All Shook Up

November 30, 2007  by in UnCategorized   

By Home Furnishings Business in on December 2007 Belfort Furniture in Dulles, Va., was one of Pennsylvania House’s top five dealers in the country in recent years, but the Washington, D.C.-area retailer is winding down business with the solid wood case goods vendor after a long partnership.

Now, Belfort sells Pennsylvania House on a very limited basis, essentially filling out old customer orders. Universal recently acquired marketing rights to the Pennsylvania House name, but Belfort’s issues with the vendor go back a couple of years when Pennsylvania House shifted production overseas.

“What Pennsylvania House has gone through is the result of a chain of events that’s been going on some time, particularly after their manufacturing went overseas,” said Michael Huber, chief executive officer at Belfort. “They were changing plants, and the quality became inconsistent at best. The whole nature of Pennsylvania Hose was long-standing customers whose parents might have bought it. Consumers do recognize the difference in the product.”

Backing off of Pennsylvania House wasn’t an easy decision.

“We always kind of kept the faith—they really tried to take care of us and we hung in there on a partnership basis, and we stuck with them longer than a lot of people did,” Huber said. “But it’s cost us far more the last couple of years taking back product people weren’t happy with.”

Changing Times, Changing Relationships

Anyone watching the furniture business knows that many longtime retailer/vendor relationships are changing for good. Some suppliers are concentrating on dedicated store models, while others have moved their production overseas, particularly in case goods, resulting in new logistical and service issues for their retail customers.

At best, a lot of independent retailers encountering shifts in their vendors’ manufacturing base face new delivery cycles and quality issues on goods they commit to at furniture markets. At worst, over time they might get frozen out from longtime sources as some of those companies commit to dedicated distribution, or do more business with fewer customers.

Franchisees of some of those dedicated networks aren’t immune to uncertainty. This year, they’re watching venerable—and publicly held—names such as Furniture Brands International companies Thomasville and Drexel Heritage, and La-Z-Boy, face plenty of scrutiny from the investment community. Not surprisingly, those contacted for this article weren’t eager to discuss the effect of corporate issues on their business operations for the record.

The coming year offers plenty of uncertainty about issues that while outside the industry, have an effect on consumer attitudes toward spending—a presidential election, worries over energy prices, the Iraq war.

“Retailers that are survival-driven are playing it close to the belt, trying to stay with established resources,” said Eric Blackledge, president of Blackledge Furniture in Corvallis, Ore. “So much change is going on in the industry. It’s hard to have stable resources. Rowe had refinanced a week before the spring Market. Now they’re buying Clayton Marcus. We continue to go with Rowe. ... We’re going to unknown vendors from China, (placing) more emphasis on containers. That carries risks, too.”

There’s no one answer to dealing with a shifting vendor base.

“The answer isn’t 100-percent-container-direct from China,” Huber said. “That’s okay for some products, but for our core product lines, we need domestic support for replacement parts and fill-ins. Consumers don’t understand why they can’t get something fixed.”

Better Collaboration

How retailers will relate to vendors moving ahead was important enough to the American Home Furnishings Alliance to include a dealer panel on the topic at the organization’s annual meeting last month in Charleston, S.C.

Participating retailers included Leslie Fishbein, president of Kacey Fine Furniture in Denver; William Kimbrell, CEO of Star Furniture in Houston; Josh Tatelman, vice president of merchandising at Jordan’s Furniture, Avon, Mass.; Raj Dogra, president of Phoenix-based Razmataz; and Jayson Friedman, vice president of merchandising at Carls Furniture, Boca Raton, Fla.

With vendors and retailers alike feeling the squeeze on margins, and more product coming from far away, Kimbrell suggested that both sides look for ways to avoid duplication of effort.

“I think there needs to be more efficient alignment of effort between retailers and vendors,” he said. “Photography, advertising, logistics—we both do these, and we need to address all these aspects (of our business) in a more collaborative effort.”

One area of collaboration would be consumer research.

“We’re selling larger pieces of furniture with more assembly involved and that creates back-end issues,” Kimbrell noted. “We need to find out how that’s affecting consumers.”

