by TD Cowen panel highlights challenges, opportunities for upper-end furniture in a tight economy
NEW YORK — Luxury furniture resources taking part in a recent panel discussion hosted by TD Cowen and Home News Now offered a cautiously optimistic view of the segment despite lingering headwinds that could impact sales at least through election season.
The panel, moderated by TD Cowen stock analyst Max Rakhlenko together with Home News Now Editor-in-Chief Tom Russell, featured Caroline Hipple, chief creative officer of Hooker Furnishings; Ed Teplitz, president of Theodore Alexander North America; and Kyle Johansen, executive director of marketing and merchandising at Minneapolis-based HNN 125 retailer HOM Furniture. HOM is also parent company to luxury retailer Gabbert’s and starting price point brand Dock 86.
Together, the panelists addressed a wide range of topics in the hourlong discussion, ranging from pricing and promotion strategies to the importance of younger customers to the luxury furniture segment. These and other topics offered a window into the outlook for upper-end furniture leading up to the election and beyond, as many are planning strategies to capture or at least maintain market share once a full recovery takes shape.
As younger consumers in their mid-40s and under represent a significant part of emerging buying power, the conversation offered insights into how these companies are approaching this market.
Teplitz, of Theodore Alexander, for example, noted how the company, while not a consumer-facing brand, has taken steps to improve tools for its customer base, including a revamped website featuring content ranging from improved photography to general information about including details about fabrics, sizes, plus the ability to download product into consumers’ floor plans. A key goal is to help their customer base compete against lifestyle brands such as RH, Arhaus and Williams-Sonoma in the digital realm.
Its steps also includes efforts to reach the younger customer base through social media.
“As a manufacturer and a wholesaler, we are changing the way we are investing our marketing dollars to attract the millennial and the younger consumer because everything is social media now,” Teplitz said. “We are working with influencers to create awareness and are finding those outlets that the millennials are looking as they seek information. They want to know everything and anything about your product, your brand, your story and your style and whatever you can tell them. … It’s about reallocating and moving some of our advertising dollars in areas where we know they are looking and where they have interest.”
Johansen, of HOM and Gabberts, noted that the retailer is bringing in furniture from its supplier base that caters to a younger consumer, including more contemporary furniture and more motion furniture.
“Motion furniture is popular among millennials,” he said, adding, “because you know we have a lot of kids at our age. I am 39 and all my friends have two or three small kids and they need to have functionality in their house.”
He noted that Gabberts also moved out of the high-rent Galleria shopping center in Edina, Minnesota, and into a nearby location that houses all three brands.
“It was to cross-pollinate our customers, who we know have a huge following with HOM Furniture, across all age spectrums,” he said. “And we want to go across the aisle into the Gabberts section to get them more familiar with the Hooker brand, the Theodore Alexander brand, so they can become more brand-conscious shoppers for our goods long term,” he said, adding that many of these younger shoppers already know the lifestyle brands such as RH, Crate & Barrel, Pottery Barn and West Elm, which he noted “have a pretty good millennial following today. We want to get a piece of that action at Gabberts, which is traditionally higher end than what a Pottery Barn is.”
Hipple, of Hooker Furnishings, said that the millennial market is still emerging despite years of anticipation the industry has had regarding these consumers.
“Millennials are very important, but they haven’t shown their stuff yet in my opinion,” she said. “I keep waiting and have been watching it for several years, thinking, this is the year, and then we got screwed up by the pandemic.”
But she noted that people begin to spend the most on home furnishings in their 40s, heading into their 50s to age 60 and believes that the estimated 80 million millennial consumers will begin to eventually help support a market long supported by a similar number of baby boomers.
“The baby boomers have really dominated the spending in the better market for a long time,” she said comparing the shift in the market to the movement of sand through an hourglass. “We are getting ready to have that flip, but it just hasn’t started yet.”
She also noted that while baby boomers are more traditional in their approach to buying furniture, including using interior designers, many millennials are more aligned to things like sustainability, plus a digital approach that includes social media.
“So as you are thinking about your assortment and your messaging, you have to have a multiple-channel strategy and a multiple-generation strategy and put that all together.”
