Second Cities

Start looking at the market from different perspectives.

Like many industries, contract furniture takes its cues from major markets. Larger cities have the highest concentration of office space, client executives, headquarters, and A&D firms. Shipping and delivery mechanisms are better established and more robust.

Furniture companies invest accordingly. More customers mean more salespeople on the ground, more dealers, and more reps. Many organizations build permanent showrooms to facilitate selling, showcase products, and host sales functions. It means a commitment to a lease, showroom design, and products to fill the space. Then it means a periodic refresh to ensure what’s being promoted matches the latest and greatest products and brand thinking.

Major furniture companies double down in large metro areas to project a sense of dominance. Some smaller companies focus exclusively on major markets. While this makes conventional sense, it’s also a red ocean—a known, crowded market. Nearly 20 million people live in the top five metro areas, but even more are in the next twenty-five largest cities. As furniture companies look to find new ways to grow, secondary and tertiary cities (outside the large metro areas) are an untapped market.

The industrial economy of the last few hundred years has favored geographic concentration. Early industry was even more dependent on physical location, usually on the coast or a river, directed toward the paths of shipping routes. The cities that emerged have become less dependent on waterways, but the 20th century still favored physical proximity. Driven by demand and enabled by technology, buildings got taller. Metropolitan areas today are a concentration of large buildings surrounded by increasingly complex systems to access them. Traffic and tolls create congestion and additional expense. More than ever, existing in a major market requires a clear cost/benefit focus balancing desirability and affordability.

The information economy favors bits over atoms. Looking ahead, would you rather be the company with the tallest building or the most data? If we consider Google or Amazon (and it’s hard not to), as some of the newest, most profitable companies, a new pattern is clear. These organizations are less concerned about physical proximity. They focus on being close to their customers through data, not physically nearby.

Basecamp, the project organization tool, was one of the first and now among the oldest SaaS (software-as-a-service) platforms. The maverick company continues to generate tens of millions of dollars in revenue with a relatively small (50-person) distributed team. Jason Fried, its CEO, says they target not the Fortune 500, rather, Fortune 5,000,000 companies. Basecamp stubbornly refuses to enhance its core product, allowing for customizations driven by large clients (sound familiar?), as most software companies have done in the past. SaaS is much more common today than when Basecamp launched in 2004, but Fried and his colleagues’ insight in part recognized the new pattern of not seeking the largest single target. Instead, they get volume and sales by targeting many more underserved smaller targets. Both their team and their customers are distributed physically, even as they maintain a loyal customer base.

How might the furniture industry learn from this example? Like the Fortune 5,000,000, smaller cities tend to be neglected by major contract furniture providers. Some markets are surely better served than others, and much of this difference falls to the dealer. These markets look different than major metros. The A&D influence is less present, and customers may be slower to adopt new trends. They may be more sensitive to price, and single-sale volumes may be lower.

This pattern is not new for consumer companies. The future of retail shopping malls seems to go in two directions. In the past, anchor stores created the big tent for smaller retailers (sounds like NeoCon). Stores have had a front and a back—a showroom with inventory. Malls are in physical proximity to customers, but they couldn’t be too close because each store was also a warehouse. Online retail, led by Amazon, is changing all that. Many malls are closing as brands get squeezed between diminishing in-store sales and the cost of real estate.

On the other hand, next-generation stores are thriving. When the sales transaction and fulfillment can happen online, stores don’t need inventory. Like a contract furniture showroom, the retail store is just a showcase for products to feel the finish and kick the tires. However, does your showroom have a sophisticated online fulfillment process, or is it like an old-style retail store, but worse because there’s no inventory? Customers today, whether B2B or B2C, have new expectations for how a modern sales transaction looks.

The bridge between physical and digital touch points is a continued challenge for older companies that have dealt primarily with atoms instead of bits. A changing technology landscape further complicates this evolution. Nevertheless, forward-looking organizations must accept and internalize these realities to create a sustainable future.

Amazon has shown us the way. It may be imperfect, but there is no denying that the company has demonstrated what a future-oriented experience might look like, and many are investing and working hard to mimic Amazon’s success. People may see the company primarily as a technology innovator, but in fact, Amazon is striving to be “Earth’s most customer-centric company.”

For furniture companies, investing integrated digital platforms is a start. Too often, however, companies do not see digital platforms (often, increasingly, SaaS) as a strategic investment. They see websites as a marketing expense, which is to say, a necessary evil to do things the way they always have. These firms are missing the point, and may not realize that Amazon lost money for a decade, forging this new territory, before becoming a global powerhouse. Most furniture companies spend more money on one of their metro showrooms than their website, but on any given day, 100 times as many people should have a digital interaction with your company than will ever set foot in your showroom.

Others may recognize and talk about digital transformation, but executives and investors may not be up to the task. New technology is the driver, but the key is transformation—real change. It means doubling down less on physical places and physical proximity, and more on tools and training to make a more customer-focused organization.

Technology is just a means to an end. These new pathways allow Basecamp, Amazon, and others to build new kinds of customer relationships with a customer which are sustainably different from their competitors. Simply investing in the technology will not make you customer-centric. Companies need to focus on the user experience, integrating platforms, and hiding complexity from customers. When using Amazon or Basecamp, you don’t know what’s under the hood.

Furniture companies are not selling software, yet, and the path to creating a modern value chain is not obvious. Physical products need to be seen, felt, shipped, installed, serviced, and recycled. However, it’s clear that innovators will find ways to access and serve second cities in ways that leverage technology and post-industrial-era thinking.

Organizations which seek growth through vertical markets know this already. Serving healthcare and higher education immediately pushes organizations out of large metro areas exclusively. Local institutions that serve local populations will not move to New York. Also, the rise of second cities parallels the increase in access to broader market functions through air travel and the internet. Many entrepreneurs and professionals are happy to relocate to an area with shorter commute time. The rebirth of many smaller metro areas offers an opportunity for furniture makers.

The second city experience will need to be more than a poor copy of a large metro experience. The same tactics may not work, so built environment providers will need to adapt. The principles of universal design—designing for a common denominator which can benefit all—may apply here. If we can solve for an optimal customer experience without being nearby, we can make the nearby experience great, too. The Amazon experience in New York is not markedly different from anywhere else.

Cities are not going away. Physical concentration will remain important for the near future, and perhaps forever for social reasons and pooling talent. Most of Amazon’s customers are not in Seattle, but they’re not adding offices outside New York and D.C. to reach more customers. Rather, that’s a fight for talent. The reasons for physical proximity are changing, so reconsider the industrial-era mindset of proximity as a convenience.

As furniture companies evaluate sales geography, looking outward to become ever more global is one way to grow. Another way is to look inward, leveraging new technology and new thinking to get ever closer to customers, even if you’re far away.