Everyone has heard the adage, “The bigger the challenges, the greater the opportunity,” but often the reverse is true too: The bigger the opportunity, the greater the challenges. Both apply for home brands that aim to grow in the U.S. consumer market.
“A modicum of success in the U.S. is the most common and ultimately the worst outcome,” warns Chris Ramey, partner in American Marketing Group and founder of The Home Trust International. “It drains financial resources and undermines hope for long term success and consumer desire. Your first foray mustn’t fail.”
Here are the five biggest challenges that every home furnishings brand faces entering or expanding in the U.S. market, whether selling through brick-and-mortar retail, B2C e-commerce or through the design trade.
Challenge #1: Sheer size and scope of the U.S. market
While most businesses are entranced by the growth opportunities in China – 1.4 billion people with GDP growth averaging ~9% per year since 1980 – the U.S. market is far larger in market size yet with only one-fourth the total number of consumers – 328 million people living in 138 million U.S. households. The U.S. economy leads the world, $21.4 trillion as compared with $14.3 trillion in China, according to The World Bank.
In reality, China may be the world’s biggest producer, but the U.S. is the biggest consumer market.
Further, the U.S. is where more of the world’s wealth resides. There are 20.6 million U.S. millionaires, more than the five next largest countries combined, including China’s 2.3 million millionaires.
As for the home furnishings market, Americans spent $380.7 billion in 2020 on goods for their home, including $238.8 billion on furniture and furnishings alone. Add to that the $90.4 billion spent on home services, and the total market opportunity in the U.S. is rapidly approaching a half-trillion dollars.
Challenge #2: Entrenched competition
Nearly 80,000 specialty home retailers serve the rapidly growing U.S. home furnishings market, which rose 6.5% from 2019 to 2020. However, there has been a shift in where American consumers shop for their home, a shift accelerated by the pandemic.
Less than half (47%) of all home furniture and furnishings purchases were made in specialty home furniture and furnishings stores last year, with the majority (53%) made through other channels, including online, general mass merchandisers, department stores, interior designers and others.
For any brand, selecting the right retail trade partners is critical to success but they must compete effectively against the biggest home furnishings retailers – Ashley HomeGoods, Ikea, Williams-Sonoma, Rooms to Go, RH, Nebraska Furniture Mart and Wayfair. These national retail competitors are at the top of their game, taking market share because they have been able to build a strong retail brand with broad awareness and powerful value proposition.
Another complicating factor: even before going to the store, more than 80% of consumers start their home shopping journey online. This requires brands have a top-notch digital presence and marketing strategy grounded by a website that is beautiful, evocative, well-organized and with excellent search features. Further, websites much be loaded with detailed descriptive product content, measurements, multiple pictures including closeups to reveal texture.
Beyond the basics, the website has to do more than just showcase product, but give clear and compelling reasons why your brand is the brand to buy. E-commerce capability is less important – Statista estimates that only about 12% of furniture and home goods sales are conducted online – but getting more important by the minute.
For example, a recent study reported in Furniture Today found that 67% of consumers surveyed have never bought furniture online, but post-Covid that is likely to change as two-fifths of those surveyed planned to shop less often in-store than they did in early 2020.
The study’s conclusion: “Online furniture shopping is expected to be on the rise, and those planning to move in the next year [about 20% of those surveyed] are significantly more likely to shop for furniture on the Internet.”
Challenge #3: American style preferences and price expectations
When it comes to identifying the best prospects for a home furnishings brand, look no further than the affluent consumer segment, the top 30% of U.S. households with incomes over $100,000.
These nearly 44 million households account for over half (53%) of the total U.S. expenditures on home furnishings. The segment one-level under, incomes from about $80,000 to $100,000, add another 10%. The opportunity is greatest for home brands that understand the biggest spenders on home.
Accounting for more than half the home market, the top 30% of U.S. households are divided into two distinct groups:
Ultra-affluents have incomes over $250,000. There are 7.8 million Ultra-affluent households.
