another presidential election is in the books, and they can start advertising more on television whether or not they were pleased by the actual results.
That all sounds good, and certainly brighter than this time a year ago, but economic growth hovering around the 2 percent annual mark wont be making a big dent in continued high unemployment, which still hovered in October near 8 percent.
It wont take another big negative headline or two for consumers to lose their slowly burgeoning confidence.
ANOTHER SLOG?
If economic growth remains sluggish, home furnishings overall wont see a big increase in 2013.
Global ratings agency Fitch Ratings, which has headquarters in New York and London, expects retail sales overall to grow between 3 and 4 percent next year, driven mainly by 2 to 3 percent same-store sales increases and a modest square-footage expansion.
Thats not a big piece of growth pie for home furnishings to bite into. (For Fitchs complete 2013 retail sales outlook report, visit FitchRatings.com)
There are other areas of concern to retailers, not just next year, but down the road according to Mark Vitner, senior economist at Wells Fargo, Charlotte, N.C.
Vitner shared his take on how 2013 will shape up during a presentation last month at the annual meeting of the American Home Furnishings Alliance in Miami.
Hes concerned about the coming year, and his biggest concerns include credit availability and finance reform; and regulatory uncertainty.
He also worries that the current fiscal cliff negotiations between the White House and Congress will just put off the problem until later.
The fiscal cliff, theyll finagle their way around this, he said, adding that he anticipates a compromise on extending Bush-era tax cuts. Instead of (eliminating) tax cuts for everyone who makes over $250,000, it will be everyone but those who make more than $1 million. Theyll let the tax cuts expire Dec. 31, then re-instate them for those making less than $1 million.
Vitner doesnt think a fiscal cliff compromise will lead to a recession, but he does think it will mean continued sluggish economic growth.
He also noted that the upper-income segment that has benefited most from rising stock and home prices, and refinancing at lower interest rates represents consumers wholl sock that money away, which wont help stimulate consumer spending.
The ones who are saving most on refis are those most likely to save their money, so it wont help growth that much, Vitner said. The economy will grow at 2 percent as far as the eye can see.
The Fed is keeping interest rates low, but the election result we got (in November) is not friendly to risk taking.
Here is Vitners worst-case scenario down the road doesnt bode well.
He believes that if the slow economic growth since the recessions end in May 2009 continues, the economy wont be in good enough shape to withstand another possible downturn.
In June 2015 the current expansion will be 73-months-old, he said. Only two economic expansions since the Civil War lasted longer. What happens if we go into another recession with the current level of economic growth?
TAKING CARE OF BUSINESS
Its nice to think the economy will improve and the industry will enjoy its fruits, but the coming year will be a hard one for retailers who wait for that to happen.
Fitch Ratings likes the chances better for retailers who take a multi-channel approach. That means looking outside a simple bricks-and-mortar strategy and maybe, adding an e-commerce Web site to the mix. Or, possible a mail-order catalog to help boost sales.
In view of the strong growth in online sales and other alternative formats, traditional retailers that are willing and capable of investing in a multi-channel strategy will continue to drive market share gains at the expense of retailers that struggle to maintain relevance in a mature but dynamic sector, according to its 2013 retail outlook summary.
Does your company take proactive steps, or does it wait for an economic boon that shows no signs of coming?
Two companies with considerable retail footprints nationwideThomasville and Ethan Allenarent waiting around.
Home Furnishings Business asked Thomasville President Edward Teplitz and Ethan Allen Chairman and CEO Farooq Kathwari to share their thoughts on the keys in 2013 to growth, both as in terms of the overall economy and also in terms of what retailers can do to position themselves in order to grab consumers business.
We are cautiously optimistic, and the reason is that slowly and steadily, with ups and downs, the economy has improved, Kathwari said, adding that theres a lot of uncertainty out of any single business control. We dont know what will happen with the fiscal cliff. The concept is not very complicatedif youre an enterprise you work to increase revenue and reduce your costs. The costs of entitlements have to be weighed.
He noted that includes subsidies to business, agriculture and defense as well as those things pundits usually speak of as entitlements, such as Medicare and Social Security.
Resolving that will help us from a consumer-confidence perspective moving forward, Kathwari said.
Teplitz looks at the coming year in macro terms related to the economy and micro termsspecifically what Thomasville can do as a company to impact its future.
