Category: Innovation

Business, Innovation

The Commercial Furniture Market is Shifting

pollywannamath

I grew up loving Herman Miller, Haworth, and Steelcase. These three companies brought us the Eames Lounger, Wanders’ Tulip, and that one steel desk that we all know. I am sitting on a Steelcase Leap v2 chair as I write this post.

I like these firms because I know how it feels to work with bad office furniture. I’ve sat in task chairs that left me with aches after only a few hours of work. I’ve used desks that wobble or don’t comfortably accommodate computer peripherals. Ergonomic design is front and center for all of these firms. When you buy a Herman Miller task chair, you are buying years of research and expertise on the human body and how it must be supported during extended periods of office work. A good office chair and desk should be added between shoes and sheets on the list of things to spend money on.

The importance of ergonomics cannot be overstated. Although sitting might not really be the new smoking, there is no shortage of research the promotes good ergonomic habits in the workplace. Offices responded to this research by improving proactive ergonomic improvements throughout the 2000s. Now, many offices provide sit-to-stand desks, monitor risers, and the ability to move during the day. The workplace is improving and commercial furniture manufacturers drove many of those improvements.

A few months ago, many employees had to leave their ergonomic offices and start to work from home. In many places in the US, there is no end in sight to the new normal of work from home. The improvements in office furniture and employee ergonomics are no longer relevant to much of the US office workforce.

I started this post with a lot of praise for a few companies: Herman Miller, Haworth, and Steelcase. I could have included Knoll, All-Steel and others, but I’m not as familiar with their business model and future vision. Here comes the criticism.

Herman Miller, Haworth, and Steelcase fail to understand the market where they will need to compete in the Post-COVID landscape. Let me summarize their positions:

  • Herman Miller probably does not deserve to be criticized in this post. Herman Miller sells furniture online and does not require a dealer network. Herman Miller has a work from home section of their website. I won’t give Herman Miller undue credit, they are best positioned to succeed in a work from home environment because they have the strongest position in residential furniture.
  • Haworth does not appear to have changed their corporate strategy in the face of COVID. When I asked for information on how to create an ergonomic home office (more on that in pt.2) I was told to visit a dealer (closed due to COVID) for more information on how to create a home office due to COVID.
  • Steelcase, who continues to champion open offices, is publishing material aimed at reassuring the public that work from home will remain a marginal mode of work. Steelcase, a furniture company, points to the lack of ergonomic furniture available to individual contributors as a reason that employees will need to go back to their open office to be productive. Steelcase, like Haworth, uses a dealer network to sell their furniture to the general public.

Although the “reopening” date remains unclear for many US workers, there will be a time after COVID-19. I don’t think there will be a wholesale change from office work to work from home as the default, but I think we will see a shift at more than just the margins (and urban parking will become much more expensive). In a world with more workplace flexibility, commercial furniture giants will need to become more flexible as well. Offices will shrink a little and require less furniture.

All three will need to compete with less expensive residential options for office furniture found on Wayfair, Overstock, IKEA, and Amazon to retain market share and profits. I don’t advocate that any of the three attempt to compete on price with their current offerings. I described their differentiator above (ergonomics and durability).

That said, convincing a person to spend more on office furniture will be tough when there are myriad cheaper options (food is a perfect analogy for something with a similar cost+ health scale in the US). I advocate a few strategies to improve their competitive odds in the residential business market:

  • Remove the reliance on the dealer network for specific work-from-home product lines (Steelcase and Haworth). I know dealers will denounce the move and demand exclusive access to furniture sales, but purchasing must be easy for the consumer.
  • Create frequent partnerships with large employers to encourage employees to use their office furniture at home. This strategy should be natural for all three and retains the returns to scale of the current model. Employees would either need to place an order through their employer or have an employer-specific login to receive a discount. These partnerships should be advertised as a benefit by the furniture manufacturers as well as the companies involved in the program.
  • Spin-off home office design studios that compete on price and meet the consumers where they are. Leverage older technologies and cheaper materials to build smaller pieces designed for home use at a price point that is competitive in the Wayfair marketplace. Limit the number of products and colors available to keep costs down.

Without these strategies, all three companies will remain industry leaders in the commercial market. Retaining the same percentage of a shrinking pie is not good for business, however.

View part two here.

Business, Innovation, Technology

Battery Drama Remains

pollywannamath

In 2004, Demetri Martin observed that batteries are “the most dramatic object.”

They’re either working or they’re dead.

Looking back, I wish this joke did not age as well as it has. Why, when I go to the the store, do I still see disposable batteries as the primary option?

In 2004, we were using a mix of rechargeable AA and regular alkaline AA batteries to power our household accessories. Now, my devices either have an internal lithium-ion battery that I can recharge, or I pick up a disposable AA battery at the store and replace the battery when needed.

In 2004, my family and I were not trying to reduce our use of single-use plastics. My body wash had microbeads that polluted the great lakes. Telling people that you recycle was a liberal status indicator. Our lights were incandescent. But in 2004, we had rechargeable alkaline batteries to power our digital camera and TV remote control. These rechargeable batteries were easy to find, they were sold along with single-use batteries at our local grocery store.

