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Hearth & Home January 2018

In October 2017, Hearth & Home sent an Internet Impact Survey to 2,290 specialty retailers of hearth, patio and barbecue products; results from the 150 useable returns are published throughout this article, as well as throughout the three following articles.

Internet Impact

By Lisa Readie Mayer

Some dealers view e-commerce as a threat, others view it as an opportunity; either way, it’s disrupting traditional retail in a major way.

“I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window. Open it, and stick your head out, and yell: I’m as mad as hell, and I’m not going to take this anymore!”

Howard Beale (played by Peter Finch)
Written by Paddy Chayefsky; directed by Sidney Lumet

Whether you believe media coverage about the demise of brick-and-mortar retail, or consider it “fake news,” we can pretty much all agree on one thing: Consumers are buying more stuff online than ever before.

Americans spent $385 billion online in 2016, and the amount is expected to reach $632 billion by 2020, according to a report by BI Intelligence, the research arm of “Business Insider.” The study shows U.S. e-commerce grew 23% in 2016; comparatively, traditional retail grew by about 2%. The total number of online shoppers, the average amount spent online, and the number of online transactions, all increased significantly year-over-year. That trend shows no signs of slowing down.

It’s not just Millennials who click to purchase. According to a study by Big Commerce, 41% of Baby Boomers shop online, and spend an average of four hours per week doing so. Along gender lines, men reportedly spent 28% more money online than women in the past year. The rise in smartphones and mobile shopping apps has made Internet shopping even easier. The Atlantic reports that mobile commerce now accounts for 20% of digital spending, up from 2% in 2010.  

The National Retail Federation says that while digital sales still make up only around 12% of total holiday sales, the number of holiday online purchases grew 12% between 2015 and 2016, while the number of holiday purchases at brick-and-mortar stores dropped 4%. Though 2017 holiday figures were not yet available for this article, a study by The NPD Group indicates consumers planned to do 40% of their 2017 holiday shopping online, up from about 30% in 2015. Even more disturbing, online shoppers planned to spend 70% more than those who planned to shop only in brick-and-mortar stores.

Amazon Locker parcel delivery machine at train station in the UK.

The Amazon Effect

Many of those online purchases are likely on the Amazon marketplace. An article in The Atlantic puts it bluntly: “Amazon is eating retail.”

The nearly $430 billion company controlled 43% of all revenue generated online in the U.S. in 2016, and saw its North American sales quintuple between 2010 and 2016, according to The Atlantic. Reports indicate Amazon’s sales were up 34% last year alone, and Prime Day 2017, the company’s made-up Internet- shopping holiday in July – a traditionally slow sales period – was its biggest, single sales day ever.

Nearly everything and anything is available for purchase online through Amazon – including the kitchen sink and the house to put it in (320-sq. ft. “tiny houses” are selling for $36,000, plus $4,500 shipping, on the site). However, while Amazon may be the biggest Internet seller in the U.S., other online retailers are gaining ground as well., the second largest e-commerce site in terms of unique users, reported more than 60% growth in online sales in the second quarter last year, and saw visits to its site increase 31% between 2015 and June 2017.

Impact of the Internet

Have You Experienced "Showrooming"?Showrooming

Have You Experienced Comparison Shopping?Comparison Shopping

Don’t Count Out Retail

As Mark Twain once responded to his rumored death, “The reports of my demise are greatly exaggerated,” so it is with brick-and-mortar retail stores. While it’s true that more than 2,000 retail stores closed last year – including many big-name department stores – a report from indicates that more stores opened than closed. A study by IHL Group reports retail sales in brick-and-mortar stores are up $122 billion over last year.

Research from The National Retail Federation (NRF) shows only 21% of consumers consider themselves “primarily online shoppers,” buying more than half of their items online (the figure is 34% for Millennial and Gen Z consumers). About 28% of consumers say they are actually shopping in stores more frequently than they did a year ago, outpacing the 22% who say they shop in stores less often. A survey by consulting firm AlixPartners even shows that 50% of Millennial and 67% of Gen Z consumers prefer in-store shopping.

The biggest consumer motivations for shopping in a brick-and-mortar store, rather than online, include a convenient location and immediate cash-and-carry availability of the product, according to a report in “eMarketer Retail.” Other perceived brick-and-mortar advantages: the ability to see, touch, or try on goods in person; knowledgeable salespeople; more unique merchandise; store design; and staff that can explain how to use products. Consumers also believe in-store shopping provides better customer service, (although some studies indicate up to half of consumers prefer not to interact with salespeople).