Fishbein said that while selling furniture is a tangible project, retailers and vendors need to focus on the intangible result of consumers’ desire to create a beautiful home. “If I go into Home Depot, I don’t say ‘I’m buying a house,’” she pointed out. “I’m buying a drill, but I would like to get the ‘result’ of a better house. There’s a durability and sustainability issue that’s coming on stronger than you think. Consumers are confused, and we have to help them sort through that.”

Import Versus Domestic

After years of watching manufacturing shift overseas, a lot of retailers are rethinking their business mix of import and domestic product. Delivery issues and recourse for spare parts and replacements have dealers looking for service as much as product. And many are finding that cutting their own deals with overseas factories doesn’t work for their operation.

“As far as retailers going direct, I believe very few have been successful, and those that were had to work through a lot of issues to get to that point,” said Friedman of Carls. “Going direct means minimum orders, sometimes a full cutting, no reps, and you give something up on payment terms and logistics.”

Friedman cited Fine Furniture, Universal and Legacy Classic as offshore sources with strong stateside support.

“You can mix orders, and you have sales training, marketing support and service backup. The one liability about some of those kinds of companies is there’s only so much one factory can do,” he said. Marketing companies sourcing from multiple factories “offer a good product mix, but one downfall can be supply chain management. Whichever we choose, we have to execute it properly.”

Tatelman said that timing, low risk, and options are what he looks for in a domestic vendor.

“The first thing for a salesperson is that they get the product to the consumer’s home as soon as possible, since we don’t pay commission until delivery,” he said. “I can try something with very little risk since the (order) quantities and inventory commitment are lower. Buying domestically also allows the customer a lot of customization options, and programs from the domestic vendors often seem to be offering more options.”

Tatelman added that he sees domestic suppliers doing more with POP materials.

“POP is critical on the sales floor, and meaningful to consumers when it’s done right,” he said.

Fishbein doesn’t believe a lot of retailers pay attention to the cost of their import programs beyond sticker price, failing to account for parts, lead time and cost of inventory. “There’s so much sameness in that product, particularly in case goods,” she pointed out. “That’s why it’s difficult to differentiate with branding, and manufacturing brands aren’t as meaningful now.”

Developing Product, POP

Unless it’s for a private label or factory direct program, retailers don’t seem to have a lot of interest in developing product with manufacturers. They’ll provide feedback, for sure, but most prefer to let the vendors do their job.

Razmataz, for example, buys mostly imported goods, both through manufacturer/distributors and factory direct. Dogra said distributors will sit down and ask what his customers are looking for and use that input for product development, while factory-direct vendors will make up a sample to send before taking an order.

Kimbrell at Star Furniture is bigger on consumer research than helping develop product, but noted that shopper information can be of assistance to vendors.

“We aren’t furniture designers, but we need to understand our customers, and (vendors) need to understand our floors,” he said. “It’s an ongoing relationship.”

Point-of-purchase (POP) materials and Web site development are areas where retailers say manufacturers can provide more support for their dealers. With the same looks at a lot of prices, retail salespeople find themselves having to do a lot of explaining

“It’s confusing for our salespeople, as well,” Tatelman said. “Sales tools for our salespeople are a critical component that sometimes gets passed by.”

Kimbrell and Friedman offered examples of strong POP materials.

“The POP on the Better Homes & Gardens collection (from Universal) was telling a story the customer could relate to,” Kimbrell sad. “It wasn’t just product attributes, but telling which consumer it approaches.”

“Bernhardt did a great job on the Smithsonian collection, with stories on where each piece came from,” Friedman said.

Tatelman hopes manufacturers can provide higher-quality photography for use on Jordan’s Web site, which the retailer uses for information only.

“Our biggest struggle right now with the Web site is photography,” he said. “What’s available is inconsistent, and we aren’t in the photography business ourselves. It would be great if (vendors) provided the same consistency of images.”

That kind of vendor support can help retailers approach an important issue facing vendors and their customers alike.

“Our big issue is that the priority for home furnishings is so far down the consumers’ list,” Tatelman said. “They spend more going out to eat than they do on furniture. Creating appetite—that’s what we need to put our heads together (with vendors) to do.”