Over 154 Years of Service to the Furniture Industry
 Furniture World Logo

Predictions & Insights: What’s in Store For 2023?

Furniture World Magazine

on

Interview with Tom Liddell, Planned Furniture Promotions, Inc.

There will be winners and losers in the furniture retail community this year. Industry observer Tom Liddell provides insights into what may be in store.

Furniture World recently spoke with Tom Liddell, senior vice president, director, Planned Furniture Promotions, Inc., to get his thoughts about the likely challenges and opportunities facing furniture retailers in 2023. Liddell grew up in furniture retail, became a sales rep and then a manufacturing executive. An astute observer of the furniture industry in his own right, he prepared his comments after surveying retailers in trading areas across the country.
He began his remarks by addressing a number of major concerns for home furnishings retailers in 2023. At or near the top, for most, are concerns about current inventory levels

The First Loss is the Best

“Retailers couldn’t get it, so they bought more. It wasn’t necessarily the right product. They paid too much, and the freight rates made everything much worse.”

“Now that business has slowed at retail,” Liddell observed, “Murphy’s law has kicked in. To compound the problem, a surge of late product being shipped to retailers has loaded credit lines and caused continuing cash flow problems.

“The important thing here,” He noted, is to do whatever it takes to move this inventory out quickly. The first loss is the best loss in many cases. Instead of big discounts, try doubling commission rates or adding a big SPIFF. This will motivate your salespeople to sell more. It’s a good way to kill two birds with one stone. Instead of giving huge discounts to customers, your salespeople will get an incentive to perform well during a time of reduced traffic. Doing this will also serve as a powerful retention tool.

“Consumers love to feel like they’re taking advantage of retailers forced to offer big and legitimate discounts. That’s why when you do choose to discount prices to offload excess inventory, it’s a good policy to tell shoppers the truth about your situation. Let them know that you are overloaded with inventory and the reasons why.”

Lots to Say About Cash

Liddell had a lot to say about cash flow and financial issues. “More furniture retailers,” he explained, “are having trouble paying their bills than we are being led to believe. Right-sizing inventory will help not only with cash flow but also save on expenditures for overflow warehouse space.”

Staffing: “It’s not unusual for us to go into a store that’s struggling financially and find that it has up to double the staff needed for current operations. If a retailer’s volume slips, in addition to right-sizing staffing levels, a major task on their to-do-list should be to re-evaluate salaries. This is especially important for stores that are paying above market rates. Having a conversation about salaries is one thing store owners who are having problems rarely do. There are many reasons, including loyalty and the difficulty of having this conversation with long-time and trusted employees.”

Credit lines: “Retailers are having credit line issues. There are only two major factors providing manufacturers with receivables financing. And while those factors are supposed to provide specific credit lines for each manufacturer, in practice they look at a company’s global credit line. Recently, credit lines have tightened due to the instant, immediate and unexpected failure of retailers and some manufacturers. An example is United/Lane, which sent shock waves through the whole industry.”

Bank Covenants: “As business has slowed, retailers are using more bank credit lines at significantly higher interest rates to satisfy cash flow demands. That’s causing banks to take a hard look at the furniture industry as a high-risk proposition.

“Banks have recently cut off credit lines and called notes for more than one large retailer. This is similar to what happened in 2008, 2009 and 2010. Back then, we joked that it was almost as if somebody sent a memo to every banker warning them about the potential for furniture store failures. That’s why every retailer who reads this article should review the covenants in their bank loans to ensure that they are in compliance.”

Creditors: “Retailers need to communicate frequently with their creditors. Credit managers tell us that their retailer customers don’t do this effectively. They just go radio silent when things get tough, the worst possible thing to do. Furniture World readers who are having cash flow issues need to be honest with suppliers, and only make promises they are 100 percent sure they can keep.”

