It's official: mass stakes claim in RTA - ready to assemble - home goods & housewares - Industry Overview

DSN Retailing Today, Sept 22, 2003

With Wal-Mart cited recently in a report as the top seller of furniture in the United States and Sam's, Costco and Big Lots all appearing in the top 25, a shift that has been underway on home retailing is confirmed. The mix is changing, the merchandising is improving, the marketing is becoming more aggressive and the mass market is taking a central position in the furniture business.

The mass-market assortment has shifted rapidly in just the past year. Initially, RTA alternatives to expensive case goods were center stage for mass-market furniture sellers. Later, the category was driven by home office. Now, though, it's living room and bedroom furniture that are expanding rapidly even as entertainment items resurge.

Wal-Mart has been particularly aggressive over the past few months. It has taken RTA off of fixtures and put it on the sales floor. In doing so, it has followed the lead of ShopKo, which long ago decided that customers should be presented with an opportunity to get the feel of products that were continually gaining in quality. Home office, which saw significant expansion around the turn of the millennium, has suffered slowing sales. Interestingly, though, continued strong spots reflect what has made discounters a force in the furniture business, lower prices and improved product.

Wal-Mart has seen "good growth in office chairs and computer desks, more of the trendy items [and] best value items," said Melissa Berryhill, a spokeswoman for the retailer. "The large computer desks have seen a slowdown in growth. Leather chairs, desks with wheels to allow movement, people are buying these items because of limited space. Retails are coming down on top end, giving customers better value."

Dr. David Rogers of consultant DSR Marketing Systems, said that multiple factors rather than a single driving determinant are behind the expansion of mass-market furniture operations. Price is important, said Rogers, who has done store location analysis for Ikea since 1989, but so is the focus on the changing lifestyles of today's consumers.

Ikea has led the way in many respects. By introducing a new kind of furniture to the United States that was inexpensive and scaled to fit the needs of younger, often apartment-dwelling consumers, the retailer helped change consumer perceptions about what they needed to furnish their homes. Of course, its European background helped. After all, Europeans generally don't live in the kind of space available to their cousins in North America. Big bedroom, living room and dining room sets that might be just right for a home in some U.S. 'burb might not make it in a typical apartment in Stockholm, or Boston, for that matter.

Then, the All-American--and All-Canadian--home began to change, with emphasis shifting from the living room and dining room to family rooms, home offices and kitchens.

"The appeal of Ikea and someone like Crate & Barrel comes with the acceptability of condominiums versus single-family homes, for example," Rogers said. "With condominiums, you need to furnish smaller spaces. Traditional furniture retailers are geared to large spaces. Ikea is very geared to furnishing small-spaces housing. But there is a mix of issues as the types of structures we live in changes and a whole variety of trends have come together to change the market in a progressive way."

Traditional furniture retailers also are geared to a manner of selling that no longer fits the circumstances of many consumers. Consumers who aren't purchasing big sets usually aren't in need of the credit plans that major furniture retailers have developed over the years. Indeed, Rogers noted, with the increased credit availability, fewer consumers want furniture seller financing, particularly as they've realized they've been paying inflated prices on furniture to get the so-called free credit. Now, the point is being underscored as retailers from Wal-Mart to Ikea to Costco are offering items like sofas and love seats for considerably fewer dollars per item than the furniture stores. And their customers don't have to wait for delivery, a factor that has always aggravated furniture consumers. They can carry product home or arrange timely delivery for a fee.

"There always will be a segment for credit traders, but we're seeing a decline in a proportion of people who will pay inflated prices for credit and wait six weeks for delivery," Rogers said.

While much of the shift in the marketplace has happened at the value end, the next level of price/quality, an even more direct competition to traditional retailers is being mined by the warehouse clubs and a company like BoConcept, a Danish retailer that is an adjunct of a furniture maker. The adjunct has become global over the past several years. BoConcept has more than 125 mostly franchised stores ranging from Ireland to the Philippians and is adding three to four stores a month worldwide. A lot of those new stores will be opening in the United States. The company recently opened its first unit in Manhattan, which is the company's fourth in New York and seventh in the United States. Expansion plans focus on the East Coast, said David Most, area sales manager for Club8Company, BoConcept's parent.