2015 Furniture Industry Report: Innovation Needed to Adapt to Changing Consumer Trends

GREENSBORO CHARLOTTE ATLANTA JACKSONVILLE RICHMOND
CORPORATE HEADQUARTERS
230 North Elm St., Suite 1650 Greensboro, NC 27401 p. 336.275.9110
2015 ABTV FURNITURE INDUSTRY WATCH REPORT
IstheFurnitureIndustryFacing“Armoiregeddon?”
ABTV.com

ABTV.com1
2008 2009 2010 2011 2012 2013 2014
$25,000
$24,000
$23,000
$22,000
$21,000
$20,000
$19,000
$18,000
Year
New Orders ByYear
source: Smith Leonard
Dollar Amount of Orders
(in $ millions)
Introduction
This year may be remembered as the year
the furniture industry caught its breath,
took a look back at all that it had been
through, and then quickly went back to
business. And why not?The economy—
except for parts of the Oil Patch—is
generally in good shape. Housing is
moving along. Millennials are growing up.
Tradition has long been the industry’s strength
and Achilles Heel. Furniture isn’t a business
where change happens just for
change’s sake. But on the other hand,
it’s easy to see where many industry
leaders looked out upon the vast
shift in consumer lives and lifestyles
and thought it was just happening
elsewhere, that the particulars of
selling furniture—the perceived
need to look at and feel the product—
would allow tradition to trump change.
Technology and furniture have often had
an uneasy relationship. For manufacturers,
the challenge was developing products that
worked with quickly-evolving lifestyles and
with consumers who view the digital world
as just an extension of everyday life. For
retailers, the situation was more basic.
Technology has changed how consumers
shop. Furniture was once seen as a product
category where online shopping didn’t
quite work. No more. The shift is here and it’s
permanent. There’s no going back.
One description of where it’s led, offered by
Pier 1 CEO Alex Smith, is“Omnichannel.”Simply
put, that means being data-driven, selling across
platforms and remaining vigilant about the
never-ending quest to find the right amount
of retail square footage needed to grow sales.
The furniture and home furnishings industry is
often said to be slow-moving. What’s really more
accurate is that the core—styling and design
trends—moves slowly, but that belies the rapid
change needed to support that core. Logistics,
manufacturing, retailing, strategic partners—
they’re all moving quickly as companies try to
increase market share and profits.
This past year saw significant developments
in the furniture industry. Ironically, the
biggest may have been one that ultimately
didn’t happen. In June, Ashley Furniture
Industries, the country’s biggest furniture retailer
and largest manufacturer, said it was exploring
a possible sale of the privately held company.
Its principal owners are members of the Wanek
family. Analysts suggested the exploration
underscored both the rebound in furniture
since the recession and Ashley’s manufacturing
and retail leadership. But a month later, Ashley
took itself off the block, with the Waneks
concluding family ownership still made sense.
(Most analysts suggest that the change didn’t
reflect insufficient offers.)
THE NEED TO INNOVATE IN A WORLD
OF CHANGE

2
Introduction
continued
Industry consultant Smith Leonard notes that industry orders were up 5 percent from
2014 through the middle of 2015. That increase is particularly significant because 2014
was also a strong year. Smith Leonard attributes the increase to continuing consumer
confidence that the economy is strong and the future is brighter than in the past.
Low energy prices don’t hurt either. Consumers have a bit more disposable income,
encouraging them to spend rather than wait.
The housing market continues to play a role: Home prices are up; so is the number
of first-time buyers. And the construction buildout includes a big boom in
apartments, many with smaller footprints, which has broad implications
for the type of furniture needed and sold.
ABTV’s report examines how the furniture industry is responding
to the changing needs of consumers—what they want to buy
and how they want to buy it. The analysis shows an industry
that is vibrant and engaged, rightfully concerned about the
challenges of growing its share of the retail dollar, and
actively developing strategies for long-term success.
KEY FINDINGS ARE THESE:
Imports show little sign of abating, and onshoring
is more selective than many people think or wish.
Most of the expansions announced this past year
are in upholstered furniture, which can take
advantage of time-sensitive customization as a
competitive advantage.
Changes in housing patterns are forcing the
industry to rethink its product offerings. Smaller
living spaces mean less room for furniture but
greater attention to what remains.
E-commerce is no longer an either/or proposition for
retailers. It’s here and growing, driven by the demands
of Millennials and young moms.
Soft values: sustainability, environmental footprints, and
sourcing are becoming a point of differentiation for companies.
As with food, these trends start out at the top of the market and
then move down to the masses.
The distribution of sales is quickly shifting toward the largest retailers, forcing
smaller players to rethink their strategies to keep market share. That said,
being big is no longer enough, particularly for integrated companies
that make and sell their own brands.
The integration of furniture and technology is occurring. The Internet
of Things has found the couch and it’s not leaving.
ABTV.com

