Click here for a PDF of this year’s Trend Guide.
“Digital Transformation is a conscious movement that delivers incremental value to integrate processes and technology solutions that provide transformational outcomes in terms of customer experience, business efficiency, and innovation.”
Modor Intelligence
FORWARD
Home furnishings retail has been on a wild ride. We’ve gone from empty warehouses to overflowing surpluses. We made a mad dash online and then felt the flurry of customers headed back into stores. Some retailers are exploring the virtual frontier. Change is abundant and technology is plentiful.
To meet your customers everywhere they engage requires brands to craft a nimble, seamlessly connected technology ecosystem. Success requires digital transformation.
In this report, we share first-party research from your home furnishings retail peers. We want to thank our partners for sharing their insights for 2023 to guide the furniture industry on its path forward. Read on for brand new, timely industry research and statistics.
“Prioritizing digital transformation ahead of or during a downturn improves analytics to help management better understand the business…and where there’s potential for operational improvements.”
Harvard Business Review
To start off a valuable furniture trend forecast for 2023, we need to acknowledge the reality of our economy. Most economists are in alignment that we’ll experience a downturn in 2023 – one that will hopefully be short-lived, realign runaway inflation, and reset a volatile housing market. But the reality in a market where stimulus money is gone, inflation is around 9%, and necessities like groceries and gas are at record-high prices, it is a tough climate for furniture retailing. Our partners agree.
47% of retailers believe inflation and competition for discretionary spending will remain their biggest challenge in 2023.
What’s important is how inflation and a possible recession can affect the furniture industry. Peter Keith of Piper Sandler offered perspective in a Furniture Today report, “A recession is a shorter-term phenomenon. Companies that continue to make investments can emerge stronger than before. This is about economic health, advertising, and driving consumer interest.”
This report identifies strategies and technology initiatives you may consider allocating resources to. Whatever strategies you choose, we have ideas for you and insights from your peers. Look for the green checkmarks throughout the guide for key takeaways.
STORIS asked our retailers, “which top strategies they’re considering to handle a potentially softer economy in 2023?”
In a softer economy, there are many approaches businesses can take to retain financial health. Overwhelmingly, our survey showed retail leaders investing in customer outreach and marketing, because it’s critical. Today, 40% of customers buy on a first engagement and impulse purchases decrease in a down economy.
Leading retailers must foundationally understand customer insights to make strategic merchandising, advertising, and channel marketing decisions. Having strong customer analytics in place can help you buy products at attractive price points and invest in the right marketing channels.
Build clienteling skills and use software tools to promote consistent, personalized follow-up to support furniture sales growth.
Some customers will be bringing economic stress into their shopping experiences. This has sparked important consumer trends you should consider in your messaging and merchandising decisions. One current trend is wellness.
“People are looking to buy better quality and are educating themselves before making decisions. The impulse purchase pricing is not as strong as it used to be because people are taking time to really think about the need for their purchases.” The Kaleidoscope Partnership
Luckily, home furnishings, appliances, and sleep products can lend themselves perfectly to this shopping trend. The office chair to reduce back pain, appliance to cut back on costly take out, better sleep with the perfect pillow; these messages can transform decor-driven purchases to those that have value. This is also an excellent strategy for in-store merchandising and increasing average ticket with supportive lifestyle accessories.
“The quest for optimal health and wellness…has now become centered on and in the home.” Home Accents Today
As customers avoid frivolous spending, promote how products better their families’ lives and support self-care. Spending money on products that enrich their lives also reduces financial stress.
Sustainability is not a fad. People are mindful of how consumerism impacts the environment. Provoke Insights found “33% labeled themselves environmentally conscious, and 32% are willing to pay more for sustainably sourced furnishings.”
Sustainability and quality go hand-in-hand and drive value for consumers. During inflationary periods, some customers make choices based on discounting, but others justify big-ticket investments based on quality and anticipated product longevity. Marketing geared towards quality, construction, and craftsmanship goes a long way.
Retailers can also upsell value with Protection Plans that affirm customers’ decisions. Providing peace of mind around an investment is a strong closing tactic.
