Interview with Tom Liddell, Planned Furniture Promotions, Inc.
There will be winners and losers in the furniture retail community this year.
Industry observer Tom Liddell provides insights into what may be in store.
Furniture World recently spoke with Tom Liddell, senior vice president,
director, Planned Furniture Promotions, Inc., to get his thoughts about the
likely challenges and opportunities facing furniture retailers in 2023.
Liddell grew up in furniture retail, became a sales rep and then a
manufacturing executive. An astute observer of the furniture industry in his
own right, he prepared his comments after surveying retailers in trading areas
across the country.
He began his remarks by addressing a number of major concerns for home
furnishings retailers in 2023. At or near the top, for most, are concerns
about current inventory levels
The First Loss is the Best
“Retailers couldn’t get it, so they bought more. It wasn’t
necessarily the right product. They paid too much, and the freight rates made
everything much worse.”
“Now that business has slowed at retail,” Liddell observed,
“Murphy’s law has kicked in. To compound the problem, a surge of
late product being shipped to retailers has loaded credit lines and caused
continuing cash flow problems.
“The important thing here,” He noted, is to do whatever it takes
to move this inventory out quickly. The first loss is the best loss in many
cases. Instead of big discounts, try doubling commission rates or adding a big
SPIFF. This will motivate your salespeople to sell more. It’s a good way
to kill two birds with one stone. Instead of giving huge discounts to
customers, your salespeople will get an incentive to perform well during a
time of reduced traffic. Doing this will also serve as a powerful retention
tool.
“Consumers love to feel like they’re taking advantage of retailers
forced to offer big and legitimate discounts. That’s why when you do
choose to discount prices to offload excess inventory, it’s a good
policy to tell shoppers the truth about your situation. Let them know that you
are overloaded with inventory and the reasons why.”
Lots to Say About Cash
Liddell had a lot to say about cash flow and financial issues. “More
furniture retailers,” he explained, “are having trouble paying
their bills than we are being led to believe. Right-sizing inventory will help
not only with cash flow but also save on expenditures for overflow warehouse
space.”
Staffing: “It’s not unusual for us to go into a
store that’s struggling financially and find that it has up to double
the staff needed for current operations. If a retailer’s volume slips,
in addition to right-sizing staffing levels, a major task on their to-do-list
should be to re-evaluate salaries. This is especially important for stores
that are paying above market rates. Having a conversation about salaries is
one thing store owners who are having problems rarely do. There are many
reasons, including loyalty and the difficulty of having this conversation with
long-time and trusted employees.”
Credit lines: “Retailers are having credit line issues.
There are only two major factors providing manufacturers with receivables
financing. And while those factors are supposed to provide specific credit
lines for each manufacturer, in practice they look at a company’s global
credit line. Recently, credit lines have tightened due to the instant,
immediate and unexpected failure of retailers and some manufacturers. An
example is United/Lane, which sent shock waves through the whole
industry.”
Bank Covenants: “As business has slowed, retailers are
using more bank credit lines at significantly higher interest rates to satisfy
cash flow demands. That’s causing banks to take a hard look at the
furniture industry as a high-risk proposition.
“Banks have recently cut off credit lines and called notes for more than
one large retailer. This is similar to what happened in 2008, 2009 and 2010.
Back then, we joked that it was almost as if somebody sent a memo to every
banker warning them about the potential for furniture store failures.
That’s why every retailer who reads this article should review the
covenants in their bank loans to ensure that they are in compliance.”
Creditors: “Retailers need to communicate frequently
with their creditors. Credit managers tell us that their retailer customers
don’t do this effectively. They just go radio silent when things get
tough, the worst possible thing to do. Furniture World readers who are having
cash flow issues need to be honest with suppliers, and only make promises they
are 100 percent sure they can keep.”
Closing Locations: “When cash flow is challenging,
closing a weak store with a professionally run store-closing event can be a
great way to generate significant cash flow. We do that frequently for clients
who have multiple stores. It cuts back on massive amounts of inventory,
generates cash flow and frequently, most importantly, generates
profits.”
