The Rug Market - December 2012

By Jessica Chevalier

Regardless of whether it is the best way to buy a rug, online area rug sales are here to stay. Customers may not be able to feel the texture of a rug before they purchase it online; they may not be able to see, with clarity, the hues of the yarn; they may not be able to take the rug into their home and try it out with their décor before they take the plunge, but that does not stop many of today’s shoppers from buying area rugs through ecommerce sites, especially at the low and
mid-range price points.

Does this mean that all brick-and-mortar retailers are heading toward extinction? Of course not. But it does mean that they need to identify their strengths and determine how best to position themselves in today’s marketplace.

ECOMMERCE
While some brick-and-mortar retailers look at the online retailer almost as an adversary, Valerie Roberts—co-owner of nine Roberts Carpet & Fine Floors stores and one Dazzling Décor Rugs and Accessories, all in the Houston area—believes that the relationship between the two types of retailers is more reciprocal. She explains, “Sometimes customers find a product online or get an idea of what they are interested in. Once customers have done their homework on the computer, they come into the store, and we are better able to help them. We have to win their confidence and show them what the actual product looks like. People don’t have the knowledge or time to narrow down their selections [online]. We help prevent a customer from making a costly mistake.” Roberts and her husband Sam opened their first retail flooring store in 1984 and commenced with the Dazzling Décor concept last September. Dazzling Décor is a destination store that shows rugs in vignettes with furniture and accessories that the store also sells.

Rugs Direct is a website-based business with a store—not the other way around. In fact, the company has trimmed its brick-and-mortar business from three stores to one—Winchester Carpet and Rug in Winchester, Virginia—over the last two years and has seen double-digit growth both years since. The company believes it is the largest independent seller of area rugs online. Bill Martin, vice president of Rugs Direct, notes, “The fastest growing part of the area rug business is online, but brick-and-mortar are still the vast majority of business for rug manufacturers.”

Skeptics of the online rug business cite the inability of buyers to get a true sense of the color and texture of the rug as the main downfall of online stores. But as Martin puts it, “Business wouldn’t be this good if everyone felt this way.” He points out that people made the same claims about cars and apparel when online shopping for those items was emerging. Many of today’s customers are comfortable with those risks.

Dissatisfaction does, of course, occur, but Martin reports that his return rate on rugs is low, less than 10%, and it seems that the key to making this work is offering customers a great deal of assistance during the shopping experience. Rugs Direct offers customers the option to chat online with a sales associate, and it has its website constructed so that customers can sort the thousands of rugs offered there by style/theme, color, size, shape, material, brand, price, designer and type. It has a section of American-made rugs, and it allows users to enter multiple search criteria—for instance, a nylon, 5’x7’ in blue tones—to narrow their search. Rugs Direct sells over 40 brands of rugs on its site.

In addition, Rugs Direct offers a 30-day return policy. While the company pays shipping to the customer, the customer must foot the bill for the return shipping; however, that isn’t as costly as some might expect. It generally runs between $20 and $50, depending on the distance shipped and the weight of the product.

Manhattan is Rug Direct’s best market. Cities with high Internet usage produce the most sales for the company.

Contrary to what many retailers fear, Rugs Direct and sites like it are required to maintain minimum advertised pricing (MAP). Some manufacturers are better at enforcing this than others. A few manufacturers still refuse to sell rugs online, but that list is shrinking rapidly; in fact, a simple Google search revealed that two of the companies mentioned by Rugs Direct as strict brick-and-mortar-only manufacturers were found to be selling online (one at Home Depot). According to Miriam Thompson, co-owner of The Rug Rack and Home Décor in Chattanooga, Tennessee, Jaunty—a rug supplier based in Los Angeles—has tried a different approach to protecting the brick-and-mortar retailer. Jaunty does not include any identifying information on its sample tags so that consumers won’t be able to spot a rug that they like in the store and then price shop online. Thompson appreciates this protection.

Not every mom and pop rug shop will see significant benefits from creating an online marketplace. Just like with social media, online sales require time and attention: updating the search engine optimization, posting new product, keeping the website fresh and seasonal. Simply having an online marketplace isn’t enough. When The Rug Rack began creating its online store, the Thompsons decided to start with throw pillows. To date, not one pillow has sold online, so they are now reconsidering whether an online store is worth the cost.