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The Challenges of American Made
Furniture imports continue to grow, up 8 percent in 2014, with a value of $21.4 billion. China still
accounts for nearly 60 percent of the product, with shipments valued at $12.2 billion. But digging into
the numbers, it’s clear that there is some reshuffling taking place as companies built on outsourcing
respond to rising production costs in China. The nation’s exports to the U.S. grew only at 6 percent.
Beyond China, much of the growth in furniture imports is taking place in Vietnam, where shipments
to the U.S. increased 18 percent, to $2.6 billion. Other nations with strong increases include Mexico,
Poland and Italy, with the dollar’s strength against the Euro playing a key role in some of that growth.
ABTV.com
Total U.S. Furniture Imports
2010 2011 2012 2013 2014
$16.7 $16.8
$18.3 $19.7
$21.4
0.3% 9.0% 7.8% 8.3%
In $ billions, with % change from the previous year
IMPORTS
10 largest source countries of U.S. household furniture imports, 2014
source: U.S. Customs Service, U.S. Census Bureau, U.S. International Trade Commission
In $ millions
2014 2013 revised % Change from 2013
China $ 12,222.0 $11, 565.9 6%
Vietnam $2,619.7 $2,221.5 18%
Canada $1,122.0 $1,081.6 4%
Mexico $1,090.0 $964.8 13%
Italy $652.8 $564.7 16%
Malaysia $619.0 $598.8 3%
Indonesia $618.2 $600.2 3%
Taiwan $380.6 $319.3 19%
India $272.5 $245.5 11%
Poland $269.3 $212.7 27%
WorldTotal $21,359.6 $19,723.4 8%
All other
countries
Italy
Mexico
Canada
Vietnam
China
17%
3%
5%
5%
13%
57%
U.S. Furniture Imports By Source Country
Years 2010-2014

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ABTV.com
EXPORTS
10 largest buyers of U.S. household furniture exports, 2014
source: U.S. Customs Service, U.S. Census Bureau, U.S. International Trade Commission
In $ millions
2014 2013 revised % Change from 2013
Canada $1,247.5 $1,262.8 -1%
Mexico $140.0 $140.2 0%
China $109.4 $69.0 59%
Saudi Arabia $71.5 $61.7 16%
United Kingdom $57.7 $55.0 5%
Japan $37.5 $48.2 -22%
Australia $36.5 $32.7 12%
United Arab Emirates $36.3 $36.1 1%
Dominican Republic $33.4 $24.8 35%
Korea $32.1 $26.0 24%
WorldTotal $2,350.1 $2,266.3 4%
continued
U.S. furniture exports grew 4 percent,
to $2.4 billion, with markets in
China and Korea offsetting
stagnant markets in Canada
and Mexico, still the two
largest foreign markets
for U.S. furniture. 2016
promises uncertainty,
as the market responds
to China’s decision to
devalue its currency by
more than 3 percent
in an effort to grow
its economy.
Compounding the
lack of clarity, China’s
stock-market correction
has added to the
uncertainty around
production capacity
and consumer demand.

