Columnists

Darlington on Showrooms...Luxury Products Are Here To Stay - And Here's Why!

I recently attended the annual conference of the Decorative Plumbing and Hardware Association in Palm Springs. It's a relatively new (four years young) organization made up of dealers, manufacturers, distributors and reps. The group has grown to 400 members strong and the conference covered three full days of product shows, educational seminars, keynote speakers, networking and social gatherings. If you operate a showroom and are a privately owned business you should explore the possibility of becoming a member. The organization has written and made available to its members the single best technical training manual for showroom sales consultants ever written. This manual, along with the updated chapters of the “College of Product Knowledge” by Don Arnold (who also writes for SUPPLY HOUSE TIMES), are the two best training manuals available. The DPHA manual is specific to showroom products, while the “College of Product Knowledge” covers all plumbing products.

You can learn more about DPHA by firing up the computer and logging on to www.dpha.net or by calling 301-657-3642. Tell them Hank said to call!

Okay, why would I give the DPHA this great big “plug”? Not because my wife and I were a couple of the “founding fathers” 20 years ago. Not because they made me a “Fellow” last year. Not because it's another excuse to attend a conference in a beautiful location. But because I truly believe if you join and participate, you will become a better showroom owner, manager and employee.

What's all this have to do with the title of this article? The keynote speaker of the DPHA conference this year was Michael Silverstein. He gave a talk on “Trading Up.” He also has written a great book by the same name. Silverstein is a consultant who for 25 years has worked with a wide variety of clients (mostly BIG corporations) in helping them brand, market and sell “luxury” products.

The term “luxury products” applies to almost all products - not just plumbing products. There are luxury products in dog food, coffee, sandwiches, toys, cars, et al.

Silverstein stated that trading up is about the middle class - not the rich. He said, “As never before, America's middle market consumers are trading up. They are willing, even eager, to pay a premium price for the remarkable kind of goods that we call 'new luxury.' These are products and services that possess higher levels of quality, taste and aspiration than conventional goods.”

He threw out a term that I wasn't familiar with: “rocketing.” This is when someone spends beyond your expectation. For example, folks with modest incomes will spend very big on things that are important to them. For her it might be a great bathroom or kitchen; for him it could be a great home theatre or higher end car.

Well, you might ask how these folks can afford to do this. Great question! The answer is, they shop at the various big box discount stores that have evolved over the past 25 years - places like Costco, Home Depot, PetSmart, Staples, etc. They work hard to save on commodity purchases, so they can trade up to great-looking bath and kitchen products (and those other products that are important to them).

Michael Silverstein's book says “there are 47 million households in America with incomes of $50,000 or more, and an average household size of 2.6 people. That's 122 million Americans with the means and desire to trade up to “new luxury.” Wow! That's BIG!

I also learned this from Silverstein. There's a new law of economics that most big manufacturers are aware of. It goes like this:

20% of all products made have a premium price.

This 20% of products accounts for 40% of the sales dollars, and

this accounts for 60% of the profit dollars of all products.

In other words, there are fewer premium products offered, but they are the big profit earners. Now we know why decorative plumbing, hardware and kitchen products have grown so dramatically. We know why companies such as Kohler, American Standard, Toto, Delta, Elkay, Moen, etc. continue to expand their offering of higher end “luxury” products. THEY MAKE MORE MONEY SELLING THEM! I'd love to go into a dissertation of why YOU, the plumbing wholesaler, and the independent dealers with showrooms have to make more money selling these products, too! But space doesn't allow for that in this article - so we'll save it for another time.

How about the plumbing contractor who makes $52,000 a year, but spent $3,000 for a set of Callaway golf clubs? He might tell you that they make him feel rich. He might tell you there are a whole lot of golfers that make a whole lot more money than he does, but they still can't buy a better set of clubs. Get the picture? Some folks just want to treat themselves. And you folks with great showrooms and a nice selection of “luxury” plumbing products will be the benefactors.

Silverstein emphasized that trading up is NOT about luxury. It's about technical, functional and emotional concerns.

Today's consumers are well educated, they're well informed and they have learned to determine real value. When we started our showroom in the early 1980s, there were only three manufacturers of decorative faucets. They offered fairly good form, but the quality wasn't near what it is today. Twenty-five years ago many consumers bought products because they looked good. That is only part of the equation today. They want form, function and technical quality. If you can learn to sell (yes, selling is a learned skill) the full value package - technical, functional and emotional - you'll be a winner. This would apply not only to your products. You have to identify and sell your personal and company value-added packages, as well. Remember, when you sell value, you make price become less important.

It is estimated that by 2010 the luxury market will be one trillion dollars and that more and more middle class folks will be trading up. Are you/will you be positioned to take advantage of this where bath and kitchen products are concerned?

Consumer research shows that people are willing to pay premium prices for higher quality products. Here are a few statistics to back this up:

96% of consumers have at least one product for which they will pay more to get better quality.

Almost 50% will pay “as much as they can” for certain items.

76% say some products are just too important to scrimp on.

51% say, “even when the economy is bad, I'll spend on affordable luxury.”

58% concentrate spending on a few categories that matter most.

Here's what I believe: Every household has “X” dollars they can spend. They will shop the discount stores to save - and then splurge on luxury products that are important to them. I also believe that your biggest competitor isn't the showroom or big box down the street - it's the new car, a great vacation, the home theatre, etc. Your job is to make a great kitchen and bath the most important thing to them.

From 1974 to 2004 middle class homes experienced a doubling of real income. This equates to an increase in spending of discretionary income. Your job, should you accept this assignment, is to get your fair share of all those new discretionary dollars.

There are several forces that are driving the movement in trading up. A few are:

Time, pressure, stress and insecurity. People are busy, stressed and tired. They want shopping to be fun, easy and friendly. They want value and will pay more to get it.

Education and information access. Your customers are more knowledgeable than ever before. They shop three or four stores and they're on the Internet learning. This means the better trained your sales consultants are, the better chance you'll have of writing the order.

Disposable income. I already mentioned this. Suffice it to say, there's a lot of it. Go get it!

Women are controlling the purse strings. Yep, it's the women who are making the larger buying decisions. Not just what, but also how much. Do your sales consultants know how to talk with and sell to women? If not, they'd better learn - and in a hurry.

Consumers are trading up at home and at play - but the number one place they're willing to spend more is on their homes and what goes into them. Now that bodes well for the showroom industry, doesn't it?

One easy industry to relate to is the car industry. Trading up has reshaped it. In the last 10 years trade-up brands have grown by seven share points. Toyota, Honda and VW brands have grown by six share points. All GM, Chrysler and Ford brands have lost 18 share points.

In summary, Silverstein's talk and book were hugely educational for this old showroom “guru.” It really reaffirms in my mind what I've been telling you all along: that luxury products are here to stay! It means that there's a huge opportunity to grow your showroom sales and profits. For many distributors it will make the difference between great performance and moderate to poor performance. The choice is yours!

Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!

Hank Darlington, owner of Darlington Consulting, writes several monthly articles for magazines, teaches seminars, and offers a full range of small business consulting services to kitchen and bath dealers, distributors and manufacturers. Hank Darlington was inducted into the Hall of Fame by the National Kitchen & Bath Association in April 2004. He can be reached at 2010 Granite Bar Way, Gold River, CA 95670. Phone: 916/852-6855, fax: 916/852-8866, e-mail: darlingtonconsulting@gmail.com.