No armchair ride for furniture retailers

There has been little comfort for furniture retailers over the past five years. The volatile housing market along with fluctuations in disposable income, consumer sentiment and changing consumer tastes and preferences for different types of furniture, has created mixed results for furniture retailers, culminating in a 1.0% per annum fall in industry sales.

Sales have also been affected by increasing levels of competition from department stores and shopping websites. Despite this, furniture retailers have remained resilient by offering consumers the latest trends in furniture fashion and via clever store layouts and eye-catching catalogues.

Industry sales will post a steady recovery in 2009-10, rising by about 3.5% to $6.70 billion. The rise will be driven by an upturn in the general economy, which will fuel consumer sentiment and retail spending levels. Despite further hikes in the unemployment rate and modest income growth, consumers will begin to feel more confident about their overall position and the state of the economy. This will translate into stronger sales for furniture retailers with a possible shift in demand from more budget-end to middle-market products.

However, while the overall retail outlook for Australians will remain promising, the winding down of government stimulus packages to consumers and anticipated growth in interest rates is expected to provide further challenges for furniture retailers in 2009-10.

In terms of total market size, merchandise retailed by furniture stores may also be purchased from department stores, fabric retailers, along with shopping and auction websites. IBISWorld estimates that this industry accounts for about 60% of total furniture retailing sales with the remaining 40% of revenue derived from sales by other retailers. Hence, the total retail market for furniture items is estimated to average about $11.0 billion.

Industry outlook

Furniture retailers will spring back over the five years to 2014-15 with sales expected to rise by 2.0% per annum. While competition within the industry is set to intensify, demand will continue to be driven by fluctuations in the level of real household disposable income, the consumer sentiment index, housing construction and household formation and interest rate trends.

Key success factors:

• Having a clear market position: Market positioning should project a clear and consistent image of the company.
• Production of goods currently favoured by the market: Products on offer should meet the current demand by consumers. Stock should also be perceived as offering value for money and be of a minimum quality.
• Experienced work force: Staff should have good colour and fashion sense as well as knowledge of what furnishing fabrics are appropriate for various types of furniture.
• Ability to control stock on hand: Stock levels need to be monitored so that there is sufficient display stock in order to generate sales. Adequate stock controls should also be in place to reduce inventory costs and increase stock turns.
• Attractive product presentation: Store layout and design should be clear, consist and provide consumers with a good overview of products on offer in-store.
• Proximity to key markets: The store needs to be located where there is a high volume of passing traffic or associated alongside stores which retail associated goods (lighting) so as to receive maximum benefit from impulse shoppers.

Barriers to entry

Entry into furniture retailing has not been a smooth transition for new operators. Prospective players have faced high capital start-up costs associated with the construction or purchase or new showrooms or expenditure linked to the cost of franchising (capital investment, franchising fees, advertising levies). Operators have been hinder in their search for suitably sized premises, with the average furniture store being approximately 650 square metres. Store location and the availability of customer parking have also hindered the search for suitable sites.

Robert Bryant is the general manager of business information firm IBISWorld.