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ABTV.com
continued
Imports and exports need reliable infrastructure, and the industry
has received some welcome relief. First, the unions that handle most
of the cargo on the West Coast ports, including the critical ports in Los
Angeles and Long Beach, Calif., signed a five-year labor agreement this
year. The two ports handle a third of the nation’s container business,
so the contract adds some predictability to costs. On the other side
of the country, imports at Atlantic and Gulf Coast ports are up 15
percent, according to research by Zepol. One big driver in that increase:
Container growth from China. And all this is even before next year’s
planned completion of upgrades to the Panama Canal. That growth will
only continue as East Coast ports continue to bulk up their infrastructure
to handle more Post-Panamax size ships. The big question is whether
U.S. exports can take advantage of these better shipping channels.
Trade imbalances notwithstanding, the domestic manufacturers that
remain are finding ways to survive. Consider Harden Furniture, which
rejected a buyout offer this year from a Taiwanese company. Instead, it’s
investing in modernizing its production facilities in Upstate NewYork
that make both case goods and upholstered furniture. Other case good
manufacturers, such as Stickley and Copeland Furniture, are also gaining
production efficiencies that allow them to successfully battle imports.
As a result,“Made in America”continues to be a selling point for these
companies, mainly those producing higher-end case goods aimed at
more affluent consumers. Where appropriate and effective—and it’s
not effective with all consumers—they’re actively marketing domestic
content. For example, Vaughan-Bassett’s John Bassett III, who has
become the de facto headliner for this movement, has developed
a gallery program this year with select retailers that highlights the
merchandise’s American roots.
Case goods get all the attention, but upholstery isTHE bright spot
for domestic manufacturers. It’s all about control and customization,
as well as the quick turnaround that U.S. sourcing allows. Customers
don’t want to either a) wait two months for a sofa to arrive or b) be
limited in fabric choices, and U.S. manufacturers have used their
responsiveness as a selling point. It’s fueling growth, too. Smith Brothers
expanded its factory in Indiana, Ashley is expanding its facility in North
Carolina, and there are smaller manufacturers adding capacity across
the country. In a welcome twist, Emerald Home Furnishings, long
an importer, said this year it plans to open its first domestic plant, in
Mississippi. Company president David Beckmann told Furniture/Today,
“For us to continue to grow, we felt we had to have domestic production
as part of our program.”
Unlike case goods, domestic upholstery furniture is doing well at all
price points. Consider American Furniture Industries, which targets
the promotional segment of the marketplace. That should be the
area most susceptible to imports, but AFI owner Compass Diversified
Industries reported recently that its sales were up nearly 30 percent
year over year.

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ABTV.com
While the new factories are welcome news, there is increasing concern about
workforce issues, particularly finding the next generation of employees who have both the
work ethic and attention to detail needed for making furniture, upholstered and otherwise.
The industry’s manufacturing retrenchment during the past 20 years, as plant closings swept
through the Furniture Belt, have created an often unfavorable image of an industry, one with
fragile job security and outdated work environments. To fight back, the American Home
e = Furniture/Today estimate
NR = not ranked
R = revised
Rankings are by total furniture shipments to the U.S., including bedding, contract and accessories for some companies.
Non-furniture revenues (such as textile products, components, investment income) have been excluded, with specific
amounts given when possible. All figures for 12 months ended Dec. 31, 2014 and 2013 unless otherwise indicated.
source: Furniture/Today market research
continued
Top 20 Manufacturers

Estimated U.S Furniture
Rank Rank
Shipments in $ millions
2014 2013 Company 2014 2013 Percent Change
1 1 Ashley Furniture Inds. $3,875.5 $3,706.8R 4.6%
2 2 La-Z-Boy $1,071.4 $1,034.8R 3.5%
3 4 Klaussner Furniture Inds.
e
$524.3 $524.3 0.0%
4 6 SauderWoodworking $517.8 $475.0 9.0%
5 5 Dorel Inds. $504.0 $471.2R 7.0%
6 9 ManWah Holdings $421.4 $365.7 15.2%
7 7 Flexsteel Inds. $411.2 $382.0 7.6%
8 8 Lacquer Craft $373.1 $369.7 0.9%
9 10 Ethan Allen Interiors
e
$348.4 $342.0 1.9%
10 11 Bernhardt Furniture
e
$314.9 $313.5 0.5%
11 12 Home Meridian International
e
$302.2 $255.0R 18.5%
12 13 L & P Fashion Bed Group $278.8 $266.4 4.7%
13 14 StandardFurnitureManufacturing $261.9 $218.0R 20.1%
14 15 Hooker Furniture $234.6 $219.2 7.0%
15 16 Best Home Furnishings $233.2 $218.6 6.7%
16 18 Sherrill Furniture
e
$223.1 $208.6 7.0%
17 17 Bassett Furniture Inds. $219.2 $210.8R 4.0%
18 19 Natuzzi
e
$202.3 $191.9R 5.4%
19 20 Franklin
e
$173.3 $171.3 1.2%
20 NR AmericanFurnitureManufacturing $121.9 $99.6 22.4%
Total $10, 612.3 $10,044.3 5.7%

