Let's Do This
It's not all doom and gloom for independent retailers. That is, unless they become out of step with customers and fail to take action to maximize hard-earned assets.
You've played by the book and done everything right. You built a brand in your marketplace, cultivated customer loyalty, own your inventory, and perhaps even purchased your real estate. You are financially independent, contribute to your community and take care of a great family of employees. You've lived the American Dream.
Then, suddenly, you wake up, it's 2019 and you no longer recognize the industry you have loved for decades. Your customer base is shifting, brand loyalty is severely diminished, if not altogether gone, and many of your valued suppliers and peers have disappeared.
Your original customers saw furniture as an investment of a lifetime. Now the talk in the industry is of next-generation shoppers who want instant gratification and see furniture, like nearly everything else, as disposable. You're competing for a slice of a pie that is being eaten up by major national and multi-regional chains backed by huge money and that can exercise gargantuan buying power. Where you patiently earned your market presence through years and decades of hard work, they can buy into any market they want in one fell swoop.
And then there's this crazy beast called ecommerce with online giants making increasing inroads into furniture. They offer one-click ordering, rapid delivery, open-ended return polices, and are flirting with establishing brick-and-mortar stores to boot. Many of these ecommerce models are unprofitable, but are backed by “patient” capital which focuses on market share and not profitability.
Not All Doom & Gloom
Such developments might seem daunting, but the situation for independent furniture retailers is not all doom and gloom. Yes, the industry has perhaps undergone more shifts in the past ten years than in the previous 50. However, change always creates opportunity. By adopting tactics and strategies geared toward embracing change, you can not only survive - but thrive. To everything—furniture businesses included—there is a season, as well as the potential for rebirth.
Forging The Right Strategy
The first step in reorienting your business is to take a clear-eyed look at the changes taking place. One of the biggest imperatives in the furniture business today is to identify the different ways in which your customers and their preferences have shifted or are in flux. Clarity on these points then allows you to use relevant products and messaging to strengthen your connection to the customer.
Shoppers can change for many reasons. In markets around the country today, it's possible to walk into independent furniture stores that are full of pretty, quality pieces that simply don't sell. Maybe these items used to move effortlessly, but over time household incomes in the trade area may have remained stagnant. As a result, the store's higher-end showrooms are out of step with the increasingly budget-conscious character of the population. Of course, it's also possible to walk into a store and see the opposite: the owner is still selling low to mid-end pieces even though the store's rapidly gentrifying trade area now brims with families with greater disposable income.
As every store owner knows, maintaining the appropriate merchandise mix amid shifting consumer demand is challenging but critical. For example, the owner of the store might recall a time—maybe in the 1990s or early 2000s—when high-quality, formal dining room furniture performed extremely well. That led the owner to build relationships with suppliers of these pieces and to disproportionately stock formal dining room furniture over upholstery and other important categories. In today's market, though, formal dining room furniture represents an extremely small percent (if any) of a store's average gross furniture sales; conversely, upholstery represents, by far, the highest percentage. In the case described above, non-productive use of space and out-of-balance inventory is a major drag on sales.
You can see the importance of rethinking your assumptions and being open-minded about even longstanding business practices. Being forward-thinking is important, too, especially when it comes to one of the biggest challenges facing our industry—major shifts in generational demographics.
These days, and rightly so, there is a lot of talk in our industry about the challenges associated with ongoing demographic shifts in the United States. For those who have been in the business over the long term, Baby Boomers have been the mainstay. These reliable customers are often friends, too. They care about brand-name merchandise, quality and dependability and don't mind waiting for what they want (“patience is a virtue”). They are community-minded and, yes, loyal to the local merchant and brand.
The problem is that as more Boomers retire and downsize, this important customer base—78.8 million members at its peak in 1999—is rapidly shrinking. By 2050, the Boomer population is projected to dwindle to 16.6 million, according to the Pew Research Center. The Millennial generation, meanwhile, is expected to overtake the Boomers in 2019 as the number of Millennials grows to 73 million (versus 72 million boomers).
The Millennial Conundrum
Because of both the size and novelty of the Millennials, many in our industry talk almost exclusively about this generation when mulling the effects of demographic change. The question for independents, though, is whether focusing only on the Millennials, for now, is the right strategy.
The Millennials are largely conditioned and programmed for instant gratification. They seek the most streamlined approach to getting what they want as quickly as possible. Brands, in and of themselves, aren't important to them. Millennials are more likely to rent and to move residences every couple of years. As has been much discussed in our industry, the youngest members of this generation are content with more “disposable” RTA items so long as they fit their lifestyle, budget and arrive quickly. When Millennials do buy furniture, they're apt to pick up their phones and browse the Internet to either immediately purchase or find the omni-channeled, value-driven brick-and-mortar retailer where they can get delivery of their purchase within two to five days.
For established independent furniture retailers, targeting Millennials means squaring off against those multi-billion-dollar chain stores and ecommerce operators that already focus on them. A smarter and more viable approach: avoid battling these giants on their own turf; instead, cater to the shifting needs of your existing Baby Boomer customers, with increasing focus on the often forgotten Generation-X, while gradually turning your ship, so to speak, to the Millennials.
