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From Home Furnishing Business

“Making Friends in Your Market - Who are You and What Do You Stand For?”

By: Tom Zollar

The April issue of Home Furnishings Business is aimed at helping you compete in retail’s highly competitive battleground. It really comes down to one of the most basic challenges every retailer faces – getting people in your market to want to do business with you instead of others or “Selling your Store”. That may sound simple, but accomplishing it has become much harder as the number of options the consumer has to purchase from has grown.  Even though you very likely have fewer actual brick and mortar home furnishings retailers physically in your area, competition for the consumer located within your market has actually increased dramatically.

So how do we maximize our ability to compete? It really comes down to having a very clear vision of what our customers want from us and what we can offer them that truly differentiates us from all of those competitors chasing their business. Once we have that, we must translate it to the three areas that most impact our sales success: Advertising, Merchandising and In-Store Experience! 

Last April’s Coach’s Corner addressed the importance of using the in-store experience to separate yourself from the competition. Obviously, your ability to provide it is certainly an advantage over the internet only retailers. But not every consumer realizes that they need or might even want to have that face-to-face interaction. In this year’s article, we are going to touch on some of the other areas of consideration that may help you define your store to the potential customers in your market and perhaps attract some of those that are on the fence about visiting a brick and mortar store. Below are a few approaches to consider.

 Promote Your In-Store Experience and Services

Most of today’s retail advertising and much of the space on our store website, talks about items we sell, not services we provide. We are so steeped in our traditional approach to driving traffic by using product and pricing, that we have lost focus on what is really our difference - the in-store experience. We assume that consumers know about what we can do for them to help create the home of their dreams, when in fact, most do not. Instead of trying to add value to developing a relationship with us by visiting the store, we tell them how much we will save them if they buy from us. Rather than creating the impression that their results will be better by working with our staff, we tell them we are cheaper than the competitors. 

We should be spending at least equal time helping potential customers understand the process and how visiting our store can help them through it. Even though they do research to find what they think they want and where to get it before buying, most don’t have a clue how to put it all together and create the look or feel they really want for their home. What better way to differentiate ourselves than by creating the perception in the public’s mind that we are problem solvers and creative assistants they can use to augment their abilities and improve the end result of their efforts? So, take a look at your marketing programs and make sure you are selling and adding value to having an in-store experience with your store as much as you are with its products and prices. If indeed what we offer when they come in is a benefit to them, then be proud of it and make it known in your market!

Create Strategic Alliances

Understand that our biggest competitors are not the other businesses selling furniture products. They are the businesses selling cars, travel, TVs, hot tubs, appliances, movies, massages and more. Indeed, anyone in our market who provides a service or product to the consumers that is paid for out of discretionary income is a competitor of ours day-in and day-out. Obviously, those that sell things for the home are our most direct competitors, but the fact that the average household only spends between 5% – 6% of its income on the home means there is not a lot to go around. We all fight over the scraps so to speak. Perhaps there might be some way to join forces or piggy back our efforts so that we can reach out to common customer groups and maximize our effectiveness together?

The key is to find businesses in your area that market to the same target customers as you and create a partnership with them. These strategic alliances can help both parties get their message to potential customers, in many cases at a very opportune time in their purchasing cycle. We all know that people tend to buy home furnishings soon after purchasing a new or pre-owned home, so the smart ones have already partnered with real estate professionals to reach out to their customers after a sale is complete. But can we go further? Sure, what about moving companies and title service providers? 

There are many other partners to look for. Just ask yourself, when do people need our products? When someone buys a new TV they may need a place to sit, so talk to appliance stores. Just like when a family has a new baby, they may need a youth bedroom, so talk to local doctors or hospitals. Some businesses are letting their employees work from home and perhaps they need home office furniture. Great partners we often neglect are local insurance agents. They totally understand partnerships and usually know when people need new furniture because of a disaster or a divorce. Why not have them referring their clients to you? 

These are obviously “you scratch my back and I’ll scratch yours” situations, but have you really looked out into your business community to find all the opportunities available? If not, now is a great time to start!

