Ed says our industry will begin to recover from the Covid pandemic and there will be a new normal. Bill says NOPE!
Editor’s Note: Editor’s Note: Here's more from Furniture World's point/counterpoint duo Bill Napier and Ed Tashjian who have debated numerous topics in the pages of Furniture World. See all of their commentary
POINT: Ed Tashjian
What will be the near and long-term impact of the coronavirus on the home furnishings industry? Is there any reason for optimism in the third and fourth quarters of 2020?
I say yes and Bill says no. Both of us agree there will be fundamental changes in manufacturing, importing and retailing. On March 14, 2020, America effectively closed for business. That was when the Trump administration declared a state of emergency, calling on Americans to practice social distancing to slow the spread of the coronavirus. As I'm writing this, many areas of the country have started to reopen with some retailers experiencing better than expected retail traffic.
Warren Shoulberg, a veteran industry consultant and journalist wrote in Forbes in late April, “The numbers on closed stores are simply staggering. The Coresight research group reports around 630,000 outlets have been forced to close in a process that began in mid-March and has pretty much continued unabated. The National Retail Federation estimates that $430 billion in retail sales will disappear over the next three months.” What does it all mean?
There will be multiple bankruptcies. If you were unlucky enough to be deemed a nonessential retailer, you had nearly all the same costs but no revenues. Even with PPP money, you paid employees for not working, the basic equivalent of laying them off for eight weeks then hiring them back as business resumes. Stores with weak balance sheets will default on their debts. For stores that faced declining sales before the pandemic, this may well be their death knell. Even if there is a quick recovery, employees who have been laid off or furloughed may be difficult to re-employ. This will have unanticipated consequences. There will be a consolidation of manufacturing and retailing with existing assets bought at bargain prices.
The home furnishings industry will recover, but there will be a new normal. People will always need a place to eat, sleep and sit. No matter what happens, this is an inexorable need. There is no consensus on whether months of pent up demand will lead to robust sales—or whether the bulk of these sales will be lost forever. But sales will come back and the long-term trajectory will be the same as it was before the crisis. On a positive note, some retailers will not only survive, but will become bigger, stronger, and will absorb the share of the extinct.
Problems in the Middle
My prediction is it there will be death in the middle: High-end and lower-end stores will thrive, and those serving the middle market will have trouble. It seems in any crisis, the rich get richer, and the poor get poorer. A recent Federal Reserve study found that nearly 40 percent of people living in households earning $40,000 or less lost jobs, while just 13 percent of those making more than $100,000 were cut. The middle-class cohort will have their savings depleted and will be pushed into the lower-middle-class cohort. They will adjust their status, tastes and spending accordingly.
The carriage trade will benefit greatly. Government spending and the economic rebound will create enormous wealth. Many manufacturers report that their orders from the design channel have hardly changed. Numerous projects were already in process, and these clients have plenty of disposable income. I suspect we are about to see a resurgence in second homes and non-conspicuous (inside the home) improvements.
We are already seeing retailers beginning to downsize from cumbersome, expensive, over-inventoried retail showrooms to more manageable design-oriented footprints.
A Home Renovation Boost
There is ample evidence of an increased desire for home renovation. Anecdotally, homes have never been cleaner, and their yards have never looked nicer. Garbage companies report that the volume of refuse since the coronavirus started has increased markedly. Among those things being trashed is furniture. If history is a guide, these people will feel compelled to fill the empty space.
According to Hearst, “The number of people talking about home renovation ideas on social media has been double that of normal levels. Companies set to benefit from this massive shift in DIY consumer behavior include:
Home Depot purchase intent mentions are up 75 percent year-over-year.
Lowe’s isn’t surging as strongly, but is still seeing a 55 percent year-over-year increase in purchase intent mentions.
Whirlpool Q1 purchase intent mentions are pacing to come in at a 33 percent increase year-over-year, with Maytag brand leading the way.
Purchase intent mentions for Sherwin Williams increased by over 50 percent year-over-year.”
The home furnishings
industry will recover,
but there will be a new normal. People will always need a place to eat, sleep and sit.
- Ed Tashjian
POINT: Bill Napier
Throughout my long career as a furniture marketer and consultant there have been many conversations with retailers whose primary marketing and branding tool is, "50 percent off everything!"
Unfortunately, that still holds true with the majority of furniture retailers. With that said, I’ll talk about Ed’s points.
Brick & Mortar Adjustments
We are seeing short term changes in retail. Stores are featuring anterooms with hand sanitizer, are providing cart wipes, and have posted signage requiring facemasks. Visits can be arranged by appointment only. While at first blush it sounded like this might have a deleterious effect, it is stimulating sales. Over the past decade, furniture sales have become less transactional and more relational. A planned appointment forces a customer to engage with a salesperson from the outset and makes every store visit intentional.
