Daily News Archive
Brought to you by Home Furnishings Business
September 30,
2008 by in UnCategorized 
By Home Furnishings Business in on October 2008
From October of 2007 until February of 2008, Home Furnishings Business conducted an exclusive survey of consumers on the furnishings industry, covering what products they purchased, where they shopped, their shopping experience and their future shopping plans. Also included was a series of questions about the participants themselves.
In July, the magazine re-surveyed the more than 400 consumers who participated in the original survey to find out if, how and why their home furnishings buying plans have changed in the wake of declining consumer confidence, employment insecurity and general economic worries.
The first surprise was that nearly three-quarters (71 percent) didn’t know whether or not they would be buying home furnishings in the second half of this year. Just 12 percent definitely ruled out purchasing any home furnishings, with the balance making plans to do so or had already bought something.
Of those who had already bought home furnishings, about one-quarter had purchased home accents, with other popular categories including bedroom furniture, entertainment furniture and home textiles. Women were more likely than men to have purchased entertainment furniture for an already-owned flat-screen television, primarily because the woman of the household didn’t want a “big black hole in the living room,” according to one Midwesterner.
High on shoppers’ wish lists was furniture of almost any kind, with entertainment furniture and baby furniture topping the lists, followed closely by bedroom furniture. According to the consumers surveyed, most considered bedding to be bedroom furniture and didn’t differentiate between case goods and upholstery furniture for the bedroom versus bedding. One Westerner said he always bought new bedding when he bought new bedroom furniture and seemed somewhat surprised at the thought he could buy new bedding without new furniture!
Several consumers planned to make gift purchases, including a number of new grandparents-to-be who were furnishing nurseries. Unlike the purchases they made a generation ago for their own home, many of which were hand-me-downs or bought at garage sales, these new grandparents are making a grand occasion of the new addition to the family.
Survey respondents seemed somewhat unrealistic about furnishings prices, as those who had actually purchased spent more than those still shopping expected to pay. One-fifth of those planning on shopping didn’t know what to expect in the way of price points. One northeastern woman was pretty definite, though, saying, “It will cost what it costs. I need it, I want it, and I can probably afford it. Now I just need to find it!”
Those consumers who had ruled out shopping for home furnishings based their decision on a number of factors, including gas prices that were still too high, high food prices, job insecurity and a general jittery feel about the economy. “I can always shop next year, if I don’t buy this year,” said one southerner. “I just don’t feel right about spending a lot of money right now. I think I’ll hold off buying anything until things start turning around in the economy.”
Another Southerner was part of the group who flatly said he couldn’t afford it: “I’ve always bought furniture on credit before and now it’s really hard to get credit. I didn’t lose my house because of the mortgage crash, but now I can’t buy anything else.”
Not all of the survey respondents definitely shut the door on buying home furnishings. More than one-third (36 percent) said they would buy “if something caught their eye” and 18 percent said a good sale would get them into a store. Only 3 percent said they would hold until gas prices really fell, while 20 percent planned to wait until they felt their job was secure.
The overall attitude of consumers, as expressed via the survey, was that now was a good time to take a “wait-and-see position” about the economy and future buying plans. One New Yorker said, “I like to window shop. If I see that perfect product, I’m buying. But it’s just fine with me if I don’t see it. Yes, I can think of a lot of things I’d like to buy for my house, but now may not be the time.”
One Southerner was rocked by the bankruptcy filing of a favorite furniture store: “Five years ago I looked long and hard to find the perfect dining room table and chairs. I had sort of given up when I found something that was perfect. I bought it immediately and I still love it.
“I’d buy from that store again in a heartbeat; in fact I tried a couple of years ago. But my salesperson didn’t call me back when I called to make an appointment, so I sort of let it slide. The next thing I heard, they were out of business. Now I don’t know where to shop, so I guess I’ll be looking at ads the next time I decide to go shopping.”
There are shoppers out there willing to spend money, but finding them is always the challenge. The good news is that a slippery economy hasn’t scared them all off. HFB
Home Furnishings Business’ consumer survey was conducted by Research Editor Janice Chamberlain under the direction of Editor in Chief Sheila Long O’Mara.
September 30,
2008 by in UnCategorized
By Home Furnishings Business in on October 2008
Take a look at Michael Huber’s life in furniture, and you get an idea of why he decided to base Belfort Furniture’s business on a single, if multi-faceted, location in the Washington, D.C., suburb of Dulles, Va.
