E-business Models Case Files: Furniture.com

FRAMINGHAM (01/27/2000) - From the road, Furniture.com's two-story red brick headquarters resembles any other office building on a strip-mall-studded thoroughfare west of Boston. Inside, it's a different story. The main entrance looks like the front porch of somebody's small-town home, complete with a wooden front door, a shuttered window set into vinyl siding, a mailbox on a post and an inviting hardwood rocker. Scattered among employees' cubicles, visitors might find a plush yellow armchair and footstool, a Leave It to Beaver-era dinette set, a French country breakfast table or a set of sleek Italian dining room chairs. Even the photocopy machine sits on a Colonial-style chest of drawers rather than a standard-issue filing cabinet. True to form, Furniture.com CEO Andrew Brooks says of the decor, "if we don't have nice furniture, who would?"

Furniture.com does have furniture. Lots of furniture. But it's not for sale here; these items are just part of the eclectic decor the Framingham, Mass.-based company uses to brief its 185 employees on its newest beds and tables, lamps and rugs, chairs and cabinets. The company actually maintains no showroom and almost no stock. Instead, it sells its wares on the Web, working with manufacturers who ship purchases directly to consumers.

That inventory-less model is at the heart of Furniture.com, a 2-and-a-half-year-old business shaking up both the e-commerce and the furniture industries. It allows the company to offer 50,000 items in a dizzying variety of styles, colors and price ranges-from three to 10 times the amount available in traditional stores, according to industry analysts. And Furniture.com doesn't have to incur costs to store it, display it or move it around.

But executives say that vast selection is secondary to the company's underlying mission: revolutionizing a shopping experience that's almost as stressful and time-gobbling as buying a new car. On average, according to Brooks's research, people in the market for a new couch or coffee table spend several weekends dragging themselves from showroom to showroom, often with kids in tow, comparing prices and collecting swatches, before deciding what to buy. "People dread the process," says Brooks. "Halfway through, they just to start to surrender."

Furniture.com is based on the idea that it just shouldn't be that hard to find the perfect couch or a bedroom set. To that end, its Web site offers tools, live online assistance and thousands of pages of content to help customers find the perfect piece.

Both investors and customers seem impressed. Furniture.com raised more than $50 million in three rounds of funding and had 722,000 unique users during September 1999, according to Media Metrix. (Furniture.com will not disclose the number of registered users.) Officials of the privately held company say sales increased from about $900,000 for the whole fourth quarter of 1998 to $1 million per month by mid-1999. They declined to provide more recent sales figures, saying only that the company expects to continue increasing its slice of the $178-billion annual U.S. furniture market.

But one Furniture.com policy has already drawn fire: When customers return purchases, they receive only an exchange or a store credit. Company officials defend the no-money-back policy by saying Furniture.com does everything possible to satisfy customers: offering 24-hour help, sending fabric and leather swatches upon request, providing free delivery and offering optional extended warranties that cover almost everything short of a nuclear war. And the company does let customers exchange merchandise without charging the usual return-shipping costs or restocking fees. However, some analysts still believe the company should provide money-back refunds as well.

Unlike many online retailers, Furniture.com isn't technically a startup. It began 50 years ago as the family-owned Empire Furniture Showroom in downtown Worcester, Mass. By the mid-1990s, the retailer was doing business out of an old mill building with no air conditioning, insufficient heat and three toilets for 90 employees. In 1997, store owner Steven Rothschild and a partner, Misha Katz, launched the first iteration of their business, FurnitureSite.com, from the brick-and-mortar store.

The urban location wasn't great for business either offline or online. Broken glass littered the streets; drug addicts hung out in front of the building. "We had local bankers come once and their tires got slashed," recalls Brooks, who came on board in 1998. "We would have job candidates who would call [from their cars] and say 'I'm going to keep on driving'" after they saw the neighborhood.