7
ABTV.com
continued
Bar Stools: The New Easy Chairs
Furnishings Alliance is starting a jobs initiative this fall to encourage potential employees to take
a closer look at a career in the furniture business.
More public investment may be needed. There are few upholstery training programs offered
at community colleges, limiting the chance for young people to be exposed to the industry
on the front end of their careers. The hope is that more communities will take note of what’s
happening at Catawba Valley Community College in Hickory, N.C. Its Furniture Academy is
preparing a new generation of students for the skilled positions that are in high demand.
Manufacturers, too, can contribute to this effort by reintroducing an apprenticeship model,
where trainees split their time between in-class vocational instruction and on-the-job training.
Home prices continue to increase, with median prices
nearing $230,000, almost 8 percent higher than a year ago.
Just as important, first-time buyers are getting back in the game,
now accounting for almost a third of purchases the highest level
since 2012. Furniture retailers and
manufacturers naturally look to the
housing market as a key driver of
demand, but it’s not just conventional
single-family housing that is in play.
Apartment construction is surging, up
29 percent in June 2015 from the year-
earlier period. Much of this is in city
centers, bringing young people—and
their Baby Boomer parents—back to
downtowns from the suburbs. In the
process, the furniture they need, scaled
and styled for a different way of living, is
changing, and manufacturers and retailers
must respond.“The commonality is to be
urbanized. They are choosing to live downtown.
They are not entrapped downtown,”Dallas George,
the vice president of sales at Pulaski Furniture, told
Furniture/Today.
It’s not just right-sized furniture that is
filling these spaces. The furniture itself
may be different, reflecting the realities
of less square footage and changing
priorities. Dining rooms are gone,
replaced by counters in small kitchens.
The bar stool is the new multi-purpose
chair. Except for the biggest screens, TVs are
light enough to bypass the entertainment console.
They just hang on the wall, freeing up space.

8
ABTV.com
continued
And there’s one more factor to consider: home is increasingly a place for work. With
more than 6 million Americans working primarily from home—along with countless
others who bring work home from another office—it’s no wonder that the desk
is now the third most popular piece of home furnishing, behind mattresses
and sofas.
Younger consumers are driving the push to urban living, although their impact has
been overblown. An analysis of U.S. Census Data by Wells Fargo Securities indicates
that Millennials are still more likely to live in the suburbs than a major city. But that
said, the rate at which these young adults are moving to cities is growing, narrowing
the gap between urban and suburban living. It’s not just Millennials who are on the
move. As the housing market has recovered, Baby Boomers are taking advantage of
this shift and downsizing, seeking living spaces that take less maintenance than a
house and yard. As these older adults move, some experts fear a glut of used furniture
overwhelming second-hand stores, but so far“Armoiregeddon”hasn’t happened.
At the extreme of the trend to small spaces is the so-called Tiny House movement:
standalone structures with only a few hundred square feet. Although still mostly
confined to ultra-hip places, it’s getting a lot of attention, fueled by a young, creative
class that wants more simplicity in their lives. It’s easy to dismiss this category
as super-sized dollhouses, but a tiny house needs furniture. And as a columnist
for Furniture/Today noted in discussing the movement, eventually the owner of
a Tiny House settles down, has some kids, and needs a real bed and a couch.

