March 14,
2007 by in UnCategorized 
By Home Furnishings Business in Furniture Retailing on March 2007
Retailers in categories ranging from grocery stores to apparel to home improvement chains seem to be falling in and out of love with furniture with astonishing speed.
In the grocery sector, both Kroger and Albertson’s have been experimenting with furniture departments in new, super-sized stores with large general merchandise departments. Kroger has built at least half a dozen Marketplace stores that combine groceries with outdoor living products, electronics, toys and sofas and chairs. Analysts say the broader offerings are a reaction to super-sized Wal-Mart and Target stores that boast complete grocery departments, as well as the usual housewares, electronics and sporting goods offerings. It’s a strategy Kroger has been building on since 1999 when it acquired the 132-store Fred Meyer chain, which was an early pioneer in combining general merchandise with food and home goods.
In recent years, the number of mass retailers that have significantly expanded their furniture offerings include Target, JC Penney, TJ Maxx and even some crafts stores. Analysts say the booming real estate market in the five years leading up to mid-2006 inspired those retailers to become more focused on home products, including furniture. While the housing market has cooled, many mass retailers are sticking with furniture since the category delivers much higher margins than many of the products they sell.
Housing Slowdown Hurting Home-focused Retailers
Existing home sales are expected to decline again this year following an 8.2 percent decrease in 2006, according to the National Association of Retailers. As a result of the housing decline, home retailers have been cutting prices and seeing share price declines as a result. The Telsey Advisory Group’s composite index of 17 home improvement, furniture and furnishings companies is down sharply to 98.58 from a peak of 106.6 in mid-2005.
It’s impossible to predict whether mass retailers will continue to expand furniture departments in light of the housing slowdown, but some big players—such as Home Depot—have altered their furniture-related strategies over the past year.
America’s Research Group Chairman Britt Beemer said the flood of furniture imports from Asia gives retailers as varied as Stein Mart and Hobby Lobby the chance to seek out “opportunistic buys” of furniture items, including low-cost overstocks and closeouts. “They’re trying to maximize as much as they can the traffic in their stores” with furniture that tends to carry higher price points, said Beemer, whose Charleston-based market research firm works closely with several large regional furniture retailers. “At Christmas, especially, when store traffic increases 40 percent to 60 percent, they’ll try all types of items to see what works. Sometimes, it doesn’t work, but they’re always looking for that home run.”
For the most part, he said, those retailers don’t pose a threat to traditional furniture stores because they’re selling single items, not complete bedrooms or dining rooms.
Analyst Jerry Epperson, managing director of Richmond-based Mann, Armistead & Epperson, said mass merchants face fewer “barriers to entry” to selling furniture with the rise of imports and the decreasing importance of brands to many shoppers. “Many of these (mass) retailers have sophisticated global supply chains. Furniture retailers can’t compete against them in the same ways they used to,” he said, adding that traditional furniture retailers have to focus more on superior delivery capabilities, selection, custom orders and other built-in advantages.
Not All Furniture Initiatives Successful
A few retailers have reversed course on furniture after making significant investments in the category. The Home Depot, Atlanta, launched a high-end furniture catalog called “10 Crescent Lane” and a lighting catalog called “Paces Trading Co.” in late 2005, but dropped both titles by the end of 2006. Home Depot officials said both catalogs were folded into the retailer’s Web site, and it continues to operate “Home Decorators Collection,” a catalog it purchased in April 2006. Filled with furniture, “Home Decorators Collection” focuses on lower price points than the luxury “10 Crescent Lane” title.
In late 2005, Big Lots announced that it would close 41 free-standing Big Lots Furniture stores due to disappointing sales. At the time, Big Lots officials said furniture sales are a vibrant part of its closeout stores—accounting for 12 percent of total sales—but the standalone stores had been losing money with sales that totaled less than 1 percent of the Columbus, Ohio-based retailer’s total revenues.
In late 2006, The Bombay Company announced it would close all 60 of its Bombay Kids furniture stores by the end of this year. The move, which was predicted to save the company $7 million annually, was part of a strategy to return the home furnishings chain to profitability. HFB
March 14,
2007 by in UnCategorized
By Home Furnishings Business in Casual Furniture on March 2007
Outdoor furniture and cross-pollinated goods that blur the line between patio and living room are a growing opportunity for furniture stores. That’s especially true for some of the higher-end looks in the category that bring high-quality fabrics and all-weather construction to outdoor living. The result is extra ammunition for furniture retailers looking to offset the inroads of other channels eating away at their share of home furnishings.