In some industries, independent specialty stores are actually enjoying a renaissance. According to the American Booksellers Association, the number of brick-and-mortar bookstores has increased 40% since 2009. The current 2,321 retail bookstores in the U.S. is still off from a peak of 3,000 stores, but up considerably from a low of 1,651 eight years ago. It’s a positive sign that consumers are choosing an in-store shopping experience, despite being able to buy books online for less (oftentimes, less than the book retailer pays wholesale – a situation with which many hearth, patio and barbecue retailers can empathize).

Even the largest online sellers recognize the valuable role traditional brick-and-mortar retail stores continue to play in today’s consumer marketplace, and many are blurring the lines between channels. Walmart-owned men’s clothing e-tailer Bonobos has 30 brick-and-mortar “GuideShops” where customers can try on clothes for fit and place orders online to be delivered to their homes.

Amazon’s purchase of Whole Foods is creating synergies between its online operations and new 465 brick-and-mortar locations. A number of Whole Foods stores are now home to Amazon Lockers, where consumers can go to pick up goods they ordered online. These pick-up centers reduce Amazon’s expensive last-mile delivery costs, while also boosting Whole Foods’ traffic and might-as-well-do-some-food-shopping-while-I’m-here sales.

Amazon established 100 holiday Pop-Up Shops in Whole Foods stores last month, selling its Echo, Echo Dot, Firesticks, and Kindles, and is reportedly preparing to open retail pharmacies at other Whole Foods locations. The company, which ironically started as an online bookseller, has now opened a dozen physical bookstores in the U.S. And its roving “Treasure Trucks” in 25 U.S. cities sell one featured item a day – anything from a tech product to an espresso maker to steaks. Consumers can sign up for text-alert notifications about the item-of-the-day, buy and pay for it on the Amazon app, and pick it up at the truck’s designated location.

Amazon’s shopping disruption extends well beyond traditional retail stores. Last September, it launched a six-episode home-makeover show called “Overhaul,” hosted by YouTube-famous design experts. Many of the fixtures, furniture and other products featured on the renovation program are available for easy-click-purchase in a special “Overhaul” shop on the Amazon website. The episodes are also distributed on the hosts’ YouTube channels and social media platforms, driving even more consumers to the Amazon “Overhaul” shop.

Experts predict this type of entertainment-shopping hybrid could become a model for many different industries, where consumers could buy anything featured on a television show, from a coat to a couch to a car, through a link using their smart-TV, computer or mobile device.

Amazon, whose sales of home and kitchen products, furniture, and appliances grew 25% last year, is disrupting the furniture industry further by launching two private-label brands, Rivet and Stone & Beam. Women’s Wear Daily reports the company has started its own private-label fashion brand, and has also patented a manufacturing system to create and deliver custom, made-to-order clothing, curtains and other household textiles, with a quick turnaround. It is undoubtedly eying expanding its private-label lines into other product categories. Might grills or electric fireplaces or patio furniture be next?

How Often Do Customers
Mention Shopping the Internet?

Have Customers Asked You to
Meet or Beat an Online Price?
Meet or Beat an Online Price

Has This Reduced
Your Margins?
Reduced Margins

Many Unhappy Returns

What are consumers’ biggest gripes about Internet shopping? A report by Big Commerce indicates 66% of online shoppers have decided not to buy an item because of shipping costs, and 34% said long delivery times and difficulty of returns were detriments to online shopping. Consumers dislike the hassle of mailing back a return so much it prevents 28% from shopping more online, according to a report in “eMarketer Retail.”

More than 10% say they avoid shopping on online-only retailers because of return concerns, and 95% of Internet shoppers say they prefer to make returns in-store versus online. Product dissatisfaction and return issues have long-term effects: 39% avoided purchasing from that e-tailer again.

Returns are among the most troublesome issues for Internet sellers, too. According to a report in “,” about one-third of all Internet purchases are returned, versus only about 9% of goods bought in-store. United Parcel Service estimates the cost of processing and shipping returned goods can run as high as 65% of an e-tailer’s cost of goods sold.

But online sellers are working to improve these situations. A startup called Happy Returns plans to open a network of “return bars” to facilitate the process. Amazon is testing return centers in 82 Kohl’s stores where staff will repack and ship returns free of charge for Amazon customers. Kohl’s, of course, hopes the service will boost foot traffic and trigger impulse purchases in its stores. The idea has merit. “eMarketer Retail” reports that about 60% of consumers who returned an online purchase to a physical store, made a new purchase, compared to about 40% who made a new purchase online after shipping back returns.