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That’s the key takeaway.Today’s condo dweller is tomorrow’s homeowner. Younger
Americans have the same desire and aspirations to own a residence as previous generations.
As the Wells Fargo report noted,“Although the rate at which young adults are moving to cities
has picked up in recent years, more are moving to suburbs, which suggests Millennials may
not be that different from previous generations…Once Millennials begin to settle down, their
desire for space at an affordable price seems to transcend the generational divide.”
A recent survey sponsored by Fannie Mae underscored this point. More than three-quarters of
young renters said owning makes more fiscal sense than renting. Their obstacles are the same
as previous generations—problems establishing a good track record for credit and swinging
a down payment. What’s changed is the big increase in student debt, something that now
impacts nearly 40 percent of households aged 25-34, up from 26 percent in 2001. Digesting
that debt will slow down the swing to homeownership.
Technology Integration Meets the Generational Divide
Top 10 Conventional Furniture Stores
Ranked by sales of furniture, bedding and accessories
source: Furniture/Today’s 2015 Survey of Top 100 U.S. Furniture Stores
1 Ashley Furniture Home Store $3,273.7 $3,114.8 5.1% 551 493
4 RoomsTo Go $1,980.0 $1,780.0 11.2% 131 131
7 Berkshire Hathaway Furniture Division $1,454.7 $1,372.2 6.0% 32 33
9 Raymour & Flanigan $1,142.7 $1,150.5 -0.7% 106 102
13 American Signature $962.2 $960.4 0.2% 124 126
14 Bob’s Discount Furniture $823.2 $758.0 8.6% 54 47
15 Havertys $768.4 $746.1 3.0% 119 119
17 Ethan Allen $723.8 $702.2 3.1% 196 200
18 ArtVan $620.0 $555.0 11.7% 89 82
19 American FurnitureWarehouse $494.5 $406.1 21.8% 14 13
Estimated Furniture,
Bedding, Accessories
Sales in $ millions
2014 2013
Percent
Change
2013-2014
2014 2013
Number
of Units
CompanyRank
continued

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ABTV.com
The surge in e-commerce can be seen across the industry. Ashley is building a huge online
center in Tampa, Florida. IKEA, the Swedish juggernaut known for its sleek stores and tasty
meatballs, is shifting resources to online retailing. A trendsetter when it arrived in the U.S. 30 years
ago, IKEA’s leaders acknowledged this year that the retailer was too slow to adjust to the massive
change in how consumers shop and buy home furnishings.“We weren’t one of the early adapters,”
Peter Agnefjall, the company’s chief executive, told The New York Times.“We realized this is not a
trend, it’s a megashift.”
But perhaps the best indication of this new world order came from Overstock.com, the online-
only retailer. Furniture sales were the company’s top performer in the critical period that runs from
Thanksgiving to Cyber Monday. They were up 37 percent from the year-earlier period, compared
with a 24 percent increase for the company as a whole.
Industry researcher IbisWorld estimated online furniture sales at $10 billion last year and expects
sales to exceed $14 billion by 2019. Helping the surge are more liberal return policies that remove
some of the risk of online shopping for clunky, heavy items. The Zappos theory of retail—buy and
try—is quickly becoming adopted and adapted by the furniture industry. Long-term, this rewards
companies who operate efficiently and have a deep understanding of their customers’preferences.
The key is to sell and ship the right product the first time. Online consultants and digital
products that allow consumers to“try out”furniture colors and styles before they make a purchase
are becoming popular. In addition, a new generation of“knockdown”furniture is arriving, with
tables, chairs—even sofas—that ship by FedEx and can be assembled without tools.
continued
Top 10 Conventional Specialty Stores
Ranked by sales of furniture, bedding and accessories
source: Furniture/Today’s 2015 Survey of Top 100 U.S. Furniture Stores
2 IKEA $2,830.0 $2,690.0 5.2% 39 38
3 Williams-Sonoma $2,400.0 $2,185.0 9.8% 562 554
5 Mattress Firm $1,933.1 $1,387.0 39.4% 2,208 1,361
6 RH $1,490.0 $1,205.0 23.7% 77 81
8 Pier 1 Imports $1,272.2 $1,209.2 5.2% 984 991
10 Sleep Number $1,119.7 $922.3 21.4% 463 440
11 Sleepy’s $1,085.0 $1,000.0 8.5% 1,024 939
12 La-Z-Boy Furniture Galleries $1,051.0 $1,017.0 3.3% 294 281
16 Crate and Barrel $760.0 $735.0 3.4% 102 103
22 Cost PlusWorld Market $385.0 $367.0 4.9% 270 265
Estimated Furniture,
Bedding, Accessories
Sales in $ millions
2014 2013
Percent
Change
2013-2014
2014 2013
Number
of Units
CompanyRank