“Banks have recently cut off credit lines and called notes...
That’s why every retailer who reads this article should review the
covenants in their bank loans to ensure that they are in compliance.”
Employee Retention
“Recruiting and retaining employees is problem number one for every
retailer out there,” Liddell told Furniture World.
“PFP has closed a number of stores for clients recently, and more are
getting ready to close because of an inability to achieve proper staffing
levels. The latest government reports indicate that approximately seven
million healthy Americans are choosing not to work. They are not getting
government money anymore, so we’re not sure what they are doing with
their time. Fortune magazine just wrote an article noting that in 2022, one in
eight millennials, the oldest of which are turning 41 this year, moved home to
live with their parents.
“Retailers need to do even more to attract and keep employees.”
Liddell related a number of tools retailers are using to achieve this end.
Perks & Benefits: “Over the past few years,”
he observed, “employees have seen tech industry giants giving countless
perks and benefits. For example, six weeks of paternity leave for new fathers
plus four to six weeks of paid vacation. How can any retailer compete with
that? Some have tried giving sign-on bonuses, paid after a period set by the
retailer. Others have switched to paying a commission on written versus
delivered. It’s not a new idea, but it can be helpful.”
Creative Compensation: “Others,” he said,
“have offered creative compensation packages to provide commissioned
salespeople with more consistent income streams. This helps job candidates
overcome fear of the peaks and valleys often associated with
commissioned-based positions. One retailer I recently spoke to pays his
salespeople a flat amount each week and settles up on their earned commissions
at the end of the month—a pretty smart idea. That same retailer noted
that his people absolutely love it.”
Frequent Gratification: “More ideas? Try profit
sharing. Retailers who do this are often shocked by the positive results.
It’s important not to make goals impossible to reach or have employees
wait too long to get paid. Build in frequent gratification. Monthly or
quarterly bonuses or profit distributions work best to maintain loyalty. These
distributions don’t need to be large. At a minimum, profit sharing gives
employees the feeling that they have an important stake in a company and that
the role they play is more than just a job.”
Recognition: “Gone is the time when employees could
receive a quick training session and be on their way to perform at an expected
high level. Continued training, awards programs, confidence-inspiring sessions
and finding ways to keep morale high during slow periods are critical to
retention. For example, taking a different team member out each week for a
special lunch shows them that they are valued. When doing a sale, we
frequently treat entire sales and warehouse teams to lunch or dinner to
recognize stand-out employees. Another idea is for owners or managers to hand
out gift cards to top performers. Do this while they’re working with a
customer. It acknowledges their professionalism. Just walk into the middle of
a sales presentation, introduce yourself and say, ‘I don’t want to
interrupt, but Jane has done such a good job of serving her customers that I
am giving her this gift card to show our appreciation.’ After handing
Jane the card, say, ‘I trust that you will be able to help this customer
find exactly what she needs as well.’ Then walk away. In short, let your
team members know they are important to your business and that you can’t
do it without them.”
Mature Shoppers
“About a year ago, I asked one of our clients in North Carolina how old
his average customer is,” Liddell recalled. “The retailer replied
that it looked like they were some place between crutches and a walker!
“Since then, I’ve asked all my clients the same question. Many
smaller, independent retailers say, ‘Oh my gosh, so old.’ Younger
shoppers aren’t showing up because they don’t believe these stores
have anything they are looking for. ‘It’s mom and dad’s
store, not mine,’ they tell themselves.
“These same retailers are proud their brand has survived for 50, 70 or
100 years in the furniture industry, but this longevity is a liability if
their model is tired, or if younger shoppers believe it is. At this point, it
can be too late to throw advertising dollars at the problem. The best option
for them, other than accepting continued decline, is to implode their existing
model. It’s a tough pill for store owners to swallow. Often, we
recommend that they close down completely with the help of a store closing
sale, then reopen under a new model with a new brand and a concept
that’s fresh and exciting.”
