Three savvy Canadian retailers, Paul Dekker, Steve Forberg and Dennis Novosel, look at ways to survive and thrive in a tough economy.
Furniture Trends by Janet Holt-Johnstone
Only a retailer with the mind of J. K. Rowling could have found much to recommend the year 2008. Hope sprang eternal for cockeyed visionaries amongst us, and plunged to the darkness of the mythic underworld for those less fantastically inclined. But somehow the sun still rose every morning, well almost, and there was always another extraordinary adventure to experience!
Since this issue of FURNITURE WORLD Magazine will be distributed at Canada’s Furniture Market in Toronto, it seems appropriate to provide the Canadian view on the present difficult conditions facing the furniture industry.
This is not intended as a lengthy analysis of North American economic factors contributing to turbulent international markets. It’s an exploration of the perspectives of three keen, successful Canadian home furnishings retailers weathering the storm. We had interviewed them earlier during the spring of 2008, the topic “Competitive Edge”, and called upon each of them again in late October. It was a time when Warlocks Flaherty, Bush, Greenspan, Harper, McCain, Obama and others, played dicey Quiddich, silhouetted against a Halloween moon. We asked our local good Wizards Paul Dekker of Conway Furniture, Steve Forberg of Decorium and Dennis Novosel of Stoney Creek, if they had seen portents of the debacle. And what differences, if any, did they observe between Canada and the U.S.
Said Paul, “I did (see it coming) but expected it earlier in the decade. Historically we’ve seen a slowdown early in each of the last four decades. I believe it’s healthy to cleanse and purge the less efficient businesses. At this point, since by my count it’s six years overdue, it looks to me like it will be a tougher one.
“The Canadian system is much more regulated and conservative. Our government has been running a balanced budget and paying off some debt. Our banks are strictly regulated and quite stable even with their exposure to the U.S. sub-prime problems. In short, we are better set to weather the storm, to ride through a period of slow economic growth or even recession.”
Steve Forberg didn’t see the upheaval to “the degree that it came. We knew the economic market was not good and that it was a North American problem, but the recent events were quite shocking. Banks in trouble, stock market drops at record rates . . . it was all possible, but we didn’t think it was going to happen as it did.
“Obviously, the scale of the problems is much greater in the U.S., housing issues, foreclosures, bank issues, etc. The economic state is not as bad here as it is in the U.S. The U.S. government has a much bigger hole to climb out of than here. Our issue is that we tend to be six months behind the U.S. economy and, if a recession is imminent, then we could be seeing this very soon too.”
Dennis Novosel said, “We have been warned for the longest time! You cannot be on extended credit forever.
You can’t see so many good manufacturing jobs go to Asia and lose the paychecks that went with them. In one generation, we went from having a solid manufacturing base producing quality products that lasted, to an import system of inferior products that are throw-away, filling up our landfill sites. Thank all those companies that bought into this and raced to the bottom! All those (of us) with new low paying jobs and, of course, no jobs, appreciate that we can at least for the present still just afford this crap. A society that believes it can go on forever on speculation and unrealistic returns always ends up in the predicament we now find ourselves.
“We are led into many of the same problems because we are so tied to the U.S. market. We are slightly different in that we are still bigger savers. That our real estate did not overextend as badly as the U.S. and our banks, while we are usually critical of how tight their fiscal responsibilities are, we now see the merit in it as they will not suffer the same as U.S. banks.
“Canada, of course, is a small economy and will be able to rebound quicker. We have huge resources in the commodities markets, oil, water, lumber, ore, food and a very resilient population.”
We speculated about the weak areas. Paul felt that, “As much as the regulations protected the financial sector, the depth of regulation and taxation in the private sector hobbles our manufacturing sector. As much as consumers want employee benefits and protection, higher wages and environmental responsibility, they still shop for price regardless of where it’s made and how socially responsible the manufacturer is. The obvious example in our industry is leather upholstery. It would be impossible to run a leather tannery in North America, yet it’s OK to buy leather that is tanned in South America or China where the environment is sacrificed.”
Paul Dekker’s Conway Furniture is located at Listowel, a town of 5,476 in Perth County, Ontario, “with a lot of subdivisions”. Conway, “an independent, medium sized store at 30,000 square feet” has “large enough volume to competitively deal with the larger chain stores. Our reach is from Kitchener towards Lake Huron, and from Mount Forest towards Mitchell, then up as far as Goderich and Port Elgin. Our strength is the Highway 8 and 9 corridor, the shoreline of Lake Huron.” Conway’s demographic is “more second time or more mature buyers, the average income consumer from 35 to seniors.”