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ABTV.com
continued
Consumers of all ages are getting more comfortable buying furniture online, but the trend skews
toward Millennials and GenX buyers. It’s not just that they end up spending online. It’s where they start
as well. A third of households between ages 25-34 bought furniture online in 2014, compared to only
14 percent of households 55 and over.
Equally important is the split between traditional furniture stores—retailers such as Haverty’s or
Ethan Allen—and lifestyle stores such as Pottery Barn and Pier 1. According to a survey conducted by
Apartment Therapy, younger consumers view the traditional stores as much more limited, both in style
and selection, than older adults. That has important consideration for these retailers as they evaluate
their bricks-and-mortar infrastructure going forward with consumers who see less need to sit in a sofa
before opening up their wallet.
“We need to make sure that stores are in the right places and of the right size,”Farooq Kathwari, the
chairman and CEO of Ethan Allen, told analysts earlier this year.“Today, we can do more business in
smaller stores because of the fact of our technology, our designers and... and customization.”
This transition will accelerate in the next few years for several reasons. First, technology continues
to improve. It’s more than creating a smoother version of the existing online shopping experience.
The experience itself is changing. For example, CImagine, an Israeli company, has released a
“virtual reality”tool that lets shoppers see how a piece of furniture would look in a room with other
furnishings. It’s not quite sitting in the sofa at the showroom, but it’s a step in that direction.

12
ABTV.com
continued
More importantly, demographics are at work. While Baby Boomers spend more on a per-capita
basis, they are aging out of peak furniture-buying years. Millennials may be spending less
per-capita, but they are more active buyers, and the habits and brands they embrace today
can have a long tail that pays substantial dividends to retailers.
La-Z-Boy, for example, best known for its recliners, is making a big push at young consumers with
its Urban Attitudes line of furniture. Much of the company’s advertising doesn’t even hint at motion
furniture. Speaking to analysts about the strategy, Kurt Darrow, the company’s CEO, said the new
line is pushing almost a third of their upholstery business.“I think this reflects what’s happening
with urban living and people downsizing and living more in apartments and condos, that just
the smaller scale of furniture is something that everybody is attacking, and we’re glad we got out
ahead of it.”
Sandwiched between those two cohorts are the GenXers, more established, i.e. wealthier, than
Millennials and more tech savvy than Baby Boomers. They also have outsized buying power,
which makes them an important bridge for the industry in terms of reaching a wide range of
consumers.“Understanding what makes these people tick is a huge challenge,”one retailer told
ABTV. A researcher suggested that GenX mothers are the pivot point for retailing success.“She is
the single most influential customer in the market today,”said Cam Marston.“Her understanding of
technology controls what comes into the house.”
Marketing to these younger consumers is a challenge. They get their information and advertising in
different ways than their parents. They are quick to share what they like and don’t like. And they are
highly individualistic, eager to differentiate themselves from their peers. As one expert noted, these
consumers are adept at filtering out everything except what they want.
Other data from Furniture/Today’s consumer trends survey suggests that Millennials, many still
starting careers and managing personal debt, are less concerned about style and more focused on
affordability and durability.
Furniture manufacturers and retailers are doing more than just tailoring their sales pitch. The
products are slowly changing as well, with growing emphasis on the backstory of the construction
materials. This is everything from bamboo veneers to responsibly-sourced hardwoods and eco-
friendly composites. Just as the food industry has embraced the transparency of its supply chain
and the sourcing of its ingredients, we expect a similar shift in furniture, particularly at higher price
points. Consumers who now know where their meals and coffee come from are eventually
going to bring those same values to the living room. Furniture companies that are able
to capitalize on authenticity and sustainability of their products could reap big rewards.
Consider what’s happened at Herman Miller, the big Michigan office furniture manufacturer. Gabe
Wing, the company’s vice president in charge of safety and sustainability, said that environmental
impact is becoming a huge part of the purchase decision for commercial customers, a top concern
for nearly a quarter of contracts.“If you do the math based on our numbers last year,”he told Crain’s
Detroit Business,“that’s about $500 million worth of business won or lost depending on how well
we do in this area. It matters.”
The wiring of the more prosaic objects of our lives, sometimes referred to as the“Internet of
Things,”is very slowly making its way into furniture, after having moved quickly into everything
from refrigerators to thermostats.
But we expect this pace to pick up as developers dream up new ideas and test gadgets on
consumers for acceptance. We may think we don’t need our sofa to surf the Web, but utility
sometimes follows strange paths.

