Mind Your Xs and Ys

November 30, 2007  by in UnCategorized   

By Home Furnishings Business in on December 2007 When Jerry Epperson talks, the furniture industry listens.

And well it should. Epperson, a financial analyst for investment banking and corporate advisory firm Mann, Armistead & Epperson, Ltd., is an acknowledged authority on the furniture industry noted for his insightful analysis on its financial past, present and future.

And it’s that focus on what’s ahead for the industry that drew a capacity crowd to his seminar entitled “The Outlook for the U.S. Furniture Industry” at High Point Market in October.

In Epperson’s view, the biggest challenge facing furniture retailers in years to come will be speaking to the different generations of shoppers. Generation X—a term referring to people born between the early 1960s and the late 1970s—as well as Generation Y (born between the early 1980s and late 1990s) are the primary audiences home furnishings sellers are going to have to reach out to.

The Generation Gap

“We as an industry need to recognize we are at a cusp in terms of where opportunities lie for us,” Epperson said. “None of us have faced where we are in our business cycle.” Where we are in that cycle, he said, is at a sort of stopgap between generations. Baby boomers (born between 1948 and 1964) are beginning to get close to retirement age and aren’t buying furniture like they used to.

“There’s a bit of a lull now, with baby boomers buying less,” Epperson said. “There are 77 million of us (baby boomers). And once you get past (age) 55, you’re thinking retirement. Your priorities change. You want to see your grandkids more often.

“The real kicker is our children,” he added. “There are 73 million of those, 11 to 23 in age. The growth in the (furniture) business with my generation is going to decline every year. Generation X is not a big market—the next generation is not up to spending (on furniture) yet.

“You have to look at what you’re doing in our business,” he continued, “and you can’t just grow old with us. The only spending that goes up after age 55 is (on) mattresses. My generation wants comfort, size, and—to a lesser degree—we want fashion. One category that’s grown (in the over-55 group) besides mattresses is recliners. Our kids like gaming.”

And it’s those kids—the children of Generations X and Y—who are going to be buying furniture in upcoming years—but not so much just yet. That’s why the current phase is so challenging, Epperson said, because the big spenders are pretty much done spending, while the next group of consumers isn’t ready to jump into the driver’s seat of furniture buying.

Still, Epperson foresees good things for the future, saying “the next big wave is gonna be our kids. We’ll have a tremendous opportunity with our kids.”

The question is: how do we catch that wave?

Get ‘Em While They’re Young

Epperson thinks the key to “breeding” the next generation of furniture buyers is to draw them into the industry’s culture—in a sense, “educate” them—at a young age. “Kid-oriented stores like Pottery Barn (do a good job of this),” he said, mentioning the many youth-oriented products and designs that are attractive to younger browsers. “That’s how you reach this new generation early,” he added, implying that children who grow up with a sense of furniture will be seasoned purchasers when they purchase homes and have families of their own.

He also stressed promoting products that appeal to the hobbies of youth—such as gaming, computing and hi-tech multimedia including big-screen TVs.

Tune In

That same highfalutin’ media that Epperson believes will be a key element of selling furniture to future generations is also having an impact on the industry of today.

“Consumers are taking a lot of money out of their discretionary income to buy TV sets,” he said. “You can buy a plasma TV for $1,100 these days. But once (consumers) have the flat screen set, what are they going to do—tear apart their walls to hang it? No. You’ve got to set (the TV) on something—hopefully not the floor. We can sell them something (tables, multimedia centers, etc.) to set it on.”

Sell the Value

Beyond gearing product offerings to the needs of our younger generations, Epperson spoke of another way for furniture retailers to build business now and into the future: trumpeting the good things you’re already doing.

“Who’s talking about how low our prices are?,” he asked the capacity crowd. “We’ve got to get the message (across) that we bring so much value to the consumers. Wood (furniture) prices are cheaper now than they were 20 years ago. Are you telling your customers that?”

Time may be running out to get that message across, he said, stating, “Your prices are already so much better, and now we’re going to see a reversal. Two years from now you’re going to see. Prices are going to go up. Expect it.”

Good News and Bad News

Addressing the home furnishing industry’s current financial state, Epperson painted it as a mixture of sweet and sour. First, the bad news: “Our industry is having a tough year, partly because of the bad housing market in 2006,” he stated. “What percentage of our business comes from housing turnover? New homes? About 20 percent. Housing turnover is down about 25 percent from its peak. It’s going to come back, but it won’t come back this year. It’s too late.”

Other factors are playing into the current situation, he said, citing an excess of furniture inventories at the import, domestic and retail levels; consumer anxiety over high credit levels, a lackluster job market and a rollercoaster stock market; and overall weak consumer demand.

Now onto the good news: “We’re going to see business pick up in the second half of 2008, with a stronger economy and people coming back from the war. We currently have a very strong core economy, and things are going to get better. The federal government has put in big incentives to spur housing activity.”

Before the upturn however, he predicted a flat first half of the year, but after things pick up, he expected a “meaningful recovery” in 2009.

Epperson cited one product type that’s recently been seeing a sales upturn: mattresses. “Domestic sales of mattresses are up in retail,” he said, urging furniture retailers to capitalize on their excellence in this area. “Typically your average furniture store has a bigger bedding department than a bedding speciality store. Promote it. (Consumers) tend to think speciality stores have bigger bedding departments. That’s not true!”

Epperson also encouraged furniture retailers to emphasize their store in their marketing efforts instead of the brands they carry, saying “You have to promote your name. Your name is the brand now.”

Finally, Epperson pinpointed the high end of the business as a segment that’s showing growth in the past year, stating “The high end’s doing better because the stock market’s doing better. The wealthy are still spending. They don’t have mortgage worries or a lot of credit card debt.” He recommended that furniture stores focus on this segment to take advantage of the discretionary income provided by the current economic situation.