Business over the last few months has been stronger, housing starts, housing sales continue to grow, but theres regionality there. Nobodys saying how great it is, he said. It will be great if we have better housing numbers, better consumer confidence, but thats not what were counting on for our own growth.
First, well continue to improve the retail experience in our store with better display, more tools, retail technology. Well keep introducing product thats more updated traditional and contemporary.
Kathwari noted that in 2009 and 2010, Ethan Allens operating earnings went from $130 million to $100 million.
In the last two years, our sales are up 34 percent, he said. Last year we made up half of what we lost.
Part of that was because Ethan Allen took some harsh bottom line moves that cost in the short run but left the retailer in a position to pick up business when the economy kicked inthings like putting design associates on salary so they could make a living in the stores while times were tight, which kept design skills in place to serve customers as they started coming back.
In 2013 we see a more positive consumer attitude, and weve positioned ourselves for growth, Kathwari said.
Looking at where Thomasville is today versus a year ago, Teplitz noted that while the economys not great, everything seems to be getting a little better.
If we do everything we need to do right, as far as 2013 goes, it will get better for Thomasville, he said. Home furnishings certainly remain a discretionary item. As much as wed like otherwise, that hasnt changed much year over year.
The key is that once you get them into your store through stronger promotions or advertising, give them a better retail experience, he said. Were putting more technology into our stores, better display. We dont want it to be just about closing the sale at a great price today; and playing to the aspirational aspect is important at our price points.
CHANGING EXPECTATIONS
Thomasville also looks to change consumer expectations of its product offerings, providing traditional based design, but mixing in wood and metal and leathers to make it more relevant to the way consumers live today. Collections are shorter, too, and that has a lot to do with the companys evolution.
If you look back to the 90s when we had a domestic (manufacturing) model, we had the ability to manufacture a lot more SKUs, Teplitz said. Weve changed to adapt to an import model and our service positions. Weve changed from a manufacturing to a retail point of view. One reason wed brought out all those SKUs (in the past) was to keep our plants full.
We dont need those large collections anymore to keep the consumer interested. Well still do whole-home collections, but we can drive volume out of fewer SKUs now. Todays consumer is spending more money on upholstery and occasional pieces.
On the vendor side, Samson Marketing CEO Kevin OConnor is very cautious about next year.
The reality is if you wipe away the (election) fight that took place, were still in the same place we were, regarding the Senate, White House and House of Representatives, he said. I hope leadership and bipartisan compromise is possible. If not, we could be in for a very tough year.
If we plunge ourselves back into recession we would dowse the hope that appears with the surge in housing thats taking place, he said.
CREATING OPPORTUNITY
The successful retailers OConnor sees have staked a claim in bedding.
Theyre finding a way to market that to the general public in a way that makes people feel they need a better mattress, he said. The motion part of the upholstery business is a part of the business thats replaceable. Dining is something used every day, and with kitchens being remodeled and lifestyles changing, thats an opportunity. The case goods segment of our industry is the most sluggish at the present time.
The challenge is to create excitement along the lines of what the bedding business has done. How do we make ourselves better? I think its clear most (companies) havent recovered from 2007 to 2009. Its depleted the balance sheets of a lot of companies.
Kathwari pointed out that the United States is in a different era of economic activity.
Cautious consumerism might just be the new normal, and retailers have to take charge of their own destiny.
Our focus is to have most of our growth come from within, Kathwari said. We have 2,000 interior design professionals, 800 of whom we acquired in the last three years, and almost all of whom owned their own interior design firm. Weve invested in technology. You look at all the macro factors. Independent enterprises have to take the opportunity to do it themselves.
Today were competing in a different world, he said. In our sector, weve grown more sophisticated and have more technology. ¦ All this also is an opportunity to improve infrastructure and technology in adapting to a new environment. Customization gave us an opportunity to provide services, and technology gave us the opportunity to provide services we couldnt before.
Thomasville is positioning itself to make the most of the coming years business environment.
Were looking to expand our footprint not only with stores, but also with multiple-vendor dealers where a (stand-alone) store doesnt make sense, Teplitz said. Hopefully well get some tailwind from the economy, but thats not where were focusing for our own growth.
The bottom line for furniture retailers in 2013 is to find a creative way to make their own magic and to run a smart, tight ship. Next year is upon us, and none of the brightest prognosticators are calling for record-setting sales. A modest gain seems to be in the cards, which means scrappy business sense is needed. HFB