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From Home Furnishing Business

Editors Letter: Moving Forward with Uncertainty

Compounding these external factors is the recent performance of pollster’s success in forecasting what the consumer is thinking and what the consumer will do. That is enough to make one question the analytical approach.

However, both manufacturers and retailers must make decisions to move forward. Today, retailers must place orders for product delivery out 12+ weeks. Manufacturer's in turn are planning production often expanding capacity to meet this demand. While we are forecasting, we are like the chicken contributing eggs for the breakfast. Unlike the pig that contributes the bacon, it is not the same degree of commitment when no one shows up for the meal.

THE DOMINANT FACTORS ARE: Personal Consumption Expenditures Furniture and Bedding. Despite the plunge in retail sales during retail shutdowns of many brick-andmortar stores in April/May, consumer spending on furniture and bedding flourished June through November. With additional stimulus money arriving in consumer bank accounts this winter, it is expected that the consumer will save a portion, but also spend. November 2020 year-to-date spending is up 8.1% over 2019.

Retail Sales (Online Shopping).
Non-store retailing and its subset, electronic shopping, were not subject to the government restrictions and gained tremendous market share throughout the pandemic. Even consumers not accustomed to online shipping embraced the experience, perhaps never to turn back. By November, non-store retailing grew 22.6% compared to 2019.

Retail Sales (Brick-and-Mortar Stores).
Furniture and home furnishings stores were hard hit during the pandemic but showed consistent and increased growth June to October. Based on preliminary retail sales data for the broad Furniture/Home Furnishings stores category, November slowed as consumer confidence fell. For the year, it is expected that furniture stores and also home furnishings store sales will be down 5% to 7% over 2019, quite an accomplishment given the obstacles.

Warehouse clubs and supercenters were allowed to remain open throughout the pandemic and were still showing good growth through the end of the year. The housing market suffered tremendously during March, April, and May, but perked up in June and has been going strong since. Housing starts, a predictor for 2021 are up 7.9%. November 2020 YTD and new home sales increased 19.1%. Existing home sales have driven home prices higher since July, with inventories low toward year's end.

Consumer Price Index. Prices for all consumer products nationwide were stable with 2020 November YTD growth up 1.2%. For furniture and bedding, prices fell through July, but have been working their way back. November YTD furniture and bedding prices were down only 0.1% Employment Situation. Perhaps the biggest unknown is if and how fast businesses will rebound from 2020. By November, there were over nine million fewer jobs than November 2019 and almost five million people considered unemployed. This does not count the discouraged workers who are no longer counted as part of the workforce looking for a job.

Consumer confidence was on the upswing in September and October (index over 101 each month) before falling to 92.9 in November. For the 11 months of 2020, the average confidence level was down over 30 index points, reflecting the strain of COVID-19.

Source: Impact Consulting Services' industry model Note: Previous 2020 Q2 estiamte has been revised. *2020 Q4 throught 2021 Q4 is forecast Industry Growth Quarter Year Over Year Growth Over Same Quarter of Previous Year 2019 Q1 to 2020 Q3 with forecast 2020 Q4 to 2021 Q4 Furniture and Bedding The graphic above presents both historical and projected industry growth.

Cover Story: Merchandising in a Pandemic Market

The most obvious explanation is increased disposable income as was discussed in last month’s installment of Statistically Speaking in the November/December 2020 issue of Home Furnishings Business and supported in the table to the right. Free from expenditures for outside entertainment, vacations, and sports activities, the consumer directed their attention to their homes. The first step in discussing this new consumer demand is to understand their change in attitude about home furnishings. History has shown that society uses possessions as a way to communicate. Whether success, security or values, the individuals’ surroundings are an important part of their “status”. It was interesting to measure the shift in the consumers attitude toward redecorating and home furnishings as can be seen in Graphic C.

As can be seen from the graphic the importance of home furnishings surged in how important the consumer perceived themselves.

This is where merchandising begins, tapping into the very intangible consumer attitude of communicating the individual’s sense of style and success. Drilling down to the next level of understanding, the consumer was asked of the product purchased what brought the product to their attention. After COVID, the importance of quality, comfort, and functionality came to the forefront.

Moving forward in the buying process from being attracted to what finally motivated the consumer to purchase, we compared purchase motivations after COVID to preCOVID. Interestingly, the reputation of the manufacturer has become more important. In the furniture industry manufacturer' brand has declined over the past 40 years. The remaining brands such as La-Z-Boy and Bassett have survived but have been enhanced by their own retail presence. Brands such as Ekornes and Abbyson have invested in creating a consumer awareness.

