The Furniture Store Next Door Has Your Best Seller on Its Floor

The manufacturers who chase every new account end up losing the retailers who made their products successful in the first place.

It is market week in High Point. Some buyers are already heading home, some are deep in the showrooms right now, and some are just walking in. Somewhere in town this week, a manufacturer is celebrating a BIG new account for its hottest product. The rep is happy. The sales manager is happy. Another door, more volume, more growth.

There is just one problem. That new account may be next door to the retailer who spent the last two years building demand for that exact product.

On paper it is a win. But here’s the question nobody at that table asked, did we just create new demand, or did we move the same demand into another store?

Those are two very different things, and the difference decides whether a hot product stays profitable or becomes a commodity.

I have watched the cycle repeat across mattresses, motion, upholstery, and case goods. A manufacturer develops something special. A few retailers take a chance on it. It hits and the news spreads to other retailers. The manufacturer opens every door that asks, and within a few years the product that once gave a retailer an edge is on every corner in town. It becomes a price tag instead of a reason to shop, and the retailers who made it a hit start looking for something else.

The manufacturer keeps adding accounts without noticing it’s losing advocates. That may be the most expensive mistake a manufacturer can make!

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The retailers who take the risk create the demand

Nobody knows if a product is going to be a hit when it shows up at market.

Tempur-Pedic sat on floors for years at a price nobody believed a mattress could carry. Power motion has done it more than once. In every case, the product became a hit because a few retailers put it on the floor before there was any proof it would sell.

Think about what that takes. The retailer gives up floor space that was already producing. They buy inventory, build displays, train the sales force, and explain the product to customers who have never heard of it. When it doesn’t work, the retailer eats the markdowns and the dead floor space. When it works, something more important happens, the retailer is no longer just selling the product. They’re building the brand. Their salespeople learn to demonstrate it, learn which customers it fits, learn how to answer the objections. They turn something nobody recognized into something shoppers ask for by name.

That is local brand development, and it takes time and money. Then, just as the investment starts to pay, the manufacturer's phone rings. It’s the competitor in the same town, and they want the product too.

When more doors stop meaning more sales

From the manufacturer's seat, more doors means more volume. If it sells in ten stores, why not twenty? Sometimes it will. But furniture customers shop several stores before a big purchase, and identical products are easier to compare than ever.

Picture three stores in one market, sometimes in the same shopping center, carrying the same reclining sectional. The first spent years establishing it. The second saw the success and brought it in. The third noticed both and wanted a piece. Soon all three are chasing the same customer. One drops the price by a hundred dollars. Another runs an aggressive promotion. The third hears from its salespeople that they are losing tickets to the store next door, so it responds. Nobody wants to be embarrassed in front of a customer who has already shopped the competition, and the price moves until nobody is making the margin they expected.

What makes this dangerous is that the manufacturer doesn’t see it right away. Opening orders from new accounts look like growth. But those orders are not new consumer demand. Much of it is the same demand, redistributed. The manufacturer's shipment report shows growth while the retailer's profitability report tells a different story. By the time the orders slow, the damage is done.

The top-25 temptation

The door a manufacturer wants most is often the one that does the least for the product.

Landing one of the country's largest furniture retailers can be a career-defining order, and I understand the pull. One account can produce more immediate volume than dozens of independents combined. But the big chains are usually the last to come on and the slowest to move once they do. By the time a top-25 retailer writes the order, the product has already been proven by operators who took the risk. The chain has no investment in it beyond the purchase order. Its floors are not trained on it, its buyers are not close to it, and it will not test the next version until the market says it is safe. That’s not a knock on how large retailers run. It is just how scale works. The bigger the floor plan, the harder it is to turn.

So consider what happens to the manufacturer whose product got hot because several regional retailers invested in it, and then a national chain comes along. That product is now advertised across every market the chain touches, often at promotional prices, by the biggest advertiser in town. The regional retailer that introduced it is suddenly competing against social and TV campaigns it cannot match on a product it built. The manufacturer celebrates a major win. Meanwhile, several longtime partners start questioning the relationship. The margin on that Top 25 account is thinner, the account is harder to work, and that one big retailer has disrupted a whole network.

The smaller retailer offers what the chain cannot, a decision maker you can reach with a phone call, a sales floor you can retrain in a week, and a willingness to put the next product out before anyone knows if it will work. That is where the next hit comes from. It will not come from the account that waited until the last one was proven. The biggest purchase order is not always the most profitable decision.

The sale manufacturers never see

When a manufacturer oversaturates a market, the most damaging consequence is not a drop in orders. It is what happens inside the store.

The retailer who spent years selling that product knows it inside and out, its strengths, its weaknesses, what customers love and what they complain about. Once the margin starts eroding, that knowledge becomes a weapon. The buyer finds an alternative, maybe a better mechanism, better comfort, a feature the original never had, and a margin the original no longer carries. It goes on the floor. The sales team is retrained. The original stays in the assortment because customers still ask for it by name, but something has changed. The salesperson now has another option they are excited to demonstrate, and when it fits the customer better, they have every reason to recommend it.

Nobody is deceiving anyone. The customer gets a product that fits, and the retailer gets a return it can live with. But the manufacturer will never see it in a sales report, because the retailer has not stopped carrying the brand. It has stopped leading with it.

