Hiring an interior decorator falls squarely in the discretionary spending category, so Cliff Welles' businesses are good barometers of consumer spending.
“Sales were up 38% in our region last year,” says Welles, the regional director for 15 Decorating Den Interiors franchises in South Florida. His territory ranges from Tampa to Naples on the West Coast and Vero Beach to Key West on the East Coast.
Of course the interior-decorator franchisees are emerging from a terrible housing recession. “The bottom fell out in '08,” Welles says. While he declines to share sales figures, he says the stock-market rebound gave his customers reason to spend again.
The cumulative return for the broad Standard & Poor's 500-stock index for 2009 and 2010 was 39.2%. “That's been huge for us,” he says.
Welles' clients tend to be affluent homeowners who own homes valued at more than $250,000. “The phone is ringing,” he says.
The surge in the number of existing-home sales in the last two years hasn't been as big a driver of business as the increase in the stock market. That's because many of the sales in recent years have been foreclosures of less-expensive homes and those buyers are not likely to hire an interior decorator.
On the West Coast of Florida, Sarasota and Naples are the best markets. “We're rebounding quicker here than on the east coast,” Welles says. He speculates that's because the Gulf Coast has more affluent second-home owners.
Welles declines to say how much his franchisees' customers spend on average but he acknowledges their spending habits have been impacted by the recession. The average sale today is off between 20% and 25% from the peak in 2005 and 2006.
Tastes in furniture and design also are more conservative. Buyers today tend to prefer simpler, less ornate furnishings.
But Welles says he's not seen a pronounced downsizing trend among his customers. “A lot of people still own big homes,” he says.
Decorating Den franchisees have been able to survive through the downturn because most of them don't have a lot of overhead and most don't own a retail location. Instead, franchisees drive their SUVs to customers' homes and custom order materials. “They have to keep their own books,” he says.
Looking ahead to this year, Welles says the recent improvement in business has spurred him to consider adding six franchisees, including in Sarasota, Bradenton and southern Collier counties.
Welles' challenge is to find qualified entrepreneurs whose personal balance sheets haven't been devastated by the recession. The franchise fee costs $30,000 and franchisees need another $30,000 in capital.
Because of the unavailability of bank loans, Welles says he's reluctantly considering financing a promising candidate for a franchise over a six-year period with as little as $7,400 up front. “I don't want to be a banker,” he says.
Welles also has shifted his marketing dollars to the Internet and magazine advertising. Direct mail used to be successful. “Overnight it quit being successful,” he says. “People sort their mail over their trash can.”