How Retailers Can Do More With Less
Volume 150 NO. 5 September/October
By David McMahon on 9/23/2020
In recent months our customers have spent more time at home than ever before. This has caused a demand spike for merchandise and services related to working at home. Grocery, home entertainment, home fitness, hardware, comfort clothing, building supplies, home spas, electronics, appliances, and home furnishings have benefited.
Thus far into this crisis, home furnishings retail has been a recipient of a diversion of consumer disposable income. How long this will last is uncertain. In my opinion, spending on furnishings is fragile. Unlike the home entertainment industry (video streaming, gaming), there is little that our industry has done to stimulate long-term demand. Likely, our consumers will continue to spend more on their homes until either their lives return to a more normal pre-pandemic lifestyle or their spending power diminishes. If demand falls off, some regions will be affected more than others, as happened in the recession that began in 2008. At that point, businesses that weather current challenges well will likely continue to prosper—similar to the most recent recovery period we experienced from 2010 until 2019.
Demand Vs. Supply
Shifts in demand are fairly common, the result of wars, natural disasters, man-made environmental problems, terrorism, and other unfortunate circumstances. These can cause the demand curve to move “to the right,” or increase, in some industries and “to the left” or decrease, in others. Generally, a sudden event causes more (or fewer) consumers to be in the market for certain goods. Following April 2020 we’ve seen the home furnishings demand curve move to the right, while the airline travel demand curve moved to the left. With these sudden shifts, shortages and excess supply occur. I believe that the demand curve for furniture is more price inelastic right now. That means that consumer buying behaviors are influenced less by price and more by availability. As home furnishings product shortages have occurred, more consumers have been willing to pay more for home goods.
The two biggest challenges facing retailers right now are product and people shortages.
Product shortages have resulted from factory shutdowns, unavailable factory workers and supply chain disruptions.
Prior to the pandemic, when unemployment was at historic lows, finding and developing quality people was a top challenge. This situation has gone from bad to worse as fear of COVID-19 infection, increased unemployment benefits, low retail wages, and the perceived undesirability taking some retail furniture store jobs have made workers scarce.
Doing More With Less
Let’s examine a number of practices that can help you to weather the storm by doing more with less.
Buy deep vs broad.
With a smoothly flowing supply chain, a just-in-time, inventory replenishment strategy works well. You could buy “broadly” across all your merchandise categories and replenishing only when needed. However, with the erratic supply, all bets are off. The best bet may be to buy “deeper” across your very best SKUs. If you follow this strategy, ensure you have proven data on which items your customers want now. This strategy could backfire on you if you invest in untested product.
Err on the side of over-inventory.
Greater lead times equate to higher inventory levels. If your cash situation and warehouse capacity are such that you can carry a greater inventory percent to your sales volume than normal—you should do so provided you are buying the right merchandise. Do not make the mistake of over-investing in new product.
Consumer buying behaviors are influenced less right now by price and more by availability.
Separate product into these two categories.
Customers and salespeople will benefit from knowing what items are available today—either floor samples or product in your warehouse (the “available now” category). Customers who want something customized, or a fresh item (the “factory order” category) may choose a factory order subject to available production lead times. Ensure that after your greeting, you understand your customers’ reasonable timeline.
For customers who choose to order new from the factory, be clear about lead times. Avoid giving delivery date ranges. To under promise and over deliver (UPOD) is generally a better practice. Instead of saying, “It’s going to be eight-ten weeks,” say, “Due to the current situation, to manufacture these new items for you, completion is maybe greater than two months.” You may also want to add a third product segment, “on-order” available to reserve.
Continue selling after the sale.
The sale begins when you write up a ticket, but that should not be the end. Whether you made an available-now sale or a new factory order, follow-up multiple times and re-sell. (Three proactive follow-ups at the minimum). To save everyone’s time, call your customers before they call you.
Rethink markdown pricing.
If you have a limited amount of inventory available to take home now, consider selling “drop” items (undamaged and visually like-new) at regular margins. Place a “take me home today” price tag on these items. Price, especially in an environment of product scarcity, is not the biggest factor with respect to consumer purchasing decisions.
Seek balance in your vendor relationships.