“Aside from the fact it protects their customers…protection plans offer upwards of 75% margin for dealers. It’s a winner for the customer, the business, and the people selling them.” Guardsman via YourSource News
Overall, advertising is critical for home furnishings retailers in this period. After years of unprecedented demand, it will be important to rebuild brand messaging. Wellness, sustainability, quality, and value are attributes to build around.
HubSpot’s recession marketing research agrees. “Market your product’s affordability, value, or necessity. Make sure you are marketing that your product has added value or importance, other than being flashy, trendy, or cool.”
After mass relocations and increased home values, the housing market faces a new trial. According to the National Association of Realtors, mortgage payments are 60% higher than a year ago. Many home buyers that were waiting for the pandemic housing market to cool before moving are likely staying put for a bit longer.
“Mortgage rates for a 30-year fixed rate loan are now hovering above 7%, more than 4 percentage points higher than a year ago. That has slashed a typical buyer’s purchasing power by 14%.” Black Knight via CNN
However, despite high mortgage rates, many customers are still in the housing market. Statista found millions of millennials are preparing to buy homes. Targeting marketing to this demographic can lead to opportunities from new home sales.
A Home News Now article reported a high homeownership rate in the U.S. at 65.5% in 2021 (Statistica). Design services or refreshing furnishings meet the needs of customers looking for a change of scenery. Consider partnerships with local realtors or welcome organizations. Provide value-driven incentives for customers that may have spent more than desired on their home, but still need furnishings. This can entice them to shop with you.
Promoting how customers can make their current house feel new through furnishings can drive incremental value.
“The retail industry is transforming. Emerging technologies continue to drive digital disruption. As consumers grow accustomed to the impact of these emerging technologies on the buying experience, their expectations are becoming higher.”
Retail Dive
All markets have their natural business cycles. The home furnishings industry may be seeing a decrease in demand, but it’s important to evaluate this against the outlier that was the pandemic. 2023 will be a time for business recalibration.
“The U.S. Furniture Market: Insights & Forecast notes the U.S. furniture market is expected to record a value of $288.9 billion in 2026, growing at a compounded annual growth rate of 4.47%, for the time period of 2022-2026.”
HFB expects 2022 furniture sales to come in at $160B, therefore, this five-year forecast shows sizable market gains. While this is below the 6-8% pace of 2022 retail growth, atop a high baseline of sales, the furniture industry is projected to see steady and sustainable growth. NRF reports “American consumers spent $1 trillion more on retail goods in 2021 than in 2020 and are spending at an even higher rate in 2022.”
There is opportunity in home furnishings retail. To capture it, retail leaders must adapt to changes in consumer demand, demographic needs, and product values. It comes down to knowing your customers and their current needs.
As the economic climate brings challenges, a resolution may lie in the next generation of shoppers who are beginning to enter their prime spending power. Furniture Today recently shared research that “Gen Z, which includes those born between 1995 and 2012, accounts for about 40% of the world’s consumers and influences $600 billion in spending.”
Digital transformation is key to meeting the needs of the digitally native Gen Z, “whose members often came into contact with smartphones and touchscreens in their infancy. Gen Z has experienced omnipresent digital media and tools as a totally natural and intuitive part of life with the open boundaries between the real and virtual world.” IMM-Cologne
Furniture Today found that business improvements around online and social media shopping as well as improving POS systems to streamline the buying process were key to Gen Z. Our research confirmed retailers are dipping their toes into tactics this generation responds to with 30% experimenting with YouTube Shorts, TikTok, and/or Metaverse opportunities. These avenues are growing in value and are important to have on your radar as Gen Z rises.
Gen Z might not be the answer to sales tomorrow, but it’s important to prepare. Ensure you prioritize technology initiatives that will delight this generation.
When the Metaverse launched, the market for home furnishings retail literally expanded into your customers’ imaginations. Some retail brands are already selling digital furnishings or Non-Fungible Tokens for their customers’ virtual homes. This may seem far-fetched, but in a world where private citizens can take trips to outer space, boundaries are limitless.
The more likely near-term use case for the Metaverse is as a marketing channel. The Metaverse is currently most widely used by younger generations. Companies such as West Elm are already partnering with gaming platforms such as Roblox which have 43M daily active users. Not only are users buying digital versions of West Elm furniture, but West Elm is also building brand recognition with younger generations early. Promoting your pieces in the Metaverse is an immersive form of advertising. Further, seeing the size, style, and color of furnishings in virtual versions of a room is a use case of the Metaverse to instill consumer confidence.