After years of working on two continents in his family’s business, followed by running around among multiple stores in his own enterprise, Belfort ‘s chief executive officer decided the only way to build a successful furniture retail operation and still have a life of his own was to settle his business in one place.
Huber was born into the furniture industry. With an American mother and Swiss father, he grew up on both sides of the Atlantic, and worked with his brothers in his father’s business, then called Belfort Furniture, which grew to 13 stores in Germany and one in England.
“I grew up in the furniture business—I never got an allowance, I got commission,” Huber recalled. “At 12, 13 years old, people were asking me whether a carpet went with their fabrics. At that point, I’d just have to tell them it was always a matter of personal taste.”
In the late ‘70s, Huber moved to Virginia, where he got an associates degree in business and met his wife, Kristi. After moving back to Germany to work in the family business, he and Kristi decided to return to America to raise their family; son Matt was born 26 years ago.
Going It Alone Huber was still working for his family, opening an outlet in Fairfax, Va., selling European-made leather furniture and wall units with the idea of establishing a chain of locations.
“The concept was a little ahead of its time, and we ended up closing that store,” he said.
Meanwhile, Belfort Furniture changed its name to United Furniture when Huber’s father bought a furniture assembly plant in Belgium to wholesale goods assembled from components imported from China. His brothers still work in that business, one running the wholesale business, the other in charge of five stores in Germany.
“I was going back and forth” between Europe and America, Huber said. “I wanted to stay here, so I kept the Belfort name and started this business in 1987. I was pretty much on my own, because nobody leaves the family business.”
Belfort Furniture opened a store and warehouse in Herndon, Va., with three employees: Mike and Kristi Huber, and Mike Perry, who’d worked with Huber in the earlier business. Perry’s still with Belfort, where he now is in charge of all service calls.
“He’s the only guy who can claim he’s worked for Belfort since before it existed,” Huber said.
Over the next five years, Belfort opened two more locations in Chantilly and Potomac Mills, Va.
“We were doing a decent business, not gangbusters, but we were getting along pretty well,” he said.
Getting Grounded Problem was, between years of jumping the pond with the family business and managing three locations with Belfort Furniture, Huber felt as if he was spending too much time running in circles. That wasted energy inspired him to think in terms of a destination “campus” for home furnishings.
“The lesson I learned is that if you have one store that’s big enough and you do it right—build that mousetrap with good furniture, good prices and good execution, it’s the most cost-effective way to do business,” he said. “I didn’t want to spin my wheels chasing around those different locations.”
The opportunity to bring that idea to fruition came in 1993 when, after a year of negotiations with the bank, Huber bought a half-built 75,000-square-foot shopping center in Dulles, Va., out of foreclosure that’s now the home of Belfort Furniture.
“I closed the other stores to concentrate on the campus concept and doing it right,” he said.
Huber looked to operations such as Gallery Furniture in Houston, Nebraska Furniture Mart in Omaha, and Darvin’s in Chicago, as models.
“Those guys all seem to be able to have a life and do a lot of business out of one location,” he noted. “I wanted to have my cake and eat it, too, and to a large extent that’s what’s happened.”
Indeed. Since opening at its current location, with 30,000 square feet now housing the “Belfort Galleries” store, the retailer went from around $3.5 million in sales to $20 million in 2000 to $40 million last year.
Belfort Furniture owns a 13.5 acre tract that includes five storefronts:
• Belfort Galleries, a 35,000-square-foot full-line store.
• Belfort Interiors, which features a leather gallery, casual dining, home entertainment, home office, home theater seating, and motion and recliners.
• The 20,000-square-foot Belfort Basics carries lifestyle furniture and coordinated room packages with an emphasis on more immediate delivery.
• Belfort Kidz and Mattress carries a big assortment of youth furniture; and bedding from Sealy Posturepedic, Stearns and Foster and Tempur-Pedic.
• A clearance center located in part of the 86,000-square-foot warehouse Belfort built in 2001 across the street from the shopping center.
Extra space opened for that clearance center in 2007, when Belfort completed a new 90,000-square-foot state-of-the-art high-cube warehouse a couple of miles from the main campus.
“In the past couple of years, we’ve expanded our ability to double the business—I did that right in time for the slowdown,” Huber said. “But we’re ready. Operationally we’re more than capable of doing well over $80 million a year with what we have now. We had been hampered by space constraints.”