When the pandemic hit, some vendors were able to react fast, recalibrate their operations and ramp up production. Many have been struggling to react to the change in demand while keeping their workers safe. Everyone has been disrupted. It is more important than ever to focus on building quality relationships while at the same time cultivating new sources of supply. Unless you have a branded store, relying too heavily on one vendor may be risky. Not being important enough to any one vendor is also risky. Seek balance. Some domestic and regional vendors have been reliable in this current environment.
Focus on appointment selling.
Appointments between salespeople and customers allow for better use of the ultimate scarce resource— time. Whether an appointment is at a customer’s home or, better yet, in the store, both customer and salesperson should focus on accomplishing a result within a defined period, for example, one hour. Done right, appointments take fewer people and less time to produce a given sales volume. A number of stores have made the decision not to reopen their retail floors in pre-pandemic fashion. Instead, they’ve decided to continue to operate by appointment only.
Guide your in-store traffic more efficiently.
For those of you who believe that conducting business by appointment only is too radical a step for a brick and mortar furniture retailer, work to better control floor traffic. Continuous improvement in this area should be the goal of every showroom sales manager. To increase sales with fewer salesperson resources, managers must match customers to salespeople who are currently focused on other conversations. They must walk the fine line of moving salespeople between customers without causing frustration. Use technology to assist. Radios or app-enabled Bluetooth communication is necessary in most cases. Consider employing greeters (as opposed to CSRs) to direct customers to appropriate areas of the showroom if you often find yourself in open floor situations.
Use price tags to tell a story.
Price tags are not only about the price. They inform customers and remind salespeople about product and service options. Consider creating tags that show availability, additional product options, financing and services such as protection and delivery. With current technology it is simple to place a QR code on tags that link to product information, additional options and video. QR codes can even prompt a salesperson to come for assistance. This is already a reality in other industries, why not furniture?
Direct virtual traffic more effectively.
In the “New Front Door” article (July/August Furniture World), I explained how to capitalize on customer lead traffic. Doing this well helps you accomplish more with fewer people resources. Your objective should always be to make a meaningful connection with a prospect, then schedule a date and time to meet in-store. This way, your homework can be done in advance of a physical meeting, leading to a higher close rate, higher average sale and a happier customer.
Leverage resources for follow-up.
To do more with less, think about using automated emails, sending personalized text messages, and hiring staff whose sole purpose is to touch base with customers.
QR codes can even prompt a salesperson to come for assistance. This is already a reality in other industries, why not furniture?
Overstaff delivery and pay them well.
In-home furniture delivery is a tough job. Arguably, compared to a UPS delivery person, furniture delivery is more physically and mentally demanding. Both compensation and staffing levels should be high enough to ensure that this vital function is performed well. Back-end DC positions are directly related to the speed of revenue in retail organizations.
Practice LEAN internal merchandise flow.
LEAN practices are now more important than ever. The nature of LEAN is to do more with less by constantly improving processes. Observe the ways in which you currently conduct activities such as receiving and delivery. Figure out what slows you down, then devise and document improved processes. If you can increase the throughput of merchandise via leaner activities, you make better use of your peoples’ time.
Leverage technology for service issues.
Reverse logistics, also known as “customer service problems after the sale,” can be time consuming and disruptive. A major strategy to do more with less is to control the work, rather than being controlled by the work. For example, using customer service technologies to make it easy for customers to enter their own warranty or protection claims on your website can enable a quicker and more productive response.
Grow these two important close rates.
Close rates from virtual leads and from in-store traffic are calculated as follows. They are indicators of your success at doing more with less.
• Virtual lead to in-store appointment close rate = # of virtual leads / in-store appointments produced.
• In-store close rate = # of visual traffic captured with door counter / # of sales.
Review options for outsourcing roles.
Here is a list of some of the roles in a typical home furnishings operation that can be outsourced: traditional marketing, digital marketing, content development, CFO / financial operations / accounting, HR, payroll, customer service, warehouse / delivery and repair. Outsourced partners should be specialists and be able to adapt to your business model. As with employees, an outsourcing partner can be successful or unsuccessful depending on their level of commitment, skill, personality, and desire to do the work properly.
From the time that this crazy ride started, many of us are just hanging on. It is complicated. It is exhausting. Take a moment, slow it down, look at your business, and consider how you can do more with less. Be honest with your situation and be open to trying new practices that give your employees and customers what they want. If you try, you might just get what you need. Enjoy your ride through this storm; surf well, so that when you break on through to the other side, you are ahead of your competitors.