Marketing Strategy in the Retail Home Furnishings Industry

Introduction

The retail home furnishings industry was being adversely impacted by the global recession of 2008–2009, with demand for these products predicted to continually suffer as housing starts fell throughout the first and second calendar quarters of 2009. The intent of this paper is to evaluate the personal and social factors that determine the level of purchasing in the retail home furnishings industry. Concentrating on a combination of demographic and psychographic analyses, this paper presents how consumers were choosing to visit retail home furnishings stores and make purchases.

As of 2009, many consumers were delaying the replacement of home furnishings due to rising unemployment in many nations affected by the global recession, as well as falling disposable incomes — factors that combined to erode consumer confidence. As a result, spending levels in the retail home furnishings industry were dropping as consumers became reluctant to take on additional debt. The market was predicted to be flat, with a 4.1% growth rate most attributable to household textile and furniture replacement, with 2009 projected to be flat to negative (Fleischer & Slaughter, 2008, pp. 26–28). Industry segments include furniture at 63.6% of sales, household textiles and soft furnishings at 23.7%, and carpets and floor coverings at 12.8% (Fleischer & Slaughter, 2008, p. 30). Depending on the consumer lifecycle for each of these product categories, there is a corresponding shift in revenue generated within this industry. Personal and social factors are analyzed below specifically from the standpoint of their influence on purchasing levels and cycles in the retail home furnishings industry.

Beginning with an analysis of demographic segments, Table 1 (Demographic Spending by Segment) illustrates the percentage of retail home furnishings spending by each age group. The majority of home furnishings are purchased by consumers aged 35 to 44, as many are within the purchasing lifecycle of starting families and furnishing their homes. While the 25-to-34 age segment accounts for only 15% of total spending on retail home furnishings, per capita spending in this group grew from an average of $8,514 in 2005 to $10,170 in 2007 — one of the few growth areas in an otherwise flat industry as it entered 2009.

Table 1: Retail Home Furnishings Spending by Segment, 2008

Personal Factors Analysis

Consumers aged 35–44: 23.0% | Consumers aged 55–64: 22.0% | Consumers aged 45–54: 19.0% | Consumers aged 25–34: 15.0% | Consumers aged over 65: 12.0% | Consumers aged under 25: 9.0%

Source: Home Furnishings Industry Profile: Global (2007)

Consumers under 25 years of age are expected to remain relatively constant at approximately 9% of total spending through the forecast period to 2011. These consumers have typically not yet entered the purchasing lifecycle of buying a home and beginning to furnish it. As a result, this segment often spends on soft furnishings for apartments and personal living spaces, meeting a key psychological need — reported by 69% of respondents — for a private, personal space (Reimer & Leslie, 2008, p. 144). The 25-to-34 segment accounted for 15% of total spending but showed consistently flat growth over the previous five years (Home Furnishings Industry Profile: Global, 2007), as consumers in this group are often just beginning their careers and have limited disposable income.

Contrasting these first two segments, consumers in the 35-to-44 age group form the majority of buyers in this market. Their focus on furnishing their homes, investing in durable goods for raising children, and in many cases refurbishing purchased homes makes this the single most critical demographic segment to the profitability of the retail home furnishings industry. Catalysts of growth for this group include their capacity to obtain credit, sufficient income to support discretionary furniture purchases, and the perception that their homes reflect their relative success in life.

Consumers aged 45 to 54 represent a consistently stable 19% of total spending in the marketplace. A majority of this group (59%) perceive their home as the primary means of communicating their identity (Carpenter, 2008). From a social standpoint, they are the most focused on what their home conveys about them as people. Ironically, however, their spending is not as high as that of the 35-to-44 group, which remains the most profitable demographic segment. The 45-to-54 segment is also actively replacing first-generation home furnishings — primarily furniture and carpets — and often purchases across all three main product categories.

The final two segments — consumers aged 55 to 64 and those over 65 — differ considerably in both spending levels and psychographic profiles. Those aged 55 to 64 have consistently represented 20%–22% of total spending, while those over 65 account for approximately 12%–13% in any given year. The over-65 group is largely retired and living on fixed incomes. Those aged 55 to 64, like consumers aged 45 to 54, view their home as a statement of their values, personal interests, and unique identity.

Income levels among retail home furnishings consumers vary significantly: those earning less than $25,000 per year represent the largest share (34.8%), followed by the $25,000–$50,000 bracket (30.2%), the $50,000–$100,000 bracket (26.2%), and those earning over $100,000 (8.8%). With 65% of all customers earning less than $50,000 annually, debt financing is crucial for industry growth. The scarcity of credit in late 2008 and early 2009 contributed directly to the market's flat growth during that period.

Regarding marital status and education, over half of retail home furnishings consumers are married (58.6%), 27.8% are separated, divorced, or widowed, and 13.6% are single — a distribution consistent with the lifecycle stage analysis that IKEA has identified in its own market research (Reynolds, 1988, p. 32). In terms of education, 27% hold a high school diploma, 37% have completed some college, 12% hold a two-year associate's degree, 17% hold a four-year degree, and 7% hold a graduate degree (Home Furnishings Industry Profile: Global, 2007). The most profitable segments — those with four-year or graduate degrees — account for 24% of the consumer base.

Ethan Allen is one American-based retail home furnishings chain that specifically targets this educated demographic, orienting its marketing, advertising, and promotions toward the 45-to-54 age group with graduate degrees. Ethan Allen has found that purchasing decisions in this segment are predominantly made by women — many of whom have graduate degrees and grown children (Bennington, 2001, pp. 145–146). Higher educational attainment within the 35-to-44 and 55-to-64 age groups correlates with higher per capita spending. IKEA has similarly made education and income central to its segmentation strategy, reinforcing these efforts through multi-channel retailing — a concept it helped pioneer (Johnson et al., 2006, pp. 455–460). Income correlations to age groups underscore how lifecycle stages map onto purchasing cycles throughout this industry.

All of these personal factors together provide important insights into the purchasing segments of the retail home furnishings market. However, they represent only part of how consumers decide which products to buy and when. A series of social factors — specifically lifestyle orientations — must also be considered to fully understand consumer behavior in this industry.

Group Factors Analysis

The accumulated effects of the personal factors described above take on fuller meaning when social factors are quantified and measured in the context of the retail home furnishings industry. One of the most widely used frameworks is the VALS2 methodology (Piirto, 1996), which is grounded in the lifestyle orientation definitions presented in Table 2 below.

Table 2: Lifestyle Orientation Definitions

Source: Piirto (1996)

Achievers: Successful and deeply committed to work, family, and community. Prefer predictability and consistency over risk. Seek material rewards and prestige that signal success to peers.

Strivers: Want to be trendy and stylish; admire people known for success and wealth. View earning money as an important goal, though often difficult to achieve.

Conclusion