Furniture Sales: Going Virtual Might Be Its second Life

With SpendingPulse retail and online sales data going back to 2005, we have been able to spot clear trends in the growth of ecommerce by sector. It has been well observed that books and consumer electronics were the first products consumers were prepared to buy online. During those early days, online women’s apparel seemed a hard sell in the absence of fitting rooms, not to mention the lack of ability to see and feel the fabric. But gradually, women began to buy some of their apparel online, eventually with less trepidation and more anticipation.

Eventually, it became the norm to buy children’s and teen apparel online, as return policies and procedures eased. During that time, few people ever believed that customers would ever buy jewelry online. Nevertheless, that changed too, and now hundreds of millions of dollars of jewelry at all ends of the spectrum gets sold that way.

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We can also see that during the recession, ecommerce spending on apparel was in positive territory even while total spending was in the red.
So with furniture, the thought of buying it online, untouched and unseen at scale in real space, on the face of it seems unlikely to catch on in any pervasive way. Yet, the year-over- year sales stats are beginning to show that more and more furniture sales are happening via the online channel.

The drawbacks of buying furniture online are very tangible: the size and weight of furniture makes shipping and storing it, not to mention possible returns, a much bigger logistical challenge than, say, ladies’ apparel.

So furniture retailers might want to consider exploring new ways to invest in the online channel, in part by rethinking shipping, and in part by reworking the supply chain to reduce the number of stops along the way before the furniture reaches its ultimate destination. To do this, retailers will need to look at preferred manufacturing locations, distribution and storage. And to do that, they need a strong understanding of present and future demand. Fortunately, there are new sources of macroeconomic and sector sales data that can help with this, both in terms of monthly year-over-year growth, and in terms of forecasting the future.

The furniture sector has been struggling to keep its head above water even as other retail sectors have begun to perform again in the new economy. Sales are more than 20% below pre-2009 levels, and at $3.5 billion, furniture sales in January 2012 were the lowest January levels in SpendingPulse history.

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The common wisdom is that furniture and furnishing sales are tied to the housing market – and until housing makes a rebound, furniture sales will continue to be stymied. The question is: can a smart use of granular data help decouple the two?

We think so. We looked at Furniture and two other sectors that had tanked in the 2008 market collapse, Department Stores and Apparel, and began to ask ourselves if, through the use of transaction data analysis, any insights or possibilities could be uncovered that might free up these sectors from their bigger-picture burdens.

What we found was that, on a yearly basis, online furniture sales grew enormously in 2010, a whopping 15.4% growth next to overall growth in the sector of only 2%. And while furniture sales growth in 2011 was in deficit overall, online sales still managed to grow at a healthy 11.6%. Even for 2008 and 2009, the receding overall growth in furniture sales – negative 10.8% and negative 12.6%, respectively – were offset by smaller negative numbers in ecommerce – only negative 3% and negative 1.8%.

The other two sectors told a similar story, though Apparel was the strongest of the three by a   significant margin. While department store sales showed negative growth overall in 2008 through 2011 – beginning with a deficit of 8.9% and closing near even at negative 0.2% by 2011 – ecommerce sales growth remained in the black all four years, dipping from 16.5% in 2008 to 8.2% in 2009, but then growing steadily by 9.2% in 2010 and 11.5% in 2011. What the data illustrates is that even when brick and mortar Department Stores were struggling, their online operations were beginning to grow.

Apparel ecommerce sales showed even stronger gains, hitting 18.4% growth in 2010, while overall growth has climbed back out of the hole — negative 2.5% and negative 3.4% in 2008 and 2009 — and back into positive territory by 2010. But the overall growth figures in all three sectors can hardly compare to the growth in ecommerce sales.

What can we deduce about Furniture by looking at this data? Well, overall, and based on the overwhelmingly upward curves, it would seem that tapping into the ecommerce channel would be an advantageous move for furniture retailers, notwithstanding the points made earlier about more challenging logistics for the product.

In thinking about distribution, here’s where analyzing the data can once again be extremely useful. Understanding geographic needs and volumes can help determine demand, distribution, and the economics of those all-important factors. By looking at granular geographic data, the furniture retailer might be able to determine specific needs in specific regions or locations, thus being able to achieve more efficient and effective distribution to meet those needs. For example, if data on building materials indicates a specific geographic region is adding housing or hotel units at a faster rate than the national average, furniture retailers can anticipate that there will be a commensurate increase in demand for their products and be prepared on all fronts, from manufacturing to lining up distribution channels.

Widening the lens once more, we could imagine other important uses for this type of granular geographic data. Given how the three sectors we looked at are behaving in a similar way, can we use the data to find signs that different geographies are emerging from the recession at different rates? And how might this affect not only distribution across all these retail sectors, but the spectrum of goods offered, and even pricing? What other data, apart from local employment figures, could be used to determine how sales will recover geographically? Those regions that show a pickup in sales are regaining greater consumer confidence. Might that indicate an opportunity to add distribution warehouses for ecommerce channels to better deliver in that geography?

The economy is slowly building momentum, enough for retailers to be able to gain from the rising tide, if they understand where it’s rising fastest. We think that if retailers begin to use spending data to make better informed, more timely decisions, it will help bring improvement, particularly in still-troubled sectors such as furniture.

Andrew Mantis About Andrew Mantis

Andrew Mantis leads the MasterCard Advisors Information Solutions/Merchant practice. He can be reached at Andrew_Mantis@mastercard.com.