Background and challenge
A leading drop-ship furniture supplier was looking to attract additional investors and enlisted the services of L.E.K. Consulting to assess and create an independent report on the company. In addition to wanting an assessment of the overall market size, trends and growth related to the segment, the client wanted to better understand customer purchase behavior, the competitive landscape, and the dynamics of the ecommerce channel and risk of disintermediation by Amazon/Wayfair, and frame the company’s potential for category expansion and international growth.
Approach and recommendations
Our first objective was to evaluate the size of the furniture and home furnishings ecommerce market and the overall drop-ship segment. We then assessed key trends within the segment, including the long-term impact of COVID-19, which accelerated ecommerce penetration and spending on the home, and we forecasted market growth for the overall drop-ship market as well as the online furniture market.
Next, we conducted a consumer survey to uncover key purchase behavior for furniture, the role of online platforms vs. brands, and purchase decision behaviors. The survey helped illustrate key consumer tendencies when researching furniture purchases, which were critical to understanding how to succeed in the market. Additionally, we used our proprietary Navigator tool to highlight platforms dominating online search results to determine the most important online retailers and marketplaces. Using the insights uncovered by both the consumer survey and our proprietary tools, we were able to articulate the vendor selection criteria used for the ecommerce channel and the keys to success for suppliers.
Subsequently, we took an in-depth look into each of the company’s core product categories to assess their SKU search placement ranking using SKUology, another proprietary L.E.K. Consulting tool. SKUology used millions of data points across product catalogs to compare the company’s product search placements against competitors, highlighting the company’s relative position and strength. This further confirmed the defensibility of the supplier’s future sales in addition to highlighting potential areas where incremental market share could be captured.
Finally, we pressure-tested the supplier’s opportunities for future growth via additional SKU/product category expansion and international expansion. By looking at the supplier’s planned rollout of new SKUs across nascent and emerging product categories, we were able to forecast incremental revenue potential from these new target segments. Paired with increased focus on underpenetrated categories, these opportunities represented significant sales upside for the supplier. Additionally, we analyzed ecommerce penetration in identified international markets. By assessing online marketplace relative success when entering these markets, we further validated the growth opportunity available outside the supplier’s current core geography.
By clearly articulating the value proposition of the company in the context of the larger drop-ship furniture segment, we positioned the business to receive a significant investment from a leading investment firm to help drive future product portfolio expansion and international growth prospects.