When I go to the stores near my home, I see only single-use alkaline batteries on the shelves. Ideally I would have an analysis of the cost differences per milliampere hour and the environmental impacts of the primary battery technologies available:

Unfortunately, I cant find consistent data that would make that analysis possible for me, and I don’t know enough about battery technology to create a model for the environmental and cost outcomes that would be necessary without the observed data.

Without that model, I’m forced to make an assumption. At least one of the rechargeable battery options above are cheaper to use and better for the environment than disposable alkaline batteries. The New York Times agrees with this assumption as well. So why am I not buying AA lithium-ion batteries?

My inability to escape alkaline batteries isn’t unique to me. An analysis from 2006 (nearest to the 2004 date above) projected that Alkaline batteries would retain market dominance through 2015 at minimum and that the battery market would continue to grow. That analysis proved correct. An analysis that covers 2018-2023 (gated) appears to forecast continued market dominance of disposable alkaline batteries over rechargeables.

I think there are a few likely causes, convenience and market concentration being the two primary.

  • When I need a battery, I need it urgently. I probably am not willing to wait for overnight or two-day shipping from Amazon to find lithium-ion AAs. I may not even be willing to wait through the charging period (I know, I’ll work on it). Disposables are more convenient.
  • I would not be shocked to learn that the best and most innovative brands in lithium-ion batteries are not the household battery companies. It might also be true that none of the best lithium-ion (or similar) companies would be strategic acquisitions for the known battery companies. If either of these things prove true, I should expect that it will be hard to find good rechargeable batteries at the store.

Hopefully, by 2025, batteries will have caught up with other household good, or that all new household accessories will have long-lasting internal batteries that recharge. But in 2004, I would not have assumed that AA batteries would have regressed by 2020.

Fashion, Innovation

What’s the Deal with Pants and Shoes?

pollywannamath

The worlds oldest discovered pair of trousers are 3,300 years old. How different are they from what we wear? Time joked that they would fit in at Anthropologie.

Pants Image
The Pants

Made from wool, with a reinforced crotch, pattern design and straight leg, these pants feature most of the elements of a modern pant. Sure there was no zipper or clasp, no pockets, and the waistband wasn’t elastic–but people still wear rompers, and I would argue those are a step down in functionality.

Why haven’t pants changed much? My dress pants are wool and I like them more than most “modern” fabrics. Did we find the secret sauce over 3,000 years ago and haven’t found an improvement yet?

Shoes too. I was recently looking for a new pair of shoes for work and I wanted the following attributes:

  • Leather upper (stretchable)
  • Use of a wide last
  • Replaceable heal
  • Cork in footbed

I’m a little picky on dress shoes, but I’ve worn through too many and they are one of the three things to spend money on (Shoes, Mattress, chair). I’ve had shoes with synthetic tops, cushioned midsoles and rubber bottoms. They have either looked clunky, wore quickly, or lost comfort with wear. This does not happen with shoes that have the characteristics above.

Roman sandals from as early as 34 BC would fit in with the worlds oldest trousers in Anthropologie. They were leather with cork or hardened leather bottoms and tight laces.

Roman Caligae

Again, did we find the secret sauce in 50 BC? Toss in metal eyelets, rubber welt, and traction supporting bottoms, and we have modern shoes. Much like rompers, are pleather stilettoes a great leap forward or a ‘Great Leap Forward’?

Why is it that authors from the Victorian era through the Golden Age of Science fiction anticipate so much change to our clothing? For thousands of years fashion changed tremendously, but the technology in clothing (pants and shoes at least) did not. Why by year 2000 did those authors anticipate we would be wearing Mylar jumpsuits with rocket packs and motorized heelys? Hell, we just passed self-lacing shoes as a possibility.

I think it could be that we did find the best design for most clothes in the BC era. Wearable tech won’t catch on precisely because fashion changes so often and it’s hard to find something that works well. I wouldn’t want to buy a shirt with great computing power if I anticipate that it will be out-of-style in a few months. I’d rather put that power in my pocket. Instead, I would want the technology benefits in clothes to center around making maintenance easier and item cost lower.

I think there will be a point where clothing fundamentally changes, but it will come only after other factors cause us to need clothing that protects against threats or facilitates actions that humans have not encountered in the past. I don’t think fashion will lead the revolution; which is interesting, because the fashion industry is one that prides itself on change.

Business, Innovation, Observations

Has the internet destroyed brand loyalty?

pollywannamath

Recently, I was fortunate to have the opportunity to learn a little about  brand loyalty for my job. The results are depressing. Most articles that consider Brand Loyalty forecast its its death. Consumers are increasingly willing to consider a new product or brand, in favor of sticking with a tried-or-true solution. Prior to the internet age, when information was relatively hard to come by, daily items cost more of our income, and brands had regional footprints, brand loyalty made sense. The risks associated with a product change were relatively high.