During the mandated shut down of “non-essential” retail traditional furniture stores, those that derive 70% of their revenue from furniture and bedding lost market share to e-commerce. We estimate e-commerce gained 5-8% market share points during the pandemic. Graphic F illustrates the rebound of furniture stores but not to the level of consumer expenditures.

As disastrous as the forced loss of revenue was, the retailer’s long-term loss of customers during this shutdown period, Wayfair gained 40,000 new first-time customers and this was only one of the online retailers. Additionally, general merchandisers such as Big Lots, with its just acquired Broyhill Brand, captured significant revenue.

For e-commerce retailers that tout “endless aisles” with unlimited selection as a significant advantage, this is where the impact of MERCHANDISING by the traditional furniture retailer emerges as a potential advantage. Does the consumer want to navigate those endless aisles, or do they want to shop a merchandise line-up curated just for them? How often have you heard “This store has just what I want” on the floor? From our research we believe that is what the consumer is looking for and that is the traditional brick and mortar retailer’s strategic advantage. Consumers have specific ideas of what they want their homes to look like. Those ideas driven by the new generation of current buyers Generation X are moving away from the traditional style of their parents. Graphic G illustrates.

As can be seen from the comparison compared to 2019 consumers moved to embrace the comfort food of decorating indicating cottage casual (20.4%) (can’t read words) (6.42%) as their dream styles, moving away from traditional and contemporary. The opportunity for furniture stores is to compare how the same consumers view their current style.

What influences the consumer as they pursue redecorating? While the actual retail store influences 17% ± of consumers who are redecorating, the Internet remains 2x more influential increasing during the pandemic. Shelter magazines continue to decline in importance.

The consumer wants their furnishings to have a certain look to reflect “how they want their rooms to be”. Most important was comfort. The graphic presents the comparison before and after COVID.

What Sells: Mattress Matters

Though the category has become much broader than the basic inner spring model, this familiar means to an end is still the most popular selection among consumers based on a FurnitureCore, Inc. survey developed by Impact Consulting Services, parent company to Home Furnishings Business. Of consumers that recently bought a mattress, 52.27% reported buying an innerspring model. This number is followed by memory foam at 40.91%, air (like Sleep Number) at 4.55%, and the most expensive, but durable solution, latex, at 2.27%.

With the circulation of the many ads on social media regarding new and exciting mattress products, familiarity and excitement surrounding sleep innovations will allow the consumer to increasingly branch out from the most basic models. In this pandemic economy, word of mouth has been more important than ever as many consumers are weary of leaving their homes to try out mattresses in person. One of the leading innovators in the field, not only in innovation, but also recommendation by word of mouth, is Intellibed, who has earned the coveted 2021 Women’s Choice Award for their excellent customer recommendation rating. Colin House, CEO at Intellibed, gives the insight behind the award winning technology, saying, “Intellibed’s Gel Matrix is the most innovative and technological breakthrough in beds since the invention of memory foam in the early 1990s. Gel Matrix technology, originally used (and still used today) in professional medical environments to bring comfort to burn and long-term patients, is scientifically-engineered to provide both a firm and soft sleep surface at the same time, reducing pressure points. The Intellibed Gel Matrix mattress provides retailers with a unique selling proposition to help them increase per-square-foot profits and elevates the shopping experience for every critical store visit.”

The fact that consumers are aware that mattresses should be replaced every few years keeps the category at the top of mind. Depending on several factors involving sleep patterns and the type of mattress purchased, the life span of a mattress may vary. But most important is the consumer perception of how often their mattress should be replaced. Based on the same consumer survey, the majority of consumers, 54.55%, believe a mattress should be replaced every 6-10 years. 11.36% of consumers believe that a mattress should be replaced every 5 years and will continue to invest in new mattresses until they find a solution to suit their needs. Of the remainder of the group, 27.27% replace their mattress every 11-15 years and 6.82% replace them between 16-20 years.

The year 2020 certainly brought about many disruptions in the industry with the mattress category significantly affected, but experienced a recovery late in the year. Margins placed on product can significantly boost retailer average ticket to help them over the slump. Manufacturers, such as Malouf, have product proven to do just that. Says Eric Holmstead, director of North American sales, “Our best-selling Wellsville Gel Memory Foam Hybrid provides a high-end feel and price point without the National brand cost, allowing retail partners to capture significant margin with placement on their floor.”

