Homing In on a Soft Market

Multichannel merchants of home furnishings have been struggling of late. One-time powerhouse Pottery Barn suffered a year-over-year decline in sales for the eight-week holiday season. At Pier 1 Imports, sales for the first three quarters of fiscal 2006 were down nearly 10% from the comparable period of 2005; Bombay Co. reported an 8% decline in year-over-year revenue for its first three quarters. In October, just a year after launching the catalogs, Home Depot ceased mailing its upscale furnishings book 10 Crescent Lane and lighting catalog Paces Trading Co., though both live on as part of the Home Depot Direct catalog and Website.

Even companies that haven’t been hit by sales declines yet are acknowledging that the market is soft. In a statement announcing a 22% increase in holiday sales, Restoration Hardware president/CEO Gary Friedman said, “We expect the home furnishings environment to remain challenging in 2007, but we are cautiously optimistic about our ability to continue driving profitable share growth.”

Fewer movers, more mailers

Blame it on the weak real estate market. That’s what the National Retail Federation (NRF) is doing. NRF chief economist Rosalind Wells has reported that sales increases at building-material and garden-equipment stores suffered a sharp deceleration last year. Strong year-over-year gains of 20% at the beginning of the year became declines of 4.3% at year-end.

Furniture stores, meanwhile, saw their 8% first-quarter sales increase ebb to a 2.5% rise by the fourth quarter. This coincides with a nearly 17% drop in new-home sales in 2006, according to the National Association of Realtors. And a Commerce Department report shows that the homeowner vacancy rate rose to 2.7% in the fourth quarter, well above the year-earlier level of 2%.

Fewer people selling and buying homes means fewer people buying home-improvement products or furniture for their new abodes. At the same time, during the past year there’s been a spate of spin-offs trying to find a foothold in the already-crowded home decor market.

In September, general merchandiser Fingerhut mailed a home goods spin-off, Today’s Home, to 500,000 customers and prospects. That same month “country lifestyle” merchant Plow & Hearth mailed Madison Place, a spin-off specializing in less-countrified decor, and Restoration Hardware debuted its vintage-inspired Brocade Home catalog. Manufacturer/retailer Bassett Furniture introduced a consumer catalog in August with a 1.2 million-copy mailing, Swiss Colony launched Room for Color in February 2006, and the Crosstown Traders division of Charming Shoppes resurrected Home Etc. in January after a two-year hiatus.

Reexamining merchandising

Of course, some decor merchants have been able to thrive nonetheless. Patricia Pao, founder of Pao Principal, a New York-based retail consulting firm, points out that home decor remains a solid category for Target, for example — and that Target, J.C. Penney, and other moderate-price mass-market general merchants are “poaching” on traditional home retailers’ turf.

“Target started it all about 10 years ago with the Michael Graves line, and now they have contemporary stylists like Todd Oldham and Isaac Mizrahi selling exclusive brands,” Pao says. “Their marketing teams are emulating the fashion side of the business: They’re bringing in limited styles of a product, and 70% of that line is in and out of inventory within months.”

Pao contends that merchants suffering from declining home product sales should take a closer look at their product mix. “Williams-Sonoma can’t seem to resurrect its Pottery Barn brand,” Pao says. “That’s not due to a slowdown in the housing market; that’s because of a lack of exciting merchandise. The same is true for Pier 1 Imports.”

In fact, a decline in home sales could soon benefit furniture sellers. John Lenser, founder of the San Rafael, CA-based catalog consultancy Lenser, says that homeowners who aren’t investing in major remodeling projects to get their houses ready for a sale could turn their attention to redecorating. Most home decor catalogers, he says, “just need to mail more conservatively and to raise the bar on how they prospect.”

Or as Glenn Lalich, vice president, research and analysis for New York-based list management services provider ParadyszMatera, puts it, “It probably goes without saying, but the right product mix, audience, and message will win out over most external factors.”

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