Maximize Your Community Visibility

Participating and being a positive contributor to your local community has always been of major importance to any business, but particularly a small local one. As the Millennials and younger generations take control of the spending power it is becoming critical. They expect it and indeed demand it of anyone trying to solicit their business. Having a positive reputation for community involvement is not just a plus, today it is part of the price of admittance to the retail game in every market. Therefore, you need to look at what you are doing and how you are actively supporting your employees’ efforts too. Sponsoring events, contributing products, money and labor to charities are only the beginning today. You must be perceived as being a doer that has a visible role in as many common good processes as they can support. 

A side benefit of community participation is the networking opportunities it provides you and your staff. Often, we see owners joining the Chamber or other organizations, which is great. However, it is much stronger to be seen as someone that is a real leader who walks-the-walk and talks-the-talk by getting their employees out of the store and encouraging them to be involved in local support efforts. There are plenty of groups in which they can participate, that will further impact your company’s community involvement. Several clients have sent out their delivery trucks and crews to help people move their belongings after a disaster. What better advertising could you get then people in need seeing your name on the side of a vehicle coming to their rescue? Sponsoring soup kitchens, delivering food to the needy, it is all good! 

If You Have Local Roots, Make Them Known 

My last point is a very simple one that most small businesses do take advantage of often. It is the fact that they are from the place where they do business and they are part of the local heritage. While this has always had some traction with the American public, we are seeing a resurgence in its power. As the next generations evolve they are beginning to put more value on doing business locally with people that are part of their community. The better job you do with my previous point, the more important this one becomes!

In summary, who and what you are is not only the products you supply to your market, it is the services and benefit you provide the people in your community. It may sound self-serving, but the better you are at being a good neighbor, the more successful you will most certainly be as a retailer!

A Healthy Housing Industry Emerging

After years of fighting back from the housing bubble pop, the Housing Industry is finally on the mend and appears to be getting healthier by the year. Although still shy of 2007 pre-recession levels, housing appears to be catching up fast despite a couple of stumbles last year. This article picks up from Statistically Speaking’s September 2015 article Housing’s Rebound

Although the rate of growth slowed for existing home sales last year, unit sales approached pre-recession levels. Meanwhile, new home sales, while still well below pre-recession numbers, are catching up to pent up demand as housing construction steadily increases its new single family homebuilding. Multi-family construction is the one area lagging in 2016, but starts are up in 2017.  With both rental and homeowner vacancies at their lowest, the Housing Market is, most assuredly, on an upswing. 

As shown in Table A, indexed growth for existing home sales in 2016 was only 3.6 percentage points shy of peak 2007 pre-recession sales. In 2016, 5.49 million existing homes were sold compared to 5.65 million in 2007. For new homes, the 559,000 units sold in 2016 were still 27.8 percent below the 769,000 sold in 2007. However, as construction has played catch-up to demand, new home sales have grown 82.7 percent since the recession bottom of 2011. 

New Home Sales

New home sales had a solid performance in 2016 – increasing 11.3 percent from 2015. However, sales are off to a slow start with January sales flat on a seasonally annualized basis (Table B).

Existing Home Sales

Despite dipping in 2014, existing home sales (Table C) have grown steadily in recent years – up 3.8 percent from 2015 to 2016 and another 4.4% jump into January of this year.

Existing home sales grew consistently throughout the country last year. The Northeast region, the smallest in terms of home sales, was the fastest growing last year – up 5.7 percent 2015 to 2016 to 740,000 units plus an 8.1 percent boost (seasonally annualized) to start off 2017. Increasing 2.8 percent from 2015 to 2016, the South still leads the pack with 2.2 million existing houses sold in 2016. The Midwest had a slight decline from 2016 to January 2017 – down 0.8 percent to 1.3 million annualized resales, while the West had the biggest leap into 2017 – increasing 8.4 percent in January to 1.29 million annualized units (Table D). 

New Housing Construction

Despite the growth in new and existing home sales last year, New Housing Construction, specifically, multi-unit apartment construction fell considerably. After solid gains since 2011, combined growth of single and multi-unit construction went negative last year – falling 0.5 percent to 1.17 million units. Due to booming housing starts in January of this year, 2017 began 9.6 percent higher with a seasonally annualized average of 1.29 million units (Tables E and F). 

