Creative retailers offer multiple channels to reach consumers
By Becky Boswell Smith -- Home Accents Today, 12/1/2006
In a year when American consumers faced grim news of a prolonged war in Iraq, escalating conflicts with Iran and North Korea, soaring gas prices, a slowed housing market and a surprising mid-term election, the economy is managing to do very well, thank you.
What should have been felling blows to the economy seem to have glanced off the side. The stock market is at an all-time high and the unemployment rate nationally is healthy, although massive layoffs in the automotive industry, for example, are weakening areas in the Midwest and South.
"Consumers have faced a number of economic challenges this year and have taken them in stride," said National Retail Federation Chief Economist Rosalind Wells.
The nation's consumers, at least at the higher end of the market, have disposable income and are spending it in record numbers. The two largest groups of consumers — Baby Boomers and Gen Y — are flashing their powerful pocketbooks.
When Gen Y (ages 12–30) gets to full purchasing power, they will count about 76 million households, just a few thousand fewer than their Boomer parents and grandparents. They're already making an economic difference. About half of the 51 million Gen Yers who are adults already are buying homes, and 35% of them make $75,000 or more. About 40% of Boomers make $75,000 or more.
All of this impacts the home accents Universe, which revolves around the home and its intrinsic value to the people who live there. While high home ownership translates to more furnishings, home accent products are equally important to apartment dwellers.
In short, wherever or in whatever consumers live, they are likely to change their surroundings with the purchase of home accents. A rug or a lamp, a candlestick or a chest. Where they buy the products certainly is changing rapidly, but the age of acquisition continues on an upward trend.
From a healthy $69 billion spent on home accents at retail in 2005, Home Accents Today is estimating a 4.1% increase to $71.8 billion in 2006 and projecting an additional 3.3% increase to $74.2 billion in 2007.
The Home Accents Today research team and editors revised the projected 2005 numbers from our previous report for several reasons, the primary ones being more specific breakout of home sales for Target and Home Depot, both on HAT's Top 50 Retail Stores list. Because of the new numbers, 2005 sales for Target were revised up by $1.8 billion and Home Depot's by $475 million.
Only three channels are estimated to show significant change in 2006: discount department stores/off-price retailers, direct-to-consumer and home improvement centers/warehouse membership clubs. Each of the three is estimated to increase sales by more than 6% this year and together they own more than 40% of the market.
Even with less than spectacular comp store sales reported by discount department stores/off-price retailers, the largest distribution channel, the sheer number of doors they have and plan to open allows them to dominate. We estimate 2006 sales of $15.9 billion for this channel, pushing its market share to just over 22%.
Wal-Mart's unimpressive comp store sales year-to-date through October of 2.2% is offset by the company's announced plans to open about 275 supercenters in 2007, about half of which are expansions or relocations of existing units. Two major collections, Springmade Hotel Bedding, touting 600-thread-count sheets and white goosedown comforters introduced in August and the Colin Cowie holiday home group Csquared debuted in September, are expected to boost sales and upscale the store's image.
In a conference call with analysts in mid-November, Target expressed confidence it had balanced the "good, better, best" scenario and said the home category, which had not been performing to expectations, had "turned the corner." Target executives also said they again would offer Global Bazaar in January with a different focus, emphasizing greater affordability, more categories and more product, more color and with less emphasis on country of origin and particular artisans.
Other stores to watch in this channel include the fast-growing Kohl's, which is reporting comp store sales up 7.3% through September. Kohl's opened 65 stores on Oct. 5, its biggest opening ever and by year end will operate 817 stores. Part of the home expansion planned for 2007 will include introduction of Casa Cristina products, designed by Hispanic TV superstar Cristina Saralegui to appeal to that growing market, and Cultural Accents, designed to appeal to the African-American market.
Also important to watch is Stein Mart's November launch of Nina Campbell Home, mainly tabletop, decorative accessories, top of bed and accent furniture. Whether the British designer's taste, well-known at the higher end of the market, will translate to the middle of the market is one of the gambles Stein Mart is making to improve its year-to-date sales which through October were down 1.3%.
