An ecommerce company (https://www.maidenhome.com) offers customizable furniture, free delivery within six weeks, lifetime warranty, 30 day money back guarantee and prices around $2000 for furniture that would otherwise cost $6000. They claim that working directly with craftsmen in North Carolina enables them to reduce costs and delivery times. But given that customers have the flexibility to return items that they designed, which they may then not like, does this represent a significant business risk ? To ensure that capacity utilization at the manufacturers is appropriate, what should the company do to generate demand at a steady rate from customers ? What other products have such a large price difference i.e., $2000 for direct sourcing vs $ 6000 for the traditional supply chain ?
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Professor, I hope you have a referral code for MaidenHome.com, because I definitely want to buy some furniture from them now!
With simple and elegant, customizable designs and an incredible selection of colors and fabrics, made in the USA, trusted craftsmanship, environmentally friendly manufacturing practices, non-toxic materials, a lifetime guarantee, a return policy unmatched by any competitor, excellent prices AND free shipping, it seems that the only thing MaidenHome needs to do to generate demand at a steady rate from customers is to get the word out and focus on marketing! With a focus on marketing, and also placing pieces in accessible locations for people to try out and learn about the company, MaidenHome can easily drive brand awareness and demand. However, one wonders whether the 3 factories in North Carolina and the fabric and component manufacturers can scale up appropriately, if and when awareness and demand for MaidenHome furniture peaks.
One key selling point for MaidenHome is the ability to return the customized furniture within 30 days. Although this may seem like a significant business risk, it really isn’t. All return shipping is domestic (and paid for by the customer), since it goes back to the factory in North Carolina where the furniture was built. Although customized, there are still a limited number of designs and configurations and all returned furniture components can be recycled or reused to create a new customized piece for another customer. Even the fabric could be reused. This selling feature allows customers to try out this new company with very little risk, and also adds to customer satisfaction by allowing furniture to be returned and for the purchase price to be completely refunded – all with very little risk to the company.
I am so glad that MaidenHome was created to disrupt the furniture industry. I have had many of the same experiences as the MaidenHome founder, Nidhi Kapur, over the years when my husband and I have shopped for furniture. There are a number of other products I can think of that have a large price difference (as a percentage) when sourced directly rather than through a traditional supply chain: wedding dresses, baked goods in a bakery, coffee, mattresses, electronics, and “designer” eyeglass frames.
April – I just read about this company on the web, and thought they were an interesting supply chain, but do not have any link to it. I do want to explore your suggestion about the risk aspects of a returned piece of furniture with custom swatches made for a customer. Unless the designs anticipate the potential need to recycle, this step i.e., recycling, tends to be very expensive. On the other hand, perhaps the returned furniture are held in inventory and available immediately so a new customer requiring furniture right away may be willing to take it. In that case it can work out.
Regarding the ability to “recycle” returned furniture, I was certainly thinking about the returned pieces being held as pre-assembled inventory that could then be quickly turned around, customized, and shipped to another customer. There are a set number of designs and configurations for the furniture itself, the configurations are modular, and the fabric color and material is the most specific aspect of a given order. The fabric can easily be stripped off and replaced by another choice for a new customer. I am not in the furniture manufacturing business, so these are all logic based assumptions for me, however, I think as long as there is space for this inventory at the factories, this return policy is not as onerous nor costly as it may seem.
Overall, while I think the MaidenHome business model provides a great service to the end user which ultimately provides a high level of customer value, I am not convinced that the same value translates to the bottom line. It really comes down to profit margins and costs associated with logistics and recycling. The patterns and fabrics are classic rather than trendy so there is a chance that they can be easily resold but the probability of another customer choosing that exact piece with the exact fabric is extremely small. Assuming they want to avoid the carrying costs of restocked inventory (since part of their business model is zero inventory) and the cost to strip and reupholster a piece, they would need a resell outlet in the retail sector that would still allow them to generate a profit or at least break even with consideration for the added costs. Assuming their target market is sufficiently sized and their margins are large enough to absorb the added costs, they could make it. However, I believe they will eventually reevaluate their return policy at a minimum.
I agree the business is a very interesting model. One interesting note is that they use the word “custom” but really only have 12 SKUs. The “customizations” are covering and wood accents. By minimizing the base elements of their furniture they are able to pre-build the frames and only have to cover the product and add the accents. Their greatest costs (other than inventory) are shipping and customer acquisition. As an e-commerce company their overhead can be quite low which also allows for disruptive pricing strategies. Furniture is an extremely high-margin product with keystone margin as industry minimum.