Another addition is a spray booth for touching up finishing on wood product. “With all the furniture coming from the Far East, we found we needed that capability to prep some of the goods for sale,” Huber noted. “I still feel there are areas of opportunity and growth with what we’re doing right now, so I don’t have an immediate desire to open another location,” Huber said.
Focus on Execution Belfort has felt the effects of a tough retail environment, especially for furniture. Sales in 2006 were around $43 million, and that fell to about $40 million last year as the industry slowed.
“We’re trending down about 5 percent this year, but business has actually perked up, so we’re hoping to pick that back up by the end of the year,” Huber said. An in-home design program, for example, has helped build tickets in a down year.
“We have almost 20 people doing house calls this year,” he said. “We’ve standardized that format, and it’s been very successful. We’re writing some big orders this year through that program.”
The real key to maintaining the business in a tough environment, though, has been a strict attention to operational details.
“We’re all about continuous improvement,” Huber said. “We identified 400 processes to make a furniture company run efficiently that don’t really change much, but the procedures you use to perform those processes do change.”
For example, unloading a truck is a process.
“You always need to unload trucks—the procedure is how you check in the driver,” Huber said. “Do you do it manually, or do you use a bar code? Take sales—you always have to approach a customer, but how you do it changes.”
At Belfort, each of those 400 identified processes is tied to individual job descriptions. “By doing that, we’re able to make sure those processes are always assured of completion,” Huber said. “When something’s not working at a store, it’s often because someone’s in a new position with new process assignments.”
To remedy the potential for processes to fall through the cracks, from 2003 to 2004 Belfort developed its own internal database of job descriptions with access available to each employee.
“As long as that process is assigned, someone’s doing it,” Huber said. “How are we doing it? That’s the underlying procedure, and if that procedure changes, it’s updated on our business management system. Everyone can actually look at their job description, click on a process, and it tells them the procedure to use. Once you’ve solved a problem, there’s a place for that solution to go; you don’t have to keep reinventing the wheel.”
Individual teams develop new Belfort procedures for processes such as receiving, parcel shipping, etc. for approval by senior management. Once approved, those changes go into the database.
That attention to detail and insurance against dropping the ball on any operational process or procedure has served Belfort well during a sales decline last year and flat sales projected for 2008.
“We’re perfecting the actual systems for what we have in place here, and it seems the better you execute, the more sales you get,” Huber said.
Huber also is willing to look outside the furniture industry for ideas to increase efficiency and hone his business. He participates in a group of area CEOs from various sectors who meet regularly to discuss ways to improve their operations.
Belfort’s approach to quality control is a good example of that input. Huber’s wife, Kristi, serves as vice president of quality, a position inspired by discussions at the CEO group.
“We define quality as ‘the Belfort Way,’” Huber said. “When we have new policies or procedures, that runs through her, and she makes sure the changes define our mission. She doesn’t work day-to-day in the business, but in reality she’s the heart and soul of what we do.”
Maintaining Morale How does a retailer keep the staff fired up during a tough time to sell furniture?
“We try to celebrate all the small successes, things like a good customer satisfaction survey,” Huber said. And instead of backing off on advertising, Belfort has maintained its effort to spread its message in the D.C. market, which has a morale-boosting side effect.
“We’ve really kept up our advertising, and while the sales are down, we still have good traffic,” Huber said. “If you can keep traffic in front of the salespeople, it helps morale. We all hear about stores that are closing, and we are still pretty strong. You have to ask, ‘How am I doing relative to my competition?’ In that regard, our staff is pretty happy.”
It also helps to inject some fun into the business. Take the company newsletter, “The Buzz.” It’s a lively monthly with a big focus on employee achievement, recognition and outside activities.
“We’ve had various newsletters for years,” Huber said, “but ‘The Buzz’ has been around for about six months. We wanted something a little more fun for the employees.”
A recurring feature, for example, follows the travels of “Bucky the Belfort Beaver,” a stuffed mascot employees take for photographs on their vacations. Bucky soon will be featured in a coloring book Belfort is developing for customers’ children.
“It’s about Bucky and his bee friend,” Huber said. “Bucky gnaws on wood to make furniture. ‘The Buzz’ grew out of all that, and everyone gets into it.”
So does Bucky’s coloring-book gnawing produce more rustic-leaning furniture? “Oh no,” Huber laughed. “He’s really quite skilled!” HFB
September 30,
2008 by in UnCategorized
By Home Furnishings Business in on October 2008
Giff Gates isn’t used to losing money, but like many furniture retailers these days, it’s becoming a habit he’d like to break.
