The Housing Chronicles Blog: While furniture retailers struggle, one builder finds a unique incentive: a furnished house

Thursday, May 15, 2008

While furniture retailers struggle, one builder finds a unique incentive: a furnished house

Furniture retailers, which certainly boomed along with housing, are starting to go bust along with fewer housing sales, with some long-time names such as Wickes and Levitz closing their doors after decades in business. From a story in the L.A. Times:

As the housing market goes, so goes the furniture business. Such well-known brands as Levitz and Wickes Furniture have called it quits in recent months, liquidating their inventories. Others are struggling to hang on.

"This is one of the toughest periods we have seen in the last 30 or 40 years," Farooq Kathwari, chief executive of Ethan Allen Interiors Inc., told Wall Street analysts in a conference call a few weeks ago. "A lot of our business has been diverted to these going-out-of-business sales."

Analysts note that furniture is usually a discretionary purchase -- something that consumers can easily put off if they're feeling the effects of the economic slowdown and the pinch of higher food and gas prices.

"If your refrigerator or car breaks, you have to replace it. If your furniture has a scratch, you can live with it for a while and replace it when times are better," said Stefan Wille, president of Aktrin Furniture Information Center, a consulting firm.

Rising oil prices, which drive up the cost of gasoline for delivery trucks, foam for sofa cushions and other expenses, are also cutting into profits. Most of the industry's trouble, however, is rooted in the sour housing market.

"As prices come down, people see their house less as a place they'd like to invest thousands of dollars," said Laura Champine, who follows the furniture business for investment firm Morgan Keegan. "It seems like this is the deepest downturn since the early 1980s, maybe longer."...

Nationwide, consumer spending on furniture and bedding is projected to basically stall this year, gaining only 0.4%, according to a panel of industry analysts surveyed by the industry publication Furniture Today.

Those analysts predict furniture store sales will also be essentially flat this year, inching up to $65.7 billion from $65.2 billion last year.

By comparison, furniture store sales gained 2.1% in 2007 from 2006, with most of that increase coming in the first half of last year, analysts say.

Two of the industry's biggest names are among the early casualties. In March, the 37-year-old Wickes chain began liquidating its inventory and closing its 43 stores.

Levitz, which was founded in 1953, began liquidating its 76 stores in December. The company had 21 locations in Southern California.

Analyst Champine believes other failures are ahead. Most vulnerable, she said, are small, privately owned firms in states such as California and Florida, where home price drops have been among the steepest in the nation...

In New Jersey, however, homebuilder Kaplan Communities has found a solution: partner with a local furniture retailer and offer new couches, dining room tables and bedroom sets as a unique incentive program for buyers. From a story:

Week after week, the marketing team at Kaplan Communities in Highland Park, N.J., would look at the new-home ads in the real estate section to see what kind of incentives were being offered...

The result was a "Housefull of Free Furniture" cross-promotion with Ashley Furniture that offered buyers a gift certificate to the furniture store to furnish their new home. It was available at all Kaplan Communities neighborhoods of condos, townhomes, and single-family homes from the low $400,000s to the mid-$600,000s. The result: an 18 percent increase in traffic and a 14 percent increase in sales...The dollar amount of the gift certificate was coordinated with the furniture needs of the largest unit in each community...

Buyers had an option of picking out basic furniture for the whole house or spending the allowance on one premium piece. The choice was theirs....

The day before the promotion was launched, a meeting was held to thoroughly explain it to the sales staff. The builder's attorney and accountant, and a representative from Ashley Furniture attended so that every possible question could be addressed...

It cost about the same as paying someone's closing costs. With free furniture, they can touch it, pick it out together, and show it off. You can't show off your closing costs."

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