Alternate channel sales near $20 billion a year
By Gary Evans -- Furniture Today, November 23, 2003
Sarasota, Fla. — A lot of furniture that gets sold isn't sold by furniture stores.
In fact, there are 70 or so alternate channels of distribution that rack up retail sales of almost $20 billion annually, almost a third of all U.S furniture sales. Non-traditional channels have grown at a compounded annual rate of 9% over the past decade.
The subject was the focus of a six-member panel moderated by Jerry Epperson of Mann, Armistead & Epperson at this month's annual meeting of the American Furniture Manufacturers Assn. here.
Panelists included Jim Copitzky, president and chief executive officer of Bassett Furniture Direct, Tukwila, Wash.; Mike Nicotera, vice president and divisional merchandise manager and Gary Huber, vice president, of discount retailer Big Lots; Jim Zarchin, executive vice president of cable TV's Shop At Home Network; Bill Tidmore and Robert Henry, partners in Tidmore-Henry & Associates, a Sarasota, Fla., interior design firm; and Scott Powell of UCC Total Home/Direct Buy, a membership club.
Wal-Mart and Kmart account for 5% of furniture sales, Epperson said, which worries consumer groups because they fear that Wal-Mart is so large it can control wholesale and retail prices.
Big-box retailers like Costco, with their markups of 17% on upholstery and 19% on wood, also can drive down traditional retail margins of 40-plus percent, he added.
Some of these non-furniture store retailers are "shockingly big" in the amount of furniture they sell, Epperson said. "It would be sad to wake up in the morning and see that we've lost the business that we built all these years."
Probably the speaker who had manufacturers here scratching their heads and muttering, "How do they do that?" was UCC/Total Home's Scott Powell. His company has customers paying $2,500 to $3,000 for membership to shop at one of the company's 72 U.S. or 18 Canadian stores (eight more are planned in 2004).
Typical members have mid-to-upper incomes, often are new homeowners, and are willing to pay the entry fee plus annual membership dues of $150 to $200 and accept a system of shopping by catalogs, ordering furniture and paying cash up front. In return, they receive furniture at cost-plus, and pay a handling fee and the cost of freight on a UCC truck.
"UCC is not for everyone," Powell said. "Our market share is low and we expect it to be low," he said, adding that in its largest market the share is 1.05% of total furniture retail sales and in most markets is 0.25% or less.
He did not disclose how many members the company has. But in the fiscal year ended in July, he said, UCC collected $96.5 million in dues and had sales of $133 million — up from $70 million in dues and $87.5 million in sales two years earlier. Sales were up 56% in August from the same month a year ago, 56% in September and 40% in October, Powell said.
Bassett Furniture Direct was launched by Bassett in 1994 when imports were accelerating and retail furniture distribution was changing rapidly with stores like Montgomery Ward, Heilig-Meyers, Levitz and Homelife in trouble, said Jim Copitzky.
Bassett Furniture Direct stores are designed with big, billboard-size pictures of families on the exterior, which draws customers.
"Eighty percent of our customers say they came in because they were driving by and saw the store," said Copitzky. But it's what's inside that counts, he stressed: "When she walks in the front door and isn't moved by what she sees, we've lost."
Since the customer often spends a lot on furniture, she's under stress and needs all the help she can get, Copitzky said. The core of a Bassett store is its design center, where consultants help the customer put a look together. "The use that square footage gets is absolutely astounding," he said.
Big Lots' Gary Huber said his company's furniture business began as a spot offering in 1995 and now is sold in more than 900 departments in the closeout stores and in 50 free-standing Big Lots Furniture stores. Huber said the company is going after the business aggressively and expects to reach $1 billion in sales in the next few years "with a traditional, full markup structure."
Nicotera said that since the company doesn't have third-party credit and uses everyday low pricing, "We're about the only one to use product to drive business."
Shop At Home Network is part of the Scripps Co., which owns Home & Garden TV, the Food Network, the Do-It-Yourself Network and other media, and grew out of the housing boom of the 1990s. Jim Zarchin said the idea was to tap into "that group of passionate viewers" who get inspired by home channels, and then sell them through the Shop At Home Network.
He did not give sales figures for Shop At Home. He noted that the network broadcast from High Point during the October market and was on the air for four days, 18 hours a day.
"We let them know that it's closed to the public and that they can't go there to buy furniture. But they 'see' the market and get ideas," he said. "A lot of people thought we were a direct threat, but we're not. Hopefully we're a help."
Bill Tidmore and Robert Henry said there are 200 interior designers, 200 decorators and 200 architects in Sarasota, all of them busy due in part to a 4% per month gain in real estate values for the past three years. But they lamented the fact that often they get second-class treatment at manufacturers' showrooms because they are small-order buyers.
"What did we do wrong? We bring business to you and you turn us away," said Henry. He asked that the industry not require minimum orders and establish a "think tank" to come up with a way to solve the problem.
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