Blessing or a Curse?    

Hearth, patio and barbecue retailers seem to be divided into two camps regarding Internet selling. Some consider it an evil adversary that steals sales and shaves margins. Others embrace it as an opportunity to increase exposure and awareness, expand their customer base, and grow their sales and service business.

To dive deeper into the issue, Hearth & Home surveyed retailers to see exactly how Internet competition is impacting their businesses. The message was clear: it hurts. Sixty-four percent of retailers indicated the Internet has impacted their business negatively or resulted in lost business, compared to 17% who said it had no impact, and 15% who said it had a positive impact.

How much it hurts depends on the category. For barbecues, 40% of gas-grill retailers, 30% of charcoal-grill retailers, and 13% of outdoor-kitchen dealers say they’ve experienced “major” or “significant” negative impact from Internet competition. More than half of grill dealers say $200 to $2,000 is the most vulnerable price point, but 14% indicate all price points are vulnerable.

For hearth dealers, electric fireplaces are at greatest risk, with 50% of dealers saying they have felt a significant or major negative impact in that category. Comparatively, 27% of gas fireplace dealers, 18% of wood fireplace dealers, and 17% of stove dealers find the Internet a significant or major threat to those products. Only 2% of retailers report the Internet has significant or major negative impact on their patio furniture business.


Pain Points

According to the International Council of Shopping Centers (ICSC), 85% of Internet users say they start their research online before making a big purchase. It saves time from schlepping store-to-store to learn about product attributes, compare prices, check availability, and read reviews, and it can be done at the consumer’s convenience, anytime, anywhere.

But how consumers conduct this research is evolving. Today, only 15% start their searches on Google or other search engines, according to a study in “eMarketer Retail.” Instead, 38% of shoppers now start researching at an online marketplace such as Amazon, up from 35% a year ago. The number of consumers who start their research at retailers’ or manufacturers’ websites has declined from 31% to 29%.

Frequently, the path-to-purchase starts in one channel and ends up in another. In a practice called “Webrooming,” consumers use a computer or mobile device to research a product before heading into a retail store to purchase it. “Showrooming” is when consumers visit a brick-and-mortar store to check out a product in person, and then leave to purchase it online. Although showrooming is less popular than webrooming, it is increasing, according to the ICSC.

Hearth & Home’s Internet impact survey reveals 83% of hearth, patio and barbecue dealers have experienced showrooming in their stores. Dealers also note that consumers are increasingly using their mobile devices to check out reviews or compare prices online while actually standing in the store. This anecdotal trend is supported by an “eMarketer Retail” report that shows 77% of Internet shoppers have used a mobile device to do comparison research while shopping in-store. The report says 25% have even made an online purchase while in a brick-and-mortar store.

Interestingly, Amazon is trying to thwart that practice in its own retail bookstores and Whole Foods stores. It has reportedly filed a patent for an electronic system that would block shoppers in Amazon stores from using its Wi-Fi to check out a competitor’s website. Instead, the system would redirect searches to an Amazon site, or introduce a pop-up coupon or other distraction to foil customers from in-store comparison- shopping on their phones.

While consumers’ online research is beneficial to brick-and-mortar retailers in many respects – for example, finding the store through manufacturer-websites’ dealer-locator pages – even when a purchase is ultimately made in-store, researching online can have negative consequences. Fewer customer fact-finding trips to the store mean fewer opportunities for them to discover other products or make impulse purchases. With options vetted online, customers are in-and-out for a surgical-strike purchase.

Have You Trained Your Staff to Respond to Customers' Requests?Trained Staff to Respond to Customer Requests

Dropped a Manufacturer Due
to Internet Pricing?
Dropped Manufacturers

Have You Discussed Internet Policies With Vendors?Discussed Internet Policies with Vendors

Have You Seen Any Changes
As a Result?
Changes as a Result

Another Pain Point: Price Matching

Experts say the “Great Recession” triggered an attitudinal change in consumers, making them more price-conscious and savings-oriented than in recent memory. Buying online can, in many cases, save consumers a good deal of money.

In a 1992 ruling, the Supreme Court exempted online purchases from sales tax when the seller does not have a physical presence, such as a store, warehouse, or corporate office, in the state where the transaction is made. The National Retail Federation estimates state and local governments lose nearly $25 billion a year as a result of untaxed online sales. Not having to pay sales tax – a potentially significant sum on high-end goods – is a compelling discount for many consumers. Shipping charges used to offset tax savings, but as more and more Internet sellers offer free shipping, the money-saving advantage tilts toward e-commerce sites.