Steve Forberg told us how Decorium in Toronto’s “near north”, has expanded over the years to reach its present 100,000 plus square feet. “We’re big enough to bring the consumer great value and to move a lot of product, yet small enough to grow! We offer a lot of style at every day prices, a little better store and a little better fashion.” A destination store, Steve defines his clientele as “upper middle market”, his reach the Greater Toronto Area, “and we ship all over the world”.
Dennis Novosel’s Stoney Creek Furniture, is a landmark destination store, with market area encompassing the Niagara Peninsula, Hamilton, Burlington, Toronto, Pickering, Whitby and “as far away as North Bay”. His basic demographic is 25 to 54 years old, with household incomes over $75,000. And it’s the anchor for the dramatic Décor Centre, his home furnishings mall, sited directly opposite on 15 acres visible from the busy highway.
In Dennis’ opinion, the weak areas in our economy are the furniture manufacturing industry which “has been mostly destroyed, and our car industry which is way too dependent on the U.S. market, jobs again.”
It’s been said that one should analyze daily the productivity of product lineup. Paul’s comment, “It’s always important to manage inventory and to be aware of what’s selling, especially if it is financed. It’s tougher for a smaller store, $5 million or less, to manage daily for several reasons. The data in that short a time frame isn’t relevant for one thing. Just because something didn’t sell yesterday doesn’t make it a dud today. Of course, manpower is the other issue.”
Says Steve, “Everyday is a bit much, but you do want to know daily what is selling and what margins you are selling at to maintain your profitability each day. I don’t analyze daily, more like weekly or bi-monthly, the entire line-up.”
Dennis agrees, “Absolutely. Business is down and still going. Costs are escalating. Product being cheaper means poorer quality and more service. We get blamed for selling poor product but the consumer has set the bar and keeps demanding lower prices. This is only achievable by cheaper goods and less service. Hopefully, they will one day figure this out!
“Manufacturers are selling to different chains of distribution. Do they not realize this corrupts their Brand and lowers the perceived value of all their products? We need to review all our product all the time to stay ahead of this curve.”
We put the question, should one “cut lineup back to the optimum number of groups you must show and not just on rates of sale”?
“We’ve been doing that for several years,” said Paul, “and I see a few problems with that. We can’t forget that we are a fashion business and new items are important for creating excitement for our customers and staff. One other observation from our operation is the push factor.
An investment in inventory does give you more to sell, and the staff knows when the warehouse is full and feels more pressure to move products. I believe it is good to have the number of groups you can show plus two, so there is fresh meat for the floor when a dog goes, and an opportunity to ‘wow’ a customer with, ‘There is one set that hasn’t made it to the showroom that might be perfect for you’.”
Steve replied, “Well, you want a proper line up amount with the best rates of sale possible. I keep my line up based on rates of sale as that is what matters not number of groups. What good is it to have 10 groups and only two sell? Better to have five that all sell!”
At Stoney Creek, Dennis said, “We are doing exactly this. While special order is a large part of our business, manufacturers are slipping away from the gains we have made in quick delivery, and we are constantly having failures in orders that are related to delivery time, quality, cancellation of products. The customer is losing trust in our ability to serve them. Going back to less choice and more inventory is part of the new restructuring.”
All three busy entrepreneurs agree that good strong relationships with suppliers are even more essential today. Paul adds, “For some time now at Conway we have focused our buying in order to be more important to individual suppliers. Fewer suppliers with more volume to each will make you more important to each. At least, that’s the theory. We are surprised to find that some of our North American suppliers, particularly upholstery, are making things difficult with service issues. At retail we are compelled to over service our customers. Even if the issue is questionable, it’s in our interest to look after the problem without arguing about it first. We do not get assistance with that approach, and I believe that is how North American manufacturers can differentiate themselves from Asian imports.”
Said Steve, “It’s absolutely true that supplier relations are critical today. You must ensure good credit relations with them, and be on top of inventory levels by vendor. The vendors will ship to those that call them looking for merchandise, or have strong factory or rep relations. Get to know the sales managers like you know the sales rep, as they’re critical in any role in helping to build relationships with factories and dealers. In this uncertain time, vendors are shipping to those that are paying on time, so stay current and do not fall behind as you will pay the price and won’t get the flow.”
Based on actual total traffic, it’s said that close ratio should be around 30 per cent. Paul responded, “This is an area we are currently working on. I have a traffic counter in the store about to be hooked up in order to better keep score. The numbers I have show about 30 per cent closing ratio. Furniture is a big ticket and sometimes requires several visits. The trick is to be low pressure but professional in the sales process and to make a positive contact with the customer so they want to buy from you.”
In agreement, Steve said, “Yes, you do want to have a closing ratio as high as possible and 30 per cent is a good place to aim for. However, 20 to 25 per cent is more realistic. The better number to focus on is not the 30 per cent, but the 70 per cent that comes in and does not buy. Too many of us are focused on the closing rate and are neglecting the larger 70 per cent that are not buying. These are the people we should be targeting and getting back in the store!"
