Not All Doom & Gloom

News flash! Some retailers continue to report increases in sales and profitability. Here’s how the best in our industry get above-average results.

Some ‘talk’ in the industry would have you believe there is an across-the-board recession in the home furnishings industry. It’s true that some companies are having problems, but there are others currently performing well in terms of sales and profitability. Indeed, there are even some whose same-store sales numbers and other operational metrics are up in 2023.

Whatever situation you find yourself in, know this: The best performers are the best because they continually strive for top performance in multiple areas throughout their organizations. They do not settle for average performance and mandate that their employees follow processes that produce results.

This article suggests ways furniture retailers can improve performance in warehouse operations, delivery, service, occupancy, employees, marketing and cost of goods. I recommend a key metric to use for each operational area, followed by actions proven to improve results and achieve excellence. Sales per guest and guest productivity metrics were explained in recent Furniture World articles. Find them at https://www.furninfo.com/authors/david-mcmahon/6.

Warehouse Operations

Weekly Delivered Sales per Operations-Person Hour

This is a master metric for back-end operations. Retailers that perform at a high level generate the most revenue with the fewest people-time resources. In doing so, they can afford to pay the best wages and thus attract better candidates. They may also have less employee turnover, a top challenge for many operations. Calculate it weekly by dividing delivered sales by the total hours worked by people performing tasks associated with the receiving, warehousing, delivery and servicing of merchandise. Top performers in the present economic environment can achieve over $480 in delivered sales per operations-person hour.

Here’s how excellent operations achieve this:

• They consistently report this metric in weekly managers’ meetings.

• Hiring and layoff decisions are made based on this measurement.

• Employee promotions are tied to individuals’ measured performance, reliability, and work ethic.

• Warehouse and operation managers’ bonuses are tied to their effectiveness, measured by delivered sales per operations-person hour.

• Continuous process improvement is sought with moving and transporting inventory while minimizing negative issues.

“Whatever situation you find yourself in, know this: The best performers are the best because they continually strive for top performance in multiple areas throughout their organizations.”

Delivery and Assembly

Total Delivery Cost / Delivered Sales

Top performers consider delivering merchandise to be a profit center. That means that all delivery-related expenses are covered by appropriately charging for delivery services.

Total delivery cost includes all driver salaries and truck costs. Divide the total delivery cost by delivered sales for the same period. The revenue for top businesses always exceeds these costs. Delivery income alone for the best performers is over 4%. The best of the best can achieve total delivery cost/ delivered sales of 8%.

Here’s how excellent operations achieve this:

• They rarely charge one flat dollar delivery fee. Instead, they use a tiered approach that increases with the dollar amount, or they use a flat percentage of each sale. Long-distance delivery charges are calculated on a per-mile basis outside of local zones.

• All merchandise deliveries are subject to fees, regardless of any national bedding competitor’s delivery policy.

• Their delivery teams are considered the best in their marketplaces. Their salespeople believe this and feel justified in charging for delivery. Their customers believe this as well.

• Employees are incentivized to produce at a very low or zero delivery error rate.

Service

Number of Open Service Tickets / $ Million

Customer service in our industry typically refers to problem resolution for damaged or defective items. The best out there have fewer open service tickets because they resolve issues faster, continually driving the number of open tickets down. To measure this, divide the number of unresolved tickets by the annual sales volume, then divide the result by $1 million. Top performers have three or fewer open service tickets per million dollars of sales at any given time.

Here’s how excellent operations achieve this:

• They use innovative ticketing systems to save time and speed up the process. These include using customer-facing web-based systems that open tickets automatically and notify team members.
  
  
• Their employees are organized, efficient, decisive and able to communicate professionally using various tools, including email, text and the telephone.
  
  
• Issues are tracked. When similar problems recur, they are fixed or eliminated.
  
  
• Vendor credits are achieved through better organization using digital forms, automation and open charge-back ticketing systems, similar to customer-facing web service forms.

“Delivery income alone for the best performers is over 4%. The best of the best can achieve total delivery cost divided by delivered sales of 8%.”

Occupancy

Store Costs as a Percentage of Revenue

Occupancy costs can make or break a business because they are typically the most fixed of all operating costs. Many companies that own their property have locked-in mortgage contracts, while those that rent are locked into inflexible fixed contracts. In either case, total occupancy-related costs include the payments mentioned above, plus utilities, maintenance, remodeling, cleaning, trash, and any other expenses incurred between store walls that are non-selling and administrative-related. Calculate the sum of these costs and divide by the delivered sales dollar amount for the same period. Top retail performers that pay market-rate rent come in at 5% or under for store costs as a percentage of revenue.