As shown in Table G, single-family construction has maintained its upward trajectory since the Great Recession.  However, 2016 single- family units totaling 747,000 are still 23.1 percent below peak 2007 levels. Meanwhile multi-family construction at 392,000 units in 2016 is well below the 451,000 in 2015.

The flat growth in new construction was not a result of declining construction of single-family units (Table H). Growth has continued unstopped in recent years – increasing 7.5 percent from 2015 to 2016. Up 8.1 percent annualized, the first month of 2017 builds on the momentum. 

The slowdown of total new housing construction came solely on the shoulders of multi-family apartments and condominiums where construction fell by 13 percent in 2016. On a positive note, authorized permits for the first month of 2017 are up 13.7 percent (Table I).

Rental and Homeowner Vacancy Rates

Rental vacancy rates at 6.9 percent are at their lowest in over 30 years, giving way to high rents (Table J). Meanwhile homeowner unit vacancies have also continued to drop to 1.7 percent in 2016 – the lowest in over 10 years. 

The vacancy rate of rentals is lowest inside metro areas, both in principal cities and in the suburbs, compared to outside of metro areas. Inside metro areas for both urban (principal cities) and suburban areas have similar vacancy rates at 6.7 percent and 6.3 percent respectively.  These rates have continued to fall over the last seven years. Meanwhile, vacancies outside metropolitan areas are much higher at 9.4 percent last year and have shown little improvement over the last few years (Table K). 

For homeowner units, vacancy rates in the suburbs of metro areas are low at 1.5 percent in 2016 and only slightly higher at 1.9 percent in principal cities of metro areas.  Vacancy rates outside metro areas are higher at 2.3 percent (Table L). 

Pent up demand from Millennials aging into their prime homeownership years combined with low vacancy rates have set the stage for good housing growth in the near future.  And nothing spurs the home furnishings industry as much as home sales.

Building a Client Base with After the Sale Follow-Up

We feel strongly that creating and managing a professional Clientele Development Process is easily the weakest aspect of most home furnishings retailers selling efforts. So much so that it is part of every training program we conduct with both managers and sales staff. I’m not talking only about follow-up or sending thank you notes -- many stores do that -- but about a more fundamental paradigm of building long-term relationships with customers through truly caring about them and their needs and then making this a core part of the company culture. I have pulled a great deal of content from our training program manuals for this article to help drive the point home.

We often hear retailers say that there is no longer any customer loyalty like there was in the good old days. The fact is that loyalty still comes the old-fashioned way – you must earn it! In rare instances, we have encountered salespeople who, through true relationship building and caring for their customers’ needs, have developed a sufficient clientele to be totally self-sufficient in terms of traffic. These people work full-time hours and are always top producers in their stores, but do not take any UPS -- they are not part of the salesperson rotation system. In every case, these people maintain extensive customer files and always maintain a timebased file system. Most are built around index cards and some use automated calendar applications, which they have adapted to their needs. These systems tell the salesperson when to follow-up with each customer. Alphabetical files and lists can only tell them how to follow-up – mainly what the customer’s contact information is -- but not when. When is far more important than how.

In rare instances, we have encountered salespeople who, through true relationship building and caring for their customers’ needs, have developed a sufficient clientele to be totally self-sufficient in terms of traffic.

Lifetime Value

LTV is a concept that has driven the marketing efforts of the largest consumer goods manufacturers in the world for decades. It is completely missing from our industry’s thinking. That is a major cause of our disconnection from the customer’s purchasing power. Lifetime Value puts a dollar value on items such as how much detergent or toothpaste a family will use in a lifetime and what has to be done to tap into that huge lifetime expenditure.

What about lifetime value in the home furnishings business? These are large, seldom-made purchases. They are called highly considered purchases in marketing terms. The average American homeowner spends upwards of $60,000 on them in their lifetimes. If your store has an average sale of $1,500, how much of that $60,000 does the customer have left to spend when your order has been delivered? Of course, there is no way to tell. But we do know that people spend more on home furnishings as they become older. So there is no doubt that finding a way to tap into even half of that amount, would be extremely valuable. The top writers we spoke about know the way. It is called follow-up after the sale.