I don’t believe their return policy is a risk for the business. By being able to recover the product and re-sell the unit they do not need an outlet store. The fabric for upholstery is a very low cost part of the operation. They could recover a unit in 1-2 hours so the labor with re-upholstering is low as well. By having the customer cover return cost they remove shipping risk. Overall – a smart tactic to overcome the showroom issue of furniture.
Regarding demand – they have several options to adjust demand.
1 – Changing pricing – with an e-commerce site you can adjust pricing via user cookies, time of day, or based on the current backlog of orders.
2 – Change published lead time – they have the option to adjust the published lead to set customer expectations for new products
3 – Adjust marketing spend – by attracting more or less users to the site they have the potential to change the order volume – note: these adjustments due follow the law of diminishing returns
Just looking at e-commerce companies that have launched competing products in high-margin product-lines:
Contacts – Hubblecontacts.com
Mattresses – https://www.tuftandneedle.com
Razors – dollarshaveclub.com
These companies have introduced disruptively priced products in high-margin and previous sheltered industries. All have used a lower-cost direct to consumer e-commerce strategy to overcome the traditional protected retailer model.
The business risk seems quite low due to the way they have structured their product offering. In each category (sofa, sectional, chair), there are really just 4 choices of model. The customization aspect is mainly limited to selection of fabric and they offer swatches to customers in advance of making a furniture purchase. The limited models with very straightforward designs, combined with providing swatches to customers should limit the amount of customers with missed expectations due to style.
The furniture appears to be well made and by providing value at this low price point for quality furniture, there should also be low missed expectations due to quality. If they were trying to provide furniture with custom detailed inlays, ornate stitching, or carvings, then their risks would be much higher.
The terms of the return policy have a 30 day limit, require passing an inspection for damage, soiling or excessive use, and are subject to very significant return shipping fees. There are also limits to any extra customization making sales final. These limitations and expenses are likely to make frivolous returns quite rare.
Their inventory and capacity utilization risk is also probably quite low. All the furniture models are simple designs that are easy to manufacture. The designs offered use no exotic hardwoods or scarce resources and they do not require artisan craftsmanship that could not easily be procured from alternate sources. They are likely working with craftsmen who can turn out product quickly, on a just-in-time basis and only paid for items produced, not maintained as fixed labor costs.
Other examples of goods marked up significantly over direct sourcing are everywhere and include fashion, food, and most anything produced from commodity materials and commodity labor. The markups coming mainly from marketing and branding expenses, or carrying costs like showrooms, warehouses, and retail fronts.
Yes, there is a risk on the return of the items. But check the small print. Maiden Home is minizing the risk of return:
“Please note, we cannot accept returns on pieces that we are unable to deliver due to sizing/fit issues, so please do not skip this important step!
All orders requiring extra customization (e.g. special sizing, configurations, COM) are final sale.
We can only accept one return per customer (identified by delivery address).”
Also the delivery times are mentioned in the small print, as the lead times can vary based on location and time of year.
“You will receive your order in approximately 6 weeks of time of order. Note that lead times may vary based on location and time of year.”
When an item is returned, the return shipping cost is charged.
As no items with extra customization are accepted the returned items can be easily sold again, as earlier mentioned,
I cannot help but compare this to Ikea, where the customer can select a limited number of designs and sizes. The customer can adjust it their taste and wishes and then get it delivered (although not for free) and even assembled at home.
Maiden Home is an artisan shop, where the capacity is limited. More orders are needed to keep the production flow going. The orders coming from consumers are limited in size. That is why Maiden Home is offering a Trade Program for real estate agents, developers, interior designers, architect and hospitality industry. These orders are generally bigger in size and will give Maiden Home an advantage these orders can be planned and these orders generally do not have to be necessarily delivered within 30 days. This will make sure the throughput in the manufacturing flow keeps going.
Maiden Home can be offer the furniture with such a large price difference because they don’t have the costs of a showroom, wholesaler, boutique and a warehouse. It goes directly from the manufacturer to the consumer. Good examples are artisan products that are offered in web shops: the (home) baker baking cakes and bread on order. The farmer that sells its produce directly to the consumer; the tailor sewing a suit on order; shoemaker that makes a pair of shoes on order. To be keep the costs low, the customization should be kept low.