In early 1999, after simplifying the name to Furniture.com and moving to its suburban offices, the company closed the brick-and-mortar business and converted the old showroom to a photo studio for creating furniture groupings shown on the site. Furniture.com maintains a warehouse nearby for returns.

Rothschild is now company chairman; Katz is vice president of new technology.

CEO Brooks acknowledges he isn't a furniture specialist. "I'm a consumer guy. I love building consumer businesses," he says. His previous gigs include heading the Channel One online and TV network for teens and serving as general manager of BMG Direct Canada, a mail-order music business. Jumping from entertainment to furniture isn't that big a stretch, he says. "What I loved about marketing music was the ability to leverage that feeling that people get after they listen to music. Similarly, the home, and everything the home represents, is emotional."

But when it comes to the two kinds of relationships that make Furniture.com work, Brooks is all business. First, there's the company's network of suppliers. If, for instance, there's sudden interest in moderately priced, queen-size, Mission-style bedroom sets, Furniture.com wants them available in a hurry. "You have to work with manufacturers who believe in [the business model], manufacturers who can scale with you, manufacturers you can depend on," Brooks says. "We have severed relationships with suppliers because they couldn't meet demand." Furniture.com also partners with more than 10,000 affiliates-other Web sites that share in the profits anytime a customer registers with or purchases from Furniture.com through the affiliate's site.

At least as important, of course, are the customers. Furniture.com knew it needed to overcome buyers' natural desire to see and touch the items they may be sitting on or eating around for a long, long time. To that end, the company offers Personal Shopper, a free service connecting customers with online design consultants. Customers log in, answer questions about styles, colors, room size and budget, then submit the form to Furniture.com. The company's design consultants find pieces that fit the bill, move their images and descriptions into a private online "showroom," then e-mail the customer an invitation to come view them.

Other online tools include Room Planner, which lets customers create a floor plan for rooms they're furnishing. With a mouse click, they can add or delete items, move them around, or change the fabric, finish or color. They can save their blueprints for later or e-mail them to somebody else for feedback. Once they find the right combination of furniture, they simply click to buy. They can also check to see whether items are in stock or look up fact tags with information such as country of origin, type of construction, recommended care and more.

The company sends swatches by request and provides 24-hour customer service by live chat, e-mail or telephone. Furniture.com also offers free in-home setup, and service continues after delivery: reps call customers after they've lived with their new lamp or end table for a few days to make sure they got what they ordered.

"It's matchmaking, really," Brooks says. "We're creating a marriage between the customer and a perfect piece of furniture."

For at least two customers, that's ultimately what happened. Ruthy Ross of Duvall, Wash., found Furniture.com after spending six months looking in brick-and-mortar stores for a bed for her 3-year-old daughter. "I felt it was a risk buying it off the site, but I also had confidence in their guarantee," Ross says, referring to Furniture.com's exchange policy. She was so confident, in fact, that she ordered a sleeper sofa for her guest room as well. The bed arrived as scheduled. When the sofa didn't show up, Ross made one phone call and sent one e-mail to Furniture.com. In response, she says, customer service representatives located her sofa at a manufacturer's warehouse and gave her a new delivery date. That time, the sofa arrived as promised. "They handled it very efficiently," she says. She has since ordered an office desk from the company.

When Scott and Adria Silverman bought a new condominium in Surfside, Fla., they spent about two months looking for a particular entertainment center constructed with storage drawers on the side. "We literally went to every furniture store in South Florida," Scott Silverman recalls. After finding Furniture.com via a search on Yahoo, he looked through its entertainment-center offerings and instantly found what he wanted. His order arrived on schedule several weeks later. "It's just absolute convenience," Silverman says. "If we had just gone to Furniture.com in the first place, we would have saved not just hours, but days."

Anne Stuart is a former senior editor at CIO.

