By Brent Felgner
Bank of America has made an investment in Countrywide Financial, the country’s largest mortgage lender that laid off employees last week and reportedly dipped into its credit facility to buck up liquidity. That’s a big vote of confidence for housing and credit markets, which need all the good news they can find.
It’s also one more in a string of contradictions — much like the see-saw volatility we’ve seen lately in the stock markets. Construction credit has tightened, dealmakers are backing off M&As and IPOs and, surprise, hedge funds and other private equity are taking big hits.
So, what of the soft home business? The industry-centric wisdom used to be that when the economy tanked, curtains and drapes, sheets and towels did just fine, thank you. The equation was something like: If consumers hold off buying a $500,000 home, or making a $50,000 renovation, they are more likely to spend $500 to spruce up their bathroom and bedroom with home textiles.
Maybe. It seems perfectly reasonable. But it’s difficult to tell if that was ever actually true or simply a self-adjusting sales pitch for the benefit of nervous retail buyers (and a bit of spin for reporters). Sunshine and blue skies—always.
The thing is, this time some ht executives are abandoning that refrain. One confided, “This is the scariest drop in the retail home business I’ve seen in 15 years.” Is it simple hyperbole or is the sky really falling? Others reacted to his statement as a bit over the top, although they acknowledged that this time does seem different and, at a minimum, concerning.
The alternative wisdom suggests that home textiles, along with housing, is six months or so ahead of the rest of the economy — it’s a leading indicator. So, when it tanks, look out. The bright spot: It leads the rest of the economy out of the doldrums on the other side.
Whatever. This downturn is likely to carry implications far beyond mere product marketing. Just consider the number of ht companies quietly on the block right now. It may not be a great time to sell a long-lived asset. Conversely, it may the best time to buy one. The Perfect Zen of it all.
The not-so-perfect side is the number of companies that are heavily into the "shies"—who in a search for operating cash, probably made some regrettable decisions about debt and its terms.
Frankly, it’s difficult not to think about the companies that won’t be sold — that won’t survive to see the other side of this cycle.
* * *
After-thought: Tough times, conservative designs. A flight to safety. That seemed to be one theme emerging from market: Retailers, more than ever, were looking for old reliables, even more than new fashionable winners. True?
August 30, 2007 In response to:The Day After l.e. commented:
"After-thought: Tough times, conservative designs. A flight to safety. That seemed to be one theme emerging from market: Retailers, more than ever, were looking for old reliables, even more than new fashionable winners. True?"
Sadly, true. There is so much opportunity for innovation in our world today yes, even in the home textiles industry.
The industries that embrace innovation are without question the ones seeing the most growth and profitability. There are more studies being done today on the impact of innovation than ever before. All the studies overwhelmingly have concluded that those companies who embrace innovation consistently experience exceptional growth and predictably outperform those competitors who do not embrace innovation.
The home textiles industry, with very few exceptions, does not appear to embrace innovation and are not even open to it. They are united in their unwillingness to go outside their comfort zone. The only time the industry changes the way they do business in any way is when it has been forced upon them.
Innovation and branding. Look at the additional revenue generated by manufacturers who have secured, let’s assume successful, license agreements with designers. This revenue, while significant in some cases, can be seen as extremely limited if you were to compare those revenues to the revenues that would be generated by a truly innovative "product." This would especially hold true if the "product" could take full advantage of every single “standard” top of the bed component and ensemble sold regardless of the specific price point or market segment. What if the product was designed to be purchased more often than other top of the bed components? What if you could enjoy greater margins on this new product than you could with any of your other top of the bed components? What if it were a window treatment that made much more sense than the window treatments being sold today. What if the window treatment were designed so that they were less expensive to make and you only had to make one size and because of the design, that worked for 99% of the windows in a typical home and to top it all off, it looked far superior to similar products being sold today?
Alas, the introductions of products like these are not likely to happen given the current thinking. Most of the manufacturers and retailers in this industry are by and large complacent and are operating from a fear based mentality. Perhaps at any other time in the history of the industry this would be an acceptable response to the current environment. Today, this way of operating probably isn’t going to cut it. There is too much opportunity today, even for the home textiles industry. There are innovative products and concepts out there just waiting to be developed and implemented. Yes, there is a great deal of IP pertaining to the home textiles industry available out there. No one is really looking and those that have been exposed to innovative products and concepts dismiss them because they fail to recognize the value or potential and they quite frankly don't want anything other than what "they have now." They can more easily identify with what they have now and cannot comprehend anything other than that. Therein lies one of the inherent problems within the home textiles industry.
The industry as a whole, has operated the same way for years and cannot conceive of doing anything differently. Why? It appears that they are psychologically unable to do so. It’s this thinking that has kept this industry essentially under the radar with consumers compared to other consumer products. There doesn’t seem to be many, if any, in this industry willing to consider, or for that matter, are equipped with the ability to recognize the enormous positive impact that innovation can have on their bottom line.
Just because products have been developed by individuals who may or may not be working in the industry, it doesn’t appear, especially in today’s environment, that the industry can afford to ignore or dismiss innovation, or those who are developing these products. Hopefully, at some point, a manufacturer, who isn’t psychologically predisposed to respond to innovations and innovators by dismissing them, will seize the opportunity and will take advantage of all this IP out there.
As Gary Hamel said in his book ‘Leading the Revolution,’ “Radical innovation is innovation that has the power to change customer expectations, alter industry economics and redefine the basis for competitive advantage.” There are innovations out there that could literally change the vocabulary of bedding and window design, yet there is an extraordinarily strong resistance to appreciate all the implications.
The operative word Brent uses in his article is "safety." Many of our most successful products and accomplishments would never have seen the light of day if everyone operated on this basis.
Yes, I know its cliché, but perhaps we should revisit Albert Einstein’s definition of insanity which is “doing the same thing over and over again and expecting different results.” This holds painfully true for the home textiles industry especially with regard to product development.
There are no guarantees that everything a manufacturer or retailer tries will be successful but there is also no way of telling how many times success has been unknowingly averted because someone was unable to recognize an opportunity simply because it was foreign to their way of thinking or doing business.