“My first 400 months in business, I lost money two months,” said Gates, owner of Grants Pass, Ore.-based Gates Home Furnishings. “In the last 10 months, I’ve lost money eight out of 10. I’ve never seen it like this before.”
Gates isn’t alone. It’s a tough slog for even the sharpest operators in furnitureland, and it’s more important than ever to measure and manage costs, sales productivity and cash flow during business doldrums.
To that end, Home Furnishings Business contacted a range of retailers large and small to discuss the key metrics they use to keep tabs on their operation. In addition to the basics, many are using new measurements, or re-evaluating the way they look at others. And in some cases, retailers are examining qualitative as well as quantitative ways to rate their business.
BREAD AND BUTTER NUMBERS Metrics such as gross margin return on investment (GMROI), inventory turns, inventory to sales, traffic count, sales close ratios and average ticket remain basics, but more and more retailers are tracking those on a more frequent basis.
Also, retailers contacted are keeping closer tabs on “money holes” that drain profits—things such as returns, bad debt and problem deliveries.
Every week, for example, managers at Williston, Vt.-based PK Management—which operates Vermont Furniture Galleries, and Superstore Furniture in Williston and Total Home Center in St. Alban’s—sit down to discuss key metrics.
Those include total inventory, GMROI, inventory on hand awaiting delivery;, inventory aging in 60 day increments, gross margin on both written and delivered and by category and vendor, sales by salesperson, sales and GMROI by vendor, damaged or returned goods on hand, payables, warehouse and delivery year-over-year and as a percentage of sales, and overtime hours worked monthly. Advertising budget versus actual compared to written sales is measured monthly.
“We try to maintain an inventory-to-sales ratio of 15 percent or less,” said Stephen Kidder, PK Management principal. “We budget advertising at 7 percent of sales.”
PK uses sales staff measures to build incentive for profitable transaction, too.
“Salespeople are on a variable commission relative to the margin they write,” Kidder said. Also, daily written sales have emerged as an increasingly important metric.
Steve Forberg, CEO of Decorium, a middle-upper to low-high end store in Toronto, takes aim at what he calls a “sweet spot” for regular break-even analysis based on margin and expenses.
“I know at what margin and what level of volume we need each month in order to break even—a sweet spot approach,” he said.
In addition to basics such as sales per square foot and GMROI, Decorium also generates a daily cash report to maintain good credit status and stay on top of payables. Sales reports include average sales, close ratio, performance index, and traffic counts.
Once a month, Decorium generates a “dashboard report” with important information on sales, inventory levels, service performance, and more.
“I can see a snapshot of the business on one page—very effective,” Forberg said.
Freedom Furniture & Electronics is 10-store chain based in Norfolk, Va.
As a credit-oriented retailer, Freedom is especially observant these days with numbers for payment delinquency and bad debt reserves.
“Particularly when your banks are nervous, you want your cash flow steady,” said Link Melley, president and CEO. With a large portion of customers in the military, he added that Freedom’s delinquent accounts are flat or down, but that’s not true for a lot of his credit-oriented colleagues.
“Across the country, delinquency and charge-offs are up,” he said. “The average credit customer works jobs like construction and home building, and a lot of those guys are getting laid off or working one or two days a week.”
Woody Whichard at Midtown Furniture Superstore & Mattress Center in Madison, N.C., takes a different approach to tracking and managing sales.
“I do not have a sales manager,” he said. “Thus I do not have all of the elephant toilet paper that can be created by one. I have a self-managing staff that works as a team. They have management in the form of the power of three. Three salespeople can get together on any situation, if I am not available, and make a decision as if they were a manager, majority rules.”
If Whichard doesn’t like a decision, he explains how to handle the situation next time, and he doesn’t penalize sales staff for it.
Close ratio is an important metric at Midtown.
“We do not have a door counter, nor a sales manager taking count—this is the responsibility of the entire sales staff,” he said. “This is done through their contact cards.”
Individual and store gross margin on sales gets reviewed every Saturday morning at Midtown during a sales meeting, and is shared with all staff. Whichard also is a stickler for sticking to budget.
“This is very important for us to create and stick to as a course of action throughout the year,” he said. “The budget is watched daily also.”
Advertising is a must to drive traffic, and it’s important to make it a true investment, not just a cost, said Bill Castleberry, owner of Castelberry’s Home Interiors, an Ethan Allen dealer in Tulsa, Okla., and Oklahoma City.