Adam and Dana Razipour own World of Rugs, which has two locations in the Pittsburgh area. Adam is fourth generation in the rug business, and Dana is an interior designer. As the Razipours point out, a lot of consideration must be put into how a company is portrayed online. The Razipours are in the middle of launching their Internet business, but they don’t plan to put their hand-knotted products there, only their branded products. Dana is concerned that this could lead people to assume that all they sell are branded rugs, changing their image as a high-end rug retailer. “It’s a struggle to know how to portray ourselves online,” she says. The store doesn’t want to seem like a mom-and-pop shop, but it also doesn’t want to appear large and impersonal. Also, when customers shop the brick-and-mortar store, Dana and her staff are often able to up-sell them to a better products; however, this is not a possibility with online sales.

According to Dave Snedeker, division merchandise manager at Nebraska Furniture Mart, to try to stay competitive online, his store offers an incentive—like free shipping—to entice customers to buy from them. The store’s motto, “Sell cheap and tell the truth,” is a similar sales strategy to that of a big box, so Nebraska Furniture Mart must stay competitive with those stores everywhere, including online. The company will have a significant ecommerce rug offering when it finishes the refurbishment of its website this month. Nebraska Furniture Mart buys from more than 40 vendors and has 2,000 rugs displayed in its Kansas City and Omaha locations. The website will offer more, but it will not include hand-knotted rugs, as is typical of area rug ecommerce sites.

PRICE POINTS
For all the rug retailers that we spoke with, business is showing improvement overall. However, the situation with price points isn’t ideal. According to Snedeker, price points are continuing to erode. “The middle is going away somewhat,” says Snedeker. “The low end is doing really well. And the high end has done fairly well. The high-end market is stronger than it was a year ago. Customers who are coming back into the marketplace are seeking better goods, but, as a whole, the area rug business has turned into an accessory business, something more disposable, which has eroded price points.”

Nebraska Furniture Mart has three stores—in Des Moines, Kansas City, and Omaha—with a fourth store slated to open in Dallas in 2015; the company sells rugs online and is currently in the process of revamping the flooring portion of its ecommerce site. Nebraska Furniture Mart’s rugs range in price from $5 to $20,000. The company reports that it has a really good year with rug sales, which it attributes, in part, to the preference of today’s customers for hard surface flooring.

According to Thompson, the fourth quarter of the year is always the best for area rug sales because the cold weather sends consumers running for rugs to cover their hard surface floors. But her store, which she co-owns with husband Mike, saw things start to turn for the good in late summer, when they sold five hand-knotted pieces (three of which were to repeat customers). “We are seeing people willing to spend money on hand-knotted, and they have gone up in price. The Oushaks and Pakistani Peshawars are what people really want.” These rugs sell for between $44 and $60 per square foot, or $1,540 to $2,100 for a 5’x7’.

Thompson’s store is selling some rugs at the mid-range price points, and these are often custom rugs. “People can really get unique looks with custom programs, and some are priced moderately. These customers are not spending the same money that they would for a hand-knot, but they are getting something that is unique to them.”

Somewhat surprisingly, The Rug Rack’s outlet store, which sells mill overstocks and dropped styles, is doing poorly. The store is geared towards price-only shoppers, but the Thompsons suspect that the outlet store’s struggles are due to location, not price point.

Rugs Direct has noticed that its brick-and-mortar customers have more disposable income and are less concerned about price than they were six months ago. Online, the average ticket is about the same as it has been for the last few years.

Says Adam Razipour, “The economy has divided customers into lower end customers and higher end customers. Many customers today want to buy an 8’x10’ for under $700 or $800. The customer who was spending $2,000 to $2,500 before is now spending that. We have a few customers who are looking for something at the high end, as high as $5,000 or $7,000. The middle of the market has dropped out. Customers have the money, but they don’t want to spend it.” World of Rugs sells rugs that top $10,000.

STRATEGY
“I will always sell a variety of products from here on out,” says Thompson. The Rug Rack and Home Décor has diversified its offerings to include throw pillows, leather furniture, bedding, chair covers, hard surface flooring and, most recently, window treatments. Though she hasn’t sold many of the ready-made window treatments to date, offering these products pulls customers into the store. And that, says Thompson, is the hardest part of the retail battle, though she notes that there aren’t as many impulse buys as there once were.

By far the most diversified retailer in our group, Nebraska Furniture Mart sells a variety of products including furniture, appliance, electronics, hard and soft flooring, countertops, mattresses, décor and fitness equipment. Rugs account for 15% to 20% of its flooring sales. If a customer cannot find a rug that suits their needs from among the 2,000 in the stores, Nebraska Furniture Mart offers a catalog of additional styles through a kiosk on the sales floor. This system allows a sales associate to print and place orders as well.