The direct-to-consumer channel which is estimated to be $8.2 billion in 2006 and projected to grow even more in 2007 to $8.9 billion and a 12% market share, includes the Internet, catalogs, TV shopping networks and home parties.
As in past years, Home Accents Today has classified the retailer in its main or original distribution channel. Because revenues for many catalogs are not broken out of total reported sales, this channel well may be understated. For example, think of Horchow (in Neiman-Marcus' department store numbers) or the several Pottery Barn offerings (in lifestyle stores) and the ever-growing number of leading retailers who have active Web sites.
The multiple ways to buy are just more examples of the growing murkiness of distribution channels as savvy retailers expand, adapt and create new ways to reach consumers. If you can't watch HSN, then buy online. Macy's closed before you got there? Shop online instead. It's raining? Shop Target.com.
To make the channel picture even fuzzier, consider JCPenney. It is classified in the department store channel, but 15% of JCP sales were direct (catalog and Internet) in 2005. Its Internet sales increased 28% in 2005 and surpassed the $1 billion mark for the first time.
Lowe's and Restoration Hardware shipped Christmas catalogs in October, and Sears launched a new catalog for home, Simply Indoors. The 76-page lifestyle catalog features bedding, bath, furniture, tableware, cookware and kitchen accessories.
According to Jeannie Reeth, senior category manager Home & Garden for eBay, home furnishings is a booming category for the Internet. In 2005, consumers spent about $81 billion on all products online, 4% of total retail sales, and Reeth said she expects that percentage to jump to 6% by 2010. As an example of daily activity on eBay, Reeth said a sofa is sold every 17 minutes and a table lamp is sold every six minutes.
The Internet has changed the way consumers make buying decisions. Whether they actually buy online, consumers are going there to shop for price, product and style. According to eBay, the Internet influenced 27% of all retail purchases in 2005.
The home improvement center/warehouse membership club channel continues to grow, estimated to reach slightly more than $6 billion in 2006 and projected to grow another 5.4% to $6.4 billion in 2007.
The healthy increase in sales for both Home Depot (up 13.8% for the first nine months in 2006) and Lowe's (up 12.6% for the same period) combined with the additional 155 stores to be opened by Lowe's in 2007 and another 150 in 2008 point to continued growth. Home Depot's two new catalogs, 10 Crescent Lane and Paces Tracing Co., have been pulled, but the products continue to be sold through its Home Depot Direct catalog and online. Home Depot also staged its first home show at 1,000 stores nationwide in September.
In similar fashion, Costco and Sam's Club, both major players in the warehouse membership club segment, are expanding product lines for home. Both, however, are suffering sluggish comp store sales growth 2% for the none months through October for Costco and 2.9% for Sam's Club.
Home accent/gift stores, which began to show declining sales as early as 2002, according to the U.S. Census's Bureau of Retail Trade, are still a major channel of distribution. We estimate sales of $15.2 billion in 2006 and project $15.3 billion in 2007. Because most of these stores are small independents, they enter and leave the landscape with little notice outside their towns and their sales reps.
However, much of the innovation we see in retail comes from this group, with higher levels of customer service and clever special events drawing customer attention and loyalty. A creative merchandiser with an eye to expense management and customer service still can command the buyer's attention and dollars, as well as stand apart from the major retailers.
Lifestyle stores, a term we began to use in 2004 to identify stores such as Crate & Barrel, Pottery Barn, Bed Bath & Beyond, Anthropologie and Restoration Hardware, continue to be big players with an estimated 9.4% of the market at $6.8 billion for 2006 and projected $6.9 billion for 2007.
This group of stores tends to attract the urban, younger shopper, as well as the more affluent. Stores like PB or Restoration reach out to consumers with catalogs and a strong Internet presence. For example, 43% of Williams-Sonoma's total 2005 sales, which includes Williams-Sonoma, Pottery Barn, PBKids, West Elm and Hold Everything, were direct.
| Acknowledgements | ||
| Contributing to this story were Kay Anderson, director of research, and Dana French, senior research specialist. | ||
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