So I suspect that there are probably design templates and whatnot that the consumer can choose from. I don’t think that the guaranteed return represents a huge risk if the business model is managed appropriately. For example, I recently purchased some beautiful leather couches from Costco. For anyone who has ever purchased a product from Costco (save electronics), you can return the product if you decide you hate it at any point. If my little self-driven vacuum isn’t something I am satisfied with in six months, Costco will take it back without question. The same goes for these couches that are and can be customized. I as a consumer felt like there was WAAAY less risk suddenly to purchasing furniture that I’d never laid eyes on in person or sat on, but I was curious and willing to take a chance in case the four pieces were amazing. I was sent a swatch of the leather. I received a personal email from some furniture specialist asking me four key questions about if I had measured my living room or if I intended to purchase a firm couch set – and it was their way of mitigating some of the risk associated with delivering a couch set – sight unseen to a customer. Obviously I thought the email was a little ridiculous at the time, but in retrospect – it certainly helped alleviate some of the obvious reasons that a customer might want to return furniture.
Costco is also relatively draconian with their vendor base. If the pieces or the furniture is poor quality, they stop carrying it and offering it.
My suspicion is that some of the questions came from hard lessons learned with customers when a business offers unconditional returns. Fortunately, I loved the pieces and I consider it money well spent in retrospect. I’m not sure I’d advocate for trying to get a huge customer base because demand could certainly skew the quality of the work going out the door. I DO however agree with April in terms of needing their link so I can order my custom furniture :0)
Their policy that customers can return pieces that they have customized makes me think back to marketing. We were taught that if a customer has a bad experience and does not say anything or do anything about that complaint they will no longer buy that product and they will retain a negative view on the company. However, if a consumer is unhappy and they file a complaint that is responded to and addressed they are very likely to not only have a favorable view of the company, but also return as a customer. Given that, I would not be surprised that someone that is unhappy with their $2,000 couch that they are able to easily return, would come back as a customer in the future as well as toting the brand to friends.
Furthermore, people are likely delighted that the policy is available though, I would be interested to see just how many people take advantage of the policy. It could be something that entices new customers, but does not actually have negative repercussions for the company.
The additional detail Huili has provided regarding the MaidenHome return policy gives a much clearer picture of their risk mitigation. Given the return limitations and exclusions coupled with the shared shipping costs, they have much less risk regarding returns.
On a personal level, I wonder about their ability to establish the MaidenHome brand as a true quality, custom builder. The price is right if their target market views the product as a real alternative to traditional custom furniture. However, failure to meet such expectations means competing in a well-established market for everyday affordable and even customizable pieces.
They are targeting such a niche market, they have to get it just right!
I also believe that Huili’s points are very important in the sense that their policy isn’t really that flexible because it is extremely limited, and most importantly, the only costs that could be thought of as sunk (the transportation fee for returns) is just paid by the customer.
Adding to Jordan’s list would be blinds.com and other companies that have this same idea of facilitating the home redecoration process. I’m not completely convinced on the user experience of the process because it utilimately seems to take away a lot from the pleasurable being experience. Nevertheless, with such a discount, I’m sure many are willing to pay the price.
I don’t think the return policy represents a significant risk for several reasons. First, as Sarah noted, a generous return policy is needed to incentivize purchase when there is no showroom for shoppers to experience the offerings. Second, the people will have ‘designed’ (however limited the selection is) instead of ‘selecting’ a piece – this will create a bit of instant ownership with the purchaser because they won’t want to admit their own poor taste. But, more practically, the return period is very short at 30 days and the return shipping is prohibitively expensive at > 10% of the purchase price. At that point, most people probably forego the inconvenience and just keep the sofa and design their room around it. After all, you can afford to buy two sofas and still be money-ahead compared to a traditional retailer.
I don’t know that they need to excessively worry about capacity utilization at their manufacturers. While MaidenHome is certainly interested in growth, they have deliberately chosen a business model that does not require them to own production resources or inventory. However, in an effort to stabilize demand and improve capacity utilization, MaidnHome home will want to focus on opinion leaders who can help steer customers to their offerings. Customer Reviews will continue to be critical to MaidenHome’s online model and as such, they should consider a referral bonus/discount of some sort to engage satisfied customers in marketing for the business. Finally, depending on the severity of seasonality in demand, HomeMaiden may want to advertise shorter lead times or price promotions that may help stabilize demand.
