With Amazon announcing a major offensive to break into the US furniture market, retailers on both sides of the Atlantic will be watching with interest. In this article, KPS’ Frank Lochbaum outlines Amazon’s go-to-market strategy and suggests how European furniture retailers can ready their business systems and digital operations to keep up with it, and the other online pureplays already disrupting the sector …
Often a maker of markets, Amazon has unveiled two own-brand furniture ranges – Stone & Beam and Rivet – and analysts say it’s only a matter of time until the ecommerce giant rolls out similar offerings in other regions, including Europe and Asia.
Directly after Amazon’s announcement, US furniture specialists, including Wayfair and Kirklands, suffered a sharp drop in their share prices as worried investors weighed up the impact of its move on the sector.
So what can Europe’s retailers do to prepare themselves for imminent industry disruption?
Undercutting competition
As you would expect, Amazon’s customer proposition is compelling – it is setting out to undercut the competition from the outset, with affordable prices, free and fast delivery (without the need to sign up to Prime), a 30-day returns policy, and a one-year warranty.
Delivery, often the weakest link in the furniture supply chain, has been streamlined so that customers can schedule furniture delivery within a three-hour window, and often within a day or two of purchase – something traditional furniture retailers’ operations haven’t yet been able to offer, with delivery on larger items often taking weeks to arrive.
Good value for money
Amazon has also done a good job of identifying its demographic sweet spot, targeting two of its existing core customer segments.
The Rivet product range is affordable and modern, aimed at Millennials, while Stone & Beam has a higher price point and a more traditional look, and is being marketed with families in mind. Neither brand chases low prices or offers Ikea-style values. Instead, the online retailer looks to be entering the good-value-for-the-money space.
Both ranges have also been carefully curated and are limited in scope. This is in response to a -7.2% fall in consumers selecting furniture retailers with a wide range between 2014 and 2016, according to GlobalData research.
Growing online sales
Amazon has already been benefiting from the growth of online furniture sales thanks to third-party vendors, but its own-brand ranges represent a significant escalation.
The retailer’s furniture general manager, Veenu Taneja, recently revealed furniture as one of the firm’s fastest-growing retail categories, and Amazon is making significant investments to ensure its growth continues, with features such as a new Shop by Look functionality, which enables customers to click ‘like’ or ‘dislike’ to filter preferences in real-time, and finance options that give customers the ability to pay for high-ticket furniture items in five equal payments at no extra cost.
From a logistics perspective, investment in new fulfilment centres, which are specially equipped to handle furniture and large items, supported by furniture-specific third-party logistics carriers, are also underpinning Amazon’s latest furniture offer.
Bricks-and-mortar stores
As the divide between online and physical stores becomes increasingly blurred, there are unsubstantiated rumours that the online retailer is considering opening bricks-and-mortar furniture stores, equipped with augmented or virtual reality technology to allow customers to see how furniture would look in their homes before buying.
The online furniture segment is now expected to grow globally at a five-year compounded annual growth rate of 15%, and will be worth $220b by 2020. Amazon has made it feel normal to buy nearly anything online, and there’s no reason to suggest furniture will be an exception.
Competing against disruptors
For the moment at least, the vast majority of consumers still prefer to view potential furniture purchases in-store, even if they are happy to start and finish their journey online – but that doesn’t mean retailers should rest on their laurels. To remain competitive, furniture retailers must take the disruptors on at their own game.
However, at present, many retailers’ ability to transform is blurred by the burden of disintegrated systems and broken processes, which together are not enabling their workforce to perform at their maximum potential.
By reinvigorating core processes, retailers can reduce their stock-to-cash cycle, raising revenue and profit per product category, store format, channel and customer.
Moreover, introducing best practice processes will provide retailers with a platform for expansions into new channels, territories, product categories and customer groups.
This will help retailers take on Amazon and other pureplay competitors on their own terms as consumer confidence in buying furniture online grows.
Frank Lochbaum is managing partner at KPS, one of Europe’s leading management consultancies for the retail sector, covering the entire range of omnichannel business and digital transformation.
