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Who's Responsible For Low Margins?

Furniture World Magazine


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Whether we admit it or not, we are the ones training our customers to beat us up on price.


Furniture Store TV Ad Claims:

  • 30% to 60% off everything in the store!
  • We will not be undersold!
  • We will beat any advertised price by 10% guaranteed!
  • We are XXXXXXXXX’s low price leader!
  • It’s our MAKE AN OFFER Sale where you set the prices!
  • Everything’s marked down. We pay the sales tax and deliver for free!

The inset above contains some punch lines heard on recent television ads for furniture retailers.

Whether we admit it or not, we home furnishings retailers are training our own customers to beat us up on price. We subject them a barrage of advertising messages that scream out how cheap furniture can be. Then we are surprised when they come into our store expecting to drive home a Cadillac for a YUGO price.

We need to do a better job of training our customers.

Too many furniture store owners are driving their traffic with price promotion advertising campaigns. These owners may delight in describing the increases in sales volume that result from these tactics, but when asked about their bottom lines, they have a different story to tell. Considering the price tags on the floor, it is easy to see why.

When asked why they are pushing their margins down, they say that they have no choice. Competition is so heavy that price cutting measures are necessary. They figure that they will make it up on increased volume.

BEING THE LOW PRICE LEADER
The problem with trying to position yourself as the low price leader, is the fact that someone else is always willing to go lower. When a store gets into a price war for low price bragging rights, no one wins. The store loses profit margin, which forces cut backs in other areas of the business, resulting in customer dissatisfaction and further erosion of customer service levels in this downward trending spiral. Low margins are the leading cause of many of the bad impressions consumers often have of the furniture industry.

In conversations with non-furniture industry people, I make it a point to ask their opinions of furniture ads they see on television. They often joke about the "sale of the week – this week only" image of furniture stores they get from watching ads. Another point that comes across clearly in these conversations is the fact that so many ads have the same look and feel that it is difficult for consumers to tell them apart. Just take a critical look at furniture store ads in Sunday papers from around the country and you will see that they all look the same to our customers (see “Branding, Do Your Customers Care Who You Are?” from the January 2002 issue of FURNITURE WORLD Magazine, posted to the “Marketing Management Index” on www.furninfo.com.)

In presenting the same look and message in our advertising saying the same thing "Low Prices!" we only reinforce the industry wide message we are sending to consumers. That message is that "price" is the ONLY factor consumers need to take into consideration in making a buying decision.

As an industry we are very effective in delivering this message. In the process of delivering it, we plant the seeds of our own destruction as we maximize the opportunity to minimize our profitability.

With so many stores in our industry flooding the media with ads promoting sales week after week, we have even gone so far as to numb the public to our "lowest price" message like the boy who cried wolf. In the process we have destroyed the credibility of the word "sale" in advertising for all of us.

The solution for many store owners watching traffic fall, has been to run more and louder ads promoting more ways to destroy their profit margins. Some of these are familiar themes:

  • No Down Payments! No Interest! No Sales Tax! No Payments until 04!
  • Buy a sofa and pick a matching loveseat or a recliner free!
  • Free Set Up & Delivery! Fabric Protection! Free Removal!

The funny thing about this drive to profit destruction is the fact it is not necessary. When people need furniture, they don’t wake up in the morning thinking, "I want the cheapest recliner money can buy." They wake up thinking "I want a recliner."

It is when they pick up the newspaper and look at the ads they change their thinking to: "I want the cheapest recliner money can buy." And that is the mindset they have as they walk into our stores, and we are the ones that trained them to come into the store with that "lowest price matters" attitude.

In doing a better job training our customers, we need to refocus our marketing from helping them find the cheapest recliner money can buy, to helping them find the best recliner they can afford. It is a concept that will have huge impact where it counts the most: on everyone’s bottom line.

In February, US Department of Commerce reported the housing market is the strongest it has ever been. Sales of new houses and re-sales of existing homes are happening at a rate 50% higher than the industry peak in 1989. New homes are selling at the rate of 6.3 million units a month. Existing home sales are at 8.1 million units a month. The furniture industry is getting 14.4 million ups a month, which translates into 172.8 million ups a year from the housing industry alone. What are homeowners excited about buying?

The daughter of a close friend of mine and her husband bought a new house and held a house warming party. While at the party I noticed that the house had a three-car garage and it was occupied by two new cars, an off-road vehicle and camping equipment. In the driveway sits a brand new 16-foot aluminum fishing boat. They proudly displayed their new home theater and a state of the art computer system.

Their furniture is the same furniture they have had for seven years.

We spend an incredible amount of time and money trying to lure customers away from other furniture stores into ours. Instead, we should be focusing on luring customers away from other industries. We use all of our marketing dollars fighting among ourselves trying to be the big fish in the pond, when other industries such as the electronics, automobile, travel, and entertainment industries are draining the pond.

If we are going to be competitive in the pursuit of the discretionary income wielded by today’s consumers, we need stop using our limited marketing dollars to fight among ourselves. We need use those dollars to do a better job luring customers away from other industries with a better message than "CHEAP FURNITURE."

Make no mistake, the entire furniture industry is engaged in a war. We are in a battle for the hearts, minds, and wallets of the consumer. In this battle we need to focus our marketing money on building value for our industry, our products, and our stores.

Unless everyone in the furniture industry begins to compete against other industries and each other on value, we will continue to battle for lowest price bragging rights and that is a battle none of us can afford to win.

Next Month
In future issues, this series will present concrete ways retailers can get out of the price promotion trap to compete with other industries and other homefurnishings retailers based on providing and promoting value.


John Egger, CEO of Profitability, Inc., helps retailers refocus their marketing strategies from the current M.A.D. (Mutually Assured profit Destruction) policy trend, to compete against other industries and stores based on value. Inquires can be sent to John care of FURNITURE WORLD Magazine at jegger@furninfo.com.

 

Furniture World is the oldest, continuously published trade publication in the United States. It is published for the benefit of furniture retail executives. Print circulation of 20,000 is directed primarily to furniture retailers in the US and Canada.  In 1970, the magazine established and endowed the Bernice Bienenstock Furniture Library (www.furniturelibrary.com) in High Point, NC, now a public foundation containing more than 5,000 books on furniture and design dating from 1620. For more information contact editor@furninfo.com.