Though sales have been boosted through Q3 of 2020, product delivery is still being impacted at the retail level. Many retailers have expressed their challenge to receive product, but few manufacturers are situated perfectly to meet the demand. Shaun Pennington, president of Diamond Mattress, explains his company’s unique ability to satisfy demand, saying, “As a vertically integrated U.S. manufacturer, Diamond Mattress is delivering products on time nationwide while avoiding many of the supply chain issues the industry is facing. The ability of U.S. producers like us to innovate and create more value for retail programs continue to make bedding a strong and growing category for furniture and mattress retailers.” Cheers to 2021 and the hope the year brings as we inch closer to our new normal with product innovations, supply chain solutions, and with the help of a good mattress, some deep sleep!

Statistically Speak: Small Markets Face Uncertain Future, or Do They?

Many also reported, not just that they liked working remotely, but also getting away from the frantic lifestyle of a big city. There has been a lot of discussion in the media about the pandemic causing an exodus of people from big cities as more companies are looking at “working from home” as a viable, long-term solution. Early evidence suggests many families are already exploring alternatives. A late summer 2020 survey by Redfin, the home listing company, shows that before the pandemic, 37% of its online searches were in urban areas, but only 19% during the pandemic. Suburban area searches grew from 43% before to 50% during the pandemic. And perhaps, most shocking, 9% of the online searches prepandemic were rural areas compared to 19% during COVID-19 (Figure 1).

Redfin also reported that 29% of people looking for homes on its sites in the third quarter of 2020 were looking to move to a different city.

It is still too early to tell if the shift out of the urban areas will occur or how it will affect small markets. For decades smaller markets have seen steady decline across the country with population shifts to bigger markets. Despite the losses, many small markets are continuing to produce steady furniture industry sales. This month Statistically Speaking dives into the segmentation of markets by furniture industry sales looking at population shifts and employment and income growth with focus on the trajectory of small cities.

Small markets include small MSAs (under $50 million in furniture industry sales), micro statistical areas, and rural areas. These markets represent 18.4% of the U.S. population (2019), and include 68.6% of total counties. Small MSAs equal 29.5% of the total 404 metro areas. Of importance to the furniture industry is that small markets account for 14.2% of personal income as of 2020 Q3, but only 11.6% of furniture industry sales (Figure 2). Furniture Industry Sales As shown in Table A, the top 28 markets, contributing over $1 Billion each in furniture industry sales, make up 40% of the total industry. Mid-to-large MSAs, between $50 Million and $999 Million, contribute almost half (47.7%) of furniture industry sales, and smaller markets under $50 million make up the other 11.6%. All markets size segments increased in furniture industry sales each year since 2017 (Figure 3). However, growth varies significantly by individual MSA. The combined growth diminished slightly between 2018 and 2019 with many retail size segments – large and small – falling below a 5% increase. Despite the pandemic, 2020Q3 YTD combined sales in all retail sales ranges are above 5% growth with the exception of rural areas at 4.9%. The impact of Federal stimulus on this growth is unknown at this time.

Figure 4 shows a sample of key performing markets within these market size segments. Excluded are markets where positive industry growth may have been impacted by one of the many natural disasters seen in the past two years. Small Market Population Shifts While the population of the United States grew swiftly over the last 60 years, not quite doubling, the actual share of the population living in small markets did not change as much as one might think. Table B shows small markets lost only seven points in population share. However, because of population growth, these same small markets gained almost 15 million people 1960 to 2019.

Since 2010, population growth in general slowed. Over the last five years, large markets saw the most growth (over 4%) (Table C). Small markets struggled to maintain the current population levels. Rural areas began losing population gradually each year, and since 2014 lost 0.7% of its residents.

Over a third of the U.S. population lives in only 183 counties out of a total 3,142 (Figure 3). These 28 markets (MSAs) combined are the fastest growing in population – up 4.2% from 2014 to 2019. Meanwhile, the slowest metropolitan population growth occurred in MSAs under $50 Million in furniture industry sales. Markets with $25 Million to $49 Million in sales increased population by only 0.7% and those under $25 million just 1.3%. And over the last 10 years, rural areas gradually lost population for the first time in history. Table C and Figure 5 show for the five-years 2014 to 2019, rural areas lost almost 1% of its residents.