“How that traffic is brought into our store is how you answer the questions of media balance: direct mail if you have an up-to-date store or bought list,” he said. “Television in our industry is a must since we are a visual product, but remember to increase the gross rating points to the 120–150 level just to get your message above the clutter. Otherwise the money used will be an expenditure instead of an investment.”
WHAT’S SELLING? Inventory is a particular area where Freedom looks to maintain profitability in a tough retail climate—“almost micromanaging” inventory, Melley said.
“On the furniture side, the consumer is nervous, and you have to maintain inventory at appropriate levels,” he said. “We’re dealing with more vendors who ship smaller amounts quickly. We’re ordering on a weekly basis to be more responsive to inventory needs.”
And if they haven’t done so already, retailers need to take a realistic look at what they’re carrying. Just because “the store’s always had it” or the owner has an emotional attachment to a line or item doesn’t cut it any more.
Carol Edgington, co-owner of Uncle Grumpy’s Furniture in Bay Minette, Ala., thinks keeping an eye on the movement of individual products or categories is the the fun part of bookkeeping, “which I hate doing otherwise.
“We find out how few curio cabinets we actually sell and wonder why do I order these things,” she said. “We’ve stopped selling gun cabinets, and we’re in an area where everybody hunts, but they apparently already have their gun cabinets, because I’ve had one sit here through hunting season, Christmas and spring until I finally donated it to a fundraising event for sportsmen.”
What if, say, mattress sales are down?
“What is the competition doing?,” she asked. “How are we missing the boat? Do we have the wrong type of stuff? Do we need to be in a different price range or do we need to get better or cheaper or whatever? I keep the finger on the pulse and adjust accordingly.”
That doesn’t necessarily mean switching brands.
“But, within the brand, I was using one only for the promotional stuff and another for the better stuff, and that’s not necessarily the way it ought to be,” Edgington said.
NEW NUMBERS TO WATCH Some retailers are using new metrics, and some old standbys have grown in importance or are measured differently.
Morris Home Furnishings in Fairborn, Ohio, for example has begun surveying all customers after any delivery or merchandise pickup at the stores.
“The key question is, ‘How likely would you be to recommend the store to a friend or relative?’” said Larry Klaben, CEO. “Say you’re asking them on a scale of one to five, how many fours and fives do you get?”
The one, twos and threes are not going to be your dedicated customers, he said, adding:
“That’s a metric we use on every order in every store.”
Morris also started tracking the time it takes for customers coming to the store to pick up their order to get their merchandise. When the retailer began measuring that metric, the average time was 30 to 40 minutes. Now it’s 10 minutes or less.
“I believe our customer service level is better than ever,” Klaben said. “Every sale and every potential referral is more valuable today than ever before.”
A key figure Gates Home Furnishings watches closely of late is sales per “non-handling” employee—that is, those employees who aren’t salespeople. It’s an idea he got from his performance group with Impact Consulting.
“Say you have 50 (non-handling) people, and your sales are $5 million,” Gates said. “You do $100,000 per non-handling employee. My group average is $700,000, and I’m $500,000. That number glares right at me and tells me I’m overstaffed.”
The store had written its own financing for years, but Gates noticed none of his other group members did. He eliminated the credit department and contracted out his financing, but kept looking for more overhead to trim.
“I had closers who’d be sitting and waiting for a salesperson to bring a customer over,” he said.
The store now has gone from $450,000 to its current $500,000 in sales per non-handling employee. Gates has dropped his break-even point by 25 percent, even with sales down 15 percent the past three years.
“We’re moving in the right direction—we went from 39 to 33 employees,” Gates said. “You can use those numbers to explain to staff about the changes you need to make.”
While not new measures, Gates examines close ratio and average ticket are very closely.
“We’ve had to decrease sales staff, and those numbers help you make the decision,” he said.
A salesperson might have a great close rate, but if he or she isn’t building the ticket with add-ons such as accessories and fabric protection, the retailer is losing revenue.
Decorium’s break-even analysis carries extra weight in tough times, Forberg said.
“I also make sure we are in touch with all financial institutes and credit departments to ensure good relations and make sure we do not get lumped in with many issues manufactures have with other accounts,” he said. “Also the importance of vendors’ speed to deliver is important. We need to make sure we are getting the product from our vendors in a timely fashion as to be able to deliver what we are selling. This is very critical in a slowing trend—nothing worse than selling and not being able to get the goods.”
