Pd0811 Hgtv Revisited

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This article follows up on the previous one, evaluating how the home furnishings retail sector has fared since the housing crisis began.

This article follows up on the previous one, evaluating how the home furnishings retail sector has fared since the housing crisis began.

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  • 1. Making the Connection Between HGTV and Downtown Revitalization By Michael Stumpf, November 2006 G ive HGTV some credit. They did not invent had the fifth-highest change in store counts from the home improvement show, but they 1997 to 2002, adding about 300 new stores per have built it into an enormously popular year. entertainment venue, reaching 89 million house- So what does all of this have to do with downtown holds and capturing more than 800,000 nightly revitalization? Downtowns have certainly reaped prime time viewers. It has been called one of the some of the benefits of these trends. In places as most widely copied formats on the television diverse as Appleton, Wisconsin and Idaho landscape, giving rise to such shows as Trading Springs, Colorado, home furnishings and related Spaces and Extreme Makeover on other channels. businesses line the downtown main street, where HGTV’s goal is “to provide ideas, information, and shoppers may find home décor, tableware, ornate inspiration” for decorating and home improve- staircases, art, custom kitchens, interior design ment. And its viewers have been inspired. Be- services, and more. tween 1995 and 2005, sales of furniture have In the retail industry, new shopping centers adopt- grown by 75%, outstripping the 67% rate of over- ing this leasing strategy – placing shops with a all retail sales. Sales of home furnishings – items specific targeted customer next to each other – are from carpets and linens to lamps and kitchenware known as lifestyle centers. By understanding the – have grown by 97%. People are spending more strengths of these centers and the motivations of time at home and spending more to decorate their lifestyle shoppers, cities may help to create a homes. competitive advantage for their business districts. Home furnishings is one of only a few retail cate- The typical HGTV viewer is between 35 and 64 gories not dominated by a relatively small number years old. Seventy percent of them are women. of firms, and also exhibiting growth in overall These demographics parallel those of the typical store counts. The fifty largest home furnishings lifestyle consumer. On average, these consumers retailers capture 29.3% of all sales in the category. shop more often, visit more stores than average While this may seem like a lot, in 14 of 24 catego- during their shopping trips, and spend more than ries, just eight retail firms capture more than 30% the typical shopper. Best of all for downtowns, a of sales. At the same time, home furnishings stores significant number of these consumers do not like Place Dynamics Michael Stumpf is a consultant in community planning, economic development, and 1 market analysis, based in New Berlin, Wisconsin.
  • 2. visiting malls. They value the experience they get in shopping unique venues. For this same reason, online sales have not had much impact on in-store home furnishings sales. Downtowns can cater to these preferences by cre- ating an attractive environment and providing both convenience and safety. It is definitely an upscale market and appearances should reflect that. Quality dining options can help to extend the shopping trip. Entertainment should be geared to adults. Informational and “hands-on” interior de- sign, art, cooking, and related workshops can be an ideal compliment to the sidewalk sales, craft fairs, and other community events often held in downtowns. stores are most sensitive to lease costs. Rent con- sumes an average of 28.6% of potential profits, the seventh-highest percentage of any industry. The lower rents usually found in central business districts are a strong incentive for home furnish- ings businesses to choose a downtown location. Knowing this sensitivity, cities can establish mar- keting campaigns and target incentive programs to attract home furnishings retailers by addressing this key cost sector. Retail incubators, rent reduc- tion programs, and renovation loan programs are some possible tools for cities to consider. Trends change. Will the slowdown in residential real estate impact the industry? Recent home buy- ers spend more than anyone – over $3,000 – on Most people will recognize names such as Pottery home related purchases within the first year in a Barn, Crate & Barrel, and Restoration Hardware. new home. Or will higher interest rates cause Chains like these make up the bulk of all home people to spend more to remodel and expand their furnishings stores. While they will locate in larger existing homes? and distinctive downtowns and neighborhood Bob Vila has been on television for over two dec- business districts, their usual choice is a mall or ades, Martha Stewart recently signed a deal to put lifestyle center. The more likely candidate for a her merchandise in Macy’s, and Ty Pennington downtown location is an independent retailer or will be marketing products for Sears. For now, it small regional chain. appears that home furnishings will continue to be About a quarter of all home furnishings stores are one of the hottest prospects for downtowns. O either sole proprietorships or partnerships. Aver- aging about $350,000 in annual sales, sole proprie- torships most likely resemble a store that would © 2006 Place Dynamics be found in the downtown of a small- or medium- sized city. Two-thirds of these stores earn a profit, averaging 13.1% of sales. While the cost of goods The following article revisits this sector to explore sold is the largest expense they may have, these the impacts of the current recession. Place Dynamics 2
