By Warren Shoulberg
Most everyone who survived the past decade would tell you it was unlike any other time they had ever experienced—starting with the largest terrorism attack on U.S. soil ever and ending with the worst recession in 70 years.
And those very same people would probably have to admit that the speed in which things are happening is as much the story as those changes themselves.
And that is only likely to accelerate over the next decade. The future, said American engineer Charles Kettering, is where you are going to spend the rest of your life, so one needs to be as prepared as possible to deal with it.
To that end, the editors of HFN have done some of your homework for you and come up with the 10,000-foot overview of some of the things likely to occur over the next decade. Not as uselessly generic as the view at 30,000 feet or as ridiculously unrealistic as the 10-foot view, it doesn’t attempt to predict the unpredictable or project onto a blank canvas a Jetsonian vision of tomorrow.
In other words, 2020 visions, if you will.
A total of 12 broad trends are presented here, eight for the retailers under “The Buy Side” heading, starting on this page, and five for vendors under “The Supply Side” heading, starting on page 8.
All in all, its purpose is to help you understand what some of the seeds of the first decade of the 21st Century are going to grow into during the second.
Or as Samuel Taylor Coleridge put it—in the past—“In today already walks tomorrow.”
THE BUY SIDE
While much of the home furnishings industry still wrestles with the right way to treat e-tailing, it’s likely that the home computer will be supplanted—perhaps even usurped—by its smaller, newer cousin, the smart phone.
The name-droppers have already christened it: mTailing.
This past holiday selling season was the first one in which smart phones such as the iPhone, the Droid and various Blackberries played a significant role in the shopping process. One in five consumers, according to published reports, said they intended to use various smart phone features—apps—to help them find stores, find products and find the best price. Of those people, one in four said they would use their smart phones to make an actual purchase.
Do the math and that means 5 percent of all shoppers bought at least something on their handheld devices. That is a number only likely to grow in the new decade.
Sellers are jumping on this bandwagon, but it goes back to at least October 2008 when Polo Ralph Lauren introduced its iPhone app.
For companies still trying to figure out their Web selling strategy, mTailing will take virtual selling to the next level in this decade.
The nomenclature might not stick, but for lack of a better catchy name, let’s call them vStores: virtual Internet retailers opening real brick and mortar stores.
Most of the physical retailers (let’s hope that term replaces brick-and-mortar sometime this decade) have long since learned that they need to be multi-format when it comes to serving their customers and have moved aggressively into online selling. The better ones have linked them even closer through in-store pick-up and ordering kiosk tactics.
So it stands to reason that the online retailers will need to create their own level playing field. EBay was a pioneer this past year with a pop-up store in New York City for the holidays.
Look for more online sellers to open temporary or even permanent stores that will act as showrooms or pick-up locations, allowing the extra bonus of reduced shipping charges.
3. Pop-up Stores
Speaking of temporary stores, this is a phenomenon that we haven’t begun to see the end of it. In fact, we’re just seeing the beginning.
Target was one of the earlier innovators here, but the trend goes back further: Spencer Gifts has been opening temporary Halloween stores under the Spirit name for years.
As a vehicle to address a short-term need without the problems of long-term leases, pop-up stores offer great advantages for retailers. That’s why pop-ups won’t just be limited to the holiday season, but will be utilized for other seasonal selling like summer goods.
The excess inventory of vacant stores makes the process that much more attractive. So, at least until some semblance of real estate homeostasis returns, the pop-ups will keep on popping up.
4. Pop-up Sales
Pop-up stores have been on the scene for years but this year they were joined by pop-up sales and this tactic is another that will no doubt be expanded upon throughout the coming decade.
Pop-up sales have no strict definition, but they generally have several characteristics: a limited number of goods are offered at a good price for a limited amount of time.
If the general idea sounds familiar, it’s because it’s the basic underlying merchandising premise of the warehouse clubs. Even before the clubs, under the guise of treasure hunting, the technique was used by a variety of stores from Marshalls and T.J. Maxx to Pier 1 and Cost Plus.
And when you get right down to it, the Kmart Blue Light Special may have been the original pop-up sale.
The new spin this year came from online sellers like Gilt and One Kings Lane that institutionalized the tactic and gave it its new sexy name.
Retailing never met a good idea it didn’t like to jump on so look for all retailers, regardless of format, to introduce their own versions of the pop-up sale. The Black Friday doorbuster is already being used quite successfully. Watch for many more as the decade goes on.
That old definition of Gross Domestic Product—the sum of all goods and services—will show a new emphasis on the latter part of that term this decade.
