Furniture Market Overview
May 22, 2018
Furniture Retailers Are Wary Of Wayfair, But Both Need To Watch Out For Amazon
Pamela N. Danziger ,
According to the Bible, the end-of-days begins with the rampages of the four horseman of the apocalypse. As we retail analysts have adopted biblical terms to describe the industry’s current condition – rightly or wrongly – I am going to take liberties to extend the analogy further. If the furniture retail industry is facing an apocalypse, then Wayfair is the lead horse.
That is the belief held by more than 350 independent furniture retailers and suppliers that sell through independents, recently surveyed by Unity Marketing. Nearly two-thirds of the brick-and-mortar furniture retailers surveyed said online retailers that specialize in furniture, most especially Wayfair, are their store’s number one competitive threat, as opposed to online retailers that sell furniture along with other products, like Amazon.
Only 40% of independents named Amazon as a primary competitive threat, which was tied with high-end national furniture retail chains, like RH and Ethan Allen.
While national furniture and home furnishings retail chains were not part of the UM survey sample, these retailers are also plenty worried by Wayfair’s aggressiveness and vaulting ambition. Today Wayfair may be its own worse enemy, but if Wayfair gets its act together (i.e. it starts making rather than losing money) these retailers will feel the breath of that horseman.
Ways to combat Wayfair’s disruption
To help brick-and-mortar furniture retailers grapple with the Wayfair threat, Gartner L2 released a daily insights briefing entitled “Wayfair: Case Study in Disruption.” I spoke to Maureen Mullen, the company’s chief strategy officer and cofounder, about the research findings.
“Wayfair is spending crazily on search and television to acquire customers. As a pure play, it is in the game of growth and not in the game of making money, like established retail players. This makes them very hard to compete against,” she shares.
Regarding paid search, Wayfair’s dominance of furniture and home-related keyword search in Google has more than doubled, going from 6% in 2016 to 13% in 2017. “In terms of visibility, the entire industry has been disrupted by Wayfair. In the last year, we have seen the traditional specialty retailers in the furniture business effectively pushed out of the Google results because Wayfair has been so aggressive.”
Despite all that investment in search and TV advertising, however, Wayfair has failed to turn that into meaningful customer connection to the brand. “The reason you do TV advertising is to drive awareness and the number one indicator of brand awareness right now is Google search,” Mullen explains. “But only 9% of its traffic comes through branded search, meaning Wayfair is part of the search term, as compared with Restoration Hardware and Williams Sonoma which get between 60-70% of their traffic by brand-modified searches.”
In advising specialty retailers how to compete against Wayfair’s disruption, Mullen says they must continue to invest in Google search terms strategically to drive traffic to the store, which she stresses is their greatest single competitive asset.
“The death of the store has been greatly exaggerated,” Mullen says. “If a store has great merchandising, a curated selection and a strong customer service value proposition, they will win. Frankly most people aren’t designers; they want to be guided into what furniture to buy. That is where Pottery Barn, West Elm and RH have been so successful.”
In conclusion, Mullen states emphatically, “The biggest threat to Wayfair’s dominance is not Pottery Barn, Crate and Barrel or Restoration Hardware. It’s Amazon.” She points to Amazon having recently introduced two private label furniture brands – Stone & Beam and Rivet – and its growing emphasis on enhancing its fulfillment capabilities and investing in the home services space.
And from a product/price standpoint, Wayfair and Amazon go head-to-head on price, as compared with the other specialty furniture retailers.
Amazon is the 800-pound gorilla in the living room
While specialty furniture retailers are anxious about Wayfair, Amazon is the competitor that they are largely overlooking to their peril. Wayfair’s aggressive and highly-visible moves into the furniture market is in sharp contrast to Amazon’s slow and less in-your-face efforts to capture more of the furniture business.
But Amazon’s intent is clear: “Customers are increasingly turning to Amazon for their home furnishing needs, with furniture as one of the fastest-growing retail categories here at Amazon,” the company said in announcing its first private label furniture brands.
All of which leads me to ask, does Amazon need to acquire a furniture retailer to realize its ambitions? Especially given the reality that furniture is hard to purchase online without touching, feeling, sitting and actually seeing its size, scale and quality in a physical store. I reached out to some of my fellow Forbes.com contributors as well as others to take their measure. Here is what I found out.
Amazon doesn’t need to acquire to compete
“Amazon doesn’t need to acquire anyone,” Forbes.com contributor and senior partner at McMillanDoolittle Neil Stern says pointedly. Looking at the landscape of furniture retailers, he shares, “The regionally-focused furniture chains, like ArtVan, Rooms To Go or Ashley, don’t have the ‘brandwidth’ or the reach. Lifestyle chains (RH, Crate and Barrel, Williams Sonoma) are very cool, but have a very narrow reach. I’m not sure that either regional or lifestyle chains get them further along.”