How far will the Metaverse go? It may be hard to wrap our heads around, but what was a world without smartphones and media on demand? NRF notes for generations, “growing up online in virtual worlds, brands that meet them in those spaces will make a lasting impact on their lives.”
A strategic first step is preparing digitally-rendered, 3D photography that can be used in the Metaverse. This also adds value to eCommerce.
The pandemic didn’t bring on the end of in-store shopping as some feared. In fact, the desire for physical experiences accelerated. Furniture Today’s research found customers have actually increased the number of stores they shop in before making a decision with a cross-shopping rate of 5.5 stores. This is exceptionally important. More browsing means more shoppers through your door which provides opportunity to build your database.
What has changed is what customers expect in brick & mortar stores. They anticipate digital shopping journeys will carry through to brick & mortar, a concept called phygital retail. Mood Media research found, customers now increasingly see both online and offline as part of the same purchase journey and…expect similar levels of digital technology solutions as an integral part of the physical space.” Notably, “57%, now expect stores to invest in digital payment and self-service technology, while 55% expect to see interactive screens that let them explore options and customize services or products.”
It is imperative to capture data about these customers and their shopping needs to build your sales pipeline regardless if they purchase on that initial visit or not. It’s arguably more important when they do not. As customers are browsing more, it is less likely they will buy during those first round of visits. Proactive, personalized follow-up could be the deciding factor for which retailer earns the sale.
A surprising find from our customer research was how much eCommerce stood out as the greatest opportunity and strategy play for 2023. Here are the statistics.
Leading retailers are continuing to invest in this channel above and beyond the accelerated growth furniture eCommerce saw due to the pandemic. To understand why eCommerce remains a top priority, we asked retailers how this channel is performing.
Consumer Insights Now found 54% of customers’ first engagement in their buying journey involves online browsing. That means your online presence needs to put you in the running. These numbers increase when broken out among younger generations making eCommerce critical for future-proofing your business.
Mastering multiple channels is necessary for future success. McKinsey notes, “seamless integration of online and offline channels with smart digital services facilitate end-to-end customer decision journeys.”
“By creating a targeted strategy, identifying technology partners, implementing the right solutions, and aligning needs with costs, retail CIOs can enhance their technology ecosystem and position their organization for better consumer experiences and future success.”
Ernst & Young
Customer journeys span in-store, online, social, and beyond. Your technology ecosystem needs to expand to meet your customers everywhere they are, with the convenience they desire. A retailer’s competitive advantage is in how to connect technologies to best suit the needs of your unique retail experiences. For the current state, we asked retailers, how many technologies comprise their ecosystem today?
We then asked, across which functional areas do retail leaders tap external solutions most?
To round out the picture, we asked retailers, what their next step in data automation was.
Now that we have a sense of where home furnishings retailers are in building technology ecosystems, let’s explore how to accomplish this.
Creating a technology ecosystem requires advanced integrations and automation to make the systems function as a whole.
“Innovators use ecosystem thinking to chart strategies for sustainable growth. Companies that want to stay adaptable enough to survive and thrive in the digital economy should embrace this ‘ecosystem way of the API.’” McKinsey
Extensibility is foundational to digital transformation. It is the ability of a technology foundation to connect with a greater ecosystem across various business processes while enabling seamless automation. Utilizing dynamic, bi-directional Application Programming Interfaces (APIs) is the first step toward extensibility. APIs provide IT leaders flexibility to share data across their technology resources. As the survey showed, our retailers are currently exploring how to best use APIs to connect components of their technology ecosystems.
If you haven’t begun to explore APIs, this is a valuable strategy for 2023. Consider which of your current disparate systems are the most important to your customer experience or operational processes. How much work is done manually to move data between systems or transition between technologies? From there, start to map out what is most time-consuming, holding back your customer experience, or causing data gaps. This audit is a valuable starting point to consult with your ERP provider and determine integration capabilities to automate processes.
Extensibility is a critical retail trend shaping the modern technology landscape. It is so vital, we wrote an entire Introductory Guide to this concept that we encourage you to review.
