Article's genesis had nothing to do with the 350 mid-century modern products the e-commerce furniture retailer sells. It was borne of a search for retail supply chain efficiency.
It started when one of company CEO and director Aamir Baig’s friends – company co-founder Andy Prochazka – took off to Beijing for six months to learn Mandarin. With that experience came a first-hand introduction to the world of trade, offshore manufacturing and retailing.
“What struck him as just mind-blowing was the difference in the production cost of things, and the retail price points that we see in North America in general,” Baig said. “It’s a significant difference.”
He added that the retail price points for designer furniture average five to six times the cost of production.
This led to the fill-the-container concept, where consumer purchases are aggregated and shipped once enough orders have been placed to fill a shipping container. It’s one piece of Article’s strategy to create an “extremely lean, extremely efficient” supply chain.
From Vietnam – where most of the company’s manufacturing is done – to Article’s three warehouses in Seattle, New Jersey and Los Angeles, to homes across the continent, Baig said the Vancouver-based company now delivers between 6,000 and 7,000 pieces of furniture each month to cities across North America. Between 80% and 85% of its customer base lives in the U.S.
“The factory produces it, we ship it, we cross-dock it, we distribute it to everyone’s homes. So we all enjoy the same product that we get through traditional retail. We end up saving a lot of money while doing it,” said Baig, one of four company founders who put up most of Article’s initial funding.
Article launched its supply chain operation as Bryght.com in May 2013. Three and a half years plus one rebrand later, the company now has around 60 employees, 40 of whom are in Vancouver. It’s also looking to add another 300,000 square feet of warehouse space to its existing 375,000. With the addition of a Jacksonville, Florida, location to serve the southeastern U.S., Article will own an American storage footprint more than five times the size of Costco Wholesale Corp.’s (Nasdaq:COST) downtown Vancouver store.
Unlike some omni-channel competitors, Article doesn’t offer consumers the sensory experience of shopping for furniture, but Baig said detailed product specifications, photos, mail-out fabric swatches and a strong customer-service ethic have turned that perceived disadvantage into a benefit.
“All of that in a lot of cases ends up saving the customer a lot of time and providing them a better experience than actually touching, sitting, physically feeling.”
He added that he sees Article leveraging consumer experience and cost savings to turn the company into a billion-dollar brand within the next three to five years.
That goal isn’t out of the question, said industry analyst Jerry Epperson, who has studied the furnishings industry for more than 40 years.
“There’s no question it’s achievable, but a lot of people have tried and failed. And there are, without exaggeration, a couple of thousand home furnishings Internet sites that started up, raised capital, opened up and didn’t make it,” said Epperson, a founder and the managing director of Virginia-based investment banking and research firm Mann, Armistead & Epperson Ltd.
“If you look at Wayfair, for example, which has been arguably the most successful in the home furnishings category, [it] does about US$3.5 billion a year now, but [its] average ticket size is US$250. You’re not buying a recliner or a bedroom set for US$250. You’re buying a lot of shower curtains and bath mats and towels.”
Wayfair Inc. (Nasdaq:W) is a U.S. e-commerce company that owns five home furnishing and decor brands, and posted revenue of US$3.14 billion in the 12 months leading up to September 30. It delivered 3.4 million orders in its third quarter, but generated a net loss of US$61 million in the quarter and has yet to turn a profit. Epperson estimated that only a third of Wayfair’s revenue comes from sales of fully set-up furniture, and that, overall, market numbers indicate the market penetration of e-commerce furniture sales sits at just 9% to 10%.
Furniture giant Ikea Canada generated more than $2 billion in sales for its fiscal year ending August 31. Though best known for its iconic bricks-and-mortar stores, the company saw its online sales jump 41.3% over the same period. It now holds a 9.4% share of the Canadian market for furniture and home furnishings.
Burnaby-based online furniture retailer Cymax Stores Inc., which offers more than 100,000 different products, had annual sales exceeding $155 million last year. But a Deloitte audit found the company had incurred net losses exceeding $17.4 million in the two years leading up to December 31, 2015. It had also run up a $31 million deficit.
Despite the competitive market, Baig said Article, with its focus on overhauling process, operations and the supply chain, is unique. The young company also emphasizes designer offerings and, unlike Cymax or Wayfair, manufactures original or in-house designs, rather than buying pieces of furniture wholesale, in bulk, from suppliers. •