It’s not exactly a brand new trend: Ethan Allen made casual furniture a cornerstone of yearly introductions years ago to support its now-international network of franchised and corporately owned stores. The last couple of years, though, have seen a host of new outdoor/casual product with more appeal to a furniture store setting, said Joe Logan, executive director of the Summer & Casual Furniture Manufacturers Association, a part of the American Home Furnishings Alliance.
“The most exciting thing on the scene is the explosion of outdoor fabrics that have come on the market in the past few years, the variety of color combinations and offerings,” he said. “They are very hard to distinguish from indoor residential fabrics.”
Those fabrics have engendered another major trend in more luxurious outdoor goods: deep seating.
“You think of outdoor product in years past, and the resin or sling goods come to mind, but this newer seating allows much more comfort,” Logan noted, adding that the timing is right in terms of consumer attitudes. “There’s so much more interest on the part of the consumer in using their ‘outdoor room,’ their outdoor living area.”
He said that vendors are paying attention: “I think you’re seeing greater expansion of branded lines in the outdoor industry.”
In this year alone, branded outdoor goods are on the way for La-Z-Boy through Brown Jordan; and for Woolrich through Whitecraft Inds. Century Furniture offers a Richard Frinier-designed outdoor line, and there’s a strong outdoor component to the company’s licensed collection with Oscar de la Renta. With the new Agassi Graf Collection Kreiss unveiled at the recent Las Vegas market, the designer-oriented vendor’s high-visibility approach to the retail channel also caters to consumers looking for go-anywhere furniture.
Natural Look, Unnatural Durability
Dave Hill, Whitecraft’s vice president of sales and marketing, said fabrics aren’t the only improved materials upping outdoor goods’ style quotient. Specifically, high-density polyesters have given manufacturers the ability to create the look of true wicker for incredibly long-lasting, durable frames for chairs, sofas and tables.
“It looks so much like natural product that we’re seeing a lot of retailers putting this on their floors and selling it for indoor as well as outdoor use,” Hill said. “It’s really crossing the line between the indoor and outdoor categories. The outdoor fabrics are so good today that they cross that line, too. The materials have all the beauty of a natural product without any of the headaches of maintaining a natural product.”
Whitecraft counts on its Woolrich license, which debuts this fall at the Casual Show in Chicago and in High Point, to broaden its line’s style appeal.
“The traditional styles are still very strong in our East Coast and Midwest markets, and we also have a strong selection of contemporary modern styles that do well in markets such as Southern California,” Hill said. “Woolrich is more of a lodge look, and we believe that will help us in the mountain states and desert regions, as well as the market for lakeside homes.”
Laneventure, which has long had a focus on blending indoor and outdoor furniture, incorporates separate finishes on natural wicker product to take allow the same item to meet the consumer’s choice of using it in the living room or on the patio.
While La-Z-Boy’s new outdoor line designed and supplied by Brown Jordan is scheduled for a retail debut at Sam’s Clubs in January, La-Z-Boy has plans to extend distribution moving ahead. HFB
March 14,
2007 by in UnCategorized
By Home Furnishings Business in Furniture Retailing on March 2007
Some 20 years ago, not a few in the furniture industry thought Ethan Allen CEO Farooq Kathwari made a huge mistake after the company committed to selling all its own product as well as making it.
The common word then was that manufacturers didn’t have the merchandising chops to cut it at retail. Ethan Allen’s conversion to what remains the furniture industry’s only true fully vertical company—from manufacturing and sourcing to retail—wasn’t easy, but today nobody doubts that if Ethan Allen didn’t know retail then, it surely does now.
And a lot of manufacturers appear to be aspiring to Ethan Allen’s model, if not in full at least in direction. Whether corporate stores or licensed to independent retailers, the growth of dedicated furniture distribution shows no signs of slowing.