Michael Dart, leader in A.T. Kearney’s private equity and strategy practice and co-author with Robin Lewis of Retail’s Seismic Shift, shares Stern’s view that Amazon doesn’t need to acquire to compete. It has no compelling reason to.
“What Amazon is going to be acquiring now, post-Whole Foods, are distinct capabilities that they will either find very difficult or very time consuming to build for themselves. If it doesn’t meet one of those two criteria, I don’t think they will do it. Amazon has many avenues to access a lot of the capabilities it needs in furniture, either in partnership or building it out themselves. There is no urgency to go out and buy somebody,” he says.
The irrepressible Warren Shoulberg, a Forbes.com fellow contributor, offered a list of potential candidates, but none that he feels are a good fit. He lists, “IKEA, though they are obviously not for sale, but they still have only 50 stores so they don’t fit Amazon’s need. Ashley Home Stores, with 500 stores and owned by one of the biggest supplier of furniture products, are family-owned and operated, but they carry only Ashley products. Rooms To Go has a caveat. It isn’t really national, but primarily based in the Southeast. While they are privately owned, Rooms To Go could be a good candidate, but they don’t give Amazon national representation.”
Shoulberg goes on to list other candidates. “Bed Bath & Beyond (cheap, less than $3 billion book value); Pier 1 Imports (fire sale) and even Williams Sonoma (good operation, fits Whole Foods customer profile) – but none of those give Amazon the broad-based furniture presence they need,” he concludes.
Richard Kestenbaum, cofounder and partner at Triangle Capital and Forbes.com contributor, sees acquisition as a possibility “to grow its top line in order to support its stock price. Furniture is a big potential category,” he believes. He sees many of the same potential targets as Shoulberg – IKEA, Rooms To Go, Williams Sonoma or one of its pieces like Pottery Barn or West Elm – adding, “One of these could give Amazon the ability to be in a new substantial business with potential for future profitability and where logistics are a significant obstacle to be solved.”
Regarding logistics, which is a particular pain point in furniture retail, Mary Burritt, associate editor of Furniture Today, could see Amazon acquiring a logistics network with expertise in managing large-scale furniture shipping. “From source to door, or trunk, the fast, free delivery of a high-end custom upholstered chair and sofa or a ready-to-assemble table is a highly unique logistics challenge,” she says.
Partner not pay
Perhaps the more realistic prospect for Amazon in the short term is to partner with an established retailer, or as Forbes.com colleague Walter Loeb says, “If you can’t beat them, join them. That seems to be the motivation behind the latest action of some retailers,” like Kohl’s, Best Buy and Sears that are making floor space available to Amazon.
This “fox in the hen house” strategy may backfire for the retailers that open their doors to Amazon, but some retailers at least see it as a risk worth taking. “Since home furnishings is a category where customers still value touching, feeling, discovering products in a store, the concept of showrooming and having that ability to show the products is something that would be attractive to Amazon to accelerate its penetration in this category,” Dart says.
Dart goes on to point out that this showrooming strategy is one that JCPenney is using for furniture, though not with Amazon currently. “My understanding is a lot of JCPenney’s furniture inventory is held by third parties, but JCP manages the display on the floor and the transaction. I could see Amazon having a shop-in-shop for furniture, but it all comes out of the Amazon warehouse,” he says.
“That would seem more consistent with Amazon’s business model and gives it flexibility to see how it evolves over time, rather than take on a whole new entity and assets,” Dart says.
Not today, maybe tomorrow
I think Amazon, which has made clear its intent to go big in the home furnishings space, will need to put its products out there in the real world to actually make that business work. That is the Achilles heel of Wayfair, Amazon and all other pure-play online furniture retailers.
But in the current market there are few national-scale retailers that would be attractive acquisition candidates, though Bed Bath & Beyond could make an interesting prospect. BB&B currently carries many of the same home furnishings basics as found on Amazon and adding furniture into its 1,500+ stores would provide a one-stop destination for all things home.
And heavens knows, Bed Bath & Beyond could find space for furniture, if it tossed out so much of the junk that fills its shelves and paid serious attention to compelling merchandising and curated selections.
Bed Bath & Beyond is a perfect example of the 80/20 rule. It would be a much stronger retailer if it rid itself of the 80% that crowds its stores to shine a spotlight on the 20% of appealing products.
That said, I have to agree with others that in the short term Amazon is not likely to make any acquisitions in the furniture space, though I think long term it may need to in order to realize its home furnishings ambitions. When push comes to shove, I don’t know that Jeff Bezos – retail’s 800-pound silverback alpha-male gorilla – will play well with others, as Amazon will have to, if it goes the shop-in-shop partnering route.
Note: One of Amazon’s private label brands was incorrectly cited. It is correctly named Rivet.
My book, “Shops that POP! 7 Steps to Extraordinary Retail Success,” reveals how to make shopping an experience. Meet me at Unity Marketing or connect via Twitter, LinkedIn, Facebook