The increasing role of the Internet in furniture retailing has added another set of metrics.
Andy Bernstein is founder and president of Eagan, Minn.-based FurnitureDealer.net, which builds Web sites for retailers, suggested that retailers not only track the number of users on their site, but also the percentage that access the pages through search engines.
“That way, you find out whether people are using the Web to find your store,” he said.
Other ways to keep tabs on your Internet presence: Track the number of entry pages into the sight, time on site and number of page views per visit.
Get conversion information—both as a number and percentage of the whole—by examining how many shoppers contacted the store through the Web site, added product to a wish list, signed up for e-mail marketing blasts or signed up for credit online.
“Gallery Furniture put a credit application on every page of its Web site,” Bernstein noted, referring to the big Houston furniture retailer.
In a period of slow sales, Gates concentrates on percentages rather than dollar figures when measuring line items.
“Some are impossible to maintain at the percentage you want,” he said. “We’ve frozen wages, but unless you cut staff, it’s still a larger percentage of sales. ... You have to pick the across-the-board percentage (of costs) you need.”
QUALITATIVE VS. QUANTITATIVE For all the numbers he tracks, Whichard at Midtown says his most important metric is qualitative.
“The main measure that I look for is a good attitude every day from every employee company-wide ... we are a team and we must work as a team,” he said.
Several retailers mentioned positive attitude and high levels of customer service as important aspects of surviving a slow consumer market for furniture.
While it may sound trite, Castleberry at Castelberry’s Home Interiors said the maxim “retail is detail” holds true in tough times.
“All of a sudden each potential customer contact must be dissected to ensure that whatever was accomplished or not accomplished can be improved,” he said. “What can be done to deepen that relationship so the contact/customer will return to our store, or refer us to another contact, allow us to do more design work for them that will increase the sale?”
Now more than ever, Castleberry believes, retailers need to closely examine the image and atmosphere they project.
“We as owners must follow up and follow-through to ensure that what we are doing is accomplishing how we want our store presented to our prospective, past and current customers,” he said. “Step back and look in the mirror: Does your personal appearance, your associates’ appearance and attitude, your store’s physical and merchandising appearance all reflect how you want the buying public to remember your store?”
Watch what’s going on not only at furniture stores, but other retail sectors.
“Take a look at the department stores’ use of lighting and the color selections they use to make their merchandise look so seductive,” he said. “Hey, don’t laugh. All of us use rational arguments to justify emotional purchases.”
Hosting a community event or fund raiser can enhance a store’s image, and spread terrific word of mouth, Castelberry said.
“Now’s the time to put on a new face, inside or out or both, to freshen up,” he said. “Now you can dissect your p&l to plug those ever-present expense holes that escape your notice when times are better.”
In the end, though, the numbers have to match the image.
“We either have to increase revenue or decrease expenses,” Gates said. “I’m a pretty good promoter, and it’s been about impossible to increase sales the past couple of years.
“We have good cash reserves, we have no debt, and we own all our own buildings. If I didn’t have that, I don’t know where we’d be. You can’t lose money eight of 10 months and go forward.” HFB
September 30,
2008 by in UnCategorized
By Home Furnishings Business in on October 2008
It must have been in a long-ago economics or statistics college course when the long-standing “numbers don’t lie” phrase was uttered ad nauseam to my chemistry-minded ears.
At the time, I was all about chemical reactions, kinetics, afternoon labs and the periodical chart. I wasn’t into the numbers; I wanted to mix things and note the results.
All that soon shifted, but I’m still not jazzed by numbers as many of the mathematical whizzes out there are. Heck, there are days that I defer math homework assistance—thankfully, it’s not often needed—to the other grown-up in the house.
I do understand, however, as many a management guru likes to spout, that you are what you measure. Hence, this issue of Home Furnishings Business looks at store operations and making sense of the myriad of numbers that retailers can and should measure.
Often it may feel as if you need a dictionary to decipher the vocabulary used in financial statements. Some terms are easy enough—net sales, gross sales, cost of goods, gross margin. Others require a bit more brainpower for the average bear—gross margin percentage, operating margin percentage.
Retailers face a multitude of challenges to operating a profitable business. Continually rising costs, the tightening of the credit market for small businesses, and dwindling consumer confidence all take a toll on the bottom line.
It’s stressful enough figuring out how to keep the doors open; never mind the concerns of meeting payroll and making timely vendor payments.
