Is Home Goods the Next Retail Sector Ripe for Disruption?
As retailers push for new technology adoption, supply chain optimization and a digital focus, the space is being redefined and rearranged.
Over the last several years, the home goods sector of retail has grown and developed, changing the way consumers shop for furniture. Retail giants Walmart and Target have expanded their offerings through various partnerships or private label lines — both in store and online. And Amazon added three furniture brands to its list of private labels offering home decor in the last two years — Rivet and Stone & Beam in 2017 and Ravenna Home in 2018.
The expansions are for good reason, too. Between 2013 and 2018 the home goods markets in brick-and-mortar and e-commerce have grown 20.9% and 88.7% respectively, according to data provided to Retail Dive by Euromonitor.
But as the space increasingly becomes more crowded, retailers are looking for ways to stand out to consumers, such as augmented and virtual reality integration.
However, the new technology won’t necessarily solve problems plaguing home goods retailers, and the rest of the industry, such as bettering delivery and adapting to changing consumer needs. Here are the biggest trends taking shape in the space and how retailers are reacting.
AR and VR tech gain popularity
While mixed reality technology itself isn’t new, the implementation of it as part of the path to purchase has gained traction in recent years. As a way to provide greater convenience to consumers, many retailers, particularly those in the home goods sector, have taken steps to implement the technology. Lowe’s added two AR apps, Measured and Envisioned by The Mine, and Ikea rolled out an AR application, all built on Apple’s ARkit AR development platform. Target also made a big push for the technology during the holiday season this past year when it expanded its existing AR tech in an attempt to sell more Christmas trees.
But perhaps the greatest benefit of the technology is for brands and retailers that play entirely online, where customers have little to no opportunity to try a product out before purchasing. One popular application of AR and VR is as a tool to help customers better visualize pieces in their home. To that end, Wayfair and Overstock both added AR capabilities to their Android mobile apps last March.
However, there are still questions about whether the addition of these technologies is actually impacting consumer shopping behavior in the space. It might be, and what retailers are currently offering is likely just the beginning of AR technology, according to RetailNext Marketing Director Ray Hartjen.
“It’s not so much the product that’s disrupting furniture in the marketplace, it’s the way shoppers are shopping that’s disrupting the marketplace,” Hartjen said in an interview with Retail Dive. “The technology is there already, it just needs to be developed out.”
While current technology allows consumers to test out what items of furniture will look like within their homes, Hartjen predicts virtual showrooms within the home will be the next step. If a customer isn’t satisfied with the look of a particular item, offering consumers the option to enter “a virtual store and [be] able to walk around and pick some items up,” may fill that void, he said.
But AR and VR technologies likely won’t serve as a saving grace for already struggling retailers. To Hart Posen, associate professor of management at the University of Wisconsin-Madison, it’s just the latest “sexy” idea retailers are using to conceal their underlying problems.
“Think about who’s losing — the Bed Bath and Beyonds — these firms are not losing because they don’t have AR/VR technology, they’re losing for very different reasons,” he said. “We forget that who’s winning and who’s losing in this industry and related industries comes down to economies of scale and scope, efficiencies and logistics, and distribution and effective online platform tied to logistics.”
The purpose of physical stores in the age of digital
As the number of digitally native brands in the home goods space grows, many have taken notes from the success stories of Warby Parker and Casper, and recognize the benefits of giving consumers the opportunity to interact with their products through brick-and-mortar locations.
Last year, DTC linen brand Brooklinen opened a pop-up in SoHo and Wayfair announced plans to open holiday pop-ups in Natick, Massachusetts, and Paramus, New Jersey. Burrow, a digitally native furniture company, has gone a step further in going physical. It has three showrooms in New York, including Burrow House (the most experiential of the bunch) which invites guests to enjoy a coffee in its showroom or catch a movie in its movie theater, while simultaneously testing out its furniture. Burrow has also partnered with retail stores, coffee shops and co-working spaces across the country to give consumers the opportunity to test out its couches before purchasing online.
However, while the number of digitally native brands entering the home goods space grows, they still don’t hold a candle to the legacy national and regional stores.
Retailers need to understand that it can’t be either online or physical, Hartjen said, but rather a partnership. “They come into a crux, a point, where they’re making decisions and it’s not a question of being a digital brand or a physical brand, but it’s a combination of the two,” he said.
The way that traditional home goods retailers operate — very large stores with inventory arranged sporadically — is quickly becoming outdated, he added. “Undoubtedly, there’s too big of stores, there’s too many big stores, and because of that, they have a swollen supply chain, bloated inventories and the impact of that in a super competitive environment is crippling effects of cash flow … you just have all this money tied up in inventory that’s killing the balance sheet.”
While Hartjen thinks the best plan for retailers in the sector is to shrink their square footage and up the design factor for more of a showroom feel, stores serve a different purpose for a big regional chain. These stores lean on the larger-sized format because they often double as warehouse spaces for the retailers, according to Posen. Before Casper and others disrupted the mattress industry by figuring out how to box up mattresses and ship them easily across the country, mattress retailers used their stores in a similar manner.
“For furniture, and depending on the furniture, local distribution is sometimes preferable,” he added. “And to the extent that you need local distribution, that’s going to have to be somewhere. You’re going to have to have a physical footprint somewhere. You’re not shipping sofas by FedEx. They’re placed around the country.”