Traditional retailers are increasingly asked by customers to match these low Internet prices. The practice, according to “MarketWatch,” is “killing the bottom line” for retailers. The report says, “(Retailers) take in less revenue per unit sale, but still have to pay the fixed costs of rent and payroll, so it eats into margins.”

Hearth & Home’s Internet survey found 83% of retailers have been asked to match or beat an online price, and 63% say it has led to reduced margins. For consumers, however, falling prices are a “godsend,” according to “MarketWatch,” because the money saved can be used for experiences such as travel and dining out.

To help level the playing field for retailers, and recoup some of the lost tax revenue for states and local communities, a bipartisan group of U.S. senators introduced the “Marketplace Fairness Act of 2017.” It would require remote sellers, who do not meet a “small seller exemption” (less than $1 million in remote sales annually), to collect state and local sales taxes, regardless of whether they have a physical location in the state.

The Bill, along with a similar version in the House of Representatives, called the “Remote Transactions Parity Act,” was proposed in April 2017; a hearing was held in May 2017, but no action has been taken since. Similar legislation was proposed in 2013 and 2015 and, both times, it failed to be enacted.

The growth of Internet competition has created other challenging issues for hearth, patio and barbecue retailers. Many say having an alphabet-soup of pricing from manufacturers is confusing for dealers and consumers: Manufacturer’s Suggested Retail Price (MSRP), Minimum Advertised Price (MAP), Internet Minimum Advertised Price (IMAP), Unilateral Minimum Advertised Price (UMAP), and  Unilateral Manufacturer’s Retail Price (UMRP).

Retailers bemoan online sellers who don’t adhere to minimum-advertised- pricing policies, undercutting it by having a customer “call for best price.” Manufacturers who don’t effectively police and enforce online pricing anger them. In fact, the Hearth & Home study reveals 59% of dealers have dropped a manufacturer they feel does not do enough to protect them.

Dealers have differing opinions when it comes to servicing products bought from online sellers. While some view it as a path to developing relationships with potential new customers, according to the Hearth & Home survey, just over one-third of retailers will service a product bought from an e-commerce site.

Consumers need professional advice that only specialty retailers can provide.

Retail Evolution

Retail experts say consumers’ retail expectations are changing. A report by marketing organization CMO Council says the future of shopping will be as much about consumers’ experiences as the products they buy. A NRF study shows consumers (especially Millennials) are more likely to visit stores that offer food, entertainment or other experiences.

Furniture industry consultant Jerry Epperson, of Mann, Armistead & Epperson, predicts brick-and mortar stores will transform over the next few years to a retail environment dominated by “theme-based stores, fulfillment centers, and pop-up shops.” He says in-store “Retail-tainment,” in the form of dedicated cafés, boutique shops, and demonstration areas will appeal to shoppers’ desire for experiences.  

This is already happening as struggling retailers adapt to find their niche and compete with online sellers. Lord & Taylor recently sold its New York City flagship location – and is subletting space in other Lord & Taylor stores across the nation – to co-working company WeWork. The retailer hopes people who use the office space within its stores will shop there, too.

The parent company of Saks Fifth Avenue has opened food halls and restaurants in some of its stores, and Nordstrom is testing a mini-store in Los Angeles that offers personal styling, tailoring, online order pick-up, but no actual merchandise to buy.

Shopping malls are adding theaters, wax museums, indoor golf ranges, grocery stores, gyms, walk-in health clinics, aquariums, and corporate offices to fill shuttered retail space and boost foot traffic for the remaining stores. Even luxury jeweler Tiffany & Co. just opened an elegant café at its iconic Manhattan store where consumers can experience lunch, dinner, tea, or even an actual “Breakfast at Tiffany’s.”

Retail is and always has been in flux. The advent of supermarkets shuttered many mom-and-pop grocers; the growth of automobiles and interstate highways displaced independently-owned roadside motels for chains such as Holiday Inn and Howard Johnsons; the way we buy music has evolved from albums to 8-tracks to cassettes to CDs to streaming services.

Today, Amazon and other online sellers are the chief disruptors in the retail marketplace. But new disruptors – such as drone delivery, for instance – might shake things up and further change the face of retail. An article in The Atlantic predicts self-driving cars could make stores nearly obsolete in some areas. It says, “CVS could have hundreds of self- driving minivans stocked with merchandise roving the suburbs, ready to be summoned to somebody’s home by smartphone.

