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The Furniture Industry Sucks.

August 10, 2014

Let me say it again, for emphasis. The furniture industry sucks. It sucks for furniture manufacturers. It sucks for furniture retailers, and it especially sucks for furniture customers. The source of all this suck? Enormous and ever changing product variety.

Over the past hundred years or so, the American furniture industry has migrated from its roots in New England, to Michigan, to the southern states, to Asia. Why has this happened? Because furniture still has a high labor component, so management is forever chasing lower labor costs. Why does it still have a high labor component? Because there’s never enough volume of any particular item to build a factory with the kind of efficient automation you find in, say, auto manufacturing. Why is there so much product variety? Because every customer’s needs are a bit different, in terms of size, styling, and functionality.  This high and ever changing product variety has inhibited the kind of industry consolidation* that occurs naturally in free markets, and the accompanying economies of scale that bring prices down and profits up. Instead, we see a highly fractured industry, with competitors ranging from a single guy in his barn to billion dollar firms (which sounds big but really isn’t, given the size of the industry), competing for customers by copying each other’s hot styles and shaving their margins. In other words, no one ever really attains a sustainable competitive advantage, so they’re mostly competing on style in the short term, and price in the long term.

(*Past attempts at industry consolidation are wonderfully described in Furniture Wars, byMichael Dugan.)

Furniture retailing is an even worse business. Walk into any furniture store in your town or city on a Tuesday afternoon and, with the notable exception of that Swedish place, it’s likely the only person you’ll see is the one who works there. Now, think about the costs associated with keeping that store open. The two biggest costs in any retail operation are overhead, which directly correlates with the amount of floor space, and inventory.  (The third major cost is labor, but this is largely driven by your floor space and your inventory – the more of those you have, the more labor you need.) For a furniture store to have any hope of providing the item a particular customer might want, they have to have a large floor space and a large inventory.  Why? Well, it’s because of the high product variety again, isn’t it? And yet, even the largest store can only hope to offer a small fraction of the overall product spectrum in the marketplace, because the spectrum of styles, sizes, and configurations is enormous and constantly changing.

A few years ago, I did a little market study, in which 86% of respondents said they found it difficult to find and buy the furniture they wanted. This rings true to my own experience, hunting countless furniture stores and websites, looking for the item that fits my particular needs. In many cases, it is possible to get something relatively close to what you want, but isn’t quite the right size, or the right style, or the price isn’t acceptable. Why is it so hard? Sorry to keep repeating myself, but it’s because of the enormous product variety that attempts to match each individual customer’s needs.

So – why is product variety such a problem? I believe it is because any industry that requires production of highly variable designs is fundamentally ill suited to the mass production, build-to-inventory business model that has been the engine of developed countries since the Industrial Revolution. And yet the economics are still compelling. Back in my market survey, the majority of respondents said they ruled out hiring a custom cabinetmaker because it was too much cost and effort. So, what to do?

By now, you probably see where I’m headed with this. The furniture industry is ripe for an Extreme Makeover. It is now possible to move from a build-to-inventory supply model to a build-to-order system, using technology to enable collaboration between customers and fabricators, and also to achieve efficiency in production that brings prices close to what you would expect from a mass manufacturer. This is the world of Mass Customization.

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