Retail footprints have been adapted to meet social distancing guidelines. We are seeing one-way aisles, six-foot distance markers, signage to keep shoppers from running into each other and frequent disinfecting stations. Curbside pick-up has become more popular from Walmart to the grocery store. This is a necessary feature at least in the short term.
Longer-term there will be an increased emphasis on performance fabrics. Cleanability and antimicrobial properties have become increasingly important selling features. And there will be innovations. Forward thinking designers like Bruce Hirschhaut are developing fabrics and designs that incorporate copper and silver threads that have antivirus properties.
Remote work will become much more common. Based on recent experience, large employers are reevaluating their huge investments in concentrated work environments. More workers will have increased flexibility regarding how and when they do their work, and they will develop video conferencing skills that might be translated into shopping. More on that later. This will generate demand for quality, functional and attractive home office furniture. There will also be a need for attractive backgrounds since this is how the worker will be seen. And, it will require specialized lighting to make meeting participants appear more attractive. At the same time, it will allow them to shop virtually during the weekday.
Increases in e-commerce have had an immediate effect and precipitated lasting change. Retailers who fail to embrace this will do so at their peril. There is no better evidence of this than the tracking of Wayfair stock during the initial stages of the pandemic. In February, the company said it was laying off 500 employees, as sales hadn’t turned into profit.
Wayfair closed on Mar. 19, at $23.50 per share. As I write this, it is trading at $122.61 a share. If you had the fortitude and guts to invest at the bottom, you could’ve more than quintupled your money in a month. (As of May 18, the stock is trading at $155.06. Every dollar invested would be worth $6.60.) What does Wall Street know that the rest of us don’t? Long-term, e-commerce is the future of home furnishings—not necessarily as a standalone, but as a complement to other channels of distribution. Wayfair got so cheap so fast that it was easier to buy than to replicate.
Working from home will have profound effects on the commercial real estate market. This and an excess of retail space, the result of bankruptcies and downsizing, will put downward pressure on real estate values and rents. It will probably also lead to the transformation of office buildings in big cities to residential real estate the same way that malls are being repurposed.
Made in America
Made in America will temporarily become more important. This will happen for two reasons. The first, is xenophobia. The virus has caused a high level of mistrust, and the flames are being fanned by politics. Second, it has become much more difficult to import goods. According to the U.S. Customs Service, 2019 furniture imports declined by eight percent. Imports from China decreased by 28 percent. This will be further exacerbated by disruptions in the supply chain as COVID affects each part of the world differently.
Even though the decline in oil prices will make transportation cheaper, there are likely to be new regulations that will lengthen the supply chain and make it less attractive. Expect tariffs to feature prominently in the news going forward.
Effects of Less Travel
Less travel means more virtual travel: Locally, nationally, and especially internationally. We are going to see fewer business trips. The new “work from home” virtual tools have demonstrated that if you have an existing relationship, it is faster, easier and cheaper to meet online than in person. This of course will be much tougher if you don’t have a relationship. We will also start to see more virtual store visits. I can envision a floor salesperson with an iPad walking the floor and showing customers choices and options, to be followed up with an email replete with pictures and pricing.
Also, for the near future, it will be nearly impossible—and undesirable—to vacation outside of the country. There will be hassles on both ends. There is no guarantee you will be able to reenter the USA. It will take years for the cruise lines to recover. What will people do with the money that they originally planned to spend on vacations? There’s a good chance they will spend it on their homes, and we will resurrect the concept of the staycation.
Trade shows will change forever. For better or worse, I believe that fewer people will be traveling to fewer shows. Manufacturers will be challenged to demonstrate their products independently of their showrooms. This will be done with virtual tools. Store buyers are less likely to meet with manufacturers reps—at least for the near future. There will still be showrooms, but the visits will trend toward virtual instead of personal and will last all year rather than specific periods. Yes, we all love markets, but until there is a vaccine, fewer people will risk traveling.
What We Don't Know
No one has a crystal ball. We don’t know when this will end, we don’t know when we will have a vaccine, and we don’t know if there will be a resurgence of the virus that sends us directly back to jail without passing go.
What do we know? As mentioned previously, human beings will always need a place to sit, sleep, and eat. It is the most wonderful thing about the home furnishings industry, and it will never change. That said, people are in shock and in many areas of the country many customers will not beat the path to your door, at least right away.
For areas that are slow to recover, or should we experience a "W" shaped recovery, the messaging is clear. Now more than ever, it is important that your customers' homes become a safe haven and a comfortable retreat. While quarantined they came face-to-face with how much they love their homes and many became more open to ways their homes could be made more comfortable, and cozier.
So now is the time to let your customers know that you are open for business. Tell them that they can shop at your corporate/store website. Explain that they can call or chat with your knowledgeable retail and design associates to answer any questions and expedite deliveries. If you offer shopping by appointment, no-touch delivery options are available. And be sure to reassure them that you are making every effort to keep your employees and shoppers safe, then be prepared to tell them how. Remind them that their homes are the truest luxury of enduring value and that family matters most. And, that your store is ready to help them with home furnishings products that turn a house into a home.