While most retailers are in the API phase of building their technology ecosystem, APIs are just the beginning! Once foundational integrations are set, the possibilities expand.
Integration layers use micro-services architectures that allow various API calls between systems to connect through a single integration hub. Amazon Web Services notes, “Micro-services architectures make applications easier to scale and faster to develop, enabling innovation and accelerating time-to-market for new features.” Essentially integration layers streamline the number of connections required to create a technology ecosystem. Further, as you add solutions to your ecosystem, an integration layer connects the puzzle pieces efficiently.
Further, APIs and integration layers open up the possibility of building webhooks. Think of a webhook as a reverse API. Webhooks are triggered by the data sent from an API. For example, your Point of Sale system sends data to your marketing automation platform that an order has been received. This data can trigger marketing automation to send your customer an email confirmation, personalized with their specific order information. Webhooks help retailers build workflows to reduce manual intervention, create timely customer engagement paths, and reduce the operational lift required to achieve greater results.
Consider what is possible in your business architecture by exploring the concepts of integration layers and webhooks.
With data exchange across your technology ecosystem, retail leaders stand to learn a lot about their customers. This is excellent news as customers respond to personalization. As mentioned earlier, targeted outreach to customers was a top strategy to handle economic lulls.
Generating central repositories for customer data is exceptionally important. CXM or customer experience management applications allow retailers to build rich histories for new guests and returning customers alike. “Sales associates rely on customers’ past purchases and preferences to better meet customers’ needs and build loyalty…allowing retailers to connect with key customers online and in person.” CBInsights Online, your virtual or live chatbot assistants can connect with customers by name and provide support guided by their history. Personalization also supports the implementation of valuable rewards programs.
Statistics from Media Post is compelling. “Personalization works: 49% of consumers will likely become repeat buyers after a personalized shopping experience and 80% will spend more. Further, 63% are comfortable if brands are using their own data, and not purchasing data.”
This is why building your own first-party customer data program and investing in CXM or clienteling tools to collect this data is vital. You can empower your brand to enact a personalization strategy your customers will trust.
eCommerce is a key opportunity for 2023. So, what exactly are the opportunities?
Creating self-service portals is most popular because they add convenience. “Today’s customers, around 89%, expect to have an opportunity to solve their issues before reaching out to a customer service agent.” (CX Today) Allowing customers to manage orders, check fulfillment statuses, pay for open orders or credit plans, and check rewards at their leisure is favorable for busy customers.
The second most popular initiative is to implement Google Analytics 4. If you are a retailer that has already migrated to the new analytics platform, you are ahead of the curve! If this isn’t on your radar, it needs to be. Ensure you are moving data collection for your website to the new GA4 platform before July 2023 to retain the customer insights your website needs to succeed.
The third most popular initiative was reducing abandoned shopping carts. This ties into both extensibility and personalization. Retailers can align their tech ecosystems to trigger abandoned cart marketing or recommend alternative options to shoppers based on their history. As data comes together, opportunities to improve close rates increase.
The results of our survey varied, but these three initiatives stood out. Which resonates with you?
As eCommerce in the furniture market remains critical, the landscape of digital advertising mediums is increasing. We asked our retailers which of these newer marketing mediums they were testing in 2023. The results showed a range of media entering the mix.
Short-format videos topped the list. YouTube Shorts are a new area dedicated to vertically-formatted content under 60 seconds with advertising options. Further, FT found “TikTok as a channel for direct buying rose to 48% and Gen Z is enamored of buying via social media using Instagram (72%) and YouTube (71%).”
Next is Google Ads latest campaign type, Performance Max, which automates asset creation for quick deployment to multiple channels. This could be your foray into ad automation. Programmatic Advertising and Metaverse Opportunities round out the list. The Digital Marketing Institute defines programmatic advertising as “the use of software to buy digital advertising relying on an algorithm to determine where your ad money is best spent.” While this may require giving up control, testing could prove worthwhile to find new channels, audiences, and messaging copy.
Expand the audience for your existing video content from TikTok or Instagram by testing YouTube Shorts.
Another area of focus for 2023 will be warehouse management processes.
2022 saw a reversal of lengthy supply chain delays, bringing an excess of inventory into distribution centers in short order. This influx in supply chain has driven many retailers to focus on their WMS and inventory forecasting processes.