Customer versus Client Paradigms

A customer is someone who purchases merchandise from your store. The salesperson acts as a facilitator in the process, handling the details of the transaction. No relationship has been established. The next time the customer needs furniture the odds are that she will not seek out that same salesperson. There is, in fact, substantial research to indicate that more than 75% of these people will not even shop your store.

A client, on the other hand, has established a relationship with a salesperson based on the customer’s belief that the salesperson truly cares about her need to create a beautiful home environment and about her level of satisfaction with what she buys. These relationships take time to develop and involve active participation by both parties but mostly by the salesperson. When this customer is ready to make another purchase,she returns to that particular salesperson. It would not matter where the salesperson worked. - People do not build relationships with stores -- they build them with people.

A salesperson who builds a strong trusting customer relationship adds value to the purchase through the process. He or she seldom gets involved in price problems because the customer places high value on the relationship. They don’t have to worry about the customer asking for them when she comes in because the customer usually calls first to make sure the salesperson will be there. Friends and relatives are continually referred to the salesperson by the customer. These people in turn become part of the salesperson’s client base.

Your sales training program must teach the actions aimed at developing these kinds of relationships and how to use clientele development processes to maintain them. But it is leadership that will make it happen. Client development is management’s responsibility, not the salesperson’s option. Management has the responsibility for the growth and financial health of the company. Clientele development is mainly a management function and they must take ownership of it.

Share of Customer

Share of customer deals with getting more out of the customers who already come into the store. You already invested marketing dollars to do that and no new assets are required. Share of customer means tapping into that lifetime purchasing potential for your products and developing long-term relationships based on trust and caring for the customer’s needs. It means doing the right things to ensure that you help your customers use your products to enhance their quality of life and not just help them make purchases.

It means using the valuable information you gather about a customer’s lifestyle, likes, dislikes and needs to become proactive in offering her new ideas and products to help her achieve the final goal -- a beautiful home. Increasing your share of customer is what your selling and management processes should be all about.

It Starts with the Sale

Customers want you to track and follow-up on their orders and delivery. One of the issues that surfaces in all of the research we see, is that customers don’t think a sales person cares about them at all after the sale is made. For most furniture salespeople, there is ample evidence that this is true. Few send thank you notes, even to their biggest customers. Even fewer maintain contact with customers prior to delivery. In cases where there is contact, it is usually initiated by the customer. Professional salespeople act differently and the results show in higher incomes and more satisfied, repeat customers. For them, following up with the client after the sale is the critical point where the relationship is cemented and the consumer’s trust is verified.

Key Contact Points After the Sale There are seven times when follow-up is required with customers who purchase from you:

1. Immediately after writing up the sale – thank you note or message
2. When special orders are acknowledged or a ship date changes
3. During long order cycles, to let them know you are watching
4. Prior to delivery to tell them how excited you are for them
5. Immediately after delivery to see how it went and congratulate them
6. Within six months after purchase, just to check in and see how it is going
7. Prior to the customer’s anticipated next purchase, which you should already know from your selling process in the store

All of the contact points listed above should be part of a professional salesperson’s follow-up program. These contacts yield handsome returns even in the short term. The most important contact is the call after delivery. It is difficult to imagine building a strong, trusting relationship with a customer (and helping her use your products to enhance her quality of life) by not calling her immediately after her delivery to be sure the promise has been delivered. Yet, this is just what happens to thousands of customers every day. Then we wonder why there is no customer loyalty

We believe this is the most important call a salesperson can make. This is when the real satisfaction occurs -- when the furniture gets there. This is when other needs such as accessories or additional pieces come to the surface vividly. So, this is when your salespeople need to be talking to their customers.

The most often-heard reason for not calling is that something may be wrong and the salesperson does not want to hear it. What backwards thinking. This is an opportunity to satisfy the customer again! However, if your store’s culture and systems do not allow the salespeople to solve customer problems rather than just kick them somewhere else, we suggest that you re-think your systems.