“Cater to the shifting needs of your existing Baby Boomer customers, with increasing focus on the often forgotten Generation-X, while gradually turning your ship to the Millennials.”
Think of this as vigorously tending to your own smaller sandbox. Remember, the Baby Boomer generation is shrinking, but it is still a force. Increasingly, the aging Boomers value smaller-scale pieces that offer mobility, comfort and affordability. Make sure you dominate this customer base in your marketplace by carrying such merchandise. Rely on solid market research and your own instincts, supplier relationships and expertise to adapt your product, services and story to these still-important customers.
You could also ramp up your focus on Generation X. This often-under appreciated generation (anywhere from 35 to 55 years old) is comprised of a large population of young and growing families. Gen Xers are moving up the economic ladder and have a significant and growing buying power, due in no small part to the historic transfer of trillions of dollars in wealth from the Baby Boomers to this younger generation.
According to Pew Research, in 2028 there will be 64.6 million Gen Xers—more than enough potential customers to support those independent furniture retailers that excel at catering to their needs. The Gen Xers grew up in between the Baby Boomers and the Millennials and relate to both. Like their Baby Boomer predecessors, they have a sense of brand loyalty. They have disposable income and are tired of disposable furniture—a perfect bridge for your business.
Remember also that the oldest cohorts among Millennials are advancing in their careers. Their tastes and habits are evolving as well. While they crave instant gratification they increasingly want better quality—a tendency that will only deepen over time. Most important, for them, is product that reflects their lifestyle and suits their image. When they get tired of lesser-quality, disposable furniture, they might just see your store as an attractive alternative. The dividing line between the youngest Gen Xers and the oldest Millennials is a bit blurry. If your mix appeals strongly to the former, over time it will appeal more and more to the latter.
Tactical Survival Tips
As you hone the big-picture strategies described above, it is equally important to embrace tactics that can boost your business. On the marketing front, for example, many furniture stores still operate as though it were 2003.
- The Right Customer Engagement Focus. First, find and hire forward-thinking talent. Welcome new ideas. Embrace a comprehensive social media presence, while realizing that competing on the same playing field with ecommerce giants isn't viable. Put a lot of attention into the look, feel and functionality of your website in ways that speak directly to the lifestyle of your customers and that reflect who they are. Brands like Apple and Subaru are all about lifestyle. Furniture can be that way as well. Your customers still (and will always) want to touch and feel furniture. Get them into your store and you have an opportunity to win them over and earn their loyalty
- Buying Groups. If you're not already in one, you might also consider joining a buying group. Membership in these organizations gives you “strength in numbers” buying power as well as opportunities to establish relationships with precisely those new vendors that do the best job of appealing to, say, Baby Boomers moving from the suburbs to the city, or Gen X families eager to furnish new homes with better-quality pieces. Seek out a group that offers additional benefits. That could include meetings where you can share ideas with peers who do not compete in your geographic market. You might also find savings on shared infrastructure such as website design and maintenance or get special pricing from the group's preferred vendors for inventory management systems, payroll or private-label credit card programs. Through economies of scale, well-run buying groups can help level the playing field in a market dominated by gigantic chains.
- Financing Programs. In particular, having the right consumer-finance partner is critical. The better private-label credit programs offer a wide range of payment options, including no-interest or fixed low-interest financing for extended periods. In a high-ticket business such as furniture, consumers appreciate being able to gain more purchasing power without stretching the credit limits on their high-interest bankcards. The key is to find a program that makes the in-store application process relatively painless. You want the partnership to provide a high-level of customer service (remember, your store's name is on the card) and to offer the most competitive rates. You may also want to have a back-up “second-tier” program that extends credit to customers whose scores don't measure up for your primary finance company. As mentioned above, being part of a buying group can help you gain access to better private-label credit programs.
“Shoppers can change
for many reasons.
In markets around the country today, it's
possible to walk into independent furniture stores that are full of pretty, quality pieces that simply don't sell.”
Will all independent furniture retailers negotiate this new tricky territory successfully? Certainly not. Some would like to see their businesses continue for years and decades, but they happen to lack a viable succession plan. Others may simply choose not to continue in the independent furniture retail arena. If either of those descriptions fits you, it is important to take the appropriate action to maximize your hard-earned assets. Often, we see long-term retailers holding on to a business in a state of limbo while their equity gradually dissipates. What was your dream when you began on this journey? Raise a family, build a business, share in a community and enjoy life? When the time is right, honor your dream, cash-in, retire and enjoy the fruits of your labor. Job well done!
As the furniture business continues to undergo disruptive change, the message is simple for those who aim to forge ahead: Consumer habits, values and ideals always evolve. By understanding and embracing change, you can identify your particular sandbox and then invest in it, own it, play in it and enjoy it. Wasn't that your original plan?
About Mark Bannon: Mark Bannon, a 30-year veteran of the furniture industry, is Director of Furniture Solutions for Tiger Group, a leading provider of asset valuation, advisory and disposition services; email@example.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 firstname.lastname@example.org.