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Furniture procurement options for the Build to Rent sector

Tuesday, June 4th, 2019 at 5:33 pm | Categories: Build to Rent, Furniture Consultancy, Products.

Over recent years investment in one particular class of property has increased exponentially – the BTR (Build to Rent) sector. Institutional investors, property developers, and building service operators (amongst others) have all been doing furious business to be part of this hot new area, which is targeted at making renting your home – as opposed to buying and owning – a long term living preference, as opposed to an interim stepping stone or second class option prior to a house purchase.

The key demographics that appear to be targeted are the i) the millennial professionals – who are earning well, and want quality rented accommodation – primarily in cities – but are unwilling to wait a decade or more to save an appropriate deposit to put down to get onto the bottom rung of the property ladder, and ii) retirees (or close to) who are considering selling their owned houses to enjoy the fruits of their equity in later life, and downsizing into flats to enjoy the benefits of city culture at close hand. Of course, there are a multitude of other circumstances to whom the new BTR developments will appeal, but these appear to be the prime targets.

The key differences between the older traditional landlords and the modern BTR operators and providers is brand, quality and service: these apartments (and to a lesser degree houses) are new state of the art properties, providing the latest in building control technology, but they are also designed to provide a hotel-style concierge service to cater for their tenants every need, and to foster a close sense of community among its occupants. In the UK, most operators are looking to fully furnish between 80% and 90% of the flats, allowing tenants to easily move straight in (and straight out too) of a fully functional home.

From the feedback from our ever-expanding relationships with some of the key BTR operators, it appears that the transparent and fee-based furniture consultancy and procurement model is very well suited to the requirements of this sector. What they DON’T want is to be offered a choice of Package A, Package B, or Package C from rental furniture providers, in cheap laminate or standard fabric finishes; but nor can the furniture specification be completely bespoke to the choices of each tenant, in order to make the financial model both competitive and profitable. But the right balance lies somewhere in between:

  • A quality of product that allows a lifecycle of 5-7 years before renewal and replacement.
  • A design of product that is aspirational and appealing to the target tenants.
  • A selection of product that combines a well-chosen eclectic design mix, put together in a considered way.
  • A choice of product to allow tenants to choose some differentiation of fabrics, finishes and designs, without the operator losing commercial purchasing power, or creating complicated logistical problems.
  • A price of product that delivers the quality of furnishing appropriate to the BTR brand, at an appropriate budget to deliver the model.
  • An ongoing service of product that allows parts and products to be easily replaced, with a small and efficient stockholding.

The fee based consultancy model provides all of the above: buying on behalf of the client rather than selling to them; putting in place the performance and financial guarantees relevant to high value contracts, and providing appropriate risk and contractual comfort to both the clients and suppliers; eliminating the layers of distribution margin necessary for the right budgets to be met with the right quality and design of products; and taking a fresh approach to each building/brand brief, rather than rolling out the same ranges of products to each development.

Here we outline some of the different procurement routes that we have developed, in specific response to the furniture needs of the BTR market.

We are specifically exploring here options for flat or house furnishings, using the leverage of the volumes being into the hundreds. We are aware that in each BTR scheme will also be a requirement for common areas, ranging from residents’ lounges, to outdoor furniture, to business suites, reception furniture, aswell as some other specialist areas like cinemas and dining areas. The furniture for these areas is more likely to be selected in a traditional way in conjunction with the project designer, from standard product designs. Transparent purchasing leverage for the scheme can still be achieved for these low volume items, but not to the same degree as the high multiples being leveraged for the flats or houses.

The typical products that we would be considering for selection in the flats would be:

Lounge – Sofa, Armchair, Media Unit, sideboard, coffee and side tables, floor lamps

Dining – Dining table, dining chairs

Bedroom – Bed, bedside table/cabinet, chest of drawers, desk and desk chair, bedside/desk lamps

Built in furniture – Fitted wardrobes, kitchens

Accessories – Artwork, ornaments, cutlery and crockery, curtains, rugs

A. Selecting from existing product designs

When selecting from existing product designs for BTR flat solutions, it is important to recognise which products can be modified – either in size, specification, or finish – and which ones will have strict tooling and manufacturing restrictions. ‘Statement’ pieces, like the armchair, coffee and side tables, and dining chairs for example, are pieces most likely to have had a lot of design development and tooling costs expended on shells and frames, which therefore can restrict modifications to size and materials. They may have been originally developed to work in certain restricted materials and fabrics, and can therefore sometimes be over-specified in their designs for the needs and price demands of the BTR sector. However, these applications are the ones most often where an existing product design may need to be selected.