If you do not already have one, you should develop a system for notifying the salespeople of all deliveries. In addition, develop a reporting system so that you know that post-delivery calls are being made.

Customer loyalty must be earned. Your salesperson’s caring will earn high returns in loyalty despite problems. If they do their best and keep the customer informed, the loyalty will be to them. The selling cycle is completed when a customer returns as the result of this follow-up and makes another purchase. Now the customer is indeed a client that your salesperson developed. Our data indicates that there can be as much as 15% - 20% in additional business each year created by proper and consistent follow-up after the sale. Much of this business would have gone to another competing store except for the efforts of your salesperson.

Make Perfect the Enemy of the Good

It is difficult to change how things are done when the process is ongoing.  If the industry has the ability to have a “do over” how would the supply chain be changed to reflect the realities of today’s world?

The discussion of how we move raw material and products around the world to end up finally in the homes of the consumer presents a chain of events that must be executed precisely in order to avoid either losing profit or disappointing the stakeholders, suppliers, retailers, or consumers along the chain.  What would we change?

While the future may be 3D printers that produce that piece of furniture of your dreams, reality must contend with the economics.  The most efficient supply chain minimizes the number of nodes (handlings) of the product.  This would dictate a collapse of the distribution channel.  In other words the producer would supply directly to the consumer.  This would require, at least initially, the move from mass marketing – everything for everybody – to a more focused strategy of designing, producing, and retailing product for a specific consumer type.

At the manufacturing level, with the introduction of offshore production which removed the restraint of needing to own the plant, manufacturers became suppliers.  The result was a proliferation of product categories offered. What was at one time a focus on a single product or product category that was manufactured, has now become a pursuit of volume.  With this change we added an additional cost as well as a loss in control of quality.

At the retail level smaller retailers expanded stores to present more products in a wide range of price points. While increasing the revenue to allow a more specialized management process and more potential profit, there was a loss of focus on the consumer that was sold.

Filling this void has been the lifestyle retailers who focus on their consumers.  These retailers are curating their product, their advertising, and their services to satisfy their customers.  To accomplish this, the lifestyle retailers source their own product from the offshore producers.

The etailers have established the ability to communicate effectively to “their” consumers across the nation.  The largest of these etailers are establishing their own transportation system including distribution centers.  According to Wayfair, 69% of U.S. households will be covered by their distribution centers by year end.  Couple this with their agreement with their “Premier” suppliers to ship containers directly to their distribution centers without branding, is a major step toward consolidation.

The threat of tariffs is the next storm cloud.  What would a 35% tariff do to the economics of importing?

I could go on, but the point is that it is difficult to change.  However, the entrepreneurs will always probe the status quo looking for a better way.  Existing manufacturers and retailers must be open to the possibilities.

Take 5: Patrick Cory

Patrick Cory is no stranger to going the last mile. In fact, he’s at the helm of a company that goes the last mile thousands of times a year, delivering large pieces of furniture, electronics and appliances that are too big and too heavy for the UPS or FedEx delivery systems.

Cory, the president of family-owned Cory 1st Choice Home Delivery, recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about the challenges and growth opportunities facing his company and the entire last-mile delivery segment in the Internet age.

Home Furnishings Business: Is your growth coming largely from e-commerce or brick-and-mortar retailers?

Patrick Cory: We see both. It’s sort of a hybrid model. We’re seeing a lot of growth with internet, and we’re seeing a lot of growth with brick-and-mortars. A lot of growth is being driven by traditional brick and mortars getting into internet deliveries. We also are seeing growth being driven by retailers who are going outside of their (home) regions. We’re still doing a lot of internet-only deliveries, of course, and that’s growing very rapidly, but we’re also seeing a lot of retailers who are getting better and better at having an internet store.

The smartest retailers look at the internet business entirely differently. They don’t just try and take the same product and put it online and sell it that way. Those (retailers) who create a separate company that does just internet deliveries … are very successful, and that division of their company is growing much more rapidly than their traditional brick and mortar business.

