Pd0811 Hgtv Revisited

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Michael Stumpf is a consultant in community planning, economic development, and market analysis, based in New Berlin, Wisconsin. 1 Place Dynamics Making the Connection Between HGTV and Downtown Revitalization By Michael Stumpf, November 2006 ive HGTV some credit. They did not invent the home improvement show, but they have built it into an enormously popular entertainment venue, reaching 89 million house- holds and capturing more than 800,000 nightly prime time viewers. It has been called one of the most widely copied formats on the television landscape, giving rise to such shows as Trading Spaces and Extreme Makeover on other channels. HGTV’s goal is “to provide ideas, information, and inspiration” for decorating and home improve- ment. And its viewers have been inspired. Be- tween 1995 and 2005, sales of furniture have grown by 75%, outstripping the 67% rate of over- all retail sales. Sales of home furnishings – items from carpets and linens to lamps and kitchenware – have grown by 97%. People are spending more time at home and spending more to decorate their homes. Home furnishings is one of only a few retail cate- gories not dominated by a relatively small number of firms, and also exhibiting growth in overall store counts. The fifty largest home furnishings retailers capture 29.3% of all sales in the category. While this may seem like a lot, in 14 of 24 catego- ries, just eight retail firms capture more than 30% of sales. At the same time, home furnishings stores had the fifth-highest change in store counts from 1997 to 2002, adding about 300 new stores per year. So what does all of this have to do with downtown revitalization? Downtowns have certainly reaped some of the benefits of these trends. In places as diverse as Appleton, Wisconsin and Idaho Springs, Colorado, home furnishings and related businesses line the downtown main street, where shoppers may find home décor, tableware, ornate staircases, art, custom kitchens, interior design services, and more. In the retail industry, new shopping centers adopt- ing this leasing strategy – placing shops with a specific targeted customer next to each other – are known as lifestyle centers. By understanding the strengths of these centers and the motivations of lifestyle shoppers, cities may help to create a competitive advantage for their business districts. The typical HGTV viewer is between 35 and 64 years old. Seventy percent of them are women. These demographics parallel those of the typical lifestyle consumer. On average, these consumers shop more often, visit more stores than average during their shopping trips, and spend more than the typical shopper. Best of all for downtowns, a significant number of these consumers do not like G

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This article updates the previous one on this topic, following the advent of the housing crisis and slump in home furnishings sales.

Transcript of Pd0811 Hgtv Revisited

Page 1: Pd0811 Hgtv Revisited

Michael Stumpf is a consultant in community planning, economic development, and market analysis, based in New Berlin, Wisconsin.

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Place Dynamics

Making the Connection Between HGTV and Downtown Revitalization

By Michael Stumpf, November 2006

ive HGTV some credit. They did not invent the home improvement show, but they have built it into an enormously popular

entertainment venue, reaching 89 million house-holds and capturing more than 800,000 nightly prime time viewers. It has been called one of the most widely copied formats on the television landscape, giving rise to such shows as Trading Spaces and Extreme Makeover on other channels.

HGTV’s goal is “to provide ideas, information, and inspiration” for decorating and home improve-ment. And its viewers have been inspired. Be-tween 1995 and 2005, sales of furniture have grown by 75%, outstripping the 67% rate of over-all retail sales. Sales of home furnishings – items from carpets and linens to lamps and kitchenware – have grown by 97%. People are spending more time at home and spending more to decorate their homes.

Home furnishings is one of only a few retail cate-gories not dominated by a relatively small number of firms, and also exhibiting growth in overall store counts. The fifty largest home furnishings retailers capture 29.3% of all sales in the category. While this may seem like a lot, in 14 of 24 catego-ries, just eight retail firms capture more than 30% of sales. At the same time, home furnishings stores

had the fifth-highest change in store counts from 1997 to 2002, adding about 300 new stores per year.

So what does all of this have to do with downtown revitalization? Downtowns have certainly reaped some of the benefits of these trends. In places as diverse as Appleton, Wisconsin and Idaho Springs, Colorado, home furnishings and related businesses line the downtown main street, where shoppers may find home décor, tableware, ornate staircases, art, custom kitchens, interior design services, and more.

In the retail industry, new shopping centers adopt-ing this leasing strategy – placing shops with a specific targeted customer next to each other – are known as lifestyle centers. By understanding the strengths of these centers and the motivations of lifestyle shoppers, cities may help to create a competitive advantage for their business districts.

The typical HGTV viewer is between 35 and 64 years old. Seventy percent of them are women. These demographics parallel those of the typical lifestyle consumer. On average, these consumers shop more often, visit more stores than average during their shopping trips, and spend more than the typical shopper. Best of all for downtowns, a significant number of these consumers do not like

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visiting malls. They value the experience they get in shopping unique venues. For this same reason, online sales have not had much impact on in-store home furnishings sales.

Downtowns can cater to these preferences by cre-ating an attractive environment and providing both convenience and safety. It is definitely an upscale market and appearances should reflect that. Quality dining options can help to extend the shopping trip. Entertainment should be geared to adults. Informational and “hands-on” interior de-sign, art, cooking, and related workshops can be an ideal compliment to the sidewalk sales, craft fairs, and other community events often held in downtowns.

