The Future of the Furniture Industry: Sticks and Stones May Break Your Bones.
Despite the rapid growth in online sales in most categories of retail, the furniture industry’s percentage of online sales has held constant over the last few years at approximately 7.5% of total.
More, according to Statista, this percentage is actually down from a high of 14.6% in 2010. The in-market results show a reversal of the general trend to shift more towards online. And this raises questions about the future of the furniture industry. How will brands succeed, retailers stay in business, and the industry to grow in general?
Few industries face greater macro-challenges than furniture and no industry has done less to adopt the macro-innovations that are commonplace in other lines of trade. Let’s take a look at the structure of the industry and propose a way forward.
As manufacturers, especially case good producers, consider their future, they battle three forces that make their prospects dim.
- Changing consumer expectations of luxury: As technology finds its way into automobiles, phones, homes, and almost all other consumer durables notions of luxury are shifting to a broad range of experiences. These differing levels of experience highlight engagement and entertainment – they are affinity technologies that build audiences. Furniture is the opposite, defined by basic frames that have not changed for decades, designs that have few innovations for health and fitness, nor do they have their own intrinsic experience. These designs position furniture at best as enabling technology which in turn limits its ability to be keep pace with evolving definitions of luxury. Your sectional may contain a cooler making entertaining easier, but it’s the television that keeps the guest focused and the adrenaline pumping.
- Slow adaptation to trends: For decades the industry has been characterized by batch manufacturing processes with long set-up times for each production run. Frames and tooling are not easily changed and automation is very low throughout the industry. Colors are forecasted and programmed into trends years in advance. This legacy manufacturing approach disconnects the industry from the second-by-second opportunities that emerge through social media and accelerated marketing. This structural slowness not only keeps the furniture behind trends, but severely limits its ability to create a broad social meme. A key metric throughout the industry that symbolizes slowness is the slow turnaround time for special-order merchandise.
- Retailer logistics: Delivery is the most costly and damaging part of the furniture supply chain. In addition to creating damage and problems during the actual delivery, retailers are devising strategies to minimize their service involvement with the customer. Not only does this abdicate a major part of the service value chain, it also will increasingly put pressure on suppliers to come up with solutions to protect the value of the both the retailers’ and manufacturers’ brand.
As retailers consider their future, they also battle forces that make their prospects dim.
- Household compositions are changing: In the last 25 years households with two parents have dropped from 55% of all households to 48%. Fewer households in an economic environment that is compressing income is a real headwind for furniture spending and furniture stores. In addition to a slow growing market, more and more sales are moving online. Nearly 65% of furniture and home furnishings sales are occurring on-line. The growth in online sales will continue to fragment the traditional retailer market as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the furniture market by taking hard-to-defend slices.
- Pricing power is virtually non-existent: Over many decades, retailer marketing and messaging has been heavily skewed toward discounts and events, a pattern that has taught consumers to only buy at percentages off. This trained consumer then compresses margins and limits the free working capital that could fund the investments needed to reposition their brands.
- High barriers to exit: While the numbers of furniture stores continue to decline, entrenched regional players consolidate their market positions. These retailers are often sustained through strong credit operations that offset the low and declining margins of the merchandising operations. Weaker independents falling out of the market have buoyed the regionals making their runway to success longer than in other retail sectors.
It would easy to conclude that the furniture industry is broken and likely to face a continuing consolidation that thwarts aggressive investment. However, the dismal decline scenario can happen in reverse.
[bctt tweet=”Where there is volatility, there is always the opportunity to create value. The key is finding the leverage points for arbitrage.” username=”concentricabm”] The key is finding the leverage points for arbitrage.
Just as furniture is instructive about forces that can undercut an industry, furniture brands have tools from other industries at their disposal to create new winning strategies. I call them the four new P’s of Marketing. The old ones are (product, place, promotion, and price)
- Partnership: Taco Bell and KFC. Sephora and JCPenney. Target and CVS. Smart Car and Mercedes. Mini and BMW. There are many ways for retailers to leverage traffic without the cost of a store. Few partnerships exist where furniture retailers or brands have moved into other distribution channels to expand their market with additional reach. Curating a partnership is a tough challenge. Selection, service, and sales are hard to calibrate but worth trying when reaching new customers is critical to survival.
- Personalization: Furniture retailers and brands have strong in-depth knowledge of the consumers. They have been late to the party in investing in the low-cost, fast-moving tools that would help them create detailed experiences that would tie consumers to them. Capturing floor plans of homes, life stages of the family, and items purchased might be combined to find build propensity models of shopping behavior. Brands should mine for not only the moments when people are likely to shop but also what messaging is critical at those moments.
- Prediction: All along the supply chain, it is hard for most brands to forecast sales well over time. New analytic tools like attribution and simulation exist that allow brands to determine sales based on their media investment, their competitors activities, and on the quality of the consumer experience. Applying these analytic tools would give a demand signal that could help plan inventory and production better. Per-launch testing would eliminate failure in beta and speed time to market. Driving down misses will eliminate unnecessary inventory stocks which in turn would free up working capital, provide greater overall responsiveness, and improve margins over time.
- Partition: As brands extend their reach and become more attractive compared to non-furniture alternatives, the industry will have to slowly migrate their proposition away from price to a new value proposition that incites more loyalty and repeat visits. New research approaches like discrete choice studies or digital ethnographies enable detailed explorations of what is important to consumers and what is not. Defining those things that have higher utility will allow premium pricing as enhanced execution on the key parts of the consumer experience improve. Ultimately segmentation will allow brands to say this is what we stand for and this is what we do not stand for, a separation or partitioning of their market.
Combining the new four P’s will take commitment. Consumer behavior patterns are hard to break and require years of sustained effort to change perceptions. Furniture brands must connect the dots in their challenging environment. All of their marketing strategy communicates something about their brand. Their investment in media, store, events, assortment and pricing create events in the consumers’ minds. Those events change consumer perceptions, brands they consider, and their likelihood to talk.
Along their journey, furniture brands have to realize they are competing with a wide array of non-furniture brands as well. Whether it is a unique vacation experience, an investment for a kid’s education, or a dreaded furniture competitor, furniture marketers must think broader and dynamically. They must strive to energize an influential customer base. They must be working toward an explosion of word-of-mouth and viral communication that ultimately sees the consumer as media. Media that gets turned on by the effort the brand has created to cultivate a unique experience that is differentiated.
Mapping out the brand ecosystem will require a new conception of the market. No longer will the scope be limited to intra-industry swaps of share. As the macro-forces clear out the underperformers, the winners will be those who craft a new strategy that seeks to gain share of wallet for inter-industry durable dollar.
For the industry, the risk of taking action is probably higher than the risk of not taking action, a reality that does not bode well for broad industry innovation. But the day for change cannot be forestalled forever. Shrinking growth and shrinking margins will ultimately destroy the middle of the road competitor who is waiting for the next big upward turn in the economy. Starting now on a new course is a hedge in an environment where only a few will survive and scale will not necessarily be strategic enough to ensure victory. Sticks and stones will break some bones – the question is whose will be broken.