THE COMPANY

Founded: July 1997 as FurnitureSite.com; launched as Furniture.com in January 1998 Revenues: Privately held Location: Framingham, Mass. President/CEO:

Andrew L. Brooks Employees: 185 Mission: Online furniture retailer Target audience: Furniture buyers at all price levels Impact: About $1 million per month in orders. Alliances/Partnerships: Affiliate program with more than 10,000 members; sponsor of U.S. Postal Service Welcome Kit, sent annually to residents who move; sponsor of Home Enterprises Inc. Haven television program and print publications URL: www.furniture.com CRITICAL ANALYSIS BY MARTHA FREY ROOM FOR IMPROVEMENT The online furniture shopping experience is compelling in many ways. On the Web, consumers can shop anywhere, anytime, without the penalty of tired feet. The new model does not offer lower prices, but it does offer convenience accompanied by competitive prices. In addition, the new model offers a wider selection of products than most brick-and-mortar retailers.

Furniture.com sells 50,000 items (an item is an individual product such as a specific couch in a specific color in a given fabric) from 150 manufacturers.

Generally, small to midsize furniture stores offer 3,000 to 5,000 items, and midsize to large stores offer 8,000 to 12,000 items. In addition to presenting a wide selection of furniture, the new business model offers real-time, online help from expert design consultants and online planning tools to help shoppers choose an item.

But what happens if the customer doesn't like the piece of furniture after it arrives? Here is where this particular business model breaks down.

Furniture.com pays the return shipping fees, on a one-time exchange basis, and issues a store credit. In other words, the company's business model does not provide cash refunds. This policy is in effect because of the high cost of processing furniture returns.

Is a 100-percent money-back satisfaction guarantee required to sell furniture on the Web? Yes. Offering only merchandise credit on returns, as Furniture.com does, is a problem, because it does not make the process of buying furniture on the Web any easier. The leap of faith that is required to buy furniture without testing its craftsmanship and comfort is great even with a customer-friendly return policy. Without a money-back satisfaction guarantee, the Furniture.com business model lacks vigor.

Furniture.com is not alone in its return policy. Living.com accepts merchandise exchange within seven days but won't refund the purchase price. Such limited return policies won't lead to long-term customer satisfaction.

However, some online furniture-sellers offer more customer-friendly return policies. BeHome.com and Furniturefind.com both offer exchange, store credit or a refund (minus a 10 percent or 15 percent restocking fee respectively) within seven days. But unlike Furniture.com, both companies require customers to pay return shipping charges.

On the other hand, many brick-and-mortar furniture stores offer money-back guarantees. For example, Crate and Barrel, Levenger and Room&Board all offer customers the option of receiving either cash or store credit on merchandise returns. These companies limit their financial risk by charging customers shipping fees on furniture returns.

A 100-percent money-back satisfaction guarantee is required for a sustainable e-tailing model. Without a money-back return policy, the Furniture.com business model does not meet customers' expectations for a satisfactory shopping experience. Sooner or later, Furniture.com and other online furniture purveyors should realize that certain things don't change just because the venue for doing business changes.

Martha M. Frey is a senior consultant and analyst with the Boston-based Patricia Seybold Group, specializing in e-commerce and web merchandising. She can be reached at mfrey@psgroup.com.

CROWDED HOUSE

At least 50 e-commerce sites sell home or office furniture, mattresses and accessories. Major contenders include:

FurnitureFind.com Buchanan, Mich. www.furniturefind.com Launched in 1996, this company now offers 75,000 home-furnishing items and serves as the exclusive content provider for Microsoft Corp.'s HomeAdvisor.

GoodHome.com San Rafael, Calif. www.goodhome.com This online-only retailer made headlines when it merged with a potential rival, nHabit.com, before either had actually launched. The combined company launched in September 1999. Its iDecorate technology lets customers mix and match fabrics, and other items.

HomePoint.com (previously FurniturePoint.com) Greenville, S.C. www.homepoint.com Launched in December 1998, HomePoint most recently began offering bilingual customer service representatives to serve Spanish-speaking customers.

Living.com Austin, Texas www.living.com Launched in July 1999, this company uses Oracle applications similar to those at Amazon.com and E-Trade.

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