One of the biggest problems facing the furniture industry is the slow and often negative population growth of future prime furniture purchasers. Millennials are expected to take up some of the slack over the next 10 years as Baby Boomers continue to age out of prime furniture buying years. Table D shows the Millennial population now fully into adulthood with ages 25 to 34 years growing 5.7% over the last five years. On the flip side, the heart of the Baby Boomers (ages 65 to 74 years) grew by 19.5% 2014 to 2019 which in turn reduced the 45 to 54 age group populated by the smaller size of Generation X. This affluent cohort remains strong furniture buyers.

Figure 6 may cause many industry retailers to panic seeing the dramatic shift from 2014 to 2019 in the population age groups in the different sized markets. Some examples:
• Low U.S. birth rates reflect the negative growth in all markets for the 0 to 9 age group.
• Smaller markets show negative growth in almost all age groups up to 25 years old, further reflecting on the long-range future of these communities.
• Millennials are firmly entrenched in the larger markets over $50 million in industry sales.
Employment Growth
Coming out of the Great Recession, employment grew rapidly through last year – up 7.3% for the total U.S. from 2014 to 2019. However, this year the pandemic lowered U.S. employment to 2015 levels as of October 2020. From 2014 to 2019, employment grew rapidly in the big markets - jumping over 9% in markets with furniture industry sales above $500 Million. As with population growth, increases in employment grew at a slower rate (roughly 3%) among smaller markets. Conversely employment growth in smaller markets did not fall as far as bigger markets from December 2019 to October 2020 (Table E).

Alongside employment, personal income grew rapidly for all market ranges between 2014 and 2019. Not surprisingly, the two biggest market segments showed the highest growth at 26.8% and 28.5% respectively. Markets ranging from $50 Million to $499 Million had income growth between 20% and 23%. Rural areas and markets with industry sales from $25 Million to $49 Million ranged in income growth from 13.8% to 17.6% over the previous five years (Table F). If furniture industry sales in smaller markets had kept up with these cities’ income levels, they would have gained an additional $2.4 billion dollars in industry share.

Questions remain: Can the bleeding be stopped in smaller markets? Will younger people and families be enticed to flee the big cities for a different lifestyle? Is the “work from home” or “work from anywhere” really a revolution or just a pandemic blip in our economic history? Small markets need a hook – either vacation spots, rural scenic areas, or cities where the drive into urban workplaces one or two days a week would be doable.

Coach's Corner: Good Advice That Helped Along the Way

I am fast approaching the 50th year of my post college business career. Most of the first five were in retail management and the other 45 years have been spent working for three companies in the furniture industry: Kroehler, La-Z-Boy and Impact Consulting Services. Over the years I played many roles and had a lot of different titles. During the first half of my career most of my responsibilities involved selling, developing, merchandising and marketing furniture products. Later my focus became more on teaching and training people about these areas in both the wholesale and retail arenas. I have had the opportunity to work with a ton of people throughout these last five decades, most of which had information to give, opinions to share or lessons to teach. But as my Dad indicated not all of them offered advice that was worth taking. Luckily for me, many of them did and over time I became better and better at figuring out who to listen to and who to ignore. I also realized that many authors and famous people have passed on a great deal of wisdom in their works that can help move the needle too. As a result, much of the success I have had was because I got good advice from people who knew what they were talking about. So, I thought that it may be helpful to those who take the time to read my column, if I offered a few examples of good advice that helped me win a few battles over the years.

Learn how to sell what’s in your bag My first position in the industry was as a sales rep for Kroehler Manufacturing, who at the time was the largest furniture maker in the country. I was probably a bit cocky, as new kids often are, and initially hung around with similar young reps in the “Bullpen” at markets and shows. We would spend our time criticizing the product line and complaining about what was missing, poorly designed or overpriced. Luckily, one of the “old-timers” took a liking to me. He pulled me aside one day and told me that he thought I had the potential to be a success, but I would never make it until I learned how to, as he put it, “sell what’s in your bag.” His good advice was to stop wasting time with losers talking about what we did not have and find some winners to teach me how to sell what we did have. That was a turning point for me, because with his help and the help of others, I was able to refocus my efforts and ended up setting some sales records, which got me moving up the corporate ladder. The lesson here is to resist the temptation to complain about or criticize what is not and concentrate on doing the best with what is.