“A new luxury-watch brand in 2015 might not spring for an Upper East Side storefront, but maybe its autonomous showroom vehicle could circle the neighborhood, waiting to be summoned to the doorstep of a tony apartment building…The future of retail could be even weirder yet.”

E-commerce will change too. Epperson believes the Internet of “things,” will evolve into the Internet of “ME.” He predicts every consumer will have a site – not unlike a Facebook page or email address – where they can list the products they are looking for. Epperson says, “Retailers will then scan these millions of sites and ‘bid’ on what they can deliver to you – including the price, the date of delivery and the benefits of ordering from them (warranties, etc.).

Are Any Manufacturers Protecting Brick-and-Mortar Retailers?Manufacturers Protecting Brick-and-Mortar

Do You Sell Products Online?Sell Products Online

Do You Sell Beyond
Your Market Area?
Sell Beyond Market Area

Do You Service Products Bought Online From Other Retailers?Service Product Bought from Other Online Retailers

“Consumers, at their leisure, will view the choices ranked by whatever variable they choose – price, date of delivery, credit terms, etc. – and inform the seller to fulfill the order via the most efficient means that the consumer specifies. The various retailers can also use this as an opportunity to inform the consumer of alternatives of which they may not have been aware. After all, why should the consumer waste valuable time seeking products by searching through stores or websites? As this process evolves, the consumer will likely limit the retailers that have access to his or her want/wish list, reducing the amount of effort needed to review options.”

According to the Hearth & Home survey, only 11% of hearth, patio and barbecue dealers currently sell products online. But even retailers who don’t take an “if-you-can’t-beat-’em-join-’em” attitude will have to evolve and adapt in the age of e-commerce.

Despite consumers’ growing reliance on the Internet for research and shopping, 46% of American small businesses do not even have a website, according to a study on e-commerce trends by Big Commerce. When they do, many are poorly done and rarely updated. Experts advise that retailers must step up their online game with websites that are current, easy-to-navigate, and search-optimized.

They must have a presence on Google Locator and be listed on all vendors’ dealer- locator pages. Retailers should also maximize use of social media to disperse valuable content such as recipes, tips, and educational info to build followers that could turn into potential customers. Dealers should also mine those sites’ data analytics to better understand and engage customers.

Research firm IHL Group says, in order to overcome Internet challenges and succeed, retailers must also “focus on customer experience and invest in better training of associates.” It’s critically important to create a unique, enjoyable and memorable destination that will make shoppers want to come back. It’s also important to continually reinforce that you and your staff add value and expertise, and have your customer’s back. None of these intangibles are available – at least for now – through an e-commerce site.

Forbes magazine sums it up well: “The reality is consumers – likely even you – turn to the Internet to discover what to do, where to go, who to buy things from, and more.”

Internet shopping is here to stay. We better figure out how to adapt, or risk ending up the way of the 8-track.

More Stories in this Issue

The Man Behind Treasure Garden

By Tom Lassiter

Oliver Ma is a hard working, brilliant businessman who has built a global company based on understanding markets, creating quality products, and respecting his customers.

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Installation Shield

By Bill Sendelback

Hearth dealers are fortunate their product requires professional installation, nevertheless, Internet sales are still creating a variety of issues.

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Online Pressures

By Tom Lassiter

Patio dealers face fearsome Internet competitors, but manufacturers can protect their dealers to a certain extent – if they want to.

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Threat or Promise?

By Lisa Readie Mayer

Barbecue dealers weigh in on how the Internet is impacting their business, and what they are doing about it.

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Gas Buys Wood

By Richard Wright

The acquisition of SBI by The Empire Group creates a “true” hearth company that manufactures gas, wood, pellet, and venting products; it’s a combination of two well-run and profitable entities ready to capitalize on the synergies provided.

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A Common Thread

By Mark Brock

Both Phifertex and GeoBella brands are highly focused on performance and style; great customer service is a given.

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A La Plancha

By Lisa Readie Mayer

Originally from Mexico and Central America, plancha grills are the latest hot item, and a solid surface on which to build sales.

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The Time is Now

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2017 November Business Climate

In early December Hearth & Home faxed a survey to 2,500 specialty retailers of hearth, barbecue and patio products, asking them to compare November 2017 sales to November 2016. The accompanying charts and selected comments are from the 214 useable returns.

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Parting Shot: Eclectic & Whimsical

Designed by Design Studio 15, the team took this private residence living room and created a bold, eclectic, whimsical space that integrates the client’s personal style and passions in one room.

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