Stores optimistic for 2006

Retailers selling home accents are looking forward to healthy sales in 2006. More than one-half project higher total store sales this year than in 2005; about one-third say their sales will be even with last year. Only 15% anticipate a sales decline. These projections come on the heels of an only moderately successful 2005. A net of 5% of retailers said 2005 sales were better than 2004.

When it comes to space, the size of furniture compared with accents dictates furniture stores' need for more space for warehousing and delivery operations. Translated to sales per square feet of selling space, the larger and generally higher priced furniture products produce a higher yield, a median of $156 per square foot for furniture stores versus a median of $112 for home accent/gift stores.

Not surprisingly, the biggest differences between home accents/gift stores and furniture stores lies in their merchandise mix.

It also comes as no surprise that home accents/gift stores carry a more varied mix of accent products than furniture stores. The mixed bag of "other decorative accessories" that includes everything from baskets, boxes, candles and candle holders to clocks, home fragrance, garden and holiday decoratives makes up the largest slice of the sales pie, by a slim percentage point over lamps and lighting, and just barely ahead of wall decor and accent furniture. In short, the merchandise mix in home accents and gift stores is as varied as the stores that carry them, so defining the mix proves difficult. Besides home accents, other products in their stores range from apparel to jewelry to toys and anything else that they think might catch a customers' fancy.

Furniture stores naturally have a lower overall percentage of home accents products than home accents/gift stores, but retailers in both groups expect home accents to be a bigger part of their sales pie this year. The change is particularly dramatic in furniture stores. A net of one-fourth of furniture stores expect home accents to increase as a percentage of total sales this year. This comes after 11% of furniture stores said home accents were a larger part of their sales in 2005 than in 2004.

Lamps top the merchandise line-ups of both furniture and home accents/gift stores, carried by more of both types of retailers than any other product category. Other products found in two-thirds or more of home accent/gift stores are wall art, candles and candle holders, accent furniture and mirrors.

Mirrors, accent furniture and wall art are also longtime mainstays in furniture stores' accessories lineups, along with area rugs. More accents are finding their way into the furniture-store merchandise mix as more furniture merchants see the value of accents as an add-on sale or a draw for consumers when they're not in the market for a big-ticket purchase. Substantially more furniture stores are carrying tabletop and tabletop accessories, candles and candle holders, photo frames, luxury bed linens and lighting fixtures since Home Accents Today conducted its most recent retail survey in 2003.

Both home accents/gift stores and furniture stores have experienced price-point pressure from imports and keen competition from other channels. Mass merchants, home improvement centers and Internet retailers have presented particularly strong competition. Since 2003, the hardest hit categories for home accents/gift stores have been garden accents/furniture, lighting fixtures, tabletop/tabletop accessories and permanent botanicals. There has been a double-digit decline in the best-selling price point for all four categories. Even so, both tabletop and permanent botanicals remain among the products home accents stores say yield their best profit margins.

Furniture stores have been better at holding the price line for more of the accents they carry than home accents/gift stores. Among their mainstay accent products, only mirrors saw a price decline since 2003, where the price differential between the median best-selling price in 2003 and 2006 was only $25.

With a narrower range of accent products, furniture stores generally charged higher prices for the same product categories. The differences for the median best-selling price point ranged from less than $10 for decorative pillows, lamps, home fragrance and mirrors, to more than $100 for area rugs, lighting fixtures and luxury bed linens.

Sourcing is a time-consuming endeavor for both home accent gift stores and furniture stores. Not only does the product selection largely define the store for its customers, but merchandise costs represent the largest single expense in running the retail operation. More than three-fifths of the expense dollars go to "getting the goods," so finding the right product at the right price is critical to the operation's profitability.

Largely because of the variety of products carried, home accents/gift stores use more vendors overall than furniture stores. Home accents stores are three times more likely than furniture stores to use 75 or more vendors.

About three-fourths of both home accents and furniture stores attend between two and five U.S. trade shows a year to find new products; about one in 10 travel outside the country, mostly to Europe and Canada to find accents for their stores.

Aside from trade shows, retailers continue to rely heavily on sales reps and trade publications to find new products and new vendors. Since Home Accents Today conducted its last survey on retail operations in 2003, the major change noted in how retailers find out about new products and sources comes primarily from the Internet. In 2003, just shy of one-fourth of retailers looked to the Internet as a source of information about possible new products and vendors; by spring 2006, nearly one-third of retailers turn to the Internet as a source. More home accents/gifts retailers are haunting craft shows than in 2003 as well, no doubt in an effort to find artisans as yet undiscovered by big box stores and other competitors.

Getting the customer into the store and inducing her to buy is the object of the store's advertising and promotions efforts. Median spending for advertising and promotions, as a percentage of revenues, has hovered between 5% and 6% for years. The only difference in the dollar amount of spending comes from the sales volume of the stores. Newspaper ads have also been the medium of choice for most retailers for years. Recently however, retailers, while still giving newspapers the largest slice of the ad-dollar pie, seem to be putting them on a portion-control diet.

Among home accents and gift stores, spending for direct mail rivals spending for newspaper advertising. As a percentage of total ad spending, home accents/gift stores assign double what furniture stores do to direct mail. Both home accents/gift stores and furniture stores use direct mail to announce sales or special events, mail newsletters and send discount coupons, especially as part of loyalty programs.

The recent hike in postal rates may have caused some retailers to rethink their direct mail programs. With another postal rate increase on the horizon in 2007, it will become even more important to measure the effectiveness of each mail campaign.

For furniture stores, the biggest change in ad spending has been a shift of dollars to TV ads. Even smaller furniture stores appear to be taking advantage of the more affordable rates made available by the proliferation of cable stations. More than one-half of furniture stores did some TV advertising last year. According to Nielsen Media Research, total TV ad spending by furniture stores topped $1.6 billion, making the group one of the nation's top 10 TV advertisers.

Special events are another popular means of attracting customers, especially for home accents and gift stores. Besides sales, which they often turn into parties, home accent and gift stores host workshops, demonstrations, artist events and so forth to entice customers into the store. They're also a big reason for the use of direct mail to announce the events.

After merchandise costs, the largest expense in the retailers' budget is paying the staff. In the case of retailers selling home accents, payroll costs amounts to 18% of expenses or a median of 15% of revenues. The biggest chunk of that goes to sales staff.

Furniture stores, largely because of the nature of their product, have more staff tied up in warehouse and delivery staff. They also tend to have more administrative or office staff than do home accents and gift retailers. Another notable difference between the two types of stores is in the ratio of full-time to part-time employees. Home accents and gift stores appear to hire more part-timers than do furniture stores. Salaries, overall, also tend to be lower, although this is more likely a function of sales volume than the anything else. There are virtually no differences in the percentage of sales employees working on commission or the commission paid between the two types of stores or in the fringe benefits offered.