Most people will recognize names such as Pottery Barn, Crate & Barrel, and Restoration Hardware. Chains like these make up the bulk of all home furnishings stores. While they will locate in larger and distinctive downtowns and neighborhood business districts, their usual choice is a mall or lifestyle center. The more likely candidate for a downtown location is an independent retailer or small regional chain.

About a quarter of all home furnishings stores are either sole proprietorships or partnerships. Aver-aging about $350,000 in annual sales, sole proprie-torships most likely resemble a store that would be found in the downtown of a small- or medium-sized city. Two-thirds of these stores earn a profit, averaging 13.1% of sales. While the cost of goods sold is the largest expense they may have, these

stores are most sensitive to lease costs. Rent con-sumes an average of 28.6% of potential profits, the seventh-highest percentage of any industry.

The lower rents usually found in central business districts are a strong incentive for home furnish-ings businesses to choose a downtown location. Knowing this sensitivity, cities can establish mar-keting campaigns and target incentive programs to attract home furnishings retailers by addressing this key cost sector. Retail incubators, rent reduc-tion programs, and renovation loan programs are some possible tools for cities to consider.

Trends change. Will the slowdown in residential real estate impact the industry? Recent home buy-ers spend more than anyone – over $3,000 – on home related purchases within the first year in a new home. Or will higher interest rates cause people to spend more to remodel and expand their existing homes?

Bob Vila has been on television for over two dec-ades, Martha Stewart recently signed a deal to put her merchandise in Macy’s, and Ty Pennington will be marketing products for Sears. For now, it appears that home furnishings will continue to be one of the hottest prospects for downtowns. O

© 2006 Place Dynamics

The following article revisits this sector to explore the impacts of the current recession.

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The HGTV Effect Revisited By Michael Stumpf, November 2008

Two years ago when I wrote this article, the first signs of a slowing housing market were beginning to show. Since then conditions have worsened more than anyone could have foreseen. The con-cerns I raised at the end of the article have proven to be true – for some businesses.

Times have been hard on the chain retailers. Overall sales in 2007 were less than in 2006. In 2006 most of the 25 largest home furnishing chains saw solid growth. In 2007 nearly 40 per-cent of these companies experienced declining sales, and only Bed, Bath & Beyond, Williams-Sonoma, and Crate & Barrel posted the double-digit gains that were so common in preceding years. Data for 2008 won’t be available for some time, but monthly reports indi-cate a continued slump, with sales falling to about the same levels we saw in 2004.

Slowing sales have taken their toll. Companies like The Bom-bay Company and Wickes Fur-niture have closed their doors for good. The segment’s number two retailer, Linens ‘N Things, has filed for bankruptcy, an-nounced store closings, and may yet throw in the towel. Other major chains like Pier 1 may follow suit, as well as stores like Home Depot’s Expo

concept. From a peak of 61,086 furniture and home furnishings stores in the first quarter of 2007, we have seen a precipitous drop-off to 59,192 establishments at the end of the second quarter of 2008. This does not include stores that that are part of recently announced closings.

Unfortunately, data do not break out the number of chain stores closing versus independent retail-ers such as those that would be found on Main Street. Anecdotal evidence suggests that the greater number of closed stores are chain stores. So far, perhaps, the independents have proven to be more adept at weathering the storm. If this is true, it may be due to their unique merchandise, associated service offerings, characteristics of the

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business (independent businesses do not employ salespeople may be better able to absorb a de-crease in sales), or qualities of the site. Downtown and specialty districts have an entertainment value that continues to draw shoppers, and these locations may offer more attractive rents than the mall sites preferred by chain retailers.

Is furniture and home furnishings a retail category that is still a good fit for downtown? While the short term prospects for growth in this sector look dim, and undoubtedly many more retailers in the segment will not survive the economic downturn, it still appears that this sector is still in the long term a strong bet for downtown and specialty dis-tricts.

Even in the short term there are hopes that sales may pick up. The recession is causing people to spend more time at home. Furthermore, the hous-ing slump is encouraging people to remain in their homes instead of trading up or moving to retire-ment housing. These two factors could lead to a resurgence in home remodeling and purchases of furniture and home furnishings.

The basic dynamics of the industry that made it a source of retail entrepreneurship in prior years still hold true. This is already a retail sector in which sales are not heavily concentrated among a small number of firms. Several among the largest chains are struggling and unlikely to outlast the recession, and that will mean there will be market share up for grabs. Some will certainly go to other channels like discount stores, but there will be plenty of opportunity for existing and new home furnishings retailers.

For business districts, the initiative recommended in the original article still hold true. There is much that can be done to support these busi-nesses and help them to survive the current reces-sion. Home and food related events and other promotions that draw customers to the district are critical. They may even prove to be more success-ful than in the past, as people seek low-cost enter-tainment. Incentives should continue to focus on the core expenses of this sector – rent and inven-tory. Additionally, this may be a very good time to bring in experts to assist businesses with window displays, merchandising, marketing, cost man-

agement, internet sales, and other core retail busi-ness needs. O

© 2008 Place Dynamics