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May 31,
2007 by in UnCategorized 
By Home Furnishings Business in Case Goods on June 2007
Los Angeles-based Environment Furniture, which has showrooms in High Point and Las Vegas, will open its first two free-standing stores on opposite coasts in July, the company announced Thursday. The stores will open in Orange County’s South Coast Plaza and in Manhattan’s Flatiron district.
Environment is committed to using sustainable materials and responsible processes, and the announcement said the new stores reflect the company’s respect for nature. CEO Davide Berruto said opening stores on the both coasts will make a strong statement for Environment.
“This will be a template for future EFI retail stores,” he said. “The interiors are being designed with eco/sustainable products. We are going to carry a few select accessories that will be organic in nature. All of these elements are important to establishing the (Environment) brand, and I know if we are successful we can expand to other markets.”
According to the company’s Web site, it currently operates a store called ERA within H.D. Buttercup in Los Angeles.
May 31,
2007 by in UnCategorized
By Home Furnishings Business in on June 2007
Rather than being reactive to changes in the marketplace, today’s retailers are becoming more proactive when it comes to researching, acquiring and managing their store locations.
Ultimately, it all comes down to watching the signs, staying on top of retail trends, and gearing new store setups to the places customers are most likely to shop in—now and in the future.
In a seminar held at National Retail Federation’s 2007 Show in New York on Jan. 14, James “Jamie” Bersani, executive vice president, real estate, Limited Brands (parent company of Victoria’s Secret, Bath & Body Works, Express, Henri Bendel, The Limited and The White Barn Candle Co., among others) and John Mulleady, vice president, real estate and construction, Circuit City, discussed the ins and outs of managing a store’s real estate lifecycle.
Here are some of their thoughts.
Do a Tour
“We don’t really pursue free-standing stores,” Bersani said, adding that his company typically seeks store space in malls, strip shopping centers and lifestyle center developments. He called the search for ideal space an “art and a science.”
How does Limited Brands go about finding new store properties? “We send out a rep out to tour the market and find appropriate venues in that area,” he said. “It’s not just about finding a good location. Our stores have strong identities, both in terms of design and the types of products they sell. We need to find a compelling shopping venue that compliments each brand’s identity.
“Ultimately, we want a location that drives a lot of traffic,” he added, “as well as a compelling store design.” One such option he said his company is utilizing more these days is converting spaces that were previously department stores, which he sometimes finds preferable due to their generous size, adaptability to his brands and traffic-drawing designs.
Just the Facts ... and the Gut
“There’s a balance between art and science,” Mulleady said, echoing Bersani’s statements as he spoke of the steps Circuit City undertakes when choosing new locations. “We base a lot of our decisions on research and data. Ultimately, these decisions are up to our real estate director, who typically does an analysis to see if a property is viable. If he determines, based on research of the market, previous stores in that location, and the performance of similar stores in the area, that we’re going to lose $3 million in the life of the store, we can’t do it.”
But there’s some “art” involved in the director’s decisions as well, even if the facts don’t predict success. “If he feels (a location) is right in his gut, we’ll go back and gather more data.” And Circuit City doesn’t rely solely on one director’s opinion, as it welcomes input on a site’s pros and cons from its entire real estate team.
“If anyone feels attached to (a) site,” he added, “they have to bring in more data to make their case.”
To Mall or Not to Mall?
“We are in a lot of lifestyle centers,” Bersani said, referring to the relatively new type of retail development containing only home-oriented stores such as hardware and home furnishings. “There are a not a lot of new malls built today, so a lot of our new U.S. stores are going into these centers. We’re watching those to see how they perform.”
Despite this trend, Limited Brands is still standing by its mall locations. “Eighty percent of our mall-based stores are successful in driving foot traffic,” he said, adding that malls continue to offer advantages lifestyle centers can’t match, such as food, entertainment and store variety. To draw traffic away from malls, he felt lifestyle centers must appeal to consumers as true town centers—hot spots of community activity in addition to shopping.
Read the Customers
Of course, retail isn’t just about a plot of land—it’s about people. Bersani offered his thoughts on gearing store location and construction to customer preferences, especially in the face of competition from online sellers. “We have to know the customer like a best friend,” Bersani said. “You have to be interactive with them. You have to find out how they like purchasing their goods. Do they like the experience of coming to a store? You have to gear your store—where it is, and how people access it in terms of things like traffic patterns and parking—to their preferences.
“Being a great brand means you’ve created an emotional connection to the customer,” he added. “We can’t reinvent customer taste. What we can do, in terms of store location and design, is work to create an exciting shopping experience.”
May 31,
2007 by in UnCategorized
By Home Furnishings Business in Furniture Retailing on June 2007
The choices revolving around finding the perfect store location can be mind-boggling and much like searching for a buried treasure.