The new definition of service will mean selling services and making them profit centers onto themselves—not old definition of extra sales people on the floor or liberal return policies. Two old-line manufacturing companies outside the industry—IBM and GE—are in the process of radically transforming their businesses from making products to selling services.
In the home business, the leader has been Best Buy, which through its Geek Squad, has learned there is money to be made by offering services not just stuff.
Watch for other retailers to find their own Geek Squads in ways that may be hard to see right now. But if your memory goes back aways, perhaps you can recall when department stores offered in-home carpet and upholstery cleaning. Everything that’s old again... well, you know the rest of it.
6. The Aldi Factor
Only one retailer in America is beating Walmart at its own game: Aldi. The German retailer, essentially a mini-warehouse club without the membership element, is primarily in the grocery business but sells some general merchandise.
It does so from bare bones, strip-mall-located stores that generally measure under 20,000 square feet and, with their merchandise offered on the pallets and in the cartons in which they were shipped, have the charm and ambience of an abandoned car wash.
But they also have prices that often make Walmart look like Neiman’s and that is their appeal. If the consumer’s newly discovered thrifty tendencies are more than a passing fad, the under-retailing channel, which also includes dollar stores, may have enduring appeal beyond its current demographics.
And as so-called “discount stores” continue to offer trade-up goods in ever-fancier presentations, the deconstructed model of Aldi and others could be a major force in retailing over this new decade.
7. The Ikea Factor
For a chain that only has 37 units, Ikea’s impact on the home furnishings market is certainly disproportionate. In 2008, the last year for which numbers are available, it was the only home furnishings retailer in America, besides Amazon, to be one of the five fastest growers in both total dollars and percentage growth.
As more regions of the country are exposed to Ikea’s low prices, take-with-you products and furnishings-as-fashion philosophy, it is only logical that shoppers will embrace those things when they go to shop elsewhere as well.
What impact that has on conventional retailers remains to be seen but with Ikea stepping up its expansion plans – three stores, a new distribution center and its first U.S. factory, all just in 2009 – it is likely to gain both market share and converts in the coming decade.
8. Store Wars
The 1990s were the era in which each major channel of distribution generally had three major players, all of comparable strength and stature.
By the end of the first decade of the 2000s, that was down to just two majors and the process had already started to winnow that down even further to just one.
We first saw that when Federated bought May Co. and created the national Macy’s department store operation. Other, smaller department store chains remain, but Macy’s is clearly in a class by itself.
The home business saw it in the housewares-textiles classification when Bed Bath and Beyond outlasted its lone remaining competitor, Linens’n Things. At virtually the same time the same thing happened in consumer electronics with the demise of Circuit City, leaving Best Buy as the last store standing in that space.
This Darwinian process is now set to occur in other channels over this decade. There remain several obvious battlegrounds in retailing: J.C. Penney and Kohl’s; Costco and Sam’s; Home Depot and Lowe’s.
And in other channels where there remain multiple players—office superstores and dollar stores, for instance—it is almost certain that there will be fewer equals over the next ten years.
THE SUPPLY SIDE
The home furnishings supply side remains behind the curve in many aspects of business but perhaps most tellingly is the still large number of vendors chasing ever fewer numbers of retail customers.
The consolidations that are ongoing stories in such varied industries as food, automobiles, banking and airlines have for the most part yet to show up on the home furnishings doorstep.
Not that some product classifications aren’t already highly concentrated. Broadloom is basically down to two major suppliers, Shaw and Mohawk. The major appliance business is largely in the hands of three vendors: Whirlpool, General Electric and Electrolux.
And with the recent buyout of Simmons by the financial investor that also owns Serta, the reigning Big Three S’s of the bedding business could be down to two.
But throughout most of the rest of the home business, few companies control double-digit market shares much less dominant shares. Segments such as small electrics, furniture and lighting are all ripe for such consolidation, the first signs of which can already be spotted in recent deals. They are only likely to accelerate as the decade progresses.
The only exception to this is in the home textiles industry, which is often the exception to many home furnishings maxims. That industry went through its consolidation period in the ten-year period starting in the early 1990s resulting in three suppliers that controlled more than half the market and as much as three-quarters of the core sheet and towel categories.
It then seemingly self-destructed and collectively those three companies—WestPoint Stevens, Pillowtex and Springs which together did close to $5 billion at their peak —now find themselves at barely a third of that, their ranks reduced to two.
Despite the exception to the rule, nothing is likely to stop the ongoing consolidation trend in vendors.
