Part 1: Research identifies three trends that were transforming the luxury home furnishings market - even before the recession hit.
I was on the phone a few days back with a prospect for Unity Marketing's Home Furnishings & Décor Report 2008, which was published in October 2008 based upon a survey conducted in July 2008. I figured this furniture executive who is feeling the pain of the recession and looking for direction would become a customer for sure. But not so fast! The sticking point: The report is too old.
While this report is an absolute 'newbie' from my perspective in the market research world, the potential client didn't see it that way. Their home business had gone from bad to worse in the six months since our consumer survey was conducted, too long ago this executive believed to gain an understanding about what is really happening in the home furnishings market today. I disagreed most strenuously, since our surveys focus not just on purchase behavior, but more importantly on consumer attitudes and sentiment – 'why people buy' – which gives our data a much longer shelf life in the world of market research reports than just a few months. That is because consumer attitudes changes at a much slower pace than their behavior.
But, as I regularly remind my clients: "In marketing, perception is reality," so I had to take my own advice and recognize that this prospect’s perception had to be my reality. That being the case, I set about doing research to find out just how much, if any, the home furnishings market had changed from the middle of last year to this. To do this I tapped into Unity Marketing's Luxury Tracking study, where we survey 1,000-1,200 affluent consumers every three months about their purchases. Because of our frequent surveys, I could bridge the gap between the time the home survey was done in July 2008 through the end of the year. The results of my efforts are of vital interest to the Furniture World Magazine readers as well.
Home furnishings retailers are dropping like flies and it feels like the bottom has dropped out of the home furnishings market. Within just a few miles of my home in Lancaster county, PA, two furniture stores that are veritable institutions in our local market are folding, Good's Furniture and Griffith & Bixler. The same thing is happening all across the country. Furniture stores and home furnishings specialty stores are closing up shop in record numbers since the recession has taken hold.
Things do seem to have gone bad in the home market virtually overnight, but that is only a perception, not the reality. Admittedly the recession has hit American businesses with a ferocity not seen in recent memory, but consumer sentiment which cased them to turn turn away from buying more stuff, long preceded the pain businesses see in current declining revenues and profits.
Changes in consumer sentiment precede shifts in the corporate bottom line.
Unity Marketing measured a dramatic restructuring of affluent consumers' priorities back in the middle of 2007. That allowed us to predict a sharp downturn in sales coming for luxury marketers in the months ahead. Our early read on the economic downturn was a full two quarters ahead of the declines businesses started to see in their revenues at the close of 2007. It takes two quarters, sometimes three, before a change in consumer sentiment plays out in less cash in retailers' drawers; then another 1-2 quarters before manufacturers and wholesalers measure the drop in their own orders and cash accounts. In other words, a domino effect occurs that starts first with the consumer, then moves on to hit retailers next, then progresses back up the food chain to the manufacturers and marketers that produce the retailers' goods.
Given the lag time from consumer sentiment to economic downturn, Unity Marketing's home survey conducted in July 2008 was the absolutely perfect time to tell home furnishings marketers what was going to happen in their business at the end of the year and into early 2009.
That said, what does the latest survey of luxury home consumers tell us about what is going to happen to retailers' and marketers' business six to nine months down the line?
Fewer affluents bought furniture at the beginning of 2009 and those who did spent less.
In 2008, significantly fewer affluents bought furniture, lamps and floor coverings, and those who did, spent less on their purchases than they did in 2007. The percentage of affluents that bought luxury furniture and furnishings retreated steadily quarter-by-quarter throughout 2008. In the last quarter only 12 percent of affluents bought in the category, as compared with 16 percent who made purchases in 2007. That four-point decline in purchase incidence translates into about 1 million fewer affluent households buying high-end furniture in the period, out of a total of some 23 million affluent households in the country overall.
Exacerbating the pain from the drop in share of affluent households making furniture purchases is the fact that the amount the typical customer spent in the category declined as well. The average affluent furniture buyer spent $15,895 on their purchases in 2007, as compared with $14,735 in 2008, down 7.3 percent. Further, in the last two quarters of 2008 luxury consumers’ spending on furniture took an even bigger drop, down a startling 21 percent.