One product I’m personally familiar with that has extreme retail mark-ups versus direct-to-consumer costs is that of carbon fiber racing bicycles. These bikes are typically sourced from Asia from only a few factories and then distributed among many brands for customization and then retail sale in traditional show rooms. There are few direct to consumer offerings and most riders prefer to pay a brand premium for piece of mind with regard to safety and conformity within their riding community.
I do find Kim’s 2nd post to be a relevant question of whether MaidenHome can establish themselves as a premium brand. The furniture is not expensive enough to offer any real prestige, but is too expensive to be competitive with big box stores. Further, the fabric offerings are far too limited to appeal to designers and shoppers who are truly after style (those buyers will tend to search hundreds of fabrics and tens of furniture configurations).
I also believe that MaidenHome’s flexible return policy does not represent a significant business risk. In fact, I think it is clever marketing. As Sarah mentioned, customers will be more apt to try out the products, because they believe that the return policy limits their own risk. Moreover, the value created for the customer is high: a custom-made, high quality, (relatively) cheap piece of furniture. Who would want to return that? However, this all only holds true if MaidenHome can keep its promises, and deliver a high quality product on time. This also means that the company is pressured to have tight control of its supply chain as well as perfect processes.
I agree with most of what was already written. I personally feel there is very little risk to the company. Nordstrom is a perfect example of a store that will take returns no matter how old the product. For many consumers, they remain loyal to Nordstrom for this reason alone. Consistent customer service and no judgement for returns. The store also knows that you will be enticed with new merchandise when thinking of returning and will often end up exchanging. The same thing should essentially apply to MaidenHome. If someone is inclined to purchase furniture, the easy return process might encourage future sales.
After looking over the website seeing the customized furniture, its lifetime guarantee, the free delivery and of course the 30-day return policy that they will gladly pick up, I am amazed. Amazed that a company that sells high-quality products at a fraction of the price of others in the industry would take such a business risk. There are only three showrooms where you can see the quality of their furniture and oddly enough none of those places are actually furniture stores. What this means to me is that there isn’t a warehouse full of finished products to push. Their business model revolves around just in time manufacturing to keep costs down and returned finished products will create expenses. The problem is that people may not want that Leroy chair in navy fabric with latte wood finish that I returned. With no place on their website, or a showroom to sell finished products the returned item will either sit in storage or be recycled for a new order. Don’t get me wrong there should be a return policy, but they should leverage some of the costs for the potential storage of inventory by charging for shipment of the product.
There only opportunity to create demand under the current marketing scheme is through its previous clients. The showroom is really in the customer(s) home or office where the furniture sits and draws conversation. To generate demand, Maiden Home must provide an incentive to previous clients to promote the brand and create a buzz.
Maidenhome’s business strategy does present significant risk depending on the market they choose to target. In furniture, there are classes of furniture just like any consumer good. From the affordable and bare bones to the most extravagant and luxurious, a customer base exists for each one. If Maidenhome’s target market is the lower than median income household, one could theorize that they may have more returns resulting from the consumers feeling like they should get what they really want for the high price point. Alternately, for a high income market, these deals may be very inexpensive and an easy way to always get new pieces of furniture. I believe that due to their limited selection, their customer base would be only the most informed furniture enthusiasts.
In order to capitalize on the efficiency of the manufacturing team, the business has built in a 6 week lead time. In the case that their production rate is on the lower end such as a week, the company’s inventory would have a decoupling effect. This would keep their crew working and running efficiently, however would increase the costs associated with total inventory. A strategy to increase demand for the company would be to partner with other firms to provide low cost-high end furniture solutions. Partnering up with interior designers, architects, and other 3rd parties that need furniture would enable the company to maintain a suitable revenue stream – keeping their utilization high.
In the traditional consumer market, finding large price differences for like goods is rarer due to the competitive market. In my industry, some construction materials can be direct sourced if a certain quantity minimum is met. For example, let us say that the square foot price of a high end granite may be up to $200/SF from a big box retailer. If I were buying in large amounts, I could go directly to the manufacturing facility and order direct from them. This might cost me $50/SF. This price difference in only observable with certain goods and markets.
