Within the industry, businesses specialize in a specific market sector or type of product:
Home furniture, garden furniture, office furniture, and specialty furniture. Segmentation is conducted according to type and quality of furniture, design, material (various types of wood, plastic, metal, glass, etc), quality, and price aspects.
- Trade in the furniture industry is conducted in NIS but is very sensitive to foreign currency fluctuation due to importation. High rates of business closure occur, especially during recession periods.
- There are a number of local franchise chains offering guidance, assistance, advertising, reputation, product price flexibility, and additional size advantages. Stores associated with a chain have higher survival rates.
- Seasonality- high seasons are usually holiday seasons, J
- Payment morality in the industry is not very high due to many instances of bankruptcy throughout the industry
Products are consumed by the general population and the business sector.
Private market vs. corporate market
Age and marital status.
Income level and expenditure on furniture.
The industry is highly competitive as entrance threshold is low regarding knowledge, experience, and professionalism.
- Local manufacturers, large a small, operating retail points of sale- showrooms, franchisers, company stores.
- Importers operating independent showrooms.
- Independent retail stores.
- Independent carpenters offering furniture on-order.
- Chains active through the marketing, and dictating price levels in the industry.
Import: England, Scandinavia, Germany, Spain, Italy, Far East, and Eastern Europe: Carpentries, specialized wholesalers and factories manufacturing furniture industrially and marketing to independent stores, franchisers or agents.
A location known for its concentration of furniture stores, easily accessible, and with available parking. Promotional discounts.
Advertising promotions in local press.
Advertising in national press and design magazines in addition to yellow pages and other types of classified guides. Participating in general exhibitions and furniture exhibitions.
Participating in tenders-mainly in the organization and corporate sector.
Factors Affecting Success:
Store location and density of competition in the area, store and window design, furniture uniqueness, professionalism and credibility, association with a chain, and brands.
Entry threshold is low regarding professional and experience levels. Main entry barriers are financial- high regular expenses (rent and property taxes), store appropriation, and initial inventory. The existing inventory is expensive and must often be replaced in order to remain fashionably updated. Display furniture is sold at a minimal discount of 30%/
Appropriating the structure, designing the store, and acquiring initial furniture inventory.
Operating capital is the most important parameter due to high operational costs and payment terms. Apart from sales costs, the most significant parameters that need to be taken into account are: rent, property taxes, marketing and sales, salaries, and customer service.
Typical Terms of Payment
Vendor terms of payment range between 60-120 days, or higher. Some vendors use consignation.
Customers: Usually pay in cash, check, or credit card. The industry is characterized by allowing the customer to pay in installments. It is customary to offer a 10% discount for cash payments.
Industry Revenue and Profitability
- At simple stores, average order price in 2003 ranged between 1,024-3,072 with profit percentages ranging between 30-37%.
- At medium level stores, average order price in 2003 ranged between 3,584-6,144 with profit percentages ranging between 25-30%.
- At company stores, profit will range between 35-38%.
- At expensive stores, average order price in 2003 ranged between 6,656-10,240 with profit percentages ranging between 26-30%.
- At prestigious stores average order price in 2003 ranged between 10,240-20,480 with profit percentages ranging between 55-60%.
- An independent agent (store selling the products of a specific manufacturer), usually receives commission ranging between 12-30% of revenue. Agent commission when working with large customers (such as contractors) will be lower- approximately 5% of revenue.
The industry’s sensitivity to fluctuation in foreign currency, high competitiveness, fluctuation in fashion and trends, seasonality, and low payment morality, all place this industry at a higher than average risk level.
Ikea’s penetration into the market as well as the establishment of furniture departments at chains such as Office Depot, Ace, and Home Center, which provide relatively cheap furniture and a wide selection of self-assembly products have created significant risks for small stores that do not have an obvious relative advantage.
Licenses and Certifications:
If the store’s total area is over 500 square meters, local authority licensing is required in addition to a police permit. If the store is also an importer, a formal import license is required from the Ministry of Trade, Industry and Labor.
Business insurance (for the structure, content, and inventory), third party insurance, employer’s liability insurance, loss of income insurance, and goods in transit insurance. In addition to the above, an insurance agent should be consulted in regards to the need for additional insurance.
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