The End of the Couch Specialist: Multi-Category Strategy in Furniture and Homewares Stores

Times are changing for furniture stores. Single-category specialists are progressively losing out to multi-category retailers, which encompass the whole of the home products universe. This trend can be seen mainly in developed countries, where the recession dented consumers’ confidence and saw them reining in purchases of big ticket furniture while still indulging with smaller items.

Consumers are driven to multi-category stores by the experience and the showroom factor. Rather than displaying endless rows of sofas or beds in different colours, showrooms replicate real-life settings and thus stimulate consumers’ imagination and impulse purchases. Moreover, these retailers strive to create unified and consistent styles throughout their different product categories in order to encourage cross-selling.

Multi-category and economies of scale

While the all-under-one-roof proposition is appealing, a low price positioning is what drives shoppers to these stores. Multi-category retailers are to furniture and homewares stores what hypermarkets are to greengrocers: bigger and cheaper. This is only made possible by their scale, which gives them more power to negotiate with their suppliers.

This leads to a model of all-under-one-roof single brand retailers that can easily scale up their business model and expand rapidly in different countries. This is what Ikea has been doing for years. Another major company is Japanese-based Nitori, the third biggest single brand chain, albeit using a rather smaller store size in comparison to Ikea superstores. Nitori’s retail network is backed by in-house design and production teams that give the concept its uniqueness and identity.

Nitori Store, Japan


Nitori Store, Japan

 

Source: http://www.nitori-intl.com/Japanese/images/100524f.jpg

Among all furniture and homewares stores, both companies increased their share the most since 2007, excluding Steinhoff, which was boosted by the acquisition of Conforama in 2011. Even in Western Europe, Ikea proved successful despite the slump and increased its share in 2012. In Asia-pacific, the company is holding its ground against local players, while the company is also preparing for a future entry into India. This shows that multi-category retail is increasingly appealing in fast growing emerging countries where consumers are looking for affordable international brands.

Ikea store, Taiwan

Ikea store, Taiwan

Source: Euromonitor International

Consolidation will increase in developed countries

Multi-category retailers are better placed to open new stores than single-category specialists thanks to their critical mass. This will lead to greater channel consolidation in the future. Moreover, European consumers are crippled with debt and flat disposable income and will thus continue to be price sensitive. This is where multi-category retailers have a competitive advantage. This will put even more pressure on furniture specialists, which lack the showroom factor and are directly impacted by the ongoing housing crisis. One caveat to this remains however. As multi-category chains gain prominence, they contribute to the standardisation and growing uniformity of products and designs. This may well cause a backlash and encourage consumers to revert back to the more original and unique specialist stores.