I believe the business model is unique, but leaves the company at risk. Because they do not charge a return fee, the risk is all on the company and not the customer. Made-to-order inventory reduces the company’s inventory cost, but actually could increase the overhead costs if they do not have steady orders. They can reduce their risk by limiting the material, color, patterns available. The company is focusing on reducing manufacturing inventory by going direct to the craftsmen, but they may increase their finished goods inventory because of their business model. However, the No Hassle model could very well increase sales as well. In the event customers return the furniture, they company should have a website to sell this inventory at a reduced rate as well as have a special showroom to sell the furniture. They can increase order streams by offering incentives or bonus awards to previous clients if someone else purchases furniture based on their referral. They may also increase the revenue stream by partnering with home builders and apartment complexes needing furniture for their show homes or apartment models.
Maiden Home has an interesting business model that takes the complications out of furniture design and puts the customers in the position to design furniture that works for them both in terms of design, price and availability. The flexibility provided by allowing 30-days for a money back guarantee does not represent a significant risk. For furniture items of this size, the most important element of the piece is the fabric – its appearance and its texture. The customer is given the opportunity to order fabric swatches prior to placing an order, which will significantly limit the risk that fabric will be the cause for a return. Also, furniture is expensive to ship. Customers will think twice about returning something that is expensive to ship back to the manufacturer. If a customer does return a piece, Maiden Home will have the opportunity to resell it. With only four different furniture designs and 37 available fabrics, it is feasible to think that the company will be able to resell a piece to another customer. They could consider having a no returns sale section on their website for those pieces that, for whatever reason, are returned and cannot be used to fill another order within 30 days of being returned.
In order to ensure capacity utilization, advertising across a variety of outlets both print and electronic could be increased. Purchased ads targeted at those actively searching for sofas could increase sales. With so many people expecting instant gratification and customization in every part of life, Maiden Home has the ability to surpass customer expectations in the furniture industry, which typically has 12-week lead times and high prices for customized pieces. They might also offer coupons to customers who tag themselves in photos of their new piece on the company social media sites with a positive review. (I say this with a note of caution that it can go negative if someone is not pleased! The company would have to monitor this closely.) Additionally, it might be worth it to attend a few high-volume home shows to allow potential customers the opportunity to sit on the furniture before ordering it on-line. Doing a drawing to give-away a piece of furniture at the show would allow the company to collect data on potential customers for future contact.
Other products with large differences between wholesale and retail prices include: designer clothing, wine, racing bikes of all types (road, mountain, triathlon, etc.), leather goods, and jewelry.
I read through the comments and scanned the website. There is a sizeable amount of “fineprint” on the 30-day return: Customization is not returnable, there is a shipping/handling charge for the return, and store credit is given for a return. These conditions would seem make the cost risk manageable.
The $2000 direct vs. $6000 retail is a sizeable difference. Part of me is skeptic because it is furniture, but I have seen those types of differentials on OEM warranty parts and on distribution product that goes to retail. And, usually the volume that goes retail is a small portion of the manufactured volume.
The capacity question on generating steady demand is interesting. The thought I have is they may not be custom to the manufacturer. So, the manufacturer is making these pieces of furniture in volume already and Maiden may be balancing out the manufacturer’s overall demand.
Maiden’s business model is definitely interesting and innovative, similar to “Customer Success” in the technology space. They want their customer to buy and enjoy their purchase, and if not, better for them to return it. On first glance, yes, the risk seems to be mostly with them and not their customers, but there might a couple of mitigating factors:
1- If the returns are managed effectively, as part of their supply chain:
a) Refurbish at lower cost than manufacturing a new one, thus reducing their COGS
b) Use as reserve to manage the fluctuations in the demand
2- Returning furniture is more difficult for the customers than returning a smaller item like clothes
As far as trying to create a study demand, typically this will be done through incentives as long as their inventories can support, especially by using the returns as reserves which can be quickly resold.
The $2000 direct vs $6000 retail seems to be a “too good to be true” number, however to relate it back to this week’s reading of “The Goal” it is possible that based on utilization that these additional units are actually profitable due to the manufacturer operating under capacity. Customization is a double edged sword, as I see it in my industry (real estate & construction). While customers appreciate options, it is important to limit the overall number of options to items that are desirable to the market in general to hedge the future risk of being stuck with unsalable inventory. We see this in our industry with homes on contract, where buyers have very unique taste, but not enough deposit money in the project to warrant the risk. For example, we would never allow a customer to pick purple shag carpet, without having the home paid for in full – because we would not be willing to risk building a home with features that we know limit our market. By this same concept, Maiden’s color choices and customization options seem to be mainstream enough that returns shouldn’t have much issue being recycled and sold.