Closing Locations: “When cash flow is challenging, closing a weak store with a professionally run store-closing event can be a great way to generate significant cash flow. We do that frequently for clients who have multiple stores. It cuts back on massive amounts of inventory, generates cash flow and frequently, most importantly, generates profits.”

“Banks have recently cut off credit lines and called notes... That’s why every retailer who reads this article should review the covenants in their bank loans to ensure that they are in compliance.”

Employee Retention

“Recruiting and retaining employees is problem number one for every retailer out there,” Liddell told Furniture World.

“PFP has closed a number of stores for clients recently, and more are getting ready to close because of an inability to achieve proper staffing levels. The latest government reports indicate that approximately seven million healthy Americans are choosing not to work. They are not getting government money anymore, so we’re not sure what they are doing with their time. Fortune magazine just wrote an article noting that in 2022, one in eight millennials, the oldest of which are turning 41 this year, moved home to live with their parents.

“Retailers need to do even more to attract and keep employees.” Liddell related a number of tools retailers are using to achieve this end.

Perks & Benefits: “Over the past few years,” he observed, “employees have seen tech industry giants giving countless perks and benefits. For example, six weeks of paternity leave for new fathers plus four to six weeks of paid vacation. How can any retailer compete with that? Some have tried giving sign-on bonuses, paid after a period set by the retailer. Others have switched to paying a commission on written versus delivered. It’s not a new idea, but it can be helpful.”

Creative Compensation: “Others,” he said, “have offered creative compensation packages to provide commissioned salespeople with more consistent income streams. This helps job candidates overcome fear of the peaks and valleys often associated with commissioned-based positions. One retailer I recently spoke to pays his salespeople a flat amount each week and settles up on their earned commissions at the end of the month—a pretty smart idea. That same retailer noted that his people absolutely love it.”

Frequent Gratification: “More ideas? Try profit sharing. Retailers who do this are often shocked by the positive results. It’s important not to make goals impossible to reach or have employees wait too long to get paid. Build in frequent gratification. Monthly or quarterly bonuses or profit distributions work best to maintain loyalty. These distributions don’t need to be large. At a minimum, profit sharing gives employees the feeling that they have an important stake in a company and that the role they play is more than just a job.”

Recognition: “Gone is the time when employees could receive a quick training session and be on their way to perform at an expected high level. Continued training, awards programs, confidence-inspiring sessions and finding ways to keep morale high during slow periods are critical to retention. For example, taking a different team member out each week for a special lunch shows them that they are valued. When doing a sale, we frequently treat entire sales and warehouse teams to lunch or dinner to recognize stand-out employees. Another idea is for owners or managers to hand out gift cards to top performers. Do this while they’re working with a customer. It acknowledges their professionalism. Just walk into the middle of a sales presentation, introduce yourself and say, ‘I don’t want to interrupt, but Jane has done such a good job of serving her customers that I am giving her this gift card to show our appreciation.’ After handing Jane the card, say, ‘I trust that you will be able to help this customer find exactly what she needs as well.’ Then walk away. In short, let your team members know they are important to your business and that you can’t do it without them.”

Mature Shoppers

“About a year ago, I asked one of our clients in North Carolina how old his average customer is,” Liddell recalled. “The retailer replied that it looked like they were some place between crutches and a walker!

“Since then, I’ve asked all my clients the same question. Many smaller, independent retailers say, ‘Oh my gosh, so old.’ Younger shoppers aren’t showing up because they don’t believe these stores have anything they are looking for. ‘It’s mom and dad’s store, not mine,’ they tell themselves.

“These same retailers are proud their brand has survived for 50, 70 or 100 years in the furniture industry, but this longevity is a liability if their model is tired, or if younger shoppers believe it is. At this point, it can be too late to throw advertising dollars at the problem. The best option for them, other than accepting continued decline, is to implode their existing model. It’s a tough pill for store owners to swallow. Often, we recommend that they close down completely with the help of a store closing sale, then reopen under a new model with a new brand and a concept that’s fresh and exciting.”