The internet brought extreme price competition, product availability, and increased information, to the average buyer. A purchaser in Wisconsin can now compare 250 retailers for glass cleaner based on price, average review, or active ingredient without leaving her house. It is now riskier for her to blindly purchase the brand her father used, especially if it is the more expensive option, than to purchase a well-reviewed, cheaper option. Consumers rejoice, brands despair.

Obviously then the answer to the title question is yes, right? Don’t forget Betteridge’s law. I find it more likely that loyalty has shifted to a new entity, rather than decreasing in an absolute fashion. Building on Ben Thompson’s work on Aggregation Theory, I posit that brand loyalty shifted from individual producers to retail aggregators. Aggregation theory focuses on how consumer technology companies that aggregate modularized suppliers — which they often don’t pay for — to consumers/users with whom they have an exclusive relationship at scale changed the profit landscape of retail competition globally.

One lesser explored impact, of a world where aggregators reign supreme, is how consumer trust and loyalty changes with the market shift toward aggregators. In an aggregator-driven market, consumer trust and experience shifts from the product to the marketplace entire. Brand loyalty may shift from the product to the aggregator as well. Consumers frequently choose to buy a more expensive option on Amazon over a cheaper price on eBay due to the differentiated perceived consumer and brand experience. Consumers are loyal to Amazon over eBay, even when the reviews on eBay are more honest and recent improvements in the return policy, and shipping practices bring the purchase process into line with Amazon. I google items using Chrome, I don’t Bing items using Edge; as a consequence Google recommends many of the items I buy. I am loyal to Google, even when its competitors offer better browsers and may recommend better items for purchase. Thompson argues that this loyalty and the market dominance it brings may cement the current tech giants as the preeminent companies of this century.

How does this impact traditional retailers? Brick-and-mortar retail brands that understand the aggregator economy and cultivate a strong brand image, independent of a particular product, are set to succeed in this new economy. After facing revenue loss in 2016, Target outlined a new retail strategy focused on reimagining their stores and building better employee and brand experiences. That strategy is working. The company is thriving in a market destroyed by digital competition.

The portfolio of Urban Outfitters is another successful example of building a brick-and mortar-store that leverages aggregator strategy. The stores within Urban Outfitters umbrella (Urban, Anthropologie, Free People, etc.) each cultivate a list of in-house “brands” making each store resemble a retailer of highly curated clothing from different suppliers. The strategy seems to have insulated Urban Outfitters from online competition; Urban has a strong digital presence and differentiated in-store experience. If Urban appeared to only supply a single house brand, its revenue curve may more closely resemble Gap’s, a primary competitor. The key differentiator of Urban Outfitters, is the strength of store brand perception; consumers are not loyal to any of the individual “brands” that each Urban Outfitters store has.

Traditional retail brick-and-mortar shops were left behind by more than just a shift to cheaper options, and the convenience of online shopping. They missed the boat on building a perception of a differentiated brand, opposed to a brand housing differentiated products (à la Nordstrom). To succeed in a highly competitive industry within the aggregator economy is to build a perception that your store, online or brick-and-mortar, will compile the best options and provide an experience with consumer choice.

In future research, I plan to identify how companies within traditional industries maintain brand loyalty in the internet age. These strategies center around extreme urgency to buy, creating an ecosystem, and creating barriers to switch through incentives.

Innovation, Prediction, Uncategorized

Perfectly Flawed Whiskey (or Whisky)

pollywannamath

Vox recently released an article that describes the culture and money surrounding the whiskey collection industry. I predict that 50 years from now the most expensive whiskeys will be original unopened bottles of rarified whiskeys from past eras (no change), but the second tier of whiskeys will be unopened bottles of whiskeys from deeply flawed vintages of respected houses (change).

Supply and demand laws traditional work well to raise the cost of aged spirits. The supply of 20 year aged Pappy is not going to increase any time soon (it takes 20 years…). Increases to the supply of aged spirits tend to outrage consumers. Remember the Maker’s Mark debacle? Almost every year, one of the major whiskey houses are shocked by a natural disaster, such as a breakage or flood. Given the supply constraints, even whiskeys released in a year are sometimes rare.

What will happen to the industry when all of the supply constraints are removed? “Lab grown” whiskeys present the promise of an alternative world where whiskey created last night can mirror the flavor profile of a 1923 Macallan for less than a bottle of your father’s Cutty Sark. Although I expect the lab grown whiskey industry to face strong resistance in its nascent years, the promise of a perfect spirit without perfect spirit cost is too appealing to remain niche. The first lab grown whiskey is already commercially available for $40, although reviews are divided.

Why will flawed spirits garner high values? Because in this alternative world of perfect spirits, the only flavors that will be hard to obtain are flawed whiskeys made in the traditional ways. Connoisseurs will seek hard-to-find flavor profiles. A 1946 that smells of formaldehyde and tastes of stinky cheese will never be recreated for mass-production. Have a toast to our brave new world!