1. A policy of customer returns on merchandise that is custom made does present significant business risk, but may be worth taking if customer satisfaction with price and quality continues to grow market share of the furniture consumers.
2. The company could spread common process or products among its available sourced craftsmen, thereby evening out any spikes in workload experienced by the individual suppliers. This could endanger the customizable feature however. Other than promotional incentives to increase demand during seasonal or economic lulls, or securing more stable “routine” furniture wholesale production for another retailer, the company can only focus on matching supply with customer demand.
3. Pharmaceuticals is another example of products with large price differences between direct from manufacture vs retail store purchase pricing. As are lines of many lines of clothing, and electronics goods.
When you look at the return policy, it is not an unlimited policy – it is only 30 days. If you think about bringing a piece of furniture into your home and getting accustomed to it that is not a significant amount of time. Surely some customers take advantage of the policy but usually a furniture purchase is not an impulse buy. If they want to increase demand for their product, I’d say a social media advertising campaign over traditional advertising. Simply because they are looking for people willing to buy online and not in a showroom (which, incidentally reduces those operating expenses and inventory as The Goal discusses) thus the advertising should match the consumers actions. Also without a showroom taking up valuable space and large pieces of furniture, they can utilize those dollars on creating a quality product and less on capital expenses. This might also be another reason we see big box retail stores declining while online merchants are increasing. PS – I am definitely checking them out too. They should be paying YOU for this blog post! 😉
The long term goal of any company is to be profitable. Several strategies are put in place in order to ensure long term commitment from customers while providing quality products and customer service (especially since maidenhome.com is based online only)
Several market players sell their products cheaper than their competitors to increase their market share, and gradually make money over charging money for servicing of their products to ensure that warranties are still honored. This may range from services where the fabric is cut/damaged from kids, pets, etc. This stream of revenue might supplement the selling model of the company and increase growth and revenue over the life of its relationship with its customer base while maintaining its low upfront cost.
Since the return shipping is paid by the customer, it automatically reduces the frivolrous customers. Also either most materials could be reusable. The returned products could also be resold at a discounted price, reducing the business risk.
Since the furniture carries a lifetime warranty as well as a 30 day return policy, thee is a high chance that at some point in time customer will either need a service or a return of furniture. Reverse logistics in general is costly and in case of “furniture”, the complication becomes multi-fold (even if customer pays for return shipping) due to following reasons:
1) The weight and volume.
2) The use of packaging material and adherence of right packaging process at the customer’s doorstep.
3) The wear and teat which happens in transit for large items.
It raises a question, how this firm pulls of its bottom line even after providing the furniture at such a competitive price.
There seems to be significant business risk in the quest to accommodate customer preferences – in any successful business this degree of risk would need to offset with an appropriate tradeoff. The tradeoff seems to be the restrictions around customization and how the rules change as customers select options. The restrictions with customization may impact customer behavior for what is palletable. In terms of generating demand, they may need to aggressively seek new customers, as furniture has a longer useful life (for most of us!) that impacts how often they have return customers. This may be some of the reason they are offering numerous options for customization – this may be their differentiator to attract new customers. The only product that might have this kind of price spread may be something like landscaping. Buying directly from a tree farmer is incredibly discounted…..but you have to have the resources to be able to plant the tree….transporting it to a site, a tree spade, fill, etc.
While MaidenHome’s strategy might be risky, I believe the risk outweighs the costs because of the unique business opportunity it represents. While I don’t think a significant number of people might return their own designs, it can be contained by adding several steps in the process so the customer can check, recheck, have renderings, 3D models and even try to see it portrayed on a sample living room with the technological tools currently at disposal of websites such as this one. I do think there’s a very interesting trend on Millennials and new generations that prefer more expensive stuff but customizable than the mass-produced products. Sneakers are a very good example. Now Nike and Adidas offer customization services for a bit more in order to lure customers but they don’t have a big difference in price.