The model is hitting all price points, as well: Long confined to higher-end stores such as Ethan Allen, Drexel-Heritage and Thomasville, the move toward single-line stores hit middle price points with La-Z-Boy’s La-Z-Boy Furniture Galleries store program (340 locations as of February, 72 company-owned) and Bassett’s Bassett Furniture Direct (134 stores at the end of fiscal 2006 representing 72 percent of shipments, up from 67 percent the prior year). Ashley’s Ashley Furniture HomeStores is set this year to perhaps emerge as the largest network of retailers in the business after upping the ante for merchandising at promotional to middle price points.
While none of those models claim to hit the needs of every consumer, they do offer manufacturers a lot more control over the merchandising, SKU counts and price points of their product lines, and in the cases of companies like Ashley, bring logistical capabilities developed from sourcing activities to bear on the complexities of delivery to retail.
What’s Your Strength?
For independent retailers who want to operate under their own name, branded stores offer obvious and particular challenges, especially since now there are dedicated locations to match any price point.
Jerome’s, for example, has five stores and a clearance center, all in greater San Diego, and the promotional to mid-price retailer faces stiff vertical competition from Ashley stores in the area.
“They are at our price points, the ones we hit hard on, and they’re right in our market,” said Lee Goodman, chief operating officer at Jerome’s.
Competition from Ashley stores in his market is tough, but Goodman said Jerome’s has some inherent strengths it uses to maintain and build business.
“First, we’re 90 percent in-stock, ready for next-day delivery—when we win a sale, it’s often because we’re in-stock,” he said. “Second, there are specifics to a region that need specific types of management, whether that’s merchandise mix, operational or logistics decisions, any number of things where you just can’t make decisions on a national basis. For any independent, your head’s down and focused on your region only. That’s an advantage I see for not only when it comes to vertical (players), but any furniture store that’s going national or into various markets.”
Goodman also would be reluctant to tie Jerome to a single manufacturer.
“I suppose this is debatable, but you’re stuck with one name and a company might not stay hot over a long period of time in style direction or performance,” he said. “My financial adviser tells me it’s always best to diversify my investments, and I’m hesitant to put all my eggs in one basket when it comes to our business.”
Its own brand in its own market couple with strong in-stock positions are keys to Jerome’s success relative to vertical competition.
“We bring to light the fact that we’ve been in business three generations, since the ‘50s, and that we’re family owned and operated,” Goodman said. “There’s some equity with our name, and we can break through as the local hero in a lot of ways.”
A Mixed Model
Hendricks Furniture Group is a strong believer in its own store brands, Boyles and Norris Furniture. The company also has a firm commitment to a vertical model through its 17 Thomasville stores.
Hendricks had operated six Drexel Heritage stores as well, but converted Raleigh, N.C., and Greenville, S.C., locations to Boyles storefronts recently; and a Fort Myers, Fla., store to a Norris Furniture location. The other three stores will become Drexel Heritage corporate stores, said Eric Easter, executive vice president for the Hickory, N.C.-based company.
“We still carry Drexel, but they wanted more control over their North Carolina distribution, and we had plenty on our plate from a focus standpoint,” Easter said.
Offering a strong brand name such as Thomasville as well as the Boyles and Norris brands, both well-established in their respective mid-Atlantic and Florida markets, broadens Hendricks’ net when it comes to casting for customers.
“There are different customers out there,” Easter said. “Some prefer to shop big stores with a broad selection of lines, and are willing to sacrifice that inherent consistency that a vertical operation offers. Others find that overwhelming and prefer a smaller store format where everything’s edited down in terms of quality and style.”
As a company, Hendricks wants a model that appeals to those differing customer bases while applying high standards of quality and service across the board.
Ethan Allen is the biggest vertical competitor for Hendricks’ Boyles and Norris stores.
“That’s especially true because of the fact that they offer design services and in-home services, something we also do,” Easter said. Strengths Hendricks brings to bear?
“First, we like to think we have the very best folks working with us, and we really believe that,” he said. “We spend a lot of time finding great people to work in our stores, and work hard to keep them on board. Second, it’s the variety of product and selection we’re able to offer those consumers who prefer that approach.”
“We position our brands very carefully. Both Boyles and Norris have very high quality standards for furniture. We spend a lot of money promoting that. And it all really goes back to the level of our people and our variety of price points and styles.”
Decision Time
When it comes to vertical players, retailers have a couple of decisions to make, said Alan Cole. Cole, former head of Lifestyle International, and more recently president and CEO of Schnadig, has lately focused on consulting with retailers on the whole issue of verticality.
