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Hearth & Home January 2018

ABSCO Fireplace & Patio, Birmingham, Alabama.

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.

Meet Jay. He’s 55 and loves high-end audio equipment and photography gear. On Cyber Monday, his day off, he didn’t hesitate to take
advantage of online deals, spending hundreds of dollars with online
merchants. Shop, click, purchase. Jay loves the Internet.

On the following day, Jay went to work at the casual furniture store he owns with his wife.

A couple came in, browsed a bit, and then requested pricing on a specific group. When Jay quoted a price, the shoppers said they could get the merchandise $400 cheaper from an online merchant. When Jay explained that he had to charge sales tax and couldn’t quite meet that price, the shoppers walked. Jay hates the Internet.

Most casual furniture dealers, at one time or another, probably have felt like our fictional merchant, Jay.

The same technology that keeps us in touch with friends and family around the globe, that offers amazing convenience and near-instant shopping gratification, also is a nagging concern for many brick-and-mortar casual furniture retailers.

“We think about it all the time,” said Mikki Hopcroft, owner of Bon Air Hearth, Porch & Patio in Richmond, Virginia.

Internet competition presents an ominous, yet hard to measure, threat. Doug Froelich, owner of Lifestyles Patio & Spas in St. George, Utah, knows it’s out there, lurking and gobbling up sales that under other circumstances might be his. The Internet threat is real, yet unknowable. “I just don’t know how to gauge it,” Froelich said.

Thanks to online vendors, merchants say they feel pressure on margins and must work harder to create the same sales volume. Most spend far more time than they would like developing strategies to confront the Internet threat. Those strategies range from training sales staff on how to counter shoppers’ price challenges to, in a few cases, fighting fire with fire and developing an online store. The reasoning of these brick-and-mortar merchants is, “We’re not going to beat them, so maybe we better be ready to join them.”

Online vendors no longer induce the gut-churning worry that gripped many storefront dealers a decade or so ago.
Brick-and-mortar merchants who survived the Great Recession and the rise of Amazon, Wayfair, Frontgate, Restoration Hardware, and numerous other online retailers of casual furniture have come to terms with the realities of e-commerce.

It’s not going away, and savvy specialty merchants have demonstrated that they can adapt and prosper in the face of Internet competition. The trick is developing a strategy that works for a particular store in a particular market. Finding that magic solution is up to the store owner who must acknowledge that the formula may change over time, sometimes rapidly.

Online competition, like that competing store in the neighboring Zip Code, is simply a fact of life.

“I don’t see quite as much of the competition that I was feeling 10 years ago,” said Bill Esch. With his wife, Cindy, he owns Patio & Hearth Co. in Albuquerque, New Mexico. “One way or another, I’m not pulling my hair out over it,” he said.

Specialty retailers interviewed recently by Hearth & Home appear resigned to the presence of Internet competition. Lost sales, impossible to quantify, definitely cause concern.

Showrooming – when shoppers rump test furniture, engage sales staff at length, and collect information before disappearing to order online – makes them mad as hell.

“That’s incredibly frustrating,” Esch said. Hopcroft agreed. “The part that is the hardest to swallow is that people will use us to be a showroom.”

Most storefront merchants have experienced shoppers who engage sales staff and get prices on specific items only to play the Internet card. “I can order that online for X,” they say. “Can you match that price?”

This practice affects some merchants more than others. Stores featuring top-shelf, high-end brands are least affected, because those highly specialized and customized products rarely are sold online.

 Merchants whose brands tend toward mid-range price points are more likely to encounter walk-in pricing challenges. They need strategies in place to handle shoppers who attempt to leverage Internet options in hopes of a better local deal.

“We’re trying to figure out how to talk to them without saying we’re cutting our price,” said Judy Singleton. With her husband, Duke, she owns Tropic Aire Patio & Wicker Gallery in West Columbia, South Carolina.

One way to trip up showrooming shoppers is to make it more difficult for them to figure out what they’re looking at. In an ironic twist in an industry that has struggled for decades to build brand awareness, a couple of merchants say they are removing tags with brand names and model numbers and point-of-sale information.