Furniture World asked Liddell if many of them took this advice. He replied, “Very few, but the ones who do tend to be very successful.

“When considering this option, owners need to get out of their bubble—leave their stores and travel beyond their familiar trading areas. We give them names of owners to visit who have developed retailing models that are relevant to a younger shopper, new, hip and fresh. Only in this way can they develop a concept that’s unique and exclusive to their market.

“It’s very difficult or impossible for independent retailers to compete with the big chain stores anyway. So rather than trying, it makes sense to offer something totally different. That often means becoming style oriented and heavily accessorized with fresh, relevant accessories that appeal to today’s consumer. Retailers have succeeded by creating destinations that female furniture shoppers take their friends to visit, not just go to themselves.”

Operations Ideas For 2023

“Retailers who have not done so should set up performance teams for delivery and warehousing, use metrics and institute weekly reward systems,” Liddell advised. “They should shuffle their teams to keep it fair. In other words, if one team comes out on top every single week, shuffling teams will keep it equitable.

“Many of our friends in the industry have hired contract carriers to handle their deliveries, which works well. However, retailers should take care when hiring a company to take over warehouse operations. Our experience is that when retailers fail, these companies are often owed millions of dollars. Many warehouse management companies talk a good game, but we’ve found that the expense isn’t always justified.”

Inflation Weary

Product prices ramped up during the pandemic when deliveries slowed, and consumers were desperate to furnish their homes. “Now, the promotional sector of the furniture industry is being hit hardest by inflation,” Liddell said.

“A promotional sofa used to retail for $299. That’s no longer the case. Stores that specialize in promotional products have been devastated. My advice for these stores is to get out of the business of being a promotional specialist since it’s not getting any easier. We’ve seen these stores try to adjust their models, but I’ve never seen anyone do it successfully. That’s because if they’ve done any advertising—if they’ve screamed price for a while—that’s all they will ever be known for to the buying public. As they say, you can’t change the stripes on a zebra.

“Lower income consumers no longer have government-subsidized free money. And even worse, their dollar won’t go nearly as far as it used to. Priorities have shifted away from furniture to food and rent as always, plus the latest, greatest smartphones.”

Compliance Issue Risk

Liddell said that retailers need to watch their compliance on a couple of fronts, including website ADA and the new tip-over rules. “Everyone needs to keep an eye on the new tip-over regulation,” he warned. “Once it goes into effect during the first half of 2023, retailers will need to make sure that they don’t have non-compliant inventory subject to the new law in inventory.

“Another issue I’ve heard about from several people has to do with ADA non-compliant websites. Certain attorneys specialize in finding retail websites that don’t measure up, then file lawsuits. I’ve been told that defending against such a lawsuit can cost 80 to 100 thousand dollars.

“Similarly, retailers need to make sure that their aisles, restroom, and doors are all ADA compliant. That’s another situation local attorneys are searching for. They all have a client on standby, willing to file a lawsuit.”

Discounts and LTL
Moving on to pricing, Liddell said that at wholesale, “the market is slowly returning to normal levels with pricing coming down along with freight rates. Many vendors offer significant discounts, especially on slower sellers. Retailers must remember that lower prices won’t make a weak product sell better. It’s a better practice to stick with best sellers.”

Beware discounted goods: “Most vendors are completely doing away with pandemic pricing. Instead, they choose to eat their shipping costs and take the loss immediately. Those that do this sooner know that they will move the most product and be more important to retailers. Companies are vying for United/Lane’s business, but so far, no one company is able to handle all the mix and volume needs. So, we will see how that affects pricing going forward.”

LTL invoicing: “LTL freight is a continuing problem. In some cases, invoices are still going past due before retailers receive their products. I mentioned the issue in my interview with Furniture World, about a year ago. We suggest that retailers ask their vendors for help dealing with this issue. Manufacturers’ logistics departments have the leverage to negotiate with carriers on behalf of retailers. Even though the retailer is ultimately paying the freight bill, the freight carrier’s customer is really the manufacturer.”