Find out who to be important to and make yourself important to them My coaches also made it clear that you could not be successful trying to sell a branded line like Kroehler to every dealer in a market. If they all had it, then price would become the competitive weapon of choice and that would diminish the product’s value and kill the line. He told me to study each market in my territory and determine which would be the best store with whom to partner. Then do everything I could to make my company and myself important to that dealer. This is wonderful advice for whatever a person does because we all have to sell ourselves and our ideas to succeed and it is certainly best to make sure you are targeting the best people or companies with your efforts. The most interesting thing about this advice is that it was also the philosophy that Pat Norton brought to La-ZBoy when he began building that company up to greatness in the early 80s and that ended up being my next career stop.

Salespeople are more important than buyers and owners Another thing the “old-timers” told me was that even though it was critical to sell the buyers/owners on flooring and promoting my products, the most important target to win over was the sales staff. They are the ones that make or break the success of a line on the selling floor. If they do not understand or like your products you will fail. If they do not trust you or your factory to deliver as promised, they will avoid presenting your line. As a result, no matter how good a value it presents to the consumer, you will never maximize your sales in the store. Therefore, providing information, communication and motivation for the salespeople was ultimately the biggest key to success. Find out what they want and make sure they get it. That along with great donuts, bagels and pastries for the sales meetings proved to be the differentiator for me at many good accounts! The moral of this story is to always find the key people that will deliver the end result you seek and make sure all your bases are covered with them. Never ignore problems, they will not go away by themselves!

As an extension of the point above, I was taught that the sale does not end when you finalize the order. Indeed, a sale is an ongoing process that does not end until everyone in the process, particularly the end consumer, is happy with the result. You must take ownership of the process and the outcome to make sure that every step is completed on time. When and if a problem or delay happens, winners communicate and then facilitate the best result possible, while losers ignore the situation as if it is not their issue. There is no better way to lose the respect of a client than to run from conflict and leave them to take care of it. This is true not only in sales but in every facet of life – be a problem solver who steps up when needed and you will be a trusted partner.

People make decisions based on what they value A common piece of advice presented at every leadership course I took or seminar I attended, dealt with the fact that it is what a person values that drives the decisions they make. Good values tend to lead to good decisions. As a leader, one of the most meaningful things you can do, is to make certain every member of your team shares the same core values and that their goals are in line with those values. Everyone in the group may have a different role, but if they share the same values, the team has a much better chance of being successful because each person will make better decisions throughout the entire process. This is also critical to being a parent. In a very real sense, your main task as your children grow from baby to toddler, then adolescent and teenager, is to instill in them the right set of values so that when they leave home and you are not there with them, they will make the right decisions and have a good life as a result. I can’t think of a more critical role that we play in life than that!

Good judgment comes from experience, and a lot of that comes from bad judgment This piece of advice came from cowboy philosopher, Will Rogers. I believe this statement is right on and reflects a basic fact about how people can learn and grow from mistakes. Life is full of ups and downs, good days and bad days, plus successes and failures. There are many great quotes from Edison to Einstein about picking yourself up after you fall, learning from your errors and growing as a result. What Will is specifically pointing out is that we will all make bad decisions, but out of them will come new knowledge and positive outcomes. I have used this in the signature on most of my emails since I became a consultant 15 years ago, because I think it is our role to help our clients use good judgement, so they avoid bad experiences.

If you find yourself in a hole, stop digging This is another piece of advice from Will Rogers. It is pretty self-explanatory, but I think the bigger message is to always know where you are and where you are going. Should you find you are not where you want to be, stop, look around and decide what you need to do to get going in the right direction. Do not be too stubborn to go back and start over either.

General Schwarzkopf’s Six Points of Leadership
As a special bonus, here is some great advice shared by this famous leader at a seminar on leadership I attended. This was in one of my columns a few years ago but is worth repeating!
1. Things will not improve until you admit that something is wrong.
2. Set Goals – Pick goals that everyone can understand and know their roles in achieving them.
3. Demand High Standards – Let people know what is expected from them. People will rise (or sink) to the standards you set.
4. People work to succeed – Let them know how success will be measured.
5. Recognize Success – Also accept mistakes, “Latitude to learn, NOT Freedom to fail”.
6. Power Down! – Do not tell people how to do their job. Give parameters, give standards, give authority— tell them WHAT to do, then let them do it. Weak leaders lack confidence in themselves and thus their people.
Those who are too proud to accept advice when it is offered, will never maximize their results You will never be so smart that you cannot listen and learn. A final piece of advice from yours truly.

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