Furniture World asked Liddell if many of them took this advice. He replied,
“Very few, but the ones who do tend to be very successful.
“When considering this option, owners need to get out of their
bubble—leave their stores and travel beyond their familiar trading
areas. We give them names of owners to visit who have developed retailing
models that are relevant to a younger shopper, new, hip and fresh. Only in
this way can they develop a concept that’s unique and exclusive to their
market.
“It’s very difficult or impossible for independent retailers to
compete with the big chain stores anyway. So rather than trying, it makes
sense to offer something totally different. That often means becoming style
oriented and heavily accessorized with fresh, relevant accessories that appeal
to today’s consumer. Retailers have succeeded by creating destinations
that female furniture shoppers take their friends to visit, not just go to
themselves.”
Operations Ideas For 2023
“Retailers who have not done so should set up performance teams for
delivery and warehousing, use metrics and institute weekly reward
systems,” Liddell advised. “They should shuffle their teams to
keep it fair. In other words, if one team comes out on top every single week,
shuffling teams will keep it equitable.
“Many of our friends in the industry have hired contract carriers to
handle their deliveries, which works well. However, retailers should take care
when hiring a company to take over warehouse operations. Our experience is
that when retailers fail, these companies are often owed millions of dollars.
Many warehouse management companies talk a good game, but we’ve found
that the expense isn’t always justified.”
Inflation Weary
Product prices ramped up during the pandemic when deliveries slowed, and
consumers were desperate to furnish their homes. “Now, the promotional
sector of the furniture industry is being hit hardest by inflation,”
Liddell said.
“A promotional sofa used to retail for $299. That’s no longer the
case. Stores that specialize in promotional products have been devastated. My
advice for these stores is to get out of the business of being a promotional
specialist since it’s not getting any easier. We’ve seen these
stores try to adjust their models, but I’ve never seen anyone do it
successfully. That’s because if they’ve done any
advertising—if they’ve screamed price for a
while—that’s all they will ever be known for to the buying public.
As they say, you can’t change the stripes on a zebra.
“Lower income consumers no longer have government-subsidized free money.
And even worse, their dollar won’t go nearly as far as it used to.
Priorities have shifted away from furniture to food and rent as always, plus
the latest, greatest smartphones.”
Compliance Issue Risk
Liddell said that retailers need to watch their compliance on a couple of
fronts, including website ADA and the new tip-over rules. “Everyone
needs to keep an eye on the new tip-over regulation,” he warned.
“Once it goes into effect during the first half of 2023, retailers will
need to make sure that they don’t have non-compliant inventory subject
to the new law in inventory.
“Another issue I’ve heard about from several people has to do with
ADA non-compliant websites. Certain attorneys specialize in finding retail
websites that don’t measure up, then file lawsuits. I’ve been told
that defending against such a lawsuit can cost 80 to 100 thousand dollars.
“Similarly, retailers need to make sure that their aisles, restroom, and
doors are all ADA compliant. That’s another situation local attorneys
are searching for. They all have a client on standby, willing to file a
lawsuit.”
Discounts and LTL
Moving on to pricing, Liddell said that at wholesale, “the market is
slowly returning to normal levels with pricing coming down along with freight
rates. Many vendors offer significant discounts, especially on slower sellers.
Retailers must remember that lower prices won’t make a weak product sell
better. It’s a better practice to stick with best sellers.”
Beware discounted goods: “Most vendors are completely
doing away with pandemic pricing. Instead, they choose to eat their shipping
costs and take the loss immediately. Those that do this sooner know that they
will move the most product and be more important to retailers. Companies are
vying for United/Lane’s business, but so far, no one company is able to
handle all the mix and volume needs. So, we will see how that affects pricing
going forward.”
LTL invoicing: “LTL freight is a continuing problem. In
some cases, invoices are still going past due before retailers receive their
products. I mentioned the issue in my interview with Furniture World, about a
year ago. We suggest that retailers ask their vendors for help dealing with
this issue. Manufacturers’ logistics departments have the leverage to
negotiate with carriers on behalf of retailers. Even though the retailer is
ultimately paying the freight bill, the freight carrier’s customer is
really the manufacturer.”
