From Home Furnishing Business
Advertising is a Journey, Not an Event
There is a surprising similarity between the majority of furniture retailers’ advertising calendars moving through the holiday promotions. Beginning with President’s Day, on to Fourth of July, and the last big bang of Black Friday. Sprinkled throughout are the favorites of Friends and Family and Anniversary Sales. From a consumer’s perspective, furniture retailing is always “on sale.” The result is mind blindness with the consumer believing there will always be a deal. And it’s true. Is a promotion ever planned without a “held over” segment?
In fairness, most of the advertising in the furniture sector is executed by the retailers which should be event oriented. Retailers allocate a percentage of their advertising dollars to building brand. However, the majority of the spend is to attract those consumers that are actively shopping. Therefore, the significant advertising expenditure is targeted to 11.45% of the consumers based upon FurnitureCore’s (the research arm of Home Furnishings Business) ongoing marketing intelligence.
The major challenge in furniture retailing today is the declining traffic. In 2017, traffic declined 5%. Even though sales increased 3.4% according to Impact Consulting, parent company of Home Furnishings Business). The decline in traffic doesn’t mean less consumers in the market but just less store shoppers. As has been documented by the research, the average number of stores visited by each shopper is just over two stores.
The accompanying table illustrates these findings by age group. Of significance is that older consumers (over 45) limit their shopping to even less stores.
This situation of less traffic raises an interesting question: What about be backs and personal trade? Typically, the sales associate closes the sale on the first visit 20-30% of the time and then on the second visit 60-70%. For a sales associate, the higher the ‘be backs,’ obviously the higher the close rate.
The percentage of ‘be backs’ is influenced by the merchandise price point. The higher, the more ‘be backs.’ The average for an upper/premium store would be in the 30% range and middle would be in the 20% range. It is a great KPI to measure a retailer’s “sales associate” to see how they are developing the client relationship. An interesting read is the Coach’s Corner article in HFB Dec., 2017 issue — So Why Else Do Customers Leave Without Buying?
The furniture purchase is triggered by a life event such as a move (27%) or a remodeling/addition (16.8%). The graphic presents the occurrence factors by generation
Therefore the conclusion is that we wait for the lifestyle event to occur and then we are ready with a “sale.”
Obviously, we can take that approach but what about those consumers that are interested by no specific plans (28.63%) and those that are beginning to shop (39.26%)? These consumers should be our prime target for advertising because when they start the shopping process it is just under 50% finished and done within two weeks as can been seen in the graphic.
No matter the age or income, it’s a fast process.
When the consumer begins the process, they start with a list of retailers that they will consider. Often referred to as brand awareness, it is a perspective in the consumer’s mind of who they want to consider. The accompanying graphic illustrates a very competitive market with several long time retailers along with several new entrants (less than two years). Shown with the traditional retailers are the other distribution channels. Yes, they are in the consumer’s considerations.
Just because the retailer is considered doesn’t mean that they make the short list. An Important measure is considered, not shopped, which indicates the impact of the most recent messaging.
The advertising challenge for retailers is to create that ongoing awareness in the consumer’s perception.
There are many media choices available to the retailer to influence the consumer. Choosing the correct media to influence the consumer in the various stages of the buying process is the challenge. The table below presents the influence of each media type by generation.
But before we discuss how to influence the consumer that is committed to purchasing, what about those that are considering a purchase? At the beginning of each year, Impact Consulting surveys consumers on a national basis (demographically balanced sample) about their intention to purchase furniture. This is one of the factors used in their forecasting model. The response is typically an affirmative plan to purchase in the 65-85% range dependent upon the economy and consumer confidence at the time of the survey. As a follow up, a year later they ask the same consumers if they acted on that intention. Unfortunately, less than a third act on their plans to purchase furniture.
Furniture is a major purchase and daily occurrences can impact consumer’s purchasing plans. As we write, I am sure that many sofas lost out to that replacement snow blower. However, that is not the only problem. The industry has not made our product a priority. The table below provides some input by generation.
This is where the manufacturer/supplier comes into the picture. We have discussed at length the absence of branding in the industry currently.
Shelter Magazines at one time communicated the prestige/quality of iconic brands like Henderson, Drexel, and many others. The potential for Stickley, Brown Jordan, and others to excite the consumer exists. Retailers respond to those vendors that encourage the consumer to walk through the door and ask for a specific brand.
It has been fixed in the industry mind that over 70% of consumers visit the internet to conduct research during the shopping process according to FurnitureCore research. Interestingly, almost 40% go to the store first. The table illustrates that first stop in the buying process by generation.
Interestingly Generation X, the current prime target for furniture retailers, do research in the magazines (10.8%). This is the rationale behind the magalogs that Home Furnishings Business produces for retailers, which last year resulted in 9%+ of all recipients visiting and making a purchase.
The cost of advertising is a major part of the traditional furniture industry expense structure. While the overall industry is above 7%, there are many retailers expending 8-9%, a level that is not sustainable. High performance retailers achieve a 6-6.5% range as illustrated below for those retailers.
As can be seen from the table, the breakdown by media type still favors television. As can been seen from table D, only 12.9% is influenced by this media type. Long term, this media type will lose influence as can be seen from the response of the millennials (8.5%).
With advertising cost increasing as a percentage of sales and the cost per opportunity (up) accelerating to $30/up or $100/sale at 8% of the average sale ($1,250) the bottom line is challenged.
Additionally, adding the 3-4% of the cost for the financing — the offers that many believe critical for traffic — even though on average less than 35% avail themselves of the offer.
On top of this is the ever increasing cost to attract and retain good sales associates which can easily reach 7%.
With the above, the furniture retailer is running out of runway for profitability.
The answer is to measure the results and target your customer. If your market is in Columbus, Ohio, there are 738k households headed by consumers over 25. A middle/upper retailer targets 476 households. When the analysis is done of the psychographics (lifestyle), focus of the retailer number goes below 250. Let’s shoot a rifle instead of a shotgun.