Johansen agreed that digital assets are important in reaching younger consumers. However, he also believes it’s important to have younger professionals, including younger designers, involved in the industry in order to connect with these emerging younger consumers, whether it be in designing the right product, or connecting with them on an individual project for their home at the store level.
“Improving the information that is available to customers is super important,” he said. “But we’re not bringing in as many younger designers into the business that we need.”
He noted that many younger designers want to work for high-profile apparel brands such as Louis Vuitton, but added, “There’s a great career in interior design, too. … If we could get more younger people involved in design and interior design, I think that would translate down the line further.”
He noted that many younger customers also may feel more comfortable working with a younger designer, including those professionals who know the style preferences of this emerging market.
The importance of home sales also came up in discussion, particularly as those sales are being impacted by higher interest rates that have pushed many out of the market for new homes or kept many from selling an existing home. However, the panel largely agreed that many who are in the market for luxury furniture are not as susceptible to high interest rates as they often pay cash for a home. Nor are they buying furniture on credit, as much as they are wanting to use their American Express card to cash in on points, for example.
“Many of the big furniture companies out there, some 40%, 50%, 60% of their sales are financed through interest-free programs for the consumer,” Johansen said. “We don’t get that at Gabberts. We don’t even talk about it really. We have it available just because it’s marketing, but nobody takes it. … Whereas at HOM and Dock 86, we have people using their credit because they are all tapped out.”
Teplitz noted that the luxury sector is largely impacted by what happens with second, third or even fourth homes.
“When they purchase those homes, they need to furnish them quickly and completely, so you get very large sales out of that,” he said. “So as that starts to diminish and consumers aren’t turning their homes, we do lose a lot of demand so it does impact us at the luxury end as well. … I agree that interest rates, the actual higher interest rates don’t impact us per se because our consumers aren’t financing their purchases. But having said that, it does lead to uncertainty and the election does lead to uncertainty and uncertainty does lead to consumers putting off decisions.”
Ultimately the conversation veered back to the needs of the millennial market, including those younger consumers that are having a difficult time buying their first home.
“The net of it is that we are not building enough homes for the millennials,” Hipple noted. “As they are getting into their 40s, they have been slow to form households in a significant way.”
She also noted that their spending on luxury furniture also will depend on them eventually moving into larger homes.
“I think we are on the cliff of that coming, but I also want to see more houses built for these millennials,” she added.
While many of these factors are outside the control of the industry, the panelists agreed about the importance of things they could control in the market, including working with their partners in the industry to bring the most attractive products at the best values to the marketplace, whether that be through popular designs or even some limited promotional activity. A general consensus was that while some level of discounting and promotions are important, the luxury sector has to balance that against providing the best quality and opportunity for margin for their customer base.
“I think our industry has suffered from insecurity about margins for as long as I’ve been in it, which is a long time,” Hipple said. “And for the first time ever, we are starting to see real margins in the better goods. So I think we have to be supportive as business partners on the promotions and the sales during the holiday times and when people have been trained to buy. But I think it’s a mistake if we go back to low, low prices everywhere unless you’re a Dock 86 or that is your model. The luxury market needs to get paid for all the creativity, the resources, the sourcing and the skill that goes into making the goods.”
Added Teplitz, “It’s important that retailers are able to get a good margin because they have to create that great retail environment for the consumer so that they can compete with the lifestyle companies. So the retailer needs to have a good margin in order to take care of hiring the right staff, having the right experience in the store and making sure they have all the right digital and social assets that drive the consumer to the brand.”
Johansen said that some promotional activity is driven by companies that are challenged and need to offer steep discounts to drive their business. This in turn creates a cycle in which competitors also feel pressured to offer deep discounts. And while he noted that his retail business benefits to some degree, it also must balance this against the importance of working with its vendors to maintain long-term partnerships.
“At the end of the day, we need consistent quality and we need consistent shipping,” he said. “We will take advantages from weak players out there, but we need stability, too. You know my designers, they love Hooker and they love Theodore Alexander. They are go-to lines that they are going to bring to customers and sell with confidence.”
“Promotions happen — it’s just part of the way you drive business in our industry,” he added. “But we’ve got to manage that. It’s not about, I can’t buy today because it’s not at 50% off. You know we don’t want that mentality. And there’s a lot of that mentality in our industry.”