The Razipours sell a few throw pillows, stair runners and some framed portrait pieces, but their focus is rugs. World of Rugs is a direct importer; twice annually, Adam travels overseas to choose rugs for the store. Direct importing helps them keep costs low. At the store’s Pittsburgh location, World of Rugs has 3,500 rugs in its showroom.
In addition, the Razipours operate the rug departments in two local high-end furniture stores. This partnership started about six months ago and is already showing promise. Rather than depend on the furniture store staff to sell the rugs, World of Rugs has a staff member on hand at each of these locations. “It does help the customer to see the whole room together,” says Dana.

The Razipours work hard to win the customer’s loyalty. Adam explains, “Loyalty is not what it was decades ago. People like to experiment. Dana and I are here every day, and customers like this. It sets us apart from other stores with commissioned salespeople. That is one of the reasons that we are successful at getting repeats.” In addition, World of Rugs offers wash and repair services and it offers 100% trade-in value on all hand-knotted rugs. That means that if a customer decides to invest in a hand-knotted rug, they can later return it for the full purchase price, as long as it is in good condition, and apply that store credit towards a new rug. In the last year, the Razipours have only had two people take advantage of the offer—one because they were downsizing their home and needed a smaller rug to suit the new space—but, regardless of whether customers use it, the promise makes them feel more confident about spending the money for a good rug. And, if returned, the rug can be resold as used for 80% to 90% of its original price; the Razipours don’t consider this much of a loss if it builds loyalty with the customer.

In addition, the Razipours will beat competitive prices on the same product. They carry better nylon and wool products by Shaw, Karastan, Nourison and Kas; branded products make up about 50% of their business. Their top sellers right now are accent rugs that satisfy the shopping craving without putting much of a hit on the pocketbook.

A diverse inventory at Dazzling Décor exposes Roberts to contemporary design in a way the floorcovering business does not. “Furniture stores are first to see new color and design trends. Rugs lag a year behind because they are hard to produce.” With the newest trends in mind, Roberts makes her selections, but she always focuses on maintaining a good stock of timeless looks and regional preferences. “To be a good shopper is to be a good buyer, and I love to shop,” she says.

In addition, at Dazzling Décor, Roberts hires sales team members who have design backgrounds so that they can serve as a voice of experience and expertise when helping customers choose a rug. This strategy is a boon that an online retailer has trouble replicating, even with a live chat feature.

Most importantly, in the furniture store setting, rugs sell well because customers can see them in vignettes, which help them identify the right size and style of rug for their own space. Dazzling Décor encourages customers to bring their fabric, paint chips and even photos into the showroom to get a feel for how they will work with the rug, and, ultimately, to test the rug in the home environment, “It will take on different hues in different surroundings. What it looks like under my light with my color schemes is totally different from what it will look like in the customer’s home,” says Roberts.

In her Roberts Carpet stores, Roberts and her husband are focused on creating a brand, which considers everything from their logo and signage to the view through the store windows from the street. The company also does strategic advertising to both designers and homeowners. In a competitive market like Houston, this is imperative.

While having a website and a Facebook page is the norm today, Rugs Direct uses a plethora of social media sites to promote business (Facebook, Twitter, Pinterest, Google+, Typepad and YouTube). As of yet, the company hasn’t seen as much success with these as it has with Google advertising, but social media’s payoff is rarely instantaneous; that’s not the point of the medium.

At the Rug Rack, Thompson sees many customers coming into the store equipped with their iPads to show pictures of their rooms or décor. And she frequently communicates with customers via both email and text. Since her outlet store is across town, Thompson will often text her salesperson at that store, asking about a rug. The salesperson will then use their smartphone to take a picture of the rug and will text it to Thompson, who then shares it with the customer. This saves the customer a trip across town. Thompson notes that one of the advantages that a brick-and-mortar can offer is service that makes shopping easier on their already hectic lives.

A few of Snedeker’s salespeople have started carrying iPads on the show floor so that they have the option of showing customers additional colors or designs that are available on the manufacturers’ websites. They can write orders for these products directly from their tablets. With younger shoppers, using technology builds credibility, making it seem like an establishment is knowledgeable and contemporary. And for brick-and-mortar retailers competing with ecommerce, this is an important image to cultivate.

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