Buffett Does Dallas
Almost everyone is doing just fine, thank you very much.
That seems to be the consensus among Dallas-area casual furniture retailers a year after Nebraska Furniture Mart (NFM) opened its Texas-size store (560,000 sq. ft.).
In early 2015, no one could predict the effect that the 560,000-sq.-ft. store would have on the Dallas market. Especially after Warren Buffett, whose Berkshire Hathaway is majority owner of NFM, opined on TV that the store would “do over $1 billion” in first-year sales.
Could the greater Dallas market support that kind of volume in a single store? Could existing casual retailers survive with a newcomer vacuuming up that much revenue?
The answers are, respectively, apparently so and yes.
NFM’s move into Texas is a jaw-dropping business achievement to outside observers, and an adrenaline-pumping experience to those directly engaged in the fray.
“I guess there’s more strength to the Texas market than people give us credit for,” deadpanned David Barish, president of The Chair King, a Houston-based company with three stores in the Dallas-Fort Worth area.
Casual furniture, of course, is just one of the categories that the recently-arrived retailer offers. NFM also competes in interior furniture, electronics, appliances, flooring, home décor, fitness equipment, and more. So it’s fair to say that many Dallas-area merchants felt a little uneasy when the store opened in March 2015.
NFM now is part of the retail landscape in Dallas, and most casual furniture merchants say business is pretty good in spite of the competition.
“This year our business in Dallas is up considerably,” Barish said. “We’ve got no complaints.”
David Schweig, president of Sunnyland Furniture in Dallas, reports a similar experience. “Our business is up over last year,” he said. “We had a good year last year, even with their opening.”
|Sunnyland Furniture’s outdoor showroom.
Jackson’s Home & Garden is 23 miles away from the NFM store.
“We probably do some of the same stuff they sell,” said owner Bob Jackson. NFM’s huge media presence has “brought a lot of attention to all kinds of products,” he said. “We had a record year last year, and we’re having a great year this year.”
Into the Garden, a single-store specialty retailer near downtown Dallas, is the only casual store interviewed by Hearth & Home that reports a slight downturn since NFM came on the scene.
Into the Garden is about 20 miles from NFM’s suburban location. Mary Van Meter, vice president of Merchandise and Marketing, thought the specialty shop and its customers might be insulated from the big store’s impact.
But foot traffic, as well as sales, is down, she said, and NFM’s delivery trucks regularly are seen cruising downtown neighborhoods.
“We didn’t anticipate the threat to be that bad,” she said. “We have to reevaluate.”
Nebraska Furniture Mart of Texas didn’t rake in $1 billion in sales during its first year. Edward Lipsett, store director (manager), told Hearth & Home, “We didn’t get there yet. But we have no doubt that in the future we’ll get there.”
Lipsett declined to specify the store’s first-year sales volume. The Dallas Morning News reported (without attribution) in April that sales totaled about $750 million – still an amazing figure for a single store to generate.
NFM’s projections of outdoor furniture sales were off the mark but in a good way. “Our sales are definitely way better than expected,” Lipsett said. “We’ve had to make some adjustments on what types of products to carry.”
For example, “lower price-point wicker hasn’t been as big as in the Midwest,” he said. “The customers want nicer patio furniture. I guess some would say that’s not a big surprise.”
NFM is sticking to a “good-better-best model,” he said, “but the best is extremely popular.” One individual item that has proven more popular than anticipated, he said, is chaise lounges.
“The grill business is another one that’s been great,” Lipsett said. Although NFM doesn’t offer construction services for outdoor kitchens, it sells more built-in grills than stand-alone units.
The casual furniture season “if you buy right” can last year-round in the Dallas market, he said. The “winter market” includes patio furniture as well as fire pits and outdoor heaters.
The “best customers are spending multiples of thousands of dollars on a patio furniture set. Customers have no problem spending more money,” Lipsett said.
He was unable to provide data on the average ticket for a patio furniture sale.
Considering that most of the area’s existing casual furniture stores appear healthy, the buying power of the Dallas-Fort Worth market truly is impressive.
The region’s healthy economy no doubt convinced NFM that it could venture beyond its established markets in Omaha, Kansas City and Des Moines. Retail sales in Dallas-Plano-Irving in 2005 were about $22 billion, according to the Federal Reserve Bank of Dallas. Fort Worth-Arlington retail sales reached almost $10 billion that year.
|Nebraska Furniture Mart, Dallas, Texas.
The Chair King, Sunnyland and most other casual dealers interviewed by Hearth & Home didn’t simply ignore NFM and do well in spite of the giant competitor. They remained true to their roles as specialty retailers, doubling-down on their areas of expertise.
They kept a close eye on the new competitor’s brands, products, prices and advertising. They adjusted their offerings and strategies throughout the season, using intelligence gained through observation and listening to shoppers.
Garrett Wallace, vice president of Stores at Yard Art Patio & Fireplace, characterized the situation this way. “They’re doing what they do,” he said of NFM, “and we’re doing what we do, and making sure we’re not getting beat.”