For those still feeling the weight of excess inventory, consider these two leading tactics from our survey.
A Warehouse Management System (WMS) can help retailers store inventory in a manner that maximizes capacity. A WMS is helpful during times of inventory surplus and helps retailers to retain appropriate on-hand stock levels. WMS also helps retailers streamline their flow of goods. Like many shopping trends we’ve seen reverse, customers are back to demanding goods quickly. Additionally, retailers dealing with a lack of space can use a WMS to manage receiving and cross-docking to minimize the need to store fast-turning goods.
Volatile supply chains have driven a technology trend towards warehouse management solutions (WMS), which help retailers with vast functions.
Mobile selling is a critical home retail market trend for 2023. Customers are visiting upwards of 5 brick & mortar stores during their shopping journey, therefore, to win a sale, you must set your brand apart. Today, customers are placing an emphasis on the buying process in addition to products themselves.
Published in Furniture Today, a Synchrony study found that “72% of respondents agree that in-store is important, and 85% say the salesperson and knowledge had an impact on the product they bought and value they received. The knowledge base of that salesperson goes a long way in benefiting the retailer in selling the product.”
Putting mobile selling tools and point of sale into the hands of your associates enhances the in-store experience for many reasons. First, it allows associates to shine as product experts to even the most well-researched customer. RSAs can answer real-time product questions efficiently and without leaving the customer, which historically is when customers make a quick exit.
Related, Mobile POS allows you to check out a customer expediently. You can simply checkout using the information already captured while shopping with your customer and avoid sending them to a queue. Lengthy checkouts can delay the sale and lead to buyer’s remorse. Having the technology in place to quickly check out a customer increases conversions.
As impulse purchasing decreases, the professionalism and product expertise of your store team can truly make a difference.
Another way to ensure you are capturing all possible furniture sales is to diversify payment options you offer.
Therefore, we thought it was important to spotlight this rising shopping trend. NRF cleverly wrote, “Will that be cash or credit … or Apple Pay or Google Pay or Venmo or PayPal, buy now, pay later service, or if you prefer you can pay with cryptocurrency.” If these options have your head spinning, there is a clear front-runner: “Buy Now, Pay Later.”
This fundamental retail trend was solidified during the recent Black Friday sales period. “More shoppers have taken advantage of “buy now pay later” services, with orders Nov. 19-25 up 78%.” It makes complete sense in times of inflation. Adobe Digital Insights found, “a budget-conscious consumer embraced the Buy Now, Pay Later payment method more this year to be able to buy desired gifts for family and friends.”
Buy Now, Pay Later has legs and we believe is here to stay. NRF data found that overall “in 2021, the five biggest BNPL firms (Affirm, Afterpay, Klarna, PayPal, and Zip) handled $24 billion in purchases made by over 180 million consumers.”
Buy Now, Pay Later has a plethora of benefits. For customers, it helps them work smaller payments into monthly budgets and expands buying power. For retailers, it helps secure big-ticket purchases and builds brand loyalty.
The final strategic recommendation for 2023 is to align your business for digital transformation. While next year may bring some economic challenges, companies that come out of recessions stronger use these times to tackle strategic projects that position them for the future.
In recent history, STORIS saw many successful furniture retailers take the uncontrollable COVID store closures as an opportunity to prioritize the technology initiatives that moved their business forward years ahead of prior plans. If demand isn’t as robust as it’s been in the last few years, there will be opportunity to reallocate resources to initiatives that prepare you for the next home furnishings market upswing.
Here’s an overview of why from Harvard Business Review: “Downturns appear to encourage the adoption of new technologies. Technology can make your business more transparent, more flexible, and more efficient. Digital technology can help cut costs. IT investments make companies more agile
and therefore better able to handle the uncertainty and rapid change that come with a recession.”
We hope this 2023 Home Furnishings Industry Trend Guide informed you with detailed statistics on the state of the home retail market and inspired you with ideas to keep your business on a path of growth.
Now, it is time for you to decide which opportunities will be the catalyst for the digital transformation of your business.
Technology will be a core driver of next-generation retail growth and will fuel customer experience, smart offerings, lean operations, and emerging business models.
McKINSEY & CO.
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