13
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continued
In South Korea, SK Telecom and Hyundai Livart have created what they call“Smart Furniture,”with
built-in touch screens on cabinets and dressing tables with Internet connectivity. The smartphone
revolution has created a desire for many consumers to always be connected, even without something
in their hands.
And closer to home, many recliners, from high-end to promotional, now come with built-in USB ports
and power strips. IKEA is selling bedside tables with wireless charging capability. Not every sideboard
needs to be wired, but the future for this is still being worked out, and the potential for furniture is
enormous as home technology moves out of the entertainment console and laptop and into tables,
dressers and even beds.
This transition could prove to be critically important in years to come. A robust furniture industry
depends on consumers spending discretionary income on these goods rather than in other areas,
such as technology and entertainment, that seem more immediate and necessary. As furniture
continues to evolve from something we sit on or around to something we sit with, this integration
will help push sales dollars in the right direction.

On a call with analysts a few months ago, Clarence Smith, the CEO of Haverty’s, was asked about retail
competition and promotional pressures.“I haven’t seen any significant change in the promotions,”he
said.“Other than the big competitor we keep mentioning in Dallas, I think it’s pretty steady.”
He’s referring to the new Nebraska Furniture Mart-Texas, which opened up in the Dallas suburbs
earlier this year. It’s a 560,000-square-foot behemoth, complete with a two-story atrium, and part
of the Warren Buffett-Berkshire Hathaway empire. Buffett has predicted the store by itself will do
$1 billion—with a B—in annual sales. Even in the fast-growing Texas markets, that means a shakeout,
most likely focused on smaller retailers without the selection of larger stores.
Warren Buffett’s ambitions aside, the big are already getting bigger. Furniture/Today’s analysis of the
country’s 100 largest furniture, bedding and home furnishings retailers shows they are growing faster
than the industry as a whole, which means they are taking market share from smaller stores that lack
the marketing and distribution muscle. At the start of the recession, the majors captured 56 percent
of sales, according to the publication’s research. Now, they’re at 79 percent. That redirection has
TheYin andYang of In-Store vs. E-commerce

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continued
meant a winnowing out of the number of furniture stores, now at around 23,000, down nearly 20
percent from before the recession. Employment numbers are down even sharper, a 28 percent reduction
from 2007-2012.
For those smaller retailers who’ve pushed through to the other side, it’s even more critical to find a niche,
whether through geography, product or service, that offers some form of defensible save haven.
“You can’t out-Ashley Ashley,”industry analyst Jerry Epperson told Furniture/Today.“They’re not going to be
able to source more efficiently, or cut their margins further. They’re not going to be able to carry the inventory.”
Some of the growth at the top is through acquisition, particularly in bedding, but there’s also plenty of
targeted bricks-and-mortar expansion. La-Z-Boy, for example, seeks to add 100 more stores, for a total of
about 400, over the next five years. Bob’s Furniture, which since 2014 has been controlled by Bain Capital, is
now branching out quickly from the Northeast into the Mid-Atlantic and Midwest. Also at the promotional/
credit-oriented end of the market, Conn’s is expanding quickly. Its goal is to open as many as 18 stores in FY
2015, getting it over the 100-store mark.
Higher-end retailers, such as Restoration Hardware and Williams-Sonoma, continue to thrive. They’re
capitalizing on the spending habits of affluent customers. The U.S. Census defines this as having annual
household income of $100,000 or more. Affluents account for 22 percent of households, but account for a
third of spending, according to research by Furniture/Today. Moreover, this spending isn’t evenly distributed.
For example, affluent customers represent two-thirds of spending on outdoor chat groups and 42 percent of
spending on desks. For retailers, this underscores the importance of knowing their customers and having the
right mix of products.
Changes in the shopping habits of consumers are forcing retailers to pay close attention to the flexible costs
(labor and marketing) and fixed costs (real estate) of their stores. Data collected at the cash register allows
companies to know who is buying and when they’re buying. It’s long been known that furniture buying—
like many big-ticket items—is heavily skewed toward weekends. Some retailers, such as Weekends Only, are
embracing that divide, only opening on the weekends and for the rest of the week trying to drive customers
to online-shopping solutions. We expect continued innovation in this area, with lots of trial and error about
the right mix of in-store and online assistance. One emerging reality is that a lot of e-commerce essentially