B. Bespoke product designs

Often the term ‘bespoke’ conjures an immediate perception of a premium price uplift. However, our experience with developing specifications in the BTR sector is that the volumes involved allow two value engineering approaches to take place:

Firstly, product applications such as sofas, cupboard drawer and bedside units, and tables, are much more easily able to have their designs adapted for specific sizes, and similarly are also usually more flexible for value engineering with both internal materials aswell as external fabrics and finishes. This can allow chosen products and designs to be modified to achieve a price point, without sacrificing the desired design.

Secondly, it can be a very effective approach to ‘appoint’ a manufacturer to develop a suite of products for a BTR design. For example, a wooden suite of products, potentially involving a dining table, lounge credenza, bedroom chest of drawers and bedside cabinets may be a perfect suite to appoint a manufacturer to both design in conjunction with the client, and then manufacture. Due to the volumes involved in this sort of project (Imagine for example a 300 flat development, involving a dining table and credenza in each (300 no.), a chest of drawers in each bedroom (say 650 no.), and in 2 bedside tables in each bedroom (say 1300 no.), These suppliers will likely be prepared to speculate over the design and tooling costs, and charge only for the finished product.

When selecting appropriate manufacturers to consider for this sort of ‘appointment’, we would look to assess the following criteria:

– Proven internal capacity and capability of both design and manufacture of product.

– Core disciplines of manufacturing in the areas most appropriate to the clients’ concept design brief (e.g. woodworking, metalworking, upholstery).

– Manufacturing and cost control of additional outsourced components.

To maintain competition, we would normally invite two or three relevant manufacturers to provide a design pitch for a selected package of products, all to a target price, to demonstrate their design development process, and also to present initial design ideas. This would then allow the client team to select and appoint one to work with to design and develop the chosen products. This route can work very effectively when combined with the selection of some complementary standard products to achieve an overall design to meet a budget.

C. Single source packages from China

An alternative route to BTR product specification is to source products from China. China is now one of leading furniture manufacturing nations globally, with a huge industry producing cost effective products, but at a wide variety of qualities. Sourcing from Chinese factories requires specialist knowledge of those with the right manufacturing disciplines, but with the right chosen route, this risk can be managed and cost savings made. The sheer number of manufacturing options is quite exponential by comparison to Europe, so the risk of purchasing from new sources can only be offset with the right direct experience.  Within the furniture requirements for flats are also a variety of manufacturing disciplines, which can also change depending on the design style selected: woodworking and turning, metalworking, upholstery, bed and mattress making, lighting to name the most obvious and significant ones, and these disciplines and skills are very unlikely to be ALL available at the right quality and price from a single source. The additional factors to consider when purchasing directly from China are transportation – 5 weeks on the water, plus the related costs, risks, demurrage involved; and day 2 and small quantity orders, where the transportation costs disproportionately distort the pricing, and the response times. So although the quality of product coming from Chinese factories now can be excellent, it requires prior experience and expertise to locate it. And although the project volume price benefits can be very attractive, the flipside risks of additional top up order costs and service response times have also to be factored.

So we have considered how best to achieve the pricing benefits of Chinese manufacturing, but also eliminate the pricing and transport variations, and top up transport times. To achieve this we have partnered with a longstanding UK importer and distributor of furniture products and accessories, and in conjunction with leading BTR brand and delivery architects Geraghty Taylor we have selected a number of co-ordinated suites of furniture and accessories that could be used in BTR schemes. There are 8 different design schemes, including all furniture, and accessories.

The real benefit of this route is that for project volumes, all the items are available delivered to the UK within 16 week delivery periods from China (including both manufacturing and shipping time), but for additional top up items they are available to order from a UK stockholding, held