Dwindling income and its impact on furniture business

Consumer demand for furniture in Russia has been stagnating for several years in a row and the situation does not seem to be improving any time soon. This is partly due to decreasing income. Furniture is not an essential commodity and its high cost motivates people to plan a purchase in advance and look for ways to save money. Furniture manufacturers have to adjust by cutting costs, reducing the prime cost of furniture and scrimping on rent.

Unfortunately, for some manufacturers one of the obvious ways to reduce the prime cost is to use low-quality materials and components. Upholstery of poor technical properties, backyard hardware and transformation mechanisms, chipboard instead of wood and nondurable polyurethane foam, lack of spring boxes do produce furniture that does not break the bank. However, as a result, customers get what they pay for and it comes with additional costs of repair and eventually replacement.

Manufacturers that maintain high standards of quality are, in turn, faced with growing production costs due to the rising prices of imported materials and components. In early 2019, suppliers also raised prices following the VAT hike; as a result, the price of finished items rose by 1-2%. At the same time, customers’ purchasing power decreased 5% compared to last year, which means a significant decline in demand, especially when it comes to long-term purchases such as furniture.

So amid rising prices and declining purchasing power, one of the main tasks for furniture manufacturers and retailers is to attract buyers and stimulate general interest in buying home decor items. As for marketing strategies, including in furniture retail, no matter how much you invest, it is still difficult to stimulate demand without using discounts or loyalty programs. These remain among the main tools of attracting customers and encouraging them to buy. Other promotion and advertising tools include well-established and predictable methods, such as printed goods at points of sale, TV commercials and online ads. In addition, there are subtler ways of influencing customers, such as collaboration with opinion leaders and viral videos. Although it is difficult to predict the result, these tools actually enable the company to reach a wider audience. Trying new marketing tools is crucial, but not every company can afford it.

The reduced demand for furniture affects shops location as well. The street retail format, which allows opening an outlet close to costumers, is becoming financially ineffective. General format shopping malls, with more expensive space rent, have a higher customer traffic intensity than street retailers. Specialized furniture shopping centers include outlets of various brands selling products of a certain commodity group – thus a ‘warmer’ traffic, with purchase-oriented visitors who have a certain idea of what they want to buy, and have an opportunity to choose from several options. This considerably increases convertion and reduces costs for attracting customers.

Reduction in clients’ income and their purchasing power prompts furniture manufacturers to improve their services. Repeat purchases and reputation are important for any sector, and efforts should be made not only to attract customers but to retain them as well. The services that can help include personalized offers, loyalty systems, online accounts to track the order status, a shop’s own support service, as well as logistics and furniture assemblage services.

Reduced customer activity boosts internal competition in the sector, with stronger and more client-oriented companies developing and scaling, while those that sell lower quality products and have poor management give way to more stable players. Such changes are advantageous for the sector’s development and ultimately for end costumers, who receive more quality products at the best price.

By Natalia Peksheva, CEO, Tsvet Divanov

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