HENRYs (high-earners-not-rich-yet) with incomes between $100k-$249.9k. There are 36 million HENRY households in the U.S. today. Many of these households represent the next-generation consumers who are in a lifestage that goes along with more home-related purchases.
All high-income households have a taste for luxury – the finer things in life – but they differ in spending power. HENRYs have champagne tastes but beer budgets, while the Ultra-affluents can buy just about anything at any price point, but it must be the right fit.
Aiming at the higher-end of the home furnishings market, AMG’s Ramey says:
“Luxury is a business model driven by consumer marketing and strict adherence to specific pillars. For example, success in reaching the highest potential customers requires a tightrope-balancing act of aggressive marketing of exclusivity and sophistication. Translating your brand’s DNA into American desire is best left to those who understand the US high-end and luxury markets.”
Challenge #4: Advertising clutter, cost and media fragmentation
Over one-hundred years ago, retail pioneer John Wanamaker famously said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Despite big data, that maxim still holds true today.
A global survey among 4,000 marketing professionals found that about 70% of companies may be ineffective measuring advertising ROI. In fact, many of them are actually measuring KPIs (Key Performance Indicators) and not ROI at all. Brands don’t know and still can’t effectively measure the return on investment for their advertising dollars.
That is a painful weakness for furniture and home furnishing businesses, since home furnishings companies spend nearly $1 billion in advertising annually.
Complicating the issue of reaching the right target audience is that furniture is an infrequent purchase, so it is critical to target the right audience through the right media with the right message when they are on their buying journey.
It’s not enough anymore to just find the right tactics to reach your best prospects, but you must also connect emotionally and create desire for your brand. That requires a new strategy aimed at pulling in customers for your brand, rather than just pushing more marketing and advertising out.
Reaching your prime target customer is tricky. It requires an intelligent, targeted investment that builds awareness, sparks interest, creates design and activates purchases. And most importantly, it must deliver a measurable return on investment for the marketing dollar.
“The expansion of what, when and how to watch television and video content, coupled with the demise of print, has led to a unique opportunity for new and local brands to leverage digital to compete more effectively – which is measurable,” shares Paul Friederichsen, American Marketing Group partner.
Challenge #5: Trade events and channel choices
Not only do home brands need an effective consumer-targeted marketing strategy, but they also need to develop a side-by-side marketing program that targets to-the-trade partners like retailers and interior designers to carry your brand. Back in the day, it was considered enough for brands to display at the key home trade shows, but not anymore. There has been an explosion of trade shows in the U.S. and since Covid many of those have gone virtual.
For those aiming at the high-end of the market, design centers have been the traditional choice, but these were gated communities designed to protect designers and keep consumers out. Although most design centers have now opened their doors to consumers, people browsing there often experience a chilly response from to-the-trade resources who want to maintain the past’s to-the-trade exclusivity.
The reality is consumers’ path to purchase doesn’t start in design centers nor is it necessarily guided by interior designers’ influence. Instead, they’re developing their own aesthetic rather than relying on the design professional. The path to purchase starts online for the consumer, as it does for a brand’s potential retail and interior-design partners.
It is getting harder and harder for new home brands to get in front of potential retail partners and designer and tell their story in order to open their door to carrying your brand. Too many companies today find trade shows and design centers require a huge investment in time and money with little guarantee of success. Relying on trade shows alone to reach the trade and find distribution partners is too often a losing proposition.
Get support to penetrate America
American Marketing Group has prepared a research-based white paper to help brands assess the challenges and opportunities they face in expanding into the U.S. market. As a highly-experienced team with nearly 100 years combined working in the home furnishings market, we are embedded in this most complex, but lucrative market. We have the research and know what works to reach your best prospects in the U.S. market.
“Failure is certain for brands that ignore how their brand’s DNA translates and resonates with the unique affluent American consumer,” advises AMG’s Ramey. With our support, we can make your investment in the U.S. market pay off. We are “boots on the ground” with expertise, experience, and the necessary skills to launch your U.S. market penetration initiative. We can be your virtual marketing, advertising and strategic planning office in the U.S.