Inside the pages of this month’s issue, you’ll find real stories from successful furniture retailers who share the metrics they track and other ways to stay on target in today’s less-than-stellar business climate.
Many participate in performance groups that provide the opportunity to share ideas, numbers and problems with retailers in non-competing markets. Others also turn to technology providers for the latest tracking software to stay on top of changes in pivotal operational numbers. Investing in smart technology often gives us an “a-ha moment” leaving us wondering what took us so long to get there.
Dig into the information inside, study it and learn from your peers. The fourth quarter is the perfect time to get your store finances and operations in order and on a sound foundation as you move toward 2009.
Remember, numbers don’t lie, and they provide a solid snapshot of what’s going on in a business.
September 30,
2008 by in UnCategorized
By Home Furnishings Business in on October 2008
When it comes to business metrics, furniture retailers basically want it all. That means technology that delivers up-to-the-minute sales totals, rankings of top-selling products (and sales associates) and instant access to cash flow, back-order and vendor performance metrics, according to systems vendors and business management consultants.
Oh, and retailers also want comparative analyses that show today’s numbers measured against last year’s figures. In addition, retailers want it all in easy-to-read graphical reports that are preset to reflect the items they deem most important. Finally, some store operators also want to be able to call up those reports on a home PC—or even a cell phone or PDA in some cases—no matter the time of day or night.
In short, retailers crave accurate, real-time data, especially in times of economic uncertainty.
“The quicker you can react as a retailer, the better off you will be,” said Mark Van Winkle, director of sales, Storis, a software provider with a focus on the furniture industry in Mt. Arlington, N.J. “To be able to have that information right in front of you right away is so much better than having to rely on having staff members to create multiple reports you have to go through to uncover trends.”
THE BIG PICTURE Rather than focusing on individual measurements, furniture retailers want an easy-to-digest overview report that combines the latest sales (and other performance) figures. “Right now, retailers want to see a big picture of how every part of their business is going,” Carolyn Crowley, president, Myriad Software, a San Diego-based software company that is focused on furniture. “I’d think most systems provide a broader picture of everything from sales to the number of back-ordered items, so they can make sure they fill the orders of those customers and get those products delivered” as quickly as possible.
Both Storis and Myriad provide constantly updated reports for top executives that show key measurements such as sales (both written and delivered) as well as cash flow and rankings of top salespeople, categories or vendors (for that day or week or a longer period the executive selects). With the Myriad system, the reports the company calls its browser module can be called up on a cell phone or a PDA. “It’s very broad and gives the executives a big picture of how every area is doing with numbers,” Crowley said. “If they want to drill down a bit more they can get more details” or sign on to the system with a PC for even more detailed reports.
The Storis system, which is accessed through a PC, has a similar report it calls “Executive Vision” to enable top managers to “easily see (key) information in real time and react as its happening,” Van Winkle said.
SELLING MORE THAN WHAT’S ON SALE Van Winkle said retailers usually want to view sales data first and those with multiple stores like to see data from each location. Close behind in importance are rankings of store sales associates and brands or vendors. With the information on sales associates, he said it becomes easy—with a quick comparative analysis—to see that a top salesman is outproducing almost everyone in terms of total sales, but may have a lower-than-average ranking when it comes to gross margin: “That sales associate might be discounting too much or pushing just sale products. Giving the executives that information at their fingertips enables them to react accordingly.”
Van Winkle said brand or vendor comparisons helps an executive quickly assess the performance of a particular brand or category: “You can see what a particular vendor did for your stores this year as opposed to last year, and an executive wants to have that information in front of him when a rep comes in so they can discuss how that brand is doing.”
Profitability Consulting Group CEO John Egger said some key furniture store metrics never change, especially performance measurements like a store’s closing rate. He said many retailers can become more effective by putting more of a focus on inventory by ranking a category both as a percentage of sales and as percentage of inventory. The measurement can help determine which product areas are pulling their weight in the store. “You might find that bedroom, for example, is 15 percent of sales, but 30 percent of inventory, which would be way out of a line, but it’s amazing how many (stores) don’t do that comparison,” said Egger, who is based in High Point.
He said it’s also important to keep track of inventory aging: “So many stores have, as an example, $2 million in inventory, and $500,000 of it has been there for more than a year.”