Considered one of the most fundamental choices in retail strategy, site selection takes a dash of science, a dash of expertise and a dash of luck, and as helpful as it would be, there’s no accurate map to lead the way. In today’s competitive environment, locating the best location gives retailers the needed foundation of traffic count, store size and presence for success.
Much like residential real estate, the familiar mantra of location, location, location falls into play. But retailers and experts caution that the search for the best location goes beyond finding the right school district.
Stand-alone spaces, furniture row, malls, the hip, power centers—the available options—give retailers a varied menu of choices when looking to plant stores.
Arts and Sciences of Site Location
City Furniture has a presence in pretty much all of the options, and each one has its benefits and drawbacks. Keith Koenig, president, said there’s both a science and an art to selecting the right furniture store location. He’ll have opportunities to practice both aspects, as the Tamarac, Fla.-based retailer plans to expand from 15 City locations and six Ashley Furniture HomeStores to 18 and 14 storefronts, respectively, within the next two to two-and-a-half years.
The “science,” Koenig said, involves issues such as traffic count, street presence, building size, parking-to-store space ratios, cost of land, restrictions on the size of signs and store facades, and in South Florida, a particular headache—entitlements.
Land costs are a particular problem.
“The cost of commercial real estate here is staggering—if you’d told me five or six years ago we’d be paying what we do for some of these new sites, I’d have said you were crazy,” he said. “Fortunately we have some older locations that help us meet (targeted) average occupancy costs. And available good locations in South Florida are like hens’ teeth.”
Entitlements—permits and approvals required for commercial projects—in South Florida are particularly onerous, he said.
“Ten years ago, there was a lot more vacant land in South Florida, and now where there is vacant land it comes under so much more scrutiny from everyone from the Army Corps of Engineers, to water management authorities, to counties and municipalities,” he said. “There’s one site in Boca (Raton) I’ve been working on for more than five years, and I’ll be lucky if that store opens in two more years.”
Another location in South Miami that City had already spent $1 million to develop got held up at the 11th hour when the property owner got involved with litigation.
The “art” to retail site selection is much more subjective.
“The art is things such as knowing whether an interstate location or building on a surface road is right for the area,” he said. “How do you weigh a good presence along an interstate with maybe difficult access? Visibility and presence is very important, and we aren’t afraid to go with a location on a freeway with high visibility even if access might be difficult.”
A case in point is a site in West Miami along the Florida Turnpike that’s under consideration for a new City store. That location is in full view of around 100,000 vehicles passing by every day, Koenig said.
“On the other hand, we certainly aren’t afraid to be in a surface road shopping center,” he added. “If a site has problems, how creative am I to take this project and turn it into a good location?”
A good example is the Ft. Lauderdale Modernage store City’s buying for conversion into an Ashley store.
“We’re going to have to replace everything there except the four walls,” Koenig noted. “It would be cheaper to tear it down completely, but the current codes would not allow a 52,000-square-foot store to be built—more like 30,000.”
No One Solution
Julius Feinblum, founder and president of Julius M. Feinblum Real Estate, specialists in furniture real estate, said the real estate options available for retailers today are many. No longer are stores only located in the heart of towns where consumers once shopped.
“There is no one right solution,” Feinblum said, adding that retailers have to take all factors into account to find the right strategy for their store, their market and their customer.
For retailers currently operating in a slow or dying retail area, Feinblum advises checking the emotion at the door and basing decisions about relocating on facts.
“We all do it. People go into denial with anything—children, marriage, health, business,” he said. “People have to take the emotion out of it to be sure they make the right business choice.”
Looking at the market, Feinblum suggests taking the first step of figuring out where the growth is and where it is that consumers are doing their shopping. “Look where the major, non-furniture retailers are going,” he said. “That’s a good bet.”
Once the right location is found, it’s important to find out whether or not your business will be welcomed in the “hottest retail corridor in town,” he said.
A Dedicated Approach
With the backing of a dedicated store network, independent owners are given assistance in real estate issues. In the case of Thomasville’s dedicated network, the franchiser has geographical targets in mind for locating stores, but relies upon its retail partners’ expertise in local markets.
“It’s a question of ‘Do you know your territory?’” said Michael Massood, chief executive officer of Thomasville Home Furnishings of New Jersey, which has five existing stores and a new location set to open in Northern New Jersey in December. “Thomasville had identified the area it would like to see another store in, and we also wanted to be in Northern New Jersey. Selecting a site is a collaborative effort, but usually brought on by the dealer, who should know the area.”
Massood has narrowed down the new location’s site to two properties.
“We learned a long time ago that we try to locate stores where our customers expect them to be, not where we want to put them,” he said. “They need to be accessible—no more than seven miles from them. You’ll do business within 20 miles, but seven miles is the sweet spot.”