Yard Art has five stores in the Dallas-Fort Worth area. Two of its stores flank NFM’s location, just a short drive to the east or west.
NFM of Texas is part of a 433-acre project being developed by the company. NFM calls its $1.5 billion development Grandscape. The NFM store is the anchor tenant, to be surrounded by restaurants, hotels and other retailers. Four restaurants are open, with another five scheduled to open by summer 2017. Two hotels should be open by the end of next year.
Wallace said NFM came into the market with a “Big Box mentality” but made adjustments as it learned what sort of outdoor furniture Texas shoppers wanted. Even so, he said, specialty retailers have an advantage in retailing higher-end products because of their years of experience, staff expertise, and even store layout.
Lipsett estimated that special orders at NFM probably account for no more than 10 percent of casual furniture sales. Most orders are filled from the store’s 1.3-million-sq.-ft. warehouse.
Special, or custom, orders at better specialty merchants typically account for 40 percent or more of all sales. Special orders allow customers to purchase unique fabric and color combinations and generally provide merchants with higher margins.
Wallace noted that NFM customers making special orders must do so on the busy showroom floor where other shoppers may be a distraction to customers as well as to the sales staff. NFM has a special design room for consultations, he said, but it is “not near the product.”
At Yard Art Patio & Fireplace, Wallace said, “We’re able to do stuff they’re not up to doing.”
Schweig, at Sunnyland Furniture, said the massive size of NFM can be a daunting experience. “For those who are shopping, it’s an effort,” he said.
The store was projected to draw eight million visitors annually, which works to an average of nearly 22,000 shoppers a day. The store, which is open from 10 am to 9 pm daily, except Sunday when it closes at 6 pm, has a staff of 1,750. “We hear stories all the time about people walking in and not being pleased with the process,” Schweig said.
NFM, by virtue of its size and reputation, draws the curious as well as serious shoppers.
A study commissioned by NFM and carried out by America’s Research Group estimated that the store would attract about 40 percent of the consumers in the Dallas area to come by and check it out, said C. Britt Beemer, chairman and CEO.
The projection was off, Beemer said. “We actually influenced 60 percent of the consumers in Dallas in the first year,” he said. The heavily promoted Grand Opening probably helped push up the percentage, he said. “And I think they’ve had some tourists shop.”
Beemer told The Dallas Morning News that the store already is profitable and that it should achieve $1 billion in annual sales by its third or fourth year.
Tourists and relatives visiting family in the greater Dallas area can be the only explanation for a map that locates the home address for every customer who bought from NFM (see Figure 1). The pins spread from coast to coast. Texas is almost covered in blue pins. So are Florida’s southern Atlantic and Gulf coasts. California’s Bay Area and Southern California are home to plenty of NFM customers, as are New York, New Jersey, Connecticut and Massachusetts.
Out-of-town sales are not uncommon for other casual retailers. High-rolling, high-style Dallas is a shopping destination. Yard Art has customers from Arkansas and Oklahoma as well as far-East and far-West Texas, Wallace said.
Shoppers from the West Texas oil town of Midland often come to Dallas, which is a 4.5-hour drive if they choose to come by Interstate 20. Some opt to fly the 330 miles.
“A lot of those people have private planes,” Wallace said. “They come up for the weekend and shop.”
|Pins indicate location of every person who has bought from NFM since it opened.
Competing with NFM means keeping a close eye on what the giant retailer is doing, because that’s exactly the strategy NFM pursues as it battles for consumer dollars.
“We pay attention to everybody,” store director Lipsett said. “We’re always going to be the lowest price in town. It’s just who we are. And the way to do that is to know what all your competitors are pricing.”
Specialty retailers in the area have come to recognize NFM staffers who visit regularly to check products and prices. “They are in the stores at least once a week,” says Yard Art’s Wallace. “And we are in their store at least once a week doing the same thing.”
Sunnyland’s Schweig also mentioned that competing with NFM means walking that store’s casual furniture department with a critical eye toward brands, groups and pricing.
Yard Art is in direct competition – “apples to apples” – on three specific Agio groups, Wallace said. Yard Art staffers check NFM’s prices once a week, and if Yard Art’s prices are higher, Wallace said, “We lower them.”
The tit-for-tat strategy “has sucked all the money out of those groups,” he said. On the other hand, he’s confident that the volume retailer can’t match his staff’s expertise in selling higher quality, special-order goods. He noted that Yard Art’s special-order business is up in certain high-end lines.
NFM’s presence in the Dallas market has led casual furniture retailers to step up their game in order to remain competitive. The retailing giant is “obviously doing things right, because they are doing the volume,” Schweig says.
Yet so many facets of the most desirable casual business are unrelated to selling large volumes of lower-priced goods. That leaves plenty of room for specialty retailers to thrive.
NFM, Schweig said, “is here and will be here for a long time. How we address it is to make sure everything is exceptional and exceed our customers’ expectations.”