By my rough desktop calculations, the sales of high-end furniture to affluents dropped some $2 billion from 2007 to 2008. That may not sound like a lot in today's news cycle where discussion of trillions of dollars has become commonplace, but that is a whole lot of cash that is no longer going to the nation's furniture retailers. Further, those stores at the high-end that are dependent upon affluent shoppers are feeling the pain most severely.
More affluents are shopping at hardware stores, warehouse clubs, outlets and discounters.
The nation's affluent consumers are also turning to different retailers to make their luxury furniture, lamps and floor covering purchases. The share of affluents who bought at specialty home furnishings or furniture stores declined from 59 percent in the first quarter of 2008 to 52 percent at the beginning of 2009. Department stores experienced even a steeper decline, from a purchase incidence of 21 percent first quarter to 12 percent.
On the other hand, home improvement and hardware stores are one of the retail channels gaining patronage among affluent furniture shoppers, used by 16 percent of affluent shoppers at the beginning of 2008 and rising to 23 percent at the beginning of 2009. Also gaining more traction with affluents are the discounters, notably warehouse clubs and outlet stores, rising from 9 percent to 11 percent.
This means that furniture stores are facing stiff and growing competition for the share of the affluent shopper's wallet from stores they never had to think seriously about before. While mid to higher end independent furniture retailers have tended to focus their attention on the competing furniture store down the street or across town, they missed the growing threat presented by Home Depot and Lowes, as well as Costco, IKEA and Target. These upstarts in the furniture world are getting better, and offering up a combination of quality, style and price that represents a significant value to affluent shoppers. High-end furniture stores can't ignore them anymore.
Affluents are spending less on rugs and wooden furniture.
When we dig down to look more closely at the different types of products affluents are buying, there is some good news among the gloom. Specifically, high-end furniture shoppers spent about 7 percent more on upholstered furniture in 2008 as compared with 2007. But they spent less when it came to buying rugs and floor coverings, down 14 percent and wooden case furniture, down 13 percent. Likely these are the products affluents are turning to home improvement stores and discounters to source.
Grim prospects for spending.
Everybody knows, 2008 was a bad year in the furniture business and 2009 is expected to be even worse. In our survey nearly 60 percent of affluents expect to spend less on luxuries or high-end purchases this year. With so many data points in Unity Marketing's luxury tracking study showing a marked decline from the first through fourth quarter of 2008, we expect to see a continued downward slide in key market metrics until the economy starts to turn around. So in the words of Bette Davis as Margo Channing in All About Eve, "Fasten your seat belts; its going to be a bumpy night," but in our case, it will be a bumpy year.
Now that you’ve been briefed on the latest research, the next issue of FURNITURE WORLD Magazine, will translate the data into information that furniture executives can use to find a pathway to success.
Pamela N. Danziger is an internationally-recognized expert specializing in consumer insights, especially for marketers and retailers that sell luxury goods and experiences to the masses or the 'classes.' She is president of Unity Marketing, a marketing consulting firm she founded in 1992.
Advising such clients as PPR-Gucci, Diageo, Google, Stearns & Foster, Tempur-Pedic, Waterford/Wedgwood, Lenox, Prudential Fine Homes, Moen, Orient-Express Hotels, Marie Claire magazine, Meredith, The World Gold Council and The Conference Board, Danziger taps consumer psychology to help clients navigate and master the changing luxury consumer marketplace.
In recognition of her work in the luxury consumer market, Pam received the Global Luxury Award presented by Harper's Bazaar for top luxury industry achievers in 2007.
Her latest book is “Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience,” published by Kaplan Publishing in October 2006. Her other books include “Let Them Eat Cake: Marketing Luxury to the Masses—as well as the Classes,” (Dearborn Trade Publishing, $27, hardcover) and “Why People Buy Things They Don't Need: Understanding and Predicting Consumer Behavior” (Chicago: Dearborn \Trade Publishing, 2004). She is currently working on a new book about the changing luxury market. Questions can be directed to Pam care of firstname.lastname@example.org.