Accessibility demands multiple stores, Massood believes, as consumers shop regionally. The prerequisiste is plenty of demographic research to find that “sweet spot.”
Future Considerations
Real estate trends in the industry are hard to pin down, according to Feinblum, because business is so soft.
“When the dust clears, there will be a lot of opportunity for indpendent, smaller retailers, and there will be bigger retailers who get bigger,” he said, adding that he sees the industry taking about a year to settle and get back on track.
Massood agrees that instability will continue, and he is taking a conservative approach to growth because of it.
“I hate to say this, but I think you’re going to see a lot of real estate open up when it comes to furniture,” he said. Recent store closures, a trend he doesn’t see slowing soon, “are why we take a wait-and-see approach to growth.”
For City Furniture, new markets are on the horizon. Koenig said he’ll be learning the real estate dynamics in new markets through plans to expand beyond its home base in South Florida.
“The challenge we’ll face in a few years is expanding out of the comfort zone of our own back yard, so to speak,” Koenig said.
The Internet’s effect on how customers shop for furniture has been on Koenig’s mind as well, and he believes it will have a growing impact on how City Furniture selects store locations—and how many it will build.
“The Gen-Xers and Gen-Y will be more familiar with purchasing on the Internet,” he said. “Maybe we can go into a market with fewer stores and do more online.”
He pointed to the “three-legged stool” model at lifestyle retailers such as Crate & Barrel, which blend sales among catalogs, the Internet and bricks-and-mortar locations.
“The store gives the customer the opportunity to touch and feel the quality of the goods, but if I build 10 stores when I could get away with seven, that makes for more overhead,” he said.
There’s a flip side to opening fewer stores, though.
“With the traffic congestion you see in many areas, there’s more segmentation—if you live in Boca Raton and you’re on the east side, you don’t shop the west side” and vice versa, Koenig noted. “As the market continues to grow and become more segmented, maybe we need more stores as customers shop more regionally. It’s the Internet effect versus traffic congestion. I don’t know how it’s going to shake out.”
May 31,
2007 by in UnCategorized
By Home Furnishings Business in on June 2007
Six months ago the talk was all about the “housing bubble.” Now economists and other commentators are moving on to foreclosures and rising mortgage rates.
Fact or fiction?
It’s probably a mix of both. First of all, housing statistics were less than stellar in February, compared with year-earlier results. Residential construction starts stood at
1.5 million, off 28.5 percent from a year ago, sales of existing homes fell to 6.7 million from 6.9 million, a 3.6 percent decline, and new home sales fell from 1 million 12 months ago to 848,000, a drop of 18.3 percent.
Compared with January, though, the overall housing market looks much better. Starts increased 9 percent, resales were up 3.9 percent and new home sales slipped 3.9 percent.
Pending home sales, which measure the number of homes under contract, but not closed, declined 8.5 percent, year-over-year, in February, but were up 0.7 percent compared with January results.
Perhaps the best methodology is to compare housing today versus housing in 2004. For residential construction starts, the year-to-date (two months) average in the Northeast slipped 6.2 percent from 2004 results, fell 15.7 percent in the South, dropped 29.8 percent in the West and plummeted 50.9 percent in the Midwest.
The decline in sales of new homes was nearly as depressing: the Northeast, Midwest, South and West saw drops of 41.6 percent, 33.6 percent, 16.9 percent and 39.7 percent, respectively.
The pending home sales index, 2007 YTD average versus 2004, was somewhat less alarming: down 9.1 percent, 14.4 percent, 6.0 percent and 12.6 percent, respectively, for the Northeast, Midwest, South and West.
The lone bright spot was in sales of existing homes, where only the West region reported a decline—16.2 percent. The Midwest was flat at 5.6 million homes; the South was up 0.8 percent and the Northeast increased 2 percent, 2007 over 2004.
Unfortunately, comparisons of the year-to-date averages skew the results, since the first two months of the calendar are traditionally the lowest-performing of the year. Based on just these two months compared with the same months three years earlier, the housing market appears to slipping, but is certainly not in a free-fall.
Despite low sales and starts, average housing prices for the first two months of 2007 were up substantially over 2004 prices, with the highest increase—15 percent—recorded in the West, where the median sale price of existing homes was $329,400, up from $286,400 in 2004. Median prices in the Northeast, Midwest and South also increased, to $243,800, $154,600 and $170,400 respectively, resulting in gains of 8.3 percent, 2.9 percent and 3 percent.
So, bubble or no bubble? In 2006 and so far in 2007, housing statistics are remaining relatively steady, despite the annual first-quarter slowdown.
The End of the Easy Mortgage?
There may be a slowing in the overall housing market and rising home prices, but mortgage rates continue to be among the lowest in the last 35 years. According to the 2005 American Housing Survey (AHS), compiled by the U.S. Department of Commerce, one-third of owner-occupied housing is owned free and clear, with the balance carrying mortgage or home-equity loans.
