Even before the outbreak of the coronavirus pandemic crisis, the German furniture trade was confronted with subdued economic prospects and declining overall sales. In February 2019 – incidentally, after a prolonged phase of moderate growth – the sector focus on furniture reported on the “downward trend in the furniture market.” According to this report, the German furniture market recorded a decrease of 1.3 percent in 2018. Sales fell to 19.9 billion euros.
A good year later the surprise came: 20.55 billion euros in sales in 2019, according to the home in March 2020, but in the same month the lockdown forced stationary trade to a standstill, while online sales skyrocketed.
Are you also a cocreator of this up- and downhill ride? Has the lockdown, contrary to all forecasts, also awakened your buying mood? Especially online and with investments for within your own four walls? Then you will agree with the 61% of the respondents in the Oferista Group survey: they would rather invest in new furniture than in holidays. Kitchen, office, and garden furniture are in high demand – especially seating furniture and home-office solutions.
For Jörg Balz, partner at enomyc in Berlin, this is reason enough to take a closer look at the background, the changing consumer trends, and their effects on the furniture market of the future. Which developments will have a lasting effect on the furniture industry, and which levers should be used now?
ON THE STATUS QUO
A current survey by the Association of the German Furniture Industry (VDM) and the associations of the wood and furniture industry in North Rhine-Westphalia shows the COVID-19 crisis has given a significant boost to the online furniture trade. The lockdown has led above all to an increase in online purchases of furniture. “Around 40 percent of the companies surveyed [reported] a revival of their online business,” it says. Nevertheless, the forecasts for the industry seem gloomy: it is estimated that by the end of the year, it would be missing “a good 3 billion euros in sales.”
Why has the furniture trade undergone such significant structural upheaval in recent years? Let us first turn to some background information.
MARKET DEVELOPMENT AND CHANGING CONSUMER HABITS
Concentration of the Stationary Business
High rents in central city-center locations and high investment costs in online sales: they often result in small- and medium-sized furniture stores being taken over or abandoned. This concentration process leads above all to growth among large furniture retailers. In addition, there are fewer new sales spaces – but instead existing locations and spaces are taken over by the top three furniture retailers in Germany. Thus, 25 percent of the sales spaces in the German furniture trade are accounted for by just a few furniture giants.
Ongoing price wars: despite falling raw-material prices, retailers are engaged in discount battles in order to increase productivity per unit sales and at least maintain their market share. This is particularly true in the lower and middle price segments. Discount battles, reported Die Welt in January 2019, would fuel consumers’ impression that things could get even cheaper. Experts declared the retailers’ situation as “self-inflicted” for this reason as well.
Housing Shortage and Rising Purchase and Rental Costs
The increasing shortage of housing – especially in conurbations – the increased land-transfer tax, high prices for houses and rising rents, and price increases for water, electricity, and gas – these are all factors that simply slow down the willingness of consumers to move and invest in a new home. At the same time, the number of single households is rising. And even if one could now suspect that several single households could behave coherently like a multi-person household, this is not so; the number of single people is still rising. Here the desire for joint purchases, which are not absolutely necessary, is clearly subdued.
Hot Summers and Compulsory Masks
In the last two years, the summer heat has deterred many consumers from visiting furniture stores and browsing for longer. The currently valid obligation to wear a mask in German retail stores has similar effects: it clouds the shopping experience, according to the latest study results of the ECC Cologne. Of those surveyed, 52 percent said that they had “less desire for stationary shopping” as a result.
TRENDS AND BUYING ARGUMENTS
What about the changed consumer habits? Which trends will still determine the future of the furniture trade?
The Customer of Tomorrow: Sophisticated and Digital
“The service business as a profit center” – only recently, Jan Ulrik Holsten, also a partner at enomyc in Berlin, reported on the increasing importance of the customer experience and the organizational anchoring of service within the company. Comparability, detailed product information, and an improved delivery service: in addition to all these factors, online shopping – combined with a world of experience in which consumers can make use of all the possibilities of the digital world – is of immense importance.