“The first decision is do I go head to head, or do I develop a niche that focuses on other value propositions?,” he said. “Those could include particular categories or special services. The vertical model in large part is a value proposition.”
Second, a retailer’s reaction to single-brand competition depends on exactly who that competition is.
“If an Ashley store comes to your market, that’s one direction—Ethan Allen, Thomasville and Drexel Heritage is another direction,” Cole said. “Am I emphasizing high value-added services such as interior design, high quality branded goods; or am I going for a total value proposition to consumers? If you are a promotional store, and Ashley comes into your market, you’ll have to seek out the best and most current promotional manufacturers to play in that arena.”
Whatever the price point, furniture is always a major purchase for consumers, he added.
“If you’re mid-market or up, the best thing to do is solidify that price point, or even move up slightly—offer more services and an impeccable consumer experience,” Cole continued. “The problem is that if you move up, you still maybe haven’t changed your image in the mind of the consumer. If I were a mid-market store, the last thing I’d do is try to go down and meet them on price. Sharpen and hone the things you do well.”
The Vertical Advantage
A major advantage to dedicated stores is name recognition.
“I would say a (vertical player’s) name brand is a powerful tool in our industry, especially with customer recognition, comfort level,” Jerome’s Goodman noted. “While I don’t know their accounting structure, it seems, too, that the inventory amount that they carry in the stores is lower so there’s a cash benefit. It’s easier to get better turns, but that can be a customer negative if it means slower delivery. And carrying in-stock goods in the mid-90s (percentage-wise), we’re able to turn our complete inventory six times a year, and that’s pretty good. It’s all about processes and procedures, and the technology we use to keep it in-stock.”
Operationally, dedicated stores are a simpler proposition, said Easter at Hendricks.
“Obviously, their salespeople and design associates have one line to learn, a line they know inside and out, so there’s a certain confidence engendered among consumers. Second, if it’s a strong branded program, there’s usually national advertising to back it up.”
Retailers who decide to go the dedicated route cite to those advantages, and in Lael Thompson’s case, brand recognition was key.
Thompson is chief operating officer of Broyhill Home Collections in the Denver, Col., suburb of Aurora. Several years ago, his family ran Sonshine Furniture, a retailer specializing in unfinished furniture (Sonshine Furniture Today remains the still family-owned store’s corporate name.) He said the arrangement with Broyhill combines the advantages of a name brand with the ability to run an independent operation.
The Thompsons decided to convert their 54,000-square-foot store with 40,000-square-feet of display area into a full-line furniture store. Before opening as a dedicated Broyhill store almost two years ago, they examined a number of options, including operation as a multi-line storefront and checking out just about every branded-store option available.
“We kicked around a lot of ideas,” Thompson said. “We had to weigh the positives of going with a branded store with the cons. We looked at every program out there, but we ended up going with Broyhill due to two main factors: the size of our market and the existing players in our market.”
The Denver metropolitan area has around 2.6 million people spread over a very large geographical area. That in itself would have posed problems for a new one-location mid-price furniture store. And while they had been in business for more than 20 years as an unfinished furniture retailer, as a full-line store, the Thompsons were essentially brand new to the market.
“While we have a large store, without multiple locations, it’s difficult to communicate your message in a market this size,” Thompson said. “If you’re in a town of 30,000 people, it’s different. Half the people in town are likely to drive past your storefront every day.”
The Denver area also had powerful existing retailers, including American Furniture Warehouse, Kacey Fine Furniture and Furniture Row—a tough lineup for a new independent.
Thompson said committing to Broyhill helped offset both those issues.
“With Broyhill, we got what I’d call instant credibility,” he said. “People might not have known us, but they see that name and instantly think back that, ‘Hey, my grandmother had a Broyhill set.’ People started looking for us. Now instead of being on the defensive fighting to get (our store’s) message out, we’re in a position where people are seeking us out.”
The Broyhill name recognition also gave the Thompson’s their own niche relative to the region’s powerful retail competition.
“Entering this market is like going to a park to play pick-up basketball, but the guys in the middle of the game are NBA players,” Thompson said.
He did identify potential problems involved in a dedicated operation.
“These factories don’t necessarily know every single market. If you sign up for the entire package you might miss certain parts of your consumers’ needs,” he said. “People in a major market want instant gratification, so you need to know what their delivery schedule’s like.” HFB