Re: How's your Pottery Barn, Crate and Barrel, and Restoration Hardware furniture mad
Here's the economics of all these trendy home furnishings stores and why you have to be observant in what you are buying.
All retailers set pricing based on overhead. You have a cost to run a business and real estate is a significant portion of that cost. Then the retailer will set a percentage over and above the cost of goods to take into account the overhead and allow for a profit. Market forces (that's you - the consumer) will dictate the ceiling on that price structure. So, in order to not break through that ceiling you have to do one of two things as a merchant. 1) Control cost of overhead 2) Buy less costly goods. That's the only way to do it.
Let's look at a hypothetical. Let's say the ceiling cost of a leather sofa is $ 3,999.
Store "A" is Pottery Barn, Restoration Hardware, Arhaus, Anthropologie, Crate and Barrell, etc.
Store "B" is a small independent retailer like my store, The Keeping Room. Off the beaten path and a destination store.
Store "A" is in a fashion mall, or other prime retail that has significant floor traffic. It requires 6 employees @ $15 an hour to run the day from 9 a.m. to 9 p.m. Twelve hours x six persons = 72 man hours. $ 15 an hour x 72 = $ 1,080. Open 30 days a month = $ 32,400 in payroll. Next is the rent. 5,000 s.f. at mall rent prices of $ 40 a s.f. (with CAM) = $ 16,600. Monthly outlay just for staff and rent is say $ 49,000.
Store "B" is off-prime space, little to no walk-in traffic, its destination. Same 5,000 s.f., but the monthly rent is $ 7,000, and operating hours are shorter, and since its a destination store less payroll. We'll say 2 employees for 20 days @ $ 15 an hour ($ 4,800). All that comes to around $ 12,000 a month, or one quarter of that prime retail mall store. ONE QUARTER!!!
So the fancy and trendy store has 4x the operating cost - now to hit their mark they need to buy the sofa they are selling for $ 3,999 at around $ 1,500 wholesale in order to cover the overhead. Meanwhile the small independent who is selling a sofa for $ 3,999 is probably paying around a thousand dollars more ($ 2,500) for the piece. At the manufacturing level, there is a huge chasm in quality from a $ 1,500 sofa to a $ 2,500 one. The differences are notable and significant.
This is why people are perplexed when they observe that both sofas are the same price, but the one from the non-trendy location appears to be a much better piece. And it almost always will be. The small store that is out-of-the-way simply doesn't have the overhead costs and can offer the consumer a higher quality piece for same money. It's simple math.
This is also the reason why high quality furniture stores that are in prime retail often go bust. The overhead grinds them up and in order to make margin they have to price the goods far above the prices of those doing cheap products and break through the ceiling, then consumesr backlash against the price.
So you have to be careful shopping those mall stores. Sure, they have great store design, excellent displays and are right around the corner from your favorite restaurant, and you're also likely paying a high price for mediocre (or even poorly made) product when you purchase there. Be observant, take the knowledge you gain from forums such as this one, and examine pieces before you buy.
Duane Collie
Straight answers from thirty-six years in the business.
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