Retail outlook grim
Major players aim to pick up market share
By Clint Engel -- Furniture Today, December 24, 2006
High Point — The hits keep coming.
Two years ago, it was retailers Kronheims, Rhodes and Homestead House meeting their demise, while Gabberts and Levitz retrenched.
The past year probably was worse. It started with Benchmark closing its big box in greater Kansas City, followed by the closing of four-store Rod Kush's Furniture in Omaha, Neb. — both likely succumbing, at least in part, to pressure from giant Nebraska Furniture Mart.
On the public front, both Pier 1 Imports and The Bombay Company piled up more losses and same-store sales declines as they tried to reinvent their businesses. Bombay trimmed its store count and its CEO stepped down. Pier 1 CEO Marvin Girouard is leaving in February.
Then there's Storehouse, Wood Armfield, Rose Furniture, Mastercraft Interiors, Bay Furniture and Aronson — all closed and liquidated or liquidating as this issue goes to press.
Meanwhile, Klaussner's Sofa Express is culling 23 unprofitable stores, or nearly a third of its store base, exiting Atlanta, Tampa, Fla., Louisville, Ky., Las Vegas and Charleston, S.C.
Tough times
Some say retail conditions are the worst the furniture industry has seen in years, but industry analyst Jerry Epperson says those people have short memories.
"It's not as bad as it was right after Sept. 11, or during the recession of 2000–2001 or 1982, when the prime rate was 22%," said the managing director of Richmond, Va.-based Mann, Armistead & Epperson. "But it's just crappy."
Unlike last year, when Epperson believed a flat 2005 was setting the stage for a better 2006, there's nothing out there this year to make him think we're going up from here. "We're only calling for a 1.7% increase in retail sales next year," he said. "We don't see any major stimulus that is going to turn things around rapidly."
So what's it going to take to be successful in the new year, given this dreary projection? It starts, perhaps, with an aggressive stance by retailers in markets where they've seen competitors dropping like flies.
In metro Chicago, Bay Furniture floundered before liquidating. More recently Aronson Furniture, which started the year with a new Aronson Rooms & More format, ran into tough times and decided last month to shut down all nine stores.
On the grow
But if something is wrong with that Midwestern market, it certainly hasn't snuffed out the ambition of The Roomplace at Harlem. The Lombard, Ill., retailer opened two stores this year and expanded and remodeled existing showrooms. Next year, it will open its 18th and 19th stores, including its first outside the greater Chicago market in Mishawaka, Ind.
"I think that even in a challenging market, if you concentrate on having extremely strong operations, there is always market share available, which allows for growth in spite of a down market,' said Harlem CEO Bruce Berman.
It's not one thing that makes an operation strong, because if that were the case, everyone would be doing it, he said, and retailers wouldn't be facing the problems they face today.
"There are many moving parts and you have to make sure you have a handle on them all, and you execute well," Berman said.
One key to Harlem's ability to grow in the face of a tough business climate is its steady focus on identifying its customer base, making sure it has the products they're looking for and the services they want. It's one reason why the retailer instituted next-day delivery this year.
Harlem isn't alone in its quest for more market share in trying times.
The industry is in a state of transition and, despite the down side, is creating opportunities for such players as Harlem, Bob's Discount Furniture, Wickes and Levitz — the latter re-energized under new ownership and management, said Julius Feinblum, president of Julius M. Feinblum Real Estate.
With all four, Wall Street equity investors have stepped in and taken majority stakes, in most cases infusing the companies with the cash they needed to build on their strengths and increase market share.
"It should be an exciting growth period for those companies," Feinblum said.
He also predicted the strongest regional and super-regional players across the country will continue to dominate their markets this coming year, although not without some bumps along the way.
This year, for instance, Florida's seemingly endless hot streak came to a sudden halt with the dramatic slowdown in home sales that have left many key retailers there temporarily hurting.
And Feinblum said the future isn't clear yet for most of the dedicated store networks. With the exception of Ashley Furniture HomeStores and Ethan Allen, they seem to lack direction and momentum, he said.
"Part of it is because of the general (slowdown in furniture sales) and part of the problem seems to be geography," he said, with stores operating in once-hot markets that suddenly have gone cold.
Preparing for a rebound
Atlanta-based Havertys, one of the year's few strong publicly-held performers, with results only recently showing signs of a slowdown, isn't buying the theory that a slowdown in housing necessarily leads to a subsequent slowdown in furniture business.
CEO Clarence Smith told the investment community recently that a slumping housing sector may affect furniture sales, particularly in formerly high-growth markets, but that a strong retailer like Havertys will be well positioned after a few months — maybe six months — of hard sledding.
"And I also believe there will be players who will not be able to survive through this that we'll pick up share from," he said. "The macro issue is bigger than anything right now. What we're trying to do is stay positioned to gain share and remain profitable."
Next year also may be the year the industry sees more traditional furniture retailers jump into the online sales fray. This fall, Nebraska Furniture Mart launched a redesigned Web site with e-commerce capabilities in all major categories, partly to gain additional favor with young computer-savvy consumers.
Havertys also is in the midst of a multi-stage overhaul of its www.havertys.com Web site, and expects to be selling online, with a focus on building business in existing markets, by the end of next year.
For years, the industry has been preaching "location, location, location," but Epperson said that as electronic marketing and selling continues to gain ground, retailers may start spending less on real estate and more on alternative marketing.
He pointed to La Difference, the one-store, contemporary retailer in Richmond, Va. Thanks to its powerful Internet presence and sophisticated marketing, it does very strong business with consumers throughout the Northeast.
It still boils down to location, Epperson said. Either retailers have the right physical real estate — which tends to be near a shopping Mecca — and understand that store presence is perhaps their largest advertising expense, or they develop an electronic presence to the point that real estate isn't that important. Or both.
And when furniture stores have that figured out, they'll have to contend with the Costcos, Wal-Marts and other alternative channels that always seem to be after a larger slice of the furniture pie.
Regardless of overall slow growth or no growth, there will be winners in 2007.
"There's a certain amount of furniture that has to be sold in America," Feinblum said.
"Somebody's going to sell it. It's just a matter of positioning yourself."
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