People talk about how soft the furniture business has been, but I have to tell you, from a delivery standpoint, we’re moving a lot of product.

HFB: Has your menu of services expanded because of this trend?

PC: Yes. As retailers are looking to become omnichannel, they are desperate to find what I call end-to-end solutions. Retailers are telling us, ‘Once we get the product, we want you to figure out how to get the product from our dock to the closest point where you have a building. We want you to handle the LTL. We want you to handle the warehousing, the cross-docking, the deluxing, and then contacting the customer and executing the delivery. And we just want one bill.’ That type of service has grown very rapidly because these retailers are desperate to figure out how to compete with Wayfair, how to compete with Amazon, how to be a true omnichannel retailer.

Because of that, we have to offer a wider array of services, including at some point, actually picking up the product at the port.  Some retailers are saying ‘We don’t want to even touch the product.’

HFB: How has your business been affected by the popularity of same day and next day delivery?

PC: It’s not as large a percentage of sales as people would lead you to believe. Some customers take advantage of that, but the vast majority of them don’t. It’s something that a retailer can sell that maybe a competitor doesn’t offer.

For a large retailer who has a distribution center in or near a major metropolitan area, and has a lot of inventory, it’s fairly simple for them to turn around and offer same-day or next day (delivery). They have the product very close to the market. Now, when you talk about an internet-only company, that’s a little bit different. If you want to order a lamp and want it delivered next day, you could probably do that. But if you’re ordering furniture, that’s another story. They can do it within two or three days, but realistically then don’t have the capability to do same day/next day -- even Amazon.

It’s not so easy to deliver quality assembled furniture to a consumer in that manner. Every internet company has trouble doing same day/next day with large products. It’s very difficult for them to do, and it’s incredibly expensive because of the inefficiencies you have with the loss of productivity on a truck and loss of density on a route. It creates a huge cost increase that most consumers are not willing to pay.

HFB: How has your business been affected by recent legal disputes involving trucking companies that use owner/operators – independent contractors – instead of employees.

PC: It was really a policy shift where the National Labor Relations board started to come down with these rulings … basically saying if you’re a contractor in a third-party situation like home delivery, and you are being directly controlled, you’re an employee, in their view. Trucking firms much bigger than Cory started losing these cases and they were forced into settlements. It didn’t change the model, but it forced these companies to settle with significant dollars. So, interesting things started to happen (because) retailers didn’t want to get accused to being an employer of these third-party drivers.

In some rare cases, they started setting up a requirement that you had to have employee drivers. And in other cases, they said if you’re going to use contractors, we need to know that you are doing everything that you can to protect us legally. So, the burden of proof is on the third-party companies.

That threw an element of uncertainty into the business model. But the dominant model among large and small retailers is still this third-party model. It kind of forced a little more careful approach, but it did not change the model, and it has not kept retailers from reaching out to companies like Cory to outsource.

HFB: You recently have expanded your business on the West Coast and are aggressively courting new clients there. How is that going?

PC: It provides a lot of opportunity for us. It reminds me of Florida about 20 years ago, when Florida was growing into the very competitive market that it is today. That’s what Los Angeles is right now.

Right now, we don’t have a (West Coast) distribution center, but we’re actively looking to put one up. And for us to put up a distribution center, we need an anchor client. Until we secure that client, it doesn’t make sense for us to invest in a building. But we’re actively searching for that partnership right now. And I think within this year (2017), that will happen.

HFB: Now that the economy is improving and unemployment is down, is it still difficult to find qualified drivers?

PC: I’ve been in this business since 1982, and since 1982 we’ve had trouble finding qualified drivers. (laughs). It’s a never-ending challenge.

But I will say something interesting … and I’m not trying to make a political statement here. But when you have policies that restrict immigration, there is a cascading effect. That effect may not be felt right now, but immigrants are a big portion of our labor pool -- not just Cory, but four our entire industry.

And when you have policies that restrict them coming here … the cost of labor is only going to go up. When the labor force dries up, and the cost of labor increases, that cost gets passed onto the retailer and ultimately to consumers.  In a couple of years, they will feel it.

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