“We don’t make it easy for people to shop on the Internet,” said Esch of Patio & Hearth Co. He’s even threatened to remove the stylish brand badges from furniture on the floor. “We told our rep some of the labels might disappear,” Esch said. “He sort of chuckled.”

Some merchants have developed methods to deal with walk-in shoppers who try to use Internet prices as a bargaining chip. Some said they’re pretty successful at winning those sales.

Duane Ricks, office manager at Backyard Living in New Orleans, said his salespeople probably close sales with nine out of 10 shoppers who play the Internet card.

Tom Criscuolo, manager/buyer at Lawn & Leisure in Sterling, Virginia, also reports a 90% success rate with shoppers who fit his store’s target demographic.

“If I lose a Kmart shopper, I don’t care,” Criscuolo said. Higher-end customers, on whom Lawn & Leisure depends, are another matter.

“We are extraordinarily fortunate that our location is in an area that is high-income and highly educated,” he said. “The more educated a person is, the more you can talk to them. They understand reason” when the benefits of buying local are explained. “But,” Criscuolo said, “you have to point it out to them.”

Impact of Internet Sites on Outdoor Room Products

Role of Manufacturers

Casual furniture dealers are unanimous on one point: Some manufacturers are much more attuned than others to the concerns of brick-and-mortar retailers. These manufacturers have developed policies governing whether prices for their products may be published online. These manufacturers also have policies governing if and how authorized dealers may sell goods online.

Manufacturers who maintain and enforce strong Internet sales policies further strengthen their already solid relationships with specialty retailers. The respect dealers have for these furniture manufacturers is apparent.

Patio & Hearth, in New Mexico, prefers to deal with “companies that are a little more protective of their dealers than some of the other brands,” Esch said. “OW Lee,” he said, “is really awesome about protecting territories.”

Several retailers interviewed echoed that observation. Other companies mentioned as having policies that protect brick-and-mortar dealers included Anacara, Barlow Tyrie, Homecrest, Mallin, and Telescope.

“We only deal with higher-end companies that have good warranties and policies in place that don’t hurt their brick-and-mortar stores,” Ricks said.

Telescope Casual Furniture repeatedly drew praise.

“Telescope is a good one,” said Todd Glaser, owner of East Coast Leisure in Virginia Beach, Virginia. Telescope’s policy restricting online merchants to a minimum advertised price (MAP) gives retailers such as Glaser a fighting chance of not losing a sale to online competition.

Should East Coast Leisure have to match an online price for Telescope goods, Glaser said, “We’re still going to make a 40% margin.”

Specialty retailers depend on manufacturers to monitor online sellers to maintain order and discipline. “We don’t have time to police the Internet,” said Hopcroft, the Richmond retailer.

Sometimes retailers keep an eye on the websites of local and regional competitors. “I monitor other stores in a 200-mile radius,” said Gail Williams, president of Sunshine Furniture in Vero Beach, Florida. “A lot of stores will advertise manufacturers they don’t have.” Customers who come in to check out a certain item seen online are steered to other products, she said.

Ricks, at Louisiana’s Backyard Living, related how a sale lost to an online vendor once fixed a larger issue. The merchandise in question was identical to what Ricks offered. The customer shared with him the vendor’s website, which Ricks reported to the maker of the furniture. The online vendor was in violation of the manufacturer’s policies. In that case, Ricks’ complaint to the manufacturer paid off. “They addressed the issue,” he said.

Retailers indicated they would have few reservations about severing ties with furniture companies that don’t have some sort of MAP program. “That,” Esch said, “may keep us from doing business with them.”

“MAP pricing is the first line of defense for a specialty merchant,” said Williams. When a manufacturer provides MAP guidelines for its products, “That’s what we sell it for on the floor,” she said. “It’s easy. We have zero competition from the Internet.”

Casual dealers can, and often do, beat MAP pricing that walk-in customers find online and attempt to use for leverage. The brick-and-mortar merchant can discount product as deeply as she wishes; she just can’t advertise discounts greater than a manufacturer’s MAP guidelines. This gives the local merchant an additional edge over the online retailer offering the same goods.

While MAP pricing establishes more of a level playing field, brick-and-mortar retailers still have to contend with the no-sales-tax advantage wielded by many online merchants.