“Another thing that should be
of some concern to retailers
is that everybody, and I mean everybody, is getting ready to jump into the furniture business.”
Selling or Closing Stores
“In 2022, we handled events for stores that chose to retire while
business was still good. Some didn’t have a next generation to take over
the business. Others felt that the time was right to get out. Many think that
companies like ours only handle events for financially challenged clients, but
that’s less common than retirement sales or closing an underperforming
store, which again, is a good way to boost cash flow.
“One consideration for retailers thinking of getting out of the business
is that it is very hard to sell an independent furniture store, regardless of
how successful it is. Even when a buyer can be found, they may not pay as much
for a well-positioned store as an owner might earn in a liquidation event.
“It’s my experience,” Liddell continued, “that selling
to employees almost never works. The new owners often have difficulty paying
rent and setting up large credit lines with dozens of vendors. The result is
the original owners get the store back and end up with a greatly diluted
liquidation opportunity. That happens all the time.
“Throughout the pandemic, we saw numerous major bankruptcies that kept
us very busy. Independent store liquidations were much rarer. Owners got a
taste of the PPP bailout money and stores were busy. They chose to stay in
business and work for a couple more years. Right now, we are seeing an uptick
in people looking for exit strategies.”
When asked if some well-positioned retailers will use the slowdown to build
stores and grab market share, Liddell replied, “I don’t think a
lot of retailers will add significantly to their store count in the near term.
Those retailers that opened stores during COVID got hit with a huge dose of
reality in the last 12 months as expanded payroll and the additional debt they
took on has made retail life more difficult. The bottom line is that we
don’t know a lot of companies that are considering expanding at this
point.”
More Competition in 2023
As if furniture retailers didn’t have enough to worry about, Liddell
heaped on concerns about competition from big box stores and online
marketplaces.
“At the time of this interview,” he noted, “consumer
confidence is near an all-time low, and consumer credit usage is near an
all-time high. Savings that consumers built up during the pandemic are being
depleted. Both consumers and retailers are worried about a perfect storm
situation.
“Another thing that should be of some concern to retailers is that
everybody, and I mean everybody, is getting ready to jump into the furniture
business. Lowe’s, Home Depot, Menards, and even Bass Pro Shops, are
featuring expanded furniture options on their websites. Many of the home
improvement players who haven’t done so in the past are starting to
stock furniture in their stores. At first, these stores thought they would
pick up incremental online furniture business. Now they are buying and
stocking.”
Liddell also warned about marketplace companies like Beverly Hills-based
StyleRow (stylerow.com) that provide a number of services to designers,
including product sourcing.
”Basically, StyleRow is a marketplace seller potentially catering to
tens of thousands of designers. This kind of marketplace selling is shaping up
to be a major competitor for retailers because it will turn thousands of
designers who currently purchase from them into direct buyers.
“Many high-end home furnishings manufacturers are jumping at the
opportunity to feature their products on these marketplaces. It’s true
that designers have had the ability to buy product for some time, but now
it’s going to be wide open. What’s interesting about
StyleRow’s revenue model is that they don’t make money selling
home furnishings. Designers pay to be members. Vendors pay to be members.
StyleRow provides a portal for these two groups to come together and do
business. It’s another reason for concern among high end
retailers.”
Winners and Losers in 2023
“The winners,” Liddell concluded, ”will be those retailers
that used PPP bailout money to solidify their financial foundation. The big
chains will continue to benefit from economies of scale, container buying,
high-volume discount pricing and the ability to add new stores with greatly
reduced incremental costs. Frankly, I don’t feel good about ending this
interview by talking about losers. I’m hoping retailers who read this
article will avoid the fate of ending up in that category. As always,
I’m glad to speak with Furniture World readers about any of my comments
in this interview or issues they foresee in 2023. My contact information can
be found at www.pfpnow.com.”
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