The manufacturer's most experienced retail partner, the one whose floor sold its product better than anyone, is now using that expertise to sell someone else's. The relationship still exists on paper. The loyalty is gone. And once a sales floor believes in the replacement, winning it back is nearly impossible.

The proof is in our own aisle and beyond it

Furniture and mattresses are not the only categories that have confused distribution with demand.

In our own industry, Tempur-Pedic. The company that convinced consumers to pay a premium for an entirely different mattress went from roughly 2,700 US furniture stores at the end of 2003 to about 3,600 by the middle of 2004, a third more doors in six months (July 2004 release). By 2008 its own investor presentations were headlining margin erosion and a new discipline of selectively adding accounts while focusing on productivity inside existing ones (Q1 2008 presentation). Broader distribution was not the only cause, and the company kept building a significant business. But growing distribution and growing profitability turned out not to be the same thing.

Outside our industry, Michael Kors put its handbags in every department store that would take them, and Macy's discounted them constantly. In 2016 a Wedbush Securities survey of Nordstrom handbag managers found nearly half of Nordstrom stores had pulled the line, citing the Macy's pricing among other reasons, as reported by WWD. Nordstrom said it was not ending the relationship. That is the sale the manufacturer never sees, in a different category. Kors went on to cut shipments to its wholesale customers and pull its product out of department store coupon and friends-and-family events to rebuild the pricing power it had given away (August 2016 earnings call; fiscal 2017 annual report).

Rolex. The opposite playbook. Rolex sells new watches only through official retailers, who manage their own allocation (Rolex terms of use). I’m not suggesting a sofa maker run a waiting list. The lesson is not that fewer doors is always right. The goal is not maximum distribution or minimum distribution. It is productive distribution, held up by retailers who believe in the product.

Retailers: do not wait until the margin is gone

If you’re a retailer, you know this story. You built the business on a product, and then you found out the store across town is getting it too.

The moment that happens is the moment to start shopping for the next product. Not six months later when the margin is gone. That day.

It will feel wrong. Your floor believes in the product, your customers ask for it by name, and walking away from something that works feels like walking away from money. Every operator who has done it has been scared to do it. And every one I know who has done it has come out better on the other side, a better product for more of their customers, a better margin, and a sales floor that is no longer in a price fight with the store next door.

That does not mean drop it the day your competitor receives the product. Have the conversation. Ask the manufacturer what the distribution strategy is and whether the new account is expected to create demand or compete for yours. Then watch your own numbers. Is the average selling price slipping? Is gross profit per square foot falling? Are your salespeople spending more time defending the price than demonstrating the value? Those are the warning signs. Set your own tripwire before you need it. If average selling price or gross profit per square foot slips two months in a row, immediately look for a challenger product to put on the floor. If the manufacturer keeps opening doors without a strategy, start building the alternative before the economics force your hand. The worst time to find a replacement is after the product is already unprofitable.

You already know how this ends. You know where the margin is going, you know what the social posts and TV spots will look like in a year, and the manufacturer has shown you who they are. Retailers are survivalists. Act like one.

Manufacturers: your best retailers are worth more than another door

A hot product is temporary. The retailers who made it hot are the only durable asset you have, and they are the ones who will make your next product a success better than anyone else will.

So instead of asking how many more retailers could carry the product, ask how much more business the retailers who already believe in it could do. Would more sales training lift conversion? Would better displays, better inventory availability, or a new introduction give your strongest partners another reason to lead with your brand? There is usually more growth hiding inside your existing distribution than there is in the next account.

When you do evaluate a new account, look past the opening order. Look at the trade area. Ask how much business that retailer will add rather than take from the partners already there. Ask what commitment they will make to representing the product properly. Measure productivity, not just doors. A hundred productive locations is a healthier business than two hundred fighting over the same customers.

Manufacturers deserve a fair hearing here. Factories carry heavy fixed costs, need volume to keep prices competitive, and some of the retailers asking for the product have earned it. A big account can fund the next round of development. Growth is not the enemy. Growth that is really redistribution is. None of this means blanket exclusivity. Retailers have to perform, invest in the product, and earn their place, and a retailer who stops supporting the brand should not expect protection because they were there first. If a partner in a market is not working, that is a conversation, and if the conversation fails, replace them. But replacing an underperforming retailer and piling three competitors on top of a successful one are different decisions. Only one of them is a strategy.

One question to take home from market

Whether you are back home, in the middle of it, or just landing in High Point, orders are being written right now, and products will be in production soon. Before they do, there’s one question worth asking about every one of them.

Is this account going to make the product more successful, or just more available?

Availability alone creates nothing. The strongest products are carried by retailers who believe in them, understand them, and are willing to invest in selling them. Those relationships take years to build and a few careless distribution decisions to lose.

A manufacturer can get its product into every store in town. It cannot make every store care about selling it. And when the retailers who built your brand would rather sell someone else's, you have lost something worth far more than a purchase order. You have lost the people who made the product worth buying.

If someone in our industry would get something out of this briefing, please forward it to them.

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The Furniture Store Next Door Has Your Best Seller on Its Floor