Just as Quantum Mechanics is changing the way scientists look at the world, Quantum Retailing is changing everything you know about retail furniture sales as we get closer to that mythical six degrees of separation between manufacturer and end user.
Quantum retailing is changing the retail furniture industry from the cozy members only club it once was, to something that in a few short years will be so different that the previous generation of furniture store owners will have a hard time recognizing it. The current generation is going to go prematurely gray and bald experiencing it. And future generations of owners are going to look back at these days the way grocers look back at the days when milkmen, bread trucks and butchers plied their trade door-to-door.
So how do theories of quantum mechanics impact retail furniture sales? In this series of articles we shall take a detailed look at the quantum mechanics of furniture. Let’s look at one that is having the most obvious impact now: Chaos Theory.
The Chaos Theory: In 1960, a meteorologist at MIT, Edward Lorenz, made a discovery using mathematical models to try to understand the weather that is having impact on all branches of science. He called it the Chaos Theory. He used an example to describe it called, The Butterfly Effect. In his example he pointed out that if a butterfly flapped its wings in Brazil, it could produce a tornado in Texas.
There are a lot of butterflies flapping their wings in the world of retail furniture. The most obvious evidence of The Butterfly Effect that is turning the world of retail furniture into chaos is the collapsing supply chain. As the supply chain between manufacturer and end consumer collapses, waves of chaos are washing over the entire furniture industry. Friends are becoming enemies. Enemies are becoming friends. Non-competitors have now become competitors. New competitors are coming into this field. Then there’s the Internet.
Friends becoming enemies: Manufacturers are competing with retailers as more and more of them begin to open retail operations as a way to improve overall margins. Factory reps are opening stores of their own and competing against former clients.
Enemies becoming friends: Retail-buying groups were the first step. Performance groups were a second step. Now there are groups of competing retailers who are competing in a more effective and friendly way.
Non-competitors becoming competitors: Not long ago, most furniture retailers never would have considered Home Depot, Wal-Mart, Costco or China competitors. Today they are. Home Depot is forming alliances with furniture manufacturers and beginning to display and sell a growing number of case good and accessory SKU’s.
Wal-Mart has increased the number and quality of furniture items sold in its stores.
Costco is constantly expanding the furniture offered in their stores and is experimenting with a Costco furniture store concept. These companies have a lot of very smart people and very soon one of them (or all of them) will be rolling out the next Top 100 furniture operation(s).
Most retailers look at China as a competitor to manufacturers and they are. But like a number of U.S. manufacturers, they too are setting up direct sales operations to compete against U.S. retailers. They learn fast and are now following the example of U.S. manufacturers as they too begin working hard to collapse their supply chains to grow margins by cutting middlemen.
New competitors entering the field: There was a time when most new store owners cut their teeth in the industry as employees for some time, before venturing out on their own. Over the past year, I have talked with a number of people who have never been in retail furniture, opening furniture stores. In fact among the new store owners I have talked to in the last two years, most of them are entering furniture for the first time from other career paths.
An example of new competitors is a software programmer and his wife who called me after reading an article. They are leaving the Silicon Valley after a generous buyout package as the result of a major merger and decided to go into retail furniture for no other reason than they spent lot of money on furniture when they furnished their homes and want to do something that has a slower pace of life than software programming.
The Internet: The Internet is rapidly changing the way people shop, which is rapidly changing the way shops need to do business. Those at the leading edge of this transformation are reaping huge benefits.
This is one of those good news/bad news scenarios everyone faces from time-to-time. The good news: If you recognize the chaos effect and prepare for it you will benefit from it. The bad news: If you don’t recognize its effects by now, it may be too late to stop chaos from having massive negative effects (maybe even terminal) on your business.
With waves of chaos hitting the furniture industry from so many directions, owners and managers need to get beyond day-to-day thinking. They need to begin to focus on the future of the business much like the way a surfer focuses on catching and riding a wave.
A surfer focuses on where the wave will be and works hard to position himself in the right spot and to be in motion to catch and ride the wave. If the surfer fails to get in position in time he suffers chaos. If the surfer gets into the right spot and doesn’t have momentum, he suffers chaos. If the surfer hits the right spot and has momentum he leaves the rest of the paddlers behind as he rides into paradise.
Because of chaos, retail store management requires a much higher level of attention to detail in all aspects of the business to be as profitable as you can be. Note the phrase: as profitable as you can be.
There are a lot of profitable furniture stores out there today. They just aren’t as profitable as they can be. I had the experience of visiting one of them a few weeks ago. They had a great business plan, great locations and a business that went from zero to $12 million in four years. In year five, they were thrilled about having a good GOB sale. What is wrong with this picture? How did they get into this situation?
The answer is easy: A butterfly flapped its wings.
They weren’t alone. As I was riding in the cab to my hotel, I had the driver go past a store of one of my clients and saw a number of other furniture stores on a furniture row having massive discount sales, emergency inventory reduction sales and GOB sales.
So how do you prevent chaos from destroying your business?
This is a question every retail store owner needs to address now before the chaos takes control out of your hands. You need to give your business a complete fiscal exam. You do this by stepping away from the business for a few days, and do a comprehensive review of your business in light of the chaos waves washing over the industry to determine your surfing ability.
Most store owners I talk to about the need to do strategic planning complain about the inability to pull themselves and their managers out of the store to an off-site location for a few days of comprehensive review and planning. Whenever I hear that, it tells me they are already paddling in the waves.
Back in 1998, two years after the Internet began gaining traction, Jack Welch, then CEO of GE didn’t wait for the chaos waves to hit his company, he met the waves head on by executing a company wide comprehensive strategic review of all business models called DestroyYourBusiness.com.
GE executives and managers didn’t wait for the chaos to upset their businesses. Being proactive and disciplined about reviewing what worked in the past and planning changes to what would work best in the future; GE caught and rode waves that were wiping out their competitors. Welch, and others, credit this initiative for helping make GE the most profitable company in the U.S. by the year 2000.
Annual strategic review and planning meetings are the norm for rapidly growing and profitable businesses in every other vertical and though they aren’t common in the retail furniture industry, they should be.
When I ask retailers why they don’t do any type of strategic planning, I usually hear some variation of, “Things are fine. No need.” Just remember, when Noah built the Ark it wasn’t raining then either.
There is more to a strategic review session than getting together at an off-site location. It is a critical event that requires planning, advance data collection and a moderator to keep things on track. Without planning and a moderator, the session usually ends up in the bar or out on a golf course, providing little more than a few days of bonding and entertainment. Neither will be of much use when the waves start rolling in.
This annual event can help you surf the chaos waves beginning to move through the retail furniture industry. It can help you determine if you are ready to meet chaos, and if not; what you need to do to get ready.
If you and your managers are so involved in day-to-day firefighting that you can’t take a few days off-site to do a comprehensive review of the past year and plan for the next, you need to do it more than you know.
The waves are coming, and your future survival depends on your ability to surf.
Stay tuned for Part 2, Navigating Uncertainty in the April/May 2007 issue of Western Reporter.
Ken Guerrero is a consultant providing strategic and tactical consulting to help store owners take their retail game to the next level. Buyology 101 focuses on teaching salespeople how to diagnose a customer’s buying process. Once the buying process is understood the salesperson can adapt his/her style to support the customer’s buying needs.