Storefront merchants, by law, have to add sales tax to every ticket. The final price of a package of high-end patio furniture can jump several hundred dollars or more, depending on the state and locality where a store is located.

Online merchants should charge sales tax to out-of-state customers, but many don’t. Regulation, a virtually impossible task under current laws, is left up to the individual states.

Competing with online merchants who don’t charge tax is “getting harder and harder and harder,” said Mike Hartley, Sales manager and buyer for The Patio Shop in Chattanooga, Tennessee. “That’s another hurdle for us to overcome.”

State and local sales taxes in Chattanooga add 9.25% to every ticket. On a $5,000 casual furniture purchase, that’s an additional $462.50.

When asked to match an online price, there are many times when the correct answer is “no.”

Countering Online Pressures

A specialty merchant must be prepared to counter objections when trying to convince a customer to part with several hundred extra dollars and buy locally rather than online.

Arguments to buy local include warning the consumer that unbranded furniture that looks good online may not provide the same comfort that can be verified in a furniture showroom. Furniture sold online may not be as well made as that in a local store, even though prices may be similar.

Furniture promoted by an online vendor “may be visibly great” in photos and “maybe decently made,” said Greg Martin, owner of Kolo Collection in Atlanta. “But nine times out of 10, it’s not the same quality” as the furniture he stands behind in his store.

 Delivery and set-up, often at white-glove levels of service, is another local selling point. Consumers poised to buy online often do not realize that, in most cases, their furniture will be delivered curbside. Unboxing and moving the furniture into position is up to them. So is disposing of the packaging. And if there’s a quality issue with an online purchase, who will make it right?

Mike Thompson, president of Thompson Pool and Patio in Norman, Oklahoma, said customers no longer shop his store against online retailers as often as a few years ago. But when they do, he and his sales staff are prepared.

Buying quality furniture, he tells shoppers, “is not an Internet-type purchase. You need in-store experience. You need to sit in it and feel it.”

Sales personnel, Thompson said, “have to make the buyer aware of just how important this purchase is. If you want to invest in a good set of patio furniture, you want to talk to someone with knowledge.”

Customers who understand the need to experience the product before purchasing usually can be won over. Shoppers who want stylish, higher-end casual furniture “want to see it and sit in it,” said Mike Moon, an owner at Patio Connection in Tucson, Arizona. “A lot of the time, that saves us,” he says.

When a shopper requests that a merchant meet an online quote, the merchant should first verify that the price is for the exact same merchandise. “We make sure we are absolutely matching apples to apples,” said Glaser of East Coast Leisure.

Williams of Sunshine Furniture agreed. When presented an online quote to match, she said, “I check it and double-check it.”

An online retailer may offer a set with a promotional grade of brand-name fabric, while a specialty store typically may quote a better grade of fabric. That alone might account for the difference between the online and local store prices.

Criscuolo, at Lawn & Leisure in Virginia, said that his store refuses to lose a sale on price. “We guarantee that we will not be undersold, so long as it’s the same” merchandise, he said. “Making a sale at a miserable percentage is better than not making a sale.”

Fortunately, he noted, most customers can be reasoned with. They can be convinced of paying a little more for professional attention and service. Most understand that, in the event of a problem with newly delivered merchandise or even after months of use, “you can’t go to the Internet” to resolve the issue.

Kring’s Hearth and Home, with two locations in Pennsylvania, simply doesn’t waver in the face of a customer who threatens to buy online. “We don’t match Internet pricing,” said Matthew Goense, president. “I don’t feel it has cost us any considerable business. If (the customer wants) to save $300 online, well, have at it.”

Megan Thomas of Antique Brick Outdoors helping a designer select fabric.
Photo: ©2017 Shields-Marley Photography.

Service But No Sale?

Retailers interviewed were of varied opinions when it comes to servicing products purchased from online retailers. Some consent to handling warranty issues, even though the customer bought online. Some merchants will service a product bought from a storefront retailer who may be in another area, but not a product bought online. And some retailers just don’t service products they didn’t sell, period.