In order for the furniture space to be truly disrupted, Posen said, retailers need to figure out how to box furniture up and make it easier to ship. And to some extent, that happened when Ikea began flat-packing much of its furniture selection and Burrow began shipping its disassembled sofas and chairs in boxes. However, it hasn’t happened widely yet, and it differs from bed-in-a-box models because assembly is still required.
“Just like Christmas morning, nothing comes easy after the presents are unwrapped. Then the hard work begins. Assembling things together,” Hartjen said.
In an effort to alleviate some of the burden associated with furniture assembly, Ikea acquired TaskRabbit in 2017 and rolled out services in March of last year. Walmart and Crate and Barrel formed partnerships with home services platform Handy. Additionally, Wayfair in August launched interior design services and Ikea announced its investment in kitchen planning company Traemand in December, a partnership that began in 2005 between the two companies. This feeds into a larger trend in the sector of providing services, something customers crave, according to Michael Kim, vice president of data and analytics at Aarete.
Customers are “looking for those experiences, those bespoke experiences. Whether it’s to build the furniture, to help with whatever it may be,” Kim said in an interview with Retail Dive. “I think it’s a trend, but it’s definitely gaining some frequency.”
Last-mile delivery problems
“Last mile” may be the newest buzz phrase, but the problems surrounding it have lingered for some time.
“That last mile is something that is trying to be figured out through all retail sectors and we’re not doing a great job with it even with simple little tiny packages,” Hartjen said. “During the holiday season … you see a contracted carrier from an e-commerce company throw your box from the middle of your driveway up to your front door so they can get back in and get back to delivering.”
And because of the rise of e-commerce and the Amazon effect that resulted in consumers expecting two-day or less delivery, more retailers have taken the challenge on themselves. But particularly for retailers selling home furnishings, which are often large and bulky, delivery poses several difficulties.
Target threw its hat into the last-mile delivery ring with its $550 million purchase of Shipt in 2017. Amazon has also made clear it intends to try to solve last mile issues with drone delivery (which failed to receive federal funding in May) and, most recently, its Scout autonomous delivery robots. Wayfair on a call regarding its latest earnings said that it plans to open additional last-mile facilities every month this year. And in a more surprising move, Article, a digitally native furniture startup, announced it was bringing last mile in-house.
“It increases the quality of home delivery. But the actual cost is also probably higher than simply contracting, having UPS and FedEx bid on it,” Posen said.
However, for the vast majority of home furnishings retailers, delivery methods have remained unchanged for years, according to Telsey Advisory Group Senior Research Analyst Cristina Fernandez. “Traditionally, furniture took a long time to deliver, customers didn’t have good flexibility,” she said. “If you were getting a sofa, they would give you a pretty big window of time so you had to stay home all day. The consumer is evolving and wants a better service.”
Reducing the time it takes for an item to be delivered, lowering the cost, and offering consumers greater flexibility in choosing a delivery time and date will alleviate some of the headaches consumers experience with furniture delivery, Fernandez added. Likewise, Hartjen noted that it’s not necessarily the product innovation that will elevate particular retailers, but rather improving the experience in how consumers shop and receive existing products.
“Those companies that are exploring new ways to deliver the same tables and sofas but are exploring new, innovative ways to get them into consumers’ hands, more in line with how consumers shop, those are the ones that are really going to make an impact,” he said.
Changing their approach
Over the years, home goods retailers have changed and adopted to fit ever-changing consumer needs, especially now as retail becomes more digitally focused.
“It’s not that long ago that we thought, ‘Who the hell would buy furniture online?’ Of course the answer to that now is absolutely all of us,” Posen said. “I think what we’re observing in retail home goods along with other sectors is now it is abundantly clear that things like furniture are going to be bought online.”
However, for some consumers, going online to purchase furniture (something that’s thought of as an investment piece, that’s hard to return and that’s used almost daily) is still an area where they may need convincing. Alleviating some of the hesitations associated with shopping online starts with something as simple as providing more details to consumers, according to Fernandez.
“Better descriptions, better photography — we’ve seen a lot of retailers take that in- house and have videos and just more information for the customer. Online chat and being able to make that experience a lot easier and give the consumer a lot more information so they can make a better decision,” she said. “A lot of it really has to do with the customer having more information, whether it’s content or reviews or dimensions, that they can have online to have more confidence in their decision.”
But being more digitally focused goes beyond how retailers’ display products on their websites; the marketing strategy from many legacy players, Posen said, is quickly becoming dated and is due for a change. “The large regional furniture chains have been selling furniture in the same way,” he said. “Their online presence is mostly pretty poor, not always obviously, but mostly pretty poor. They’ve been relying on the same strategies: ‘Presidents’ Day Sale, our biggest savings of the year!’ — and that’s all tired and I think there’s lots of room for new and exciting stuff.”
That’s not to say all retailers in the space haven’t made moves to improve their advertising efforts. For digitally native brands, maintaining an active social media account, and interacting and creating a community among consumers is essential to providing brand information. And legacy retailers have taken note by placing less of an emphasis on print advertisements and more toward their marketing on Instagram and Pinterest, Fernandez said.
“Even though you still see catalogs, there’s less of them. It’s just not where the consumer is going a lot to find new products.”