Ed's Bottom Line
We have every reason as an industry to be optimistic in the long run. Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” Those manufacturers and retailers that can read the tea leaves and adapt their models will be successful. Those who try to do business as usual will become extinct.
COUNTERPOINT: Bill Napier
Ed stole much of my fire, but there are additional issues that I will address or expand upon. If you feel that you've had enough bad news over the last few months, DON'T READ ON. There's a reason my dear friend Ed refers to me as Darth Napier!
There will be multiple bankruptcies. I agree with Ed, but further predict the demise of 25 percent of all home furnishings retailers and 30 percent of all manufacturers as we know them.
Ed predicts that the home furnishings industry will recover, but there will be a new normal. NOPE!
Ed predicted there will be death in the middle: I say all home furnishings retailers will suffer, NOT just at middle price points.
Since 2015, and earlier, I have written about the fact that retailers and manufacturers will face retail and wholesale Armageddon because so many have refused to address how consumers shop and want to engage with retail establishments.
In a post-COVID-19 world, those companies that did not do their due diligence before the pandemic have changed their destiny. Instead of dying a slow death, they likely have been upgraded to a very quick demise.
It's ironic that for years virtually every industry blog has embraced online platforms as the “new normal." It's my view that we haven't yet recognized what the new normal is and will be. The insanity is that events of the past few months have created a society that is scared of virtually everything. #Lemmings.
I agree with Ed, but further predict
the demise of
25 percent of all home furnishings
retailers and 30 percent of all
manufacturers as we know
- Bill Napier
Over 30 percent, and probably closer to 60 percent, of furniture retailers still have worthless websites with virtually no content to be found in search. Add to that no pricing and no online purchasing platforms. It's not a surprise that store traffic has steadily declined for years, and has now largely disappeared. Much of it will not come back. PERIOD.
In 2017 I wrote a “doom and gloom” blog about Michael Dugan’s book: "The Furniture Wars: How America Lost A 50 Billion Dollar Industry." Here are some updated highlights from that article that are even more relevant right now.
Why is it that our industry fails to make the required investments to attract consumers? These include decent websites loaded with thousands of SKUs. Well over 80 percent of people searching for furniture start on the internet and nearly as many are looking for product information. Over 75 percent of consumers who see a retail ad go first to the company website before visiting.
Amazon and Wayfair have tens of millions of pages of furniture SKUs on their websites. Do I need to mention others like Overstock? The message is clear. Show more... sell more!
Many retailers fail to put every SKU they have open to buy on their websites. They often say they don't want to do "special order," but in fact, every on-line retailer's purchase is a special order.
A huge percentage of furniture retailers ignore the need to have mobile responsive websites. The number of smartphone users in the US and Canada in 2020 has been estimated at over 285 million—and guess what—they aren't making a ton of phone calls. Our customers are surfing the internet, interacting with websites, watching videos, reading reviews and maybe/hopefully they’re checking out our stores!!
The furniture industry has systematically avoided showing prices or offering e-commerce on websites, even though MasterCard and "The Wall Street Journal" reported holiday sales of furniture grew by double digits. Even before the pandemic there were predictions that by 2020, 32 percent of ALL furniture purchases would be on-line.
For those of you who want to learn more about the role of technology in our industry, read our recent Technology Point-Counterpoint at www.furninfo.com/Furniture-World-Articles/3754.
More Doom & Gloom
Right now, our industry is in desperation mode. Isn’t it interesting that virtually every blog, email blast, LinkedIn post, etc., promotes video chat, online purchase, creating leads online, website content and more?
I believe it's too late for many in our industry to change gears and catch up to technological advances that have been going on for years.
I blame manufacturers more than retailers for the industry failures. Here is why.
They haven't embraced standardization of content to make it easy to stream their content online.
They've not offered retailer support to help engage consumers at the point of sale.
Most manufacturers have not developed strategies/tactics to help their retail customers show more and sell more.
Why has this happened? It's because most marketing people in our industry are focused on furniture markets instead of the end consumer, leaving the heavy lifting to their retailers to define their brand, the content, and go-to-market strategies. This, I believe, will be the demise of many manufacturers and retailers. As Ed mentioned, right now the smart money is looking to companies like Wayfair. Its stock has rocketed because they have the content that retailers and manufacturers don’t. It is that simple. (I am not, by the way, endorsing Wayfair long term.)
What Can Be Done
Retailers need to show every SKU for which they have “open to buy” and let shoppers decide how they want to buy… instantly or special order. At present we've acquiesced to Amazon, Wayfair and other "online-only" providers that together capture 63 percent of online furniture sales, according to data analytics firm 1010data, a company that tracks online sales via credit and debit card transitions.
Unfortunately, the old platform of “build it and they will come” has been dying a slow and now more rapid death for two decades. Sure, COVID-19 has been devastating for the industry, but in my opinion it has just accelerated the inevitable.