Data compiled by Freddie Mac, the federal government-chartered corporation that buys mortgages, repackages them and then sells them to investors, shows 30-year fixed-rate mortgages are hovering in the low- to mid-6 percent mark. The all-time low point for these mortgages was reached in June of 2003, when rates sank to 5.23 percent. The high water mark—18.45 percent—was reached in October of 1981.
Analysts are not worried about the 30-year fixed-rate mortgage (FRM), but with the popularity in recent years of Adjustable Rate Mortgages (ARM). The 30-year FRM has long been considered the mainstay of the mortgage rate business.
ARMs don’t get quite the same respect. But in recent years they’ve received a lot more attention, as borrowers and lenders became more creative in tailoring loans to specific customer needs and qualifications.
ARMs usually begin the loan repayment schedule with low “teaser” rates that are several percentage points below the 30-year rate. As the loan matures, sometimes in as little as a year or two, that initial rate blossoms into a monthly mortgage payment that borrowers may find difficult to manage.
Other ARMs are known as “option” loans, since the borrower can choose from a variety of repayment plans, such as interest-only or principal-only monthly payments, allowing the amount borrowed to grow steadily larger, potentially saddling the homeowner with crushing debt down the road.
Of those 67 percent of properties that have either mortgage or home equity loans, the 2005 American Housing Survey indicates 10 percent are ARM loans, subject to ARM problems. One major difficulty in refinancing these loans is hefty prepayment penalties that are frequently part of the loan agreement.
According to the Mortgage Bankers Association (MBA), about $1.1 trillion to $1.5 trillion in ARMs will face rate increases this year, and the association expects borrowers to refinance more than half of those mortgages. The tricky part for homeowners with a steadily rising ARM is to find and qualify for a loan that they can afford.
The problem in refinancing is a general tightening of credit due to increasing defaults and foreclosures. Financial institutions that once were more than willing to write generous loans to almost anyone have shut off the spigot.
Subprime mortgages, those written for homeowners with credit problems, are the most worrisome. The mortgage rate for subprime loans is usually about three percentage points higher than the going market rate. Current estimates are that 10.5 percent of subprime loans will fall delinquent, a rate much higher than the rest of the mortgage market.
When the Bow Breaks, the Furniture Baby May Fall
Perhaps the greatest single incentive for Americans to buy furniture is the purchase of a new home. A new home gives the owner the urge to decorate and make that new house into a stylish home. Anything that gets in the way of that poses a problem for furniture retailers.
Analysts at NAR say tighter lending criteria and fallout from subprime loan failures will lead, eventually, to a healthier housing market with greater assurance that owners can handle mortgage adjustments, but more stringent loan standards will slow the housing recovery. David Lereah, the association’s senior vice president and chief economist, predicts that tighter underwriting practices may cause total home sales to fall by about 100,000 to 250,000 nationally, or no more than 3 percent a year over the next two years.
NAR has also created the “Housing Affordability Index.” The index shows that, over the past year, home ownership is still within the reach of most borrowers. Combining mortgage rates with home prices, family income and a 20 percent down payment, the index indicates that home affordability slipped below the 100 percent mark just once in the past 13 months, based on a monthly principal and interest payment of no more than 25 percent of income.
Trouble may loom ahead for potential home buyers in the West, though. Based on February statistics, the affordability index fell to 74.5 percent when the required monthly payment soared to 33.6 percent of income.
May 30,
2007 by in UnCategorized
By Home Furnishings Business in Case Goods on May 2007
Maria Yee, a Santa Cruz, Calif.-based home furnishings manufacturer, has opened a 350,000-square-foot factory in Hunan, China, it calls one of the most eco-friendly and energy efficient manufacturing facilities in that country.
The new factory is the first industrial building in China to use energy efficient hydronic radiant heating, which requires less energy with water warmed by low-emission boilers to eliminate the exhaust created by forced-air heating systems. The factory also is equipped with 14 huge skylights that conserves 43 percent of the energy it would normally consume using electrical lighting alone. The factory also is among the first in China equipped to produce environmentally friendly water-based finishes to produce what the company calls EcoLuxury home furnishings products.
“A truly green product is not merely the outcome of its raw materials,” said CEO Peter Yee. “It undergoes a complete process guided by daily environmental principles. Employing hydronic radiant heating on such a large scale and innovatively using natural light in lieu of man-made power is part of our ongoing commitment to minimize the impact on earth to create EcoLuxury.”
All Maria Yee products are permitted to carry the Eco label standardized by the International Organization for Standardization to help consumers identify products that lessen the impact on the environment. Maria Yee’s bamboo furniture is handcrafted using the company’s patent-pending BambooTimbre and Bamboo-Joinery system.