2. Go West
Ever since President Richard Nixon made his historic visit to China in 1972, the flight of product production to that country and its Asian neighbors has been relentless. Entire industries, from housewares to home textiles have migrated eastwards. Other product categories like furniture, rugs and tabletop have seen the bulk of their manufacturing shift to Asia.
Nothing has stopped the drive: not quality issues, not safety concerns, not costs, not even politics. And there is nothing on the horizon of the new decade that is likely to cause a wholesale shift in the sourcing equation.
But cracks in the Asian armor have started to appear. A trickle of textiles from Mexico and South America has turned into a steady supply. The same thing is happening to a lesser extent in furniture.
Meanwhile, the rigors of proper supply-chain management are dictating a shortening of that chain as retailers demand just-in-time deliveries while vendors no longer have the balance sheets to carry the necessary inventories.
That could mean moving production closer to point of sale. Some people wistfully interpret that as a return to domestic manufacturing, but the factories and labor forces are long gone and the cost-of-doing-business-in-the-U.S. numbers still don’t add up.
That leaves Mexico, Central America and the countries of South America as viable alternatives.
Nobody is predicting China and Asia will go away as sourcing bastions, but many think the sources will just be more spread out in this new decade.
3. Brand Take-Out
While China and other Asian suppliers may get new competition from the Western Hemisphere, they are further along on the business evolutionary path in understanding what it takes to succeed in America.
And that means brand names, despite any short-term retreat they might be having during this recession.
The industry is just starting to see how Asia will bring its brands to market. Haier is a Chinese major appliance company that is trying to build its brand from scratch, no easy task in a crowded marketplace.
More common is another strategy: if you can’t build a brand, buy one. As with many trends, it started outside of home and is only now reaching this industry.
Lenovo was the Chinese company that made PCs for IBM. When the American company decided to exit that business, it sold it to its Chinese manufacturer and gave them the rights to use its IBM name for a set period of time. Lenovo used that time to co-brand its products, playing off the more established American brand while it was introducing its name to its U.S. customers.
More recently, an Indian company bought Jaguar and Land Rover from Ford while Chinese companies are in final negotiations to buy Volvo and Hummer.
And now it’s spreading to home. Schnadig, an American-based cornerstone of the furniture industry, was bought by its Chinese supplier, Markor, a year ago. Other Chinese companies are likely to follow suit ... or suite.
Call it the Trojan Horse technique, but it worked for the ancient Greeks and it is likely to do the same for the Asians.
It’s been a dirty word—actually a virtually non-existent word—in the vocabularies of most of the American supplier base of home products ever since there was an American supplier base of home products.
That very well may change this decade with American consumption maxing out and the burgeoning economies of many Asian nations producing vast middle classes eager to buy and own things.
U.S. companies who want to sell to those consumers have two aces in the hole that make that equation much easier than in the old days. The first is that their places of manufacturing are right there, not 6,000 miles away. Whether they own those factories or not, they have the logistics and cost structures in place already.
The other factor is that in many cases they are already selling the retailers there. With Walmart and others racing to penetrate China and India, vendors know where to find their customers, if not in fact actually having their e-mail addresses.
In fact, you probably shouldn’t even call it export. When companies like Libby build factories in China specifically to sell the Chinese market are they not domestic suppliers?
Semantics aside, selling to customers outside the United States represents the biggest potential growth vehicle for American-based companies in this decade.
Vast parts of the home industry have never been known for their prowess in new technology. Those in the furniture field joke that the greatest technological advance in the history of that business has been the invention of the staple gun.
So for every consumer electronics company that creates entirely new products several times a generation, you have a textiles industry that has to admit that the fitted sheet’s creation 55 years ago was its last major innovation.
That could change this decade. Led by the major appliance industry, which has consistently been in the forefront of technological research and innovation, many home products could look different by the time the decade is done.
Major appliance companies are experimenting with washing machines that use no water. Who knows what else is happening behind closed doors?
Who knows what else is happening behind James Dyson’s closed doors?
Significant advances are being made in high performance textiles that eventually will move from the industrial field to the fashion field to the home field.
The furniture industry seems to be making a concerted effort to have sustainability as a core competence, opening up both new technology and marketing opportunities.
And the small kitchen appliance business is way overdue for its next salad spinner or Fry Baby, technology being, after all, only relative.
There may be a lot of things different about this new decade and by the year 2020 the industry could be radically transformed in many ways. But some things never change.
Or as Yogi Berra supposedly put it, “The future ain’t what it used to be.”