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takes place in the store itself, with consumers using their smartphones to compare product prices
between competing retails. Called“showrooming,”this practice has long been a concern for traditional
retailers, beginning with the battles between traditional retailers and the 1-800 discounters back in
the 1980s.
The home-furnishings retail business has traditionally been split between two groups, those who
primarily sell what they made in their own factories (or nowadays have outsourced) and those who buy
and sell the market. The traditional maker-seller model continues to be under pressure, but within that
group, there are pleasant surprises. Bassett Furniture Industries, for example, has been on a tear this year,
with its share price topping $38 in the summer. Analysts credit the company’s larger product offerings
and improved efficiencies. By contrast, Ethan Allen Interiors and La-Z-Boy—both significantly larger
than Bassett—haven’t seen the same pickup in share price, as they work through right-sizing their retail
footprints. In addition, hedge funds continue to prod and poke Ethan Allen’s management, suggesting
that the company ought to put itself on the auction block and unleash more shareholder value.
It seems that every retailer gets asked what is the right split between online and in-store sales. The reality
is that there is no one answer. Here’s what Gary Friedman, the CEO of Restoration Hardware, told analysts
this summer as he riffed on the future of shopping:
“In retail, before there was the Internet, if you were in the catalogue business, they had to buy everything
in your store, right. There is now another channel and that channel is evolving faster than anything,
right… Should I build smaller retail stores because they are transacting differently and then have a worse
presentation, physical presentation in the marketplace? I think that kind of strategy is idiotic… People
want to see things and people want to interact in a three-dimensional nature and that’s why we’re
ambivalent to where they transact, and that’s why I make my point about, it’s not about the Internet, the
Internet is a channel. It’s going to change things. It’s going to shift things.”
To that, we say Amen.
continued

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The furniture industry heads into 2016 in good shape. Not perfect shape, but good shape. Consumer
spending is up. Low-interest rates continue to help drive the housing market. Millennials are growing
up and moving out. Their aspirations are not that much different from their predecessors; what’s
different is the route they’re taking to get there.
The manufacturers who remain in the United States are leaner and more efficient than ever. In
addition, they have figured out how to use proximity to their customers (retail and wholesale) as
a key selling point. Imports aren’t going away. But the last few years have shown that there is a path
for domestic manufacturers who understand that they can’t be all things to all consumers.
As we’ve discussed in previous reports, the shift to appropriately sized furniture for smaller living
spaces is here and starting to impact buying and selling decisions across the industry. We see no sign
of that trend slowing anytime soon.
We expect the disruptive power of technology to fundamentally reorder the retail experience of
buying home furnishings. Stores won’t disappear, of course, but the bricks-and-mortar retailers who
thrive will have found new ways to wring value from real estate. Although the Web breaks down
geographic barriers and theoretically allows a more even playing field, in practice the rewards of
online retailing will go to companies with deeper pockets and more efficient distribution models.
The largest companies will continue to grab an increasing share of the market. This doesn’t
necessarily spell doom for smaller retailers. But it does mean that they need to continue to find
shelters from the storm and build their businesses around service and specialization.
A constant refrain in our studies of the industry is the power of brands. That hasn’t changed. For
the biggest players as well as those who fill the smaller niches, it still comes down to your customers
knowing who you are and what you stand for. It’s certainly become more complicated to break
through the cluttered media environment, but that doesn’t change the importance of the message.
Finally, a closing word on people. There’s plenty of justifiable focus on the need to find the next
generation of furniture craftsmen to sustain a domestic manufacturing base. But the investment
in people—training, opportunity, pay—has to extend beyond the factory floor. The competition
for the best workers—be they upholsterers, salespeople, logistics experts or e-commerce
strategists—is intense, and the industry’s future will be driven by the quality of employees it gets
to come aboard.
CONCLUSION
PETER L.TOURTELLOT, CTP
Principal
ANDERSON BAUMANTOURTELLOTVOS
230 North Elm St., Suite 1650
Greensboro, NC 27401
p. 336.275.9110 f. 336.275.1551
e-mail: ptourtellot@abtv.com
This report was produced by Anderson Bauman Tourtellot Vos (ABTV), a leading business and
financial advisory firm with specialized experience in the furniture industry. ABTV is headquartered
in Greensboro, NC. For questions or more information about this report, contact:
Insight.Instinct.Influence.

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