  • 3. The HGTV Effect Revisited By Michael Stumpf, November 2008 Two years ago when I wrote this article, the first concept. From a peak of 61,086 furniture and signs of a slowing housing market were beginning home furnishings stores in the first quarter of to show. Since then conditions have worsened 2007, we have seen a precipitous drop-off to more than anyone could have foreseen. The con- 59,192 establishments at the end of the second cerns I raised at the end of the article have proven quarter of 2008. This does not include stores that to be true – for some businesses. that are part of recently announced closings. Times have been hard on the chain retailers. Unfortunately, data do not break out the number Overall sales in 2007 were less than in 2006. In of chain stores closing versus independent retail- 2006 most of the 25 largest home furnishing ers such as those that would be found on Main chains saw solid growth. In 2007 nearly 40 per- Street. Anecdotal evidence suggests that the cent of these companies experienced declining greater number of closed stores are chain stores. sales, and only Bed, Bath & Beyond, Williams- So far, perhaps, the independents have proven to Sonoma, and Crate & Barrel posted the double- be more adept at weathering the storm. If this is digit gains that were so common in preceding true, it may be due to their unique merchandise, years. Data for 2008 won’t be available for some associated service offerings, characteristics of the time, but monthly reports indi- cate a continued slump, with sales falling to about the same Number of Furniture & Home Furnishings Retailers levels we saw in 2004. 61500 Slowing sales have taken their 61000 toll. Companies like The Bom- 60500 bay Company and Wickes Fur- 60000 niture have closed their doors 59500 for good. The segment’s number 59000 two retailer, Linens ‘N Things, 58500 has filed for bankruptcy, an- 58000 nounced store closings, and 57500 may yet throw in the towel. 57000 2001 2002 2003 2004 2005 2006 2007 2008 Other major chains like Pier 1 may follow suit, as well as 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter stores like Home Depot’s Expo Monthly Sales: Furniture & Home Furnishings Stores 12000 10000 8000 Millions 6000 4000 2000 0 Place Dynamics 3
  • 4. business (independent businesses do not employ agement, internet sales, and other core retail busi- salespeople may be better able to absorb a de- ness needs. O crease in sales), or qualities of the site. Downtown and specialty districts have an entertainment value that continues to draw shoppers, and these © 2008 Place Dynamics locations may offer more attractive rents than the mall sites preferred by chain retailers. Is furniture and home furnishings a retail category that is still a good fit for downtown? While the short term prospects for growth in this sector look dim, and undoubtedly many more retailers in the segment will not survive the economic downturn, it still appears that this sector is still in the long term a strong bet for downtown and specialty dis- tricts. Even in the short term there are hopes that sales may pick up. The recession is causing people to spend more time at home. Furthermore, the hous- ing slump is encouraging people to remain in their homes instead of trading up or moving to retire- ment housing. These two factors could lead to a resurgence in home remodeling and purchases of furniture and home furnishings. The basic dynamics of the industry that made it a source of retail entrepreneurship in prior years still hold true. This is already a retail sector in which sales are not heavily concentrated among a small number of firms. Several among the largest chains are struggling and unlikely to outlast the recession, and that will mean there will be market share up for grabs. Some will certainly go to other channels like discount stores, but there will be plenty of opportunity for existing and new home furnishings retailers. For business districts, the initiative recommended in the original article still hold true. There is much that can be done to support these busi- nesses and help them to survive the current reces- sion. Home and food related events and other promotions that draw customers to the district are critical. They may even prove to be more success- ful than in the past, as people seek low-cost enter- tainment. Incentives should continue to focus on the core expenses of this sector – rent and inven- tory. Additionally, this may be a very good time to bring in experts to assist businesses with window displays, merchandising, marketing, cost man- Place Dynamics 4