Here’s how excellent operations achieve this:

• When opening a new store, they plug in an under-performing sales revenue (perhaps $80/square foot). Then, they divide that number by a realistic total occupancy cost. If the result is under 10%, they consider the investment. Furniture stores cannot make much money at 15% occupancy cost as a percentage of revenue unless they get funds from other ventures or company divisions.
  
  
• Excellent operations invest in their buildings to keep them relevant. Looks change with time, and retail spaces can degrade, appearing tired and unappealing to customers.
  
  
• They keep their spaces spotless and appealing to the senses—sight, sound, smell, taste and feel.

Employees

People per $1 Million In Sales

Problems with hiring and retaining good employees are routinely brought up in our performance group meetings. When retailers are understaffed, their employees tend to get stressed out or buckle under the workload, becoming ineffective. Sales can only increase so far for fast-growing operations without adding additional talent. The metric, people per million dollars in sales, helps retailers keep an optimal balance. Calculate it by taking the average number of all people, including salaried employees, contractors, and owners receiving compensation, then divide that by annual sales. The top performers are usually above $280,000.

Here’s how excellent operations achieve this:

• They have fewer, more capable administrative people than average operations, but compensate those people for their higher value.

• They employ professional internal marketing people or work effectively with outside agencies.

• They typically have 1-1.2 operations employees per million dollars in sales.

• Their average salesperson writes over $750,000; the organization has individuals who write over $1.6 million.

• They use web-based technology to execute work that would have been labor-intensive in the past.

“When opening a new store, they plug in an under-performing sales revenue (perhaps $80/square foot). Then, divide that number by a realistic total occupancy cost.”

Marketing

Marketing Cost per Store Traffic

Marketing expenditures in our industry range from as low as 2% of sales to higher than 12%. Although it is good for businesses to budget for a certain spend, it is necessary to understand how adding marketing dollars affects traffic. To help understand this, divide in-store traffic over a certain period by the marketing investment for the same period. The best performers in Marketing Cost Per Store Traffic (for multi-line operations) are under $25.

Here’s how excellent operations achieve this:

• They generally achieve their highest marketing ROI from digital advertising (web, search, email, text, CMR).

• They get additional traffic through non-traditional marketing means such as follow-up and events.

• They professionally manage digital leads with people, systems and processes.

• They invest in innovation and automation to digitally trigger marketing communications and follow-up.

• They often have decent locations and/or an established presence in their marketplaces.

One More Important Metric:

Cost of Goods Sold Percent of Sales

COGS Percent of Sales is the landed cost of goods sold expressed as a percentage of delivered sales (not including delivery & service income). Adding COGS to all other operating costs, then subtracting that amount from total revenue, results in net income. Since it is by far the largest cost furniture retailers incur, COGS plays a huge role in determining profitability. Although there are high-profit operations that achieve a COGS percent of sales above 45%, the very best performers perform below this level (In other words, margins that are 55% and above).

Here’s how excellent operations achieve lower cost of goods sold:

• They are better buyers and inventory managers than their competitors and use GMROI, inventory to sales, and turns in their decision-making.
  
  
• Bedding balance-of-share is a big part of their businesses.

• Protection sales are at least 5% of total sales.

• They have exclusive lines in their areas of operations and/or private label portions of their line-up.
  
  
• Freight cost is an important factor used to determine what they purchase and how they price goods. They get the best rates.
  
  
• They take advantage of better terms and rebates because they have decent cash flow and solid industry relationships.

Many retailers in smaller markets should be doing a better job of marketing themselves. They need to create stories about why their company is a great place to work and why the communities they serve are attractive places to live.

Conclusion

Despite what you may hear about some companies, overall, there are still those achieving decent results in 2023. They do this by striving for top performance in critical operational areas and consistently monitoring and improving key metrics. These results demonstrate that with the right approach and commitment to excellence, businesses in the home furnishings industry can achieve exceptional performance in any economy.

Keep in mind that it is rare for even a top performer to achieve high marks in all metrics. Use the ideas presented in this article to focus on the specific areas of improvement that are possible for your business. From there, get your people on board, make an achievable plan, measure, and execute!