“Another thing that should be of some concern to retailers is that everybody, and I mean everybody, is getting ready to jump into the furniture business.”

Selling or Closing Stores

“In 2022, we handled events for stores that chose to retire while business was still good. Some didn’t have a next generation to take over the business. Others felt that the time was right to get out. Many think that companies like ours only handle events for financially challenged clients, but that’s less common than retirement sales or closing an underperforming store, which again, is a good way to boost cash flow.

“One consideration for retailers thinking of getting out of the business is that it is very hard to sell an independent furniture store, regardless of how successful it is. Even when a buyer can be found, they may not pay as much for a well-positioned store as an owner might earn in a liquidation event.

“It’s my experience,” Liddell continued, “that selling to employees almost never works. The new owners often have difficulty paying rent and setting up large credit lines with dozens of vendors. The result is the original owners get the store back and end up with a greatly diluted liquidation opportunity. That happens all the time.

“Throughout the pandemic, we saw numerous major bankruptcies that kept us very busy. Independent store liquidations were much rarer. Owners got a taste of the PPP bailout money and stores were busy. They chose to stay in business and work for a couple more years. Right now, we are seeing an uptick in people looking for exit strategies.”

When asked if some well-positioned retailers will use the slowdown to build stores and grab market share, Liddell replied, “I don’t think a lot of retailers will add significantly to their store count in the near term. Those retailers that opened stores during COVID got hit with a huge dose of reality in the last 12 months as expanded payroll and the additional debt they took on has made retail life more difficult. The bottom line is that we don’t know a lot of companies that are considering expanding at this point.”

More Competition in 2023

As if furniture retailers didn’t have enough to worry about, Liddell heaped on concerns about competition from big box stores and online marketplaces.

“At the time of this interview,” he noted, “consumer confidence is near an all-time low, and consumer credit usage is near an all-time high. Savings that consumers built up during the pandemic are being depleted. Both consumers and retailers are worried about a perfect storm situation.

“Another thing that should be of some concern to retailers is that everybody, and I mean everybody, is getting ready to jump into the furniture business. Lowe’s, Home Depot, Menards, and even Bass Pro Shops, are featuring expanded furniture options on their websites. Many of the home improvement players who haven’t done so in the past are starting to stock furniture in their stores. At first, these stores thought they would pick up incremental online furniture business. Now they are buying and stocking.”

Liddell also warned about marketplace companies like Beverly Hills-based StyleRow (stylerow.com) that provide a number of services to designers, including product sourcing.
”Basically, StyleRow is a marketplace seller potentially catering to tens of thousands of designers. This kind of marketplace selling is shaping up to be a major competitor for retailers because it will turn thousands of designers who currently purchase from them into direct buyers.

“Many high-end home furnishings manufacturers are jumping at the opportunity to feature their products on these marketplaces. It’s true that designers have had the ability to buy product for some time, but now it’s going to be wide open. What’s interesting about StyleRow’s revenue model is that they don’t make money selling home furnishings. Designers pay to be members. Vendors pay to be members. StyleRow provides a portal for these two groups to come together and do business. It’s another reason for concern among high end retailers.”

Winners and Losers in 2023

“The winners,” Liddell concluded, ”will be those retailers that used PPP bailout money to solidify their financial foundation. The big chains will continue to benefit from economies of scale, container buying, high-volume discount pricing and the ability to add new stores with greatly reduced incremental costs. Frankly, I don’t feel good about ending this interview by talking about losers. I’m hoping retailers who read this article will avoid the fate of ending up in that category. As always, I’m glad to speak with Furniture World readers about any of my comments in this interview or issues they foresee in 2023. My contact information can be found at www.pfpnow.com.”


Russell Bienenstock is Editor-in-Chief of Furniture World Magazine, founded 1870. Comments can be directed to him at editor@furninfo.com.