Also, the interesting question is how do they keep a steady demand for their product? If demand is not steady since product is highly customizable, then having the value-added of customized furniture has to be taken account in the price in order for the company to have higher mark-ups than your traditional furniture company. That way it safeguards the company for volatile demand.
I do not think the MaidenHome’s strategy is really that risky. The main reason I say this is due to the stringent return policy. “..Please note, Furniture unable to be delivered due to sizing or fit issues is not eligible for return. All Furniture produced with extra customization (sizing, configuration, COM) is also final sale…” A couple of people have pointed this out in the blog. The return policy would prevent/detour frivolous returns.
I would agree with many of the comments that this is an interesting business model that looks to be risky provided all the returns are treated the same, such that all customizable furniture gets a 30 day money back guarantee. Having said that, I did look at the website briefly and I saw that they had 41 reviews with a five star rating that is impressive. Reading the reviews, I assume that provided the quality is as promised, the returns will be low. If there is a return, I am sure they can sell it to a third party company such as Home Goods/ TJ Max to recoup some of the cost.
To ensure the capacity utilization Maiden could partner with interior design companies for both residential, and commercial who want more than one piece of furniture. Moreover, some furniture companies that offer high end furniture, may have clients that they can work with to offer more of a selection, or build a brand of their own, which would require larger batch sizes. Offering special incentives to new home buyers in order to furnish their home instead of purchasing furniture from the local furniture store. Such ideas will help improve the utilization
Some other products with large differences are designer clothing, appliances , bottled water, and cosmetics to name some.
This is an interesting business model. as some of my colleagues have already pointed out, the devil is in the details. In fact Maiden homes is not the first one to do so. in the recent past, there has been an influx of online sales particularly related to furniture. Maiden homes is unique in the sense, they are able to offer customization to customers at the same time bring the price down by 66%.By following a direct delivery method as opposed to a centralized distribution method, they are able to significantly bring the prices down. challenge with these types of furniture items is the significant risk involved by the manufacturer. what if the customer does not like the color or the build quality after it has been shipped to customer. returns need to be processed and then may have to be sold as refurbished items at an even lower price. What companies like Maiden homes and others can do is use technology such as Mixed reality/Virtual reality/Augmented reality (AR/MR/VR) etc and be able to provide experiences to customers so that they can minimize the risk of a product being shipped and being returned by the customer as he/she did not like it.
When it comes to “What other products have such a large price difference ” . not looking at the raw numbers but looking at a relative price difference of around 65-70 %, of direct sourcing vs traditional supply chain, one company that comes to my mind right away is dollar shave club (https://www.dollarshaveclub.com/). these guys have a similar business model. This company made a name for itself as a direct-to-consumer subscription razor blades service, which cut costs by eschewing traditional store-shelf space and passing on the savings to consumers as opposed to big brands like Gillette (P&G)
I think this is a risky business model, but one that may have what I like to think of as a backdoor strategy. With decreased risk to the consumer comes increased risk for the supplier. However, at the end of the day they are creating genuine, unique furniture. Any returned inventory could then be turned around and sold to a brick and mortar store such as a boutique. While not customized to the exact tastes of the eventual buyer, it is still a unique “conversation piece” as it is unlikely anyone has encountered that exact piece of furniture before.
My suspicion is that MaidenHome likely has relationships with certain retailers in the event they get a return. While their margin may be significantly reduced, it’s an opportunity for them to recoup their potential loss.
Having shopped for furniture recently myself, I know how difficulty it can be to find the “right” piece. Their is a huge appeal for something that is both my aesthetic and fits within my budget. I would definitely consider shopping from here.
A really great way for them to to generate demand at a steady rate is to form partnerships in the home staging industry. Not only would it be a great way to maximize capacity, but it would also provide an “on-site” showroom for their pieces. If someone is looking to buy a house, they will likely be looking for furniture as well. What better way to advertise and demonstrate the quality than in person?
One of the most notable companies that have been really successful at capitalizing on direct sourcing is the mattress industry, which offer a very similar 30 day return gaurantee. This has also become increasingly appealing as the innovation of foam mattresses has also provided an economical way to ship an entire mattress. However, as I mentioned with the home staging, some of these mattress companies are actively looking for stores that would have sample of their mattresses so that people could get an in-person sense for the quality and feel. In fact, Purple(R) is currently launching is several retailers across the country. This modification to their business model should hopefully reduce the risk to both the consumer and supplier.