Increasing Margin in Furniture Retail
Tash Postolovski
Aug 22, 2018
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This is an edited down and condensed version of a longer resource that will shortly be available for download in PDF form.
Margins are a key metric for all high-dollar retailers, and for the furniture retail industry in particular. While all furniture retailers would love to increase their margins, not all are successful in doing so. In a recent Home Furnishings Business (HFB) report, the best performing furniture retailers enjoyed margins of close to 52%, while the industry average hovered around 48%.
In this report, we’re going to dig into the secrets that explain why some furniture retailers have been able to increase their margins up to 50% and beyond.
Optimize the “Big Three” selling expenses
According to the Home Furnishings Business report referenced earlier, businesses surveyed split their costs between the big three types of selling expenses:
  1. Advertising
  2. Sales
  3. Warehouse/delivery
On average, selling expenses were 2.4% lower for the best performing retailers than the industry average (20.2% vs. 23.8%). The best performing retailers are not only ruthless about eliminating selling expenses that don’t produce returns -- they also achieve more value for every single dollar spent on sales.
At the heart of this difference are
sales associates
, the largest selling expense reported by the retailers surveyed.
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Sales associates are the core drivers of efforts to increase margin
Of the “big three” selling expenses, sales associates represent the biggest opportunity to increase margin using two core strategies.
  1. Cutting ineffective expenses on sales associates increases margin, such as bonuses and rewards programs that aren’t producing results.
  2. Improving sales associate performance to increase margin, which has the power to boost average price per order, increase the number of upsells and cross-sells, provide better customer experiences, and sell customers on the value of quality, higher-margin products.
Eliminate ineffective efforts to motivate performance
Research suggests that most of the money furniture retailers spend on commissions, bonuses and tenure-based rewards for sales associates doesn’t translate into results. According to Forbes, most employee rewards programs focus on tenure, yet these kinds of programs have virtually no impact on performance. In addition, cash bonuses are generally absorbed into an employee's salary and spent on household bills and expenses, making them less meaningful for the sales associate.
Ineffective efforts to motivate sales associates can be replaced with lower-cost, evidence-based alternatives like Arcade that give employees the choice to be rewarded with gifts and prizes that are uniquely meaningful to them.
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Know what drives better customer experiences
When sales associates are highly motivated to perform, they do a number of things that increase margin and help to create the next level of customer experience.
  1. Demonstrate superior knowledge of product, materials, and inventory.
    When equipped with a central means to access information and training on product, materials, and inventory, sales associates can handle any customer enquiry with ease and impress customers with their knowledge.
  2. Upsell and cross-sell by making smart recommendations.
    Sales associates with deep product knowledge can increase margin by confidently selling the benefits of higher quality, higher margin products.
  3. Increase average revenue per order by recommending complementary purchases.
    Sales associates with excellent knowledge can seamlessly upsell the customer based on their needs.
  4. Share knowledge and innovations between store locations.
    Sales associates perform at their best when they have the means to communicate and share knowledge within or between stores, such as through an instant chat platform.
Build a better furniture business
In business, it often feels like increasing profit margins requires sacrifice, whether that’s cutting salaries and commissions, selling lower quality product, or accepting unfavourable terms from a vendor. In contrast, the strategies outlined here all involve building a better business while, at the same time, increasing margins. Empowered sales associates are the key to success.
Stay tuned for the full version of this report.
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Tash Postolovski
Tash is part of the Content team at Arcade.