More channels than ever offer decor: specialists feel the heat

DSN Retailing Today, July 5, 2004 by Mike Duff

An increasingly competitive mass-market home furnishings market continues to roll and many of the trends that appeared in 2003 have become even more prevalent in 2004. In some cases, that has occurred because retailers are competing specifically in hot product categories. However, in others, it's simply a matter of the mass market rather than department stores being the place where retailers have to attack to gain share.

With Wal-Mart, dollar stores, warehouse clubs and Anna's Linens all looking to gain more home furnishings dollars, traditional leaders such as Bed Bath & Beyond, Kmart, Target and JCPenney will be harder pressed.

Of course, Wal-Mart has been gradually pressing mass-market home furnishings leaders for years. It is primarily responsible for forcing down opening price points on items such as towels, where many retailers shifted to a $5 opening price point a few years ago to deal with the low cost and improving quality of Wal-Mart's product line.

Given the trend in Asian manufacturing, even lower cost and better quality domestics can be expected to show tip at dollar stores. Meanwhile, the advent of the Ralph Lauren label at Kohl's, not to mention the department store brands that have appeared at Target, suggest that more upscale labels will appear in the mass market, which will put pressure on from the other end. Warehouse clubs are likely to grab more of that trade. On the furniture and appliance end, not only warehouse clubs but also home centers are becoming more formidable competitors. Various specialty operations, particularly Ikea and Cost Plus World Markets, are making their mark, and TJX keeps growing in home furnishings as well.

The traditional claim has been that no home furnishings retailer has more than a 6% or so market share in home. Of course, that depends upon how you look at things and, if you're looking at including Wal-Mart, then you're looking at considerably more than 6%.

Differentiation--which, in some cases, will translate into new forms of imitation--is simply going to become a bigger issue for home goods retailers in the mass market. Sometimes, this will be based on product trends. As predicted in the pages of DSN Retailing Today, Applica--along with Krups on the higher end of the market--teamed with Proctor & Gamble to develop a line of single-serve coffee makers and single-serve coffee pods to win consumers away from foodservice operators, particularly Starbucks and Dunkin' Donuts, which have one share of cup. Their alliance bore fruit this year, about an annum after Salton introduced the Melitta One:One pod maker.

As also presaged here, Target jumped on the trendy new coffee trend and developed one-cup coffee maker displays, which elbowed out some conventional brewers that had been part of its featured coffee maker displays. It also endcapped some single-serve brewers, as did Wal-Mart and others. But Target went out of its way to associate itself with the trend. Calling attention to itself in home is a Target habit, which has used labels associated with interior designers and other home furnishings aficionados. Yet, Target has been anything but consistent, launching and dumping labels regularly. However, it has made sure that customers know it always has something cutting edge--or as close as discounters get--coming down the pike.

In other areas of the home furnishings department, it has taken a different tack. In gadgets, it has developed merchandising very similar to that at the major specialists and even featured some of the same brands the specialists do, such as Oxo and Kitchenaid. Thus, Target is positioning itself as both somewhat unique and somewhat more like Bed Bath & Beyond and Linens 'n Things than established rivals such as Kmart and up-and-coming challengers ranging form Anna's to Wal-Mart to Costco.

Then there is the race to become the next Martha. Of course, lots of retailers in lots of departments have developed programs based on input from some expert or another that they hope will set them apart from their competitors. As noted, Target has been particularly active, perhaps hyperactive, in this area, jumping in and out of programs with Michael Graves, Todd Oldham, Cynthia Rowley, Philippe Starck and others. Yet, lately, there has been a new proliferation of designer or expert brands Christopher Lowell at Office Depot, Chris Madden at JCPenney, Trading Spaces at Linens 'n Things among others--that employ more conventional brand building strategies.

Speculation is, naturally, that Kmart rivals want to establish their own gurus while Martha is suffering her current Karmic reversal. Whether they will succeed is arguable, but what is apparent is that mass-market retailers are coming to recognize that middle market rivals in the coming years will challenge them more fiercely.

Top Volume Leaders
Home Goods & Housewares

CHAIN                      2003     2002     % CHG

Wal-Mart (1)              $26,130  $23,570  10.86%
Target                      8,654    7,910    9.41
Bed Bath & Beyond (2)       4,478    3,670   22.00
Kmart                       4,185    5,540  (24.46)
JCPenney                    2,935    2,920    0.51

( ): Decline or loss

U.S. SALES, IN MILLIONS, OF SOFT HOME/DOMESTICS AND HOUSEWARES

Source: Company reports, analysts' estimates and DSN Retailing
Today research.

(1) Wal-Mart Stores division

(2) Includes approx. $50 mil. in sales from Harmon and CTS

Top Specialists
Home Goods Retailers

CHAIN                      2003     2002     % CHG

Bed Bath & Beyond Inc.     $4,478   $3,665   22.18%
Williams-Sonoma Inc. (1)    2,754    2,361   16.65
Linens 'n Things Inc.       2,395    2,185    9.61
Pier 1 Imports Inc.         1,868    1,755    6.44
Ikea U.S. (2)               1,342    1,296    3.55

U.S. SALES IN MILLIONS

( ): Decline or loss

Source: Company reports, analysts' estimates and
DSN Retailing Today research.

(1) Includes results from Pottery Barn, Pottery Barn Kids, West
Elm and Hold Everything

(2) FY ended 8/03, figures for U.S. stores