PLAYING CATCH-UP AS GAME CLOCK TICKS AWAY Crowley said CEOs viewing a report via a browser module often toggle back and forth between views that show sales figures for a particular day, week, weekend or a month. “Today is the 24th day of a short month (September), so, depending on how things are tracking, do you start planning a special promotion with an e-mail blast to your key customers? It’s really a help to be able to look at ways to promote after seeing the results from the first half of the month.”
She said being able to access real-time sales data remotely from a home computer, or even a mobile device, frees executives to spend more time outside their office “and still be able to know what the pulse of their business is.”
NOT YOUR FATHER’S FURNITURE STORE Bob George of Impact Consulting said many retailers are still focused on quarterly comparisons or store traffic numbers that are increasingly misleading.
“Quarter-to-quarter sales comparisons are sort of embedded in retailers’ minds because that’s the way their father did it and their grandfather did it,” he said. “It used to be we lived in an agricultural society, but we don’t have that economy any more. Credit wasn’t as free (in the past), so a consumer had to wait for her income tax refund or bonus check” to buy furniture. “Now, with credit cards, most people can make a purchase any time and pay for it over time.”
At the same time, he said store traffic numbers are down across the industry as shoppers make, on average, two store visits rather than the three or four that were typical a decade ago. With lower traffic levels, George said, “Some retailers say, ‘I need to advertise more!,’ but that’s not necessarily the answer. It may be that they need to learn to use the Internet” more effectively.”
LOOKING OUTWARD, NOT BACKWARD Increasingly, George said, some retailers are striving to go beyond measuring current sales against past numbers in order to focus on market share and other outward-looking metrics. “A retailer knows when sales are down,” he said, “but if his market share is the same as it was two years ago, then that store is getting its fair share. But, if a store is losing market share, there’s a different set of reactions to that because someone is taking their business.”
It can be expensive to have a market study conducted for a store, but George said sometimes local newspapers or other sources can provide useful market information. At the same time, a retailer can help understand some aspects of a store’s performance in comparison to other stores by joining a performance group or by participating in performance groups or initiatives like the NHFA’s Retail Operations Performance Report. Taking part in multi-retailer groups enables a retailer to measure performance measurements like closing rates or average tickets against other stores of a similar size.
TOO LATE TO START NOW Over the past year, George has had several encounters with struggling retailers and came away surprised by the lack of record-keeping in those companies: “When you get in trouble, it’s too late to go back and start to create these numbers. A lot of them don’t know what their closing rate or average ticket is. You can’t go back and capture those, so I’ve been surprised by how some retailers don’t have the numbers they need to make important decisions.”
Van Winkle said most of the retailers who deploy Storis technology already have a computer system in place, and are generally seeking a system that is more user-friendly and is designed to incorporate advanced tools as new technology and functions are developed.
WORST-CASE SCENARIO: DAYS CASH OUTSTANDING Ren Baker of CDS Solutions Group said that during challenging economic times, the best way to assess a store’s health is by measuring what he calls “days cash outstanding”—the number of days a store can continue to operate with no income at all.
It’s measured by adding up all expenses and dividing by 365. With the resulting sum and the amount of cash, retailers can work to have a cash buffer for emergencies. One of the benefits of the measure is that it works equally well for a $2 million business as it does for a $200 million company.
Baker also advises companies to chart sales on a month-by-month basis over the prior 24 months to produce a trend line that can help store owners identify trends on a longer-term basis.
Roy Martin of Escalate Retail, a software provider based in San Diego, said retailers are increasingly focused on measuring shipping costs, both in moving containers from Asia and in delivering to the customers.
Secondly, Martin said, retailers need to closely analyze the costs of financing promotions, in particular, by asking, “Am I giving up too many points to get the sale that is financed?” Martin said a close analysis could show that a no-payments offer could be as effective as a no-interest, no-payments sale over a given weekend. “With the competitive nature of the world right now,” he said, “that kind of analysis is something retailers really ought to do to (determine) how much it’s costing them to make this sale” using financing.
He said furniture stores across the country are also closely analyzing the cost of same-day deliveries versus next-day deliveries in terms of whether a same-day delivery promise produces enough added sales to justify the expense of providing it.
Egger of Profitability Consulting Group said many retailers track “Perfect Delivery Percentage” to help delivery crews focus on the importance of avoiding repeat visits to a customer’s home.
“You should set a standard of, say, 96 percent to 98 percent Perfect Delivery Percentage and pay a bonus when that’s achieved,” Egger said. “When you look at the cost of gas and (the value) of making a customer happy, you can save a lot of money.” HFB