Triple Whammy Hits Home Retailers
By George Anderson
Traditional furniture and related home furnishings retailers are getting hit from pretty much all sides.
According to a piece by the Fort Worth Star-Telegram, companies such as Pier One Imports and The Bombay Co. are finding that increased competition from discounters such as Target, economic issues facing the middle class and new style preferences are creating stiffer challenges for them than those faced before.
“It is a confusing time in home retail,” said Karin Miller, principal of Miller Merchandising and a member of the RetailWire BrainTrust. “Our jobs as merchants have been pretty easy for the last decade because the customer has told us time and time again that they want more of the same. Now that has changed.”
Richard Hastings, senior analyst for Bernard Sands, said it has become increasingly difficult for retailers to differentiate from the competition.
“There’s an enormous shaking out taking place,” said Mr. Hastings. “These are some of the most discretionary expenditures imaginable, and they’re ubiquitous — there’s absolutely no marketing advantage to be had at this point. If the same styles are available everywhere, then what do you do?”
While many businesses have struggled, some are doing relatively well. Williams-Sonoma’s West Elm business emphasizing modern designs has performed well, as have Ethan Allan Interiors and J.C. Penney with its Chris Madden designer line.
“The modern look is growing by a larger percentage than any other look, but it’s off a small base,” said Ms. Miller. “Modern customers are estimated to be about nine percent of the total population.”
Moderator’s Comment: Why do you believe so many furniture and home goods retailers have been seemingly caught unaware of the shifts in the consumer marketplace?
Do you agree with Richard Hastings that the same styles are available everywhere? If yes, how do retailers create a point of difference in the minds of consumers? –
George Anderson – Moderator
All of the factors noted have conspired to make home furnishings, and furniture specifically, into lifestyle choices not dissimilar from those in apparel. One’s home is an extension of one’s lifestyle identification, and with home entertaining trending back in popularity, the need to have a home which reflects personal style becomes even more important.
And it can be done now at a relatively low cost. Further, one can even change out, augment, and adapt the home look over time to reflect changes in your own lifestyle preferences.
Just note that the retailers in question have never been consumer oriented stores. They were “trend creators” in their own minds. Both stores “scoured the world” to find cool, elegant, neo-classic and fashionable items which could not be found elsewhere. That worked, for awhile. But Cost Plus does the same thing, and much less expensively. Even Costco offers periodic furniture in neo-classic styling or from pseudo-exotic locales.
The reality is that home furnishings retailers now have to be responsive to the lifestyle trends of the consumer, rather than depend on “telling” the consumer what is current. Too much competition, too much information, and too much affordable product. It’s ok to take fashion risks because the cost isn’t as high as it used to be. And the companies mentioned were never, ever based on the culture of identifying and responding to consumer lifestyle trends. They were in the business of buying what their merchants thought was cool stuff, selling it in a fun and upscale environment, and having little if any real competition. Typical of a business in its early lifecycle stages. Well, the world has changed, and these players have not changed with them.
After spending 3 days trying to “visualize” a media wall configuration for my home with Ikea products, assembling for hours and hoping for the best, it occurred to me yet again that this vertical has serious competitive opportunity if they get closer to their consumer needs. Of all categories, home furnishings stands to benefit by making it easy on their customers. Why do we still not have easy to use “design tools” to create virtual rooms and receive proactive product recommendations? Or, on-site or virtual design assistance?
Shopping for the home is often incredibly overwhelming and although we are getting better at offering ranges of on-trend, price conscious products, I would personally love to see technology put to better use for shoppers. Yes, the home retailers are getting hit from all sides…but they have plenty of opportunity to respond.
In terms of not seeing direct sourcing coming…I just can’t imagine how that could be the case. Direct sourcing and private label have been on the scene for quite some in multiple categories and as sophisticated as they have become in grocery and apparel…who would assume that furniture, of all cumbersome categories, would be immune?
One thing that I do believe was dismissed is the re-emergence of etailing in the furniture equation. Beyond the nimble specialty and dedicated etail players, Target, Sam’s, Costco and other biggies quietly presented upscale furniture assortments on their websites and snagged new furniture fans in the process (and sams.com takes credit cards unlike the stores; no small detail). Target’s excellent online furniture store is a pleasure to shop and anything I have ordered has arrived quickly and in excellent shape. Finally, Pier 1’s move away from commodity rattan and wicker to a cleaner and more modern point of view was too little too late. Target and Wal-Mart had already cornered the market on rattan and wicker and were throwing in the cleaner looks as well. Pier 1 started looking like the lumbering one and beyond that, I’m not sure that their customers were ready for the shift.
Another point that did not “make the cut” was that a decade ago Pier 1, Cost Plus and IKEA were differentiated in that they were going directly to the source, whereas other retailers were working through suppliers who designed, sourced and warehoused the product. This “cutting out of the middleman” gave them a cost advantage and allowed them to control their product.
Today, most large retailers are designing products and going direct for a growing percentage of their business. Many of the suppliers, who often had a unique design point of view, are gone.
Meanwhile, the sources for product are consolidating, and many factories produce for multiple competitors, making it hard to keep new products under wraps.
The inside design teams at traditional retailers have had varying results, sometimes partnering with celebrity designers in an attempt to build distinctive brands.
As mentioned in the article, West Elm really stands out as a young brand that, in the IKEA tradition, confidently made a new merchandise statement (albeit relying on sister-company Pottery Barn’s “everything product works with every other product” strategy) and has been successful.
The article and Karen Miller’s comments are spot on. The world is shrinking and retailers need to learn faster than ever before. One only needs to look at the growth of international sourcing offices to see this. Who would have thought that grocery chains (regionals, not just nationals) would get into the sourcing market? They are, with a passion, and the likes of Pier 1 and IKEA have everything to lose from this phenomenon.
Three trends are converging: (1) consumers are demanding (and now finding) furniture that fits their taste and lifestyle, (2) ready-to-assemble furniture is becoming more stylish with more choices available, and (3) retailers can go directly to the source to have furniture designed and produced and some companies have opened that serve as the middleperson to work with producers of furniture in countries that can produce low cost furniture.
Ready-to-assemble furniture used to be one style, low quality, and a choice for people with little disposable income. However, many manufacturers and retailers offer stylish furniture consumers are happy to have in their homes. In addition, the styles are more contemporary (or retro) and varied. This definitely appeals to consumers who want customized and personalized furniture that reflects their style. Now that manufacturers and more distributors have access to design teams and low cost producers this trend is likely to increase. As young people are caught with low paying entry level salaries, high loan debt from school, and the desire for ways to express their individual style, a choice of less expensive interesting furniture meets this demand.
If companies do not pay attention to the changing demand of consumers, they leave the door open for competitors.
Both Pier One and The Bombay Company lost their fashion/styling leadership years ago. Pier One hasn’t had a consistent unique appeal for a long time, and The Bombay Company’s styling, once fresh, now appears stagnant. Neither retailer has a low cost location structure, so both need high margins, which are only possible if the styling is fresh and appealing. In contrast, Ikea has low cost sourcing as well as a low cost location structure.