Distribution channel changes affecting flow of casual furnishings industry
Lissa Wyman -- Casual Living, July 1, 2009
The topsy-turvy economy has proven catastrophic for many of those on top of other industries, such as banks and auto makers, and equally disastrous for many Americans who have lost their homes or jobs. Yet, for many in the middle, the situation is mixed, and things are not as bad as the media might make it appear.
Not all of the distribution channel changes going on in the casual industry are related to the economy, and the changes underway may represent more opportunities than setbacks for the enterprising independent retailer, according to an association leader, manufacturer and two specialty retailers in the casual furniture field.
Andre Pimentel, owner of Dartmouth, Mass.-based Dartmouth Casual Furniture, reported he hasn't suffered any direct changes in his business due to the recession, but has seen adverse affects from online competition.
"What happens is that people shop the store, take all our time, then shop for versions on the Internet and give the other guy the profit," Pimentel said.
He thinks this is a result of the tight economy combined with consumers being more computer savvy.
Any solution? "The Internet took everybody by surprise," Pimentel said. "Manufacturers have had to deal with it over a period of time. Some have responded to the problem and have gotten pretty good about it. Others are turning a blind eye and are trying to get every sale. But, at a certain point, retailers will simply stop buying from manufacturers who put their goods online. People will still want to sit on the furniture before they buy it."
One advantage of the current economy, Pimentel said "is both manufacturers and distributors are shipping product quicker and offering more incentives."
David Jacobs, owner of Jacobs Upholstery and Patio, Spokane, Wash., also has noticed this positive, but said in some instances it has been a negative.
"At the start of the selling season, two of our vendors announced that sales would be down 25 percent, which came as a shock," Jacobs said. "What happened is that our business took off and was really good. Here in the Northwest it can be hard to get product. Shipping can take a week to 10 days from California, five to six weeks from production. I had to fly some product in to meet my customers' needs from those vendors who predicted a poor selling season. On the other hand, our other vendors have been super in getting product to us quickly."
International Casual Furnishings Association Executive Director Joseph P. Logan also confirmed that trend. "Manufacturers are shifting away from encouraging earlier buys at a cheaper price as part of their effort at cost savings," he said. "Instead, they are delivering products as needed by the retailer in a shorter time frame."
Logan described another economic result as "manufacturers are facing a credit crunch from their banks and so are tightening up credit with their retailers."
Jacobs acknowledged this was happening to him. "Even though my business is doing well, when I tried to get an extension on my loan from my bank, I couldn't get it," Jacobs said.
Although Jacobs' business is increasing, he said, "It's interesting but we're getting more of the $3,000 sales, while the higher digit $15,000-plus sales are off. Those people have the money, but are just afraid to let it go."
Sharing an entirely different perspective was manufacturer Ken Burrows, president, Terra Furniture. "Outdoor furniture can be a major investment, in the $15,000 to $25,000 range, and people are making those investments now," he said.
One reason Burrows was seeing these major purchases coming to him while Jacobs was not is that Burrows sells to interior designers who have extended their designs to the exterior, deck, patio and backyard. Terra has narrowed its focus to the interior designer or wholesale showroom because of longer range changes in distribution, Burrows said.
"The places that sell casual furniture aren't that different, there are just so many more of them," Burrows said. "The big box stores have for years been upgrading their products, as have other larger chains. So there are many more places for the customer to shop these days than just the specialty retailer. The customer is not going to be satisfied just looking at a couple of sets. She is seeing a lot more in various raw materials. It used to be that the only wood was teak. Now there are a number of other woods as well. There also are (choices in) aluminum, mesh, and woven resins. Five years ago you couldn't find woven resin furniture. Now who doesn't have them?"
Burrows' focus is on the affluent customer. "Years ago, an outdoor chair would sell for $10 or $15. Now it can go to $800 or $900. There's so much more selection. And now every magazine you pick up, from Sunset to The New Yorker to large cities with their own magazines such as Los Angeles or Miami, is displaying casual furniture and making it that much more popular."
At the same time Burrows is bypassing the specialty retailer to sell to the interior designer, he knows designers sometimes will take clients into a specialty retail store. In other words, the specialty retailer who cultivates relationships with interior designers might be able to find another way of reaching the affluent customer.
Logan agrees that the distribution channels have shifted over the past few years, with the mass market stores like Home Depot and Target not only growing fairly significantly and improving their product lines, but also the branching out of many smaller garden centers and gift stores into casual furniture.
"All retail outlets are facing challenges for the economy has made consumers much more value conscious," Logan said. "They are willing to pay for what they want, but they want to get a perceived value on that purchase. The strong specialty retailers, who offer a wide variety and outstanding customer service even though they may have to work harder in the midst of the economic downturn to get a sale, are in a position to prosper."
Logan also sees an end to the downturn. "I think we're beginning to see some positive changes in the economy. Outdoor furniture was the strongest segment in home furnishings, because when people stopped traveling due to the economy, they were more inclined to put their money into outdoor living. With the incredible interest now in outdoor living space, that helps the pie get bigger for everybody. So there are lots of opportunities for the enterprising specialty retailer."