To give just one example, “touch points” could in the future make products and product qualities physically tangible in a special format. Customers will then have the opportunity to get up close and personal with the desired product and place their order online, which inevitably leads to the next point:
Virtual and Augmented Reality in Focus
How will the sofa discovered online look in the living room at home? The stationary experience will increasingly be enhanced by online applications. This is exactly where virtual reality (VR) and augmented reality (AR) come in. They bring digital furniture shopping to life – which in turn leads to new marketing opportunities for retailers.
Consumers can test products for their “touch, look, or feel.” A corresponding empirical study from November 2019states that augmented reality can “support the purchase decision process when buying furniture.” In summary, it says, “The furniture industry is thus on a strategically sensible path in the digital transformation.”
The Furniture of Tomorrow
Individual and efficient yet beautiful and of high quality: design and comfort trump. While in 2001 almost 60 percent of those surveyed considered low prices and comfort to be “important when buying furniture,” in 2019 more than 70 percent placed greater emphasis on design. By contrast, only 45 percent of those surveyed considered low prices important, according to Die Welt.
In addition, high rents in conurbations and the increasing number of single households demand practical concepts and solutions for smaller living spaces. Modular, space-saving, and multifunctional pieces of furniture that offer storage space, are of high quality, and come in an attractive design are popular. Custom-made pieces of furniture, which take into account special dimensions and meet individual customer wishes, are also becoming increasingly popular.
Purchase Argument: Sustainability and Natural Living
This was already established more than four years ago in the study Furniture and Sustainability Monitor 2016: sustainable furniture that is produced in an environmentally and socially responsible manner is in vogue among “Germans.” Among other things, natural materials, resource-conserving production, sustainably designed supply chains, and fair trade are increasingly in the customers’ focus, shape the decision-making process, and ultimately determine the purchase.
Here, storytelling as an important marketing instrument is becoming more and more important – for example, bytelling the story of a piece of furniture, its origin, and its production with the inclusion of all those involved. In this way, storytelling can influence the moment of decision and provide the purchase argument.
RECOMMENDATIONS FOR ACTION
The factors mentioned above are just a few of those that determine the change in the furniture industry. How can manufacturers and retailers react to the changing economic developments and new consumer trends?
Two recommendations for action should be obvious by now: First, the furniture industry must offer an innovative product range. Secondly, the business from e-commerce must be built up to a greater extent.
Without the inclusion of digital commerce, the stationary furniture store will not be able to survive. The growth impetus of the furniture market will clearly come from online business in the coming years. Only the online furniture trade has grown in recent years, with double-digit growth rates of almost 17 percent. In 2019, over 10 billion euros in sales were achieved with the sale of furniture and home accessories online. According to forecasts, this trend will continue. Purely online retailers will profit from this. What does the stationary furniture trade have to bear in mind on the path of digital transformation to online trade?
The digital transformation not only requires a high degree of willingness to change within the company, but it is also linked to high investments in information technology and experienced personnel.
Credit institutions are increasingly critical of the retail business and are only available to companies for limited financing. The reasons for this include an excessively high cluster risk, trading with declining returns, and many insolvencies. If, on the other hand, companies deal intensively with their own digitization, they create a suitable starting point for a Fit for Future program, which should be realized with still-existing liquidity reserves. The effects of increased efficiency in the core business and more flexible costs guarantee the necessary start-up financing for the online business in the short term.
Involvement of All Stakeholders
We have also had this experience in our own digitization process: a successful transformation in a company requires the involvement of all stakeholders – both internal and external. Customers, suppliers, and financiers should be involved from the outset in order to be able to accept, accompany, and also implement the change.
The program management for digitization should also involve the entire business organization. This includes all functional areas: purchasing, sales, and logistics. At best, digitization is carried out in all digitizable areas. The logistics processes are particularly crucial to success here: cost efficiency, transparency, availability, and on-time delivery with short delivery times are the critical success factors here.
Minimizing and Managing Returns
It is essential to minimize the returns rate as a key variable and also to implement new organizational processes for the preparation and recycling of goods from returns digitally. However, the trade achieves fewer returns primarily through good customer service. Stationary trade in particular can score points through qualitative personal advice. More than ever, it is important to offer potential customers a customer experience. Trained staff and improved service are the key to greater customer satisfaction, both online and offline.