Backyard Living will perform warranty work for brands the store carries but didn’t sell to the consumer “because we hope to get something from them in the future,” said Ricks, the office manager.

Kolo Collection has a similar policy on goods sold by other specialty merchants; the issue of servicing products bought online hasn’t come up. “Of course, we’re going to help,” Martin said, “because we want to have a relationship, and two years down the road, they may want new furniture.”

Hopcroft, at Bon Air in Richmond, takes a firm stance when a consumer asks for service on goods purchased via the Internet. “If they say they got it online, we say, ‘You need to call Mr. Online.’ We’re just not going to do it.”

Criscuolo, at Lawn & Leisure in Virginia, said his store hasn’t been called upon to provide warranty service for goods purchased online. But he takes a lenient view and says he probably would, if and when it happens. “I look at it as business ethics,” he said. “It doesn’t help anyone to be rude and slam the door in their face.”

Many Consumers find a phone or tablet handy when shopping.

Optimism and New Strategies

Storefront merchants in every industry are under siege from online competition. Amazon’s purchase of Whole Foods in 2017 was a wake-up call to supermarkets everywhere. Radio Shack, the specialty electronics merchant with more than 1,700 stores, laid its demise to competition from retailers such as Best Buy and online merchants. The concerns of specialty furniture retailers are real, but there’s also reason for hope.

Retailers who built their businesses on the buying power of Baby Boomers have wondered for years if the Boomers’ children, the Millennials, would show similar love for the Outdoor Room and underwrite the casual furniture business in the decades ahead. There’s similar speculation about the younger adults of Gen Z, who follow the Millennials.

Readers of this magazine know that growing numbers of Millennials are entering their higher-earning years and are shopping specialty merchants in increasing numbers. Merchants interviewed for this story suggest that Millennials may possess something even more valuable to the casual storeowners than good credit.

Millennials, as everyone knows, prefer locally grown foods, locally brewed craft beer, and supporting the local economy. Specialty retailers indicate the Millennials’ interest in shopping locally extends to casual furniture stores.

Millennials don’t use Internet prices as bargaining chips as often as their parents do, said Hopcroft at Bon Air in Richmond. “There are many aspects of Millennial buyers that have surprised me,” she said. “They’re nowhere near as demanding as the Boomers.” Millennial shoppers, she noted, want experiences that they can’t get when shopping for furniture online. “They want to sit on it, touch it, feel it,” Hopcroft said.

Shoppers of all ages do their research online before venturing into a store. Casual furniture merchants with a strong online presence that meets the design standards of the day and hints at a unique, in-person shopping experience stand a better chance of getting the under-40 crowd through their doors.

“The younger generation wants good quality,” said Jim White, general manager at Mountain Lake Pool & Spa in Doylestown, Pennsylvania. “They want a good price, and they want it now.”

At Sunshine Furniture, salespeople always thank customers for shopping locally, Williams said, regardless of the shoppers’ ages. “We thank them for buying local all the time,” she said. “We tell them, you keep all these people in a paycheck.”

A handful of casual retailers interviewed are taking steps to be ready for whatever the future brings. If Millennials keep local businesses alive, those shoppers will be welcomed into patio showrooms. But if the phenomenon of shopping online for anything and everything continues apace, certain storefront merchants don’t want to be left out.

White, at Mountain Lake Pool & Spa, is considering creating an online store that sells furniture not found in his showroom. Doing so will mean buying directly imported containers of unbranded furniture. “We want to be prepared,” he said. Looking ahead five years, he said, “If you don’t have it, you might not be there.”

Glaser, at East Coast Leisure, plans to launch an online store in a year or two. “We’re working with a couple of ideas,” he said.

Merchants who strive to create a unique experience, who cultivate a reputation for customer service, and who get to know the people who walk through their doors increase the odds that they will thrive despite Internet competition. Retailers have to give shoppers a reason to get off the sofa and shop locally.

Hopcroft gets that. “The mission of our business is about building relationships,” she said. “We never want a customer to have buyer’s remorse.”

And Hopcroft, like our fictional merchant Jay, also shops on the Internet, with certain personal guidelines.

“I buy online,” she said. “But I don’t buy anything I can buy locally.”

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