Dennis believes 30 per cent to be “a good figure, and I believe we are doing that or better. The new problem is that because of more arenas of distribution it is the traffic that we’re losing. Stoney Creek is doing the best job ever in our advertising material, and yet we have seen a full 25 per cent reduction in traffic the last two years. That is 15,000 less chances to make a sale!”
How can sales people close at 30 per cent, or perhaps exceed this percentage? Paul feels strongly that “with management’s motivation and coaching, sales staff can stay on target. We have weekly PK and weekly newsletters about new products, changes and recent problems. We post monthly and quarterly sales to encourage competition and have ‘pass the twenty’ games on busy days, biggest sale, most items, etc.”
Steve says, “Selling today is not about style, colour or, for that matter, price. It is about relationship selling. Build relationships, not sales. With relationships, sales will come. We try to get our staff to get to know their clients, kids, pets, birthdays, anniversaries, etc., earn their trust, be their friend and have them think of you every time they or their friends need home furnishings. A sale is just a sale if you want to sell a piece of furniture or sell them a lifetime of furniture. It’s really a concept that’s based on the client feeling comfortable with you. If this is the case, then the 30 per cent closing ratio will be surpassed quite easily.
“We’re using in store specials coupons, exceptional visual display, web advertising, e-mail marketing and constant training in house for our staff to promote maximum sales.”
Steve spoke about the mood of the sales force. “Even at the best of times it’s a constant work in progress. It’s more heightened now in the current economic situation. We are still getting very good traffic and many are still making the same or more than the year before. Key is to be at the right staffing levels both for the store and for the staff!”
Said Dennis, “It’s difficult, and they need much coaching and hand holding to stay positive.”
Paul has always had a heavy concentration on radio advertising, often very effectively voicing his own commercials. “Radio still works for us as our ads are unique and print is fragmented in our trading area. We do three to four direct mail promotions, two flooring warehouse sales, two high impact radio events, two full line flyers, one bedding flyer, four flooring flyers and one post card event through United Floors. We are always working on our website and have promoted it through our radio ads and the radio stations’ websites. There is barely a week without something going on.”
Steve has “changed a bit, but not much. Instead of four page flyer inserts which appear more promotional, we have moved to eight page and 12 page flyers. More of a catalogue feel and more style savvy. We have also updated our website, are doing more web blasts and e-mail marketing. Trying to do more with our budget to get in the face of our clients.
“Events and promotions we have not changed all that much and, in this situation, people are looking for good value and that is what we offer. Most new clients of ours are amazed at our selection and the great value that we offer.”
Both Paul and Steve are “hanging in there” with traffic. At Conway, “We are basically on par with last year and the year before. I don’t think this is a period to expect growth, so I hope to drive a stake in here and ride out the slow period. By maintaining our large advertising budget (seven per cent) we will grow on the other side. At least, that’s how it worked in the past.”
Decorium is “managing to maintain our traffic from month to month. We are off in traffic from where we were two or three years ago, but the last 18 months we have maintained our foot traffic through the door.”
Dennis has changed his credit stance to customers. He is “Offering more and extended. Not sure for us it is working all that well”.
Paul told us they’ve “not done internal credit here for some time. If the customer refuses CITI and can’t pay, perhaps even with a discount, we probably don’t want them either.”
Steve’s approach to store credit “remains the same. We do not do any financing to speak of.”
The big question, how do our Wizards see the future? Said Paul, “We live in a greedy world of over consumption of disposable products. There is too large a spread between rich and poor, in North America and the rest of the world. I think we need to see a return to better products sold not as often. I think the consumers need to get back to independent retailers who support the local economy with employment and community involvement.
We don't scale back our expectations of growth."
Steve expects that “It will continue to be a struggle for the next 12 to 18 months. The key is to hunker down and weather the storm, then come out the other side. Those that do will reap rewards when the markets and economy come back in the near future.”
“Challenging, and there is no one answer,” said Dennis. “The ‘traditional’ operating furniture store is not equipped to deal with customer expectations at the prices the big box stores are able to sell at.” We asked what could be done to prepare for the future, and he quipped, “When I figure it out, I will let you know!”
Steve’s answer was, “Watch your expenses, watch your inventory, don’t overbuy, know your business and watch it constantly. Be positive, keep the morale up and make sure that your staff understands what is going on.
Continue doing what you know, and don’t be afraid to try new things whether it be promotions or products!!”
Paul believes in a balanced life. “We should all be looking to recycle and protect the environment. And we should quit working 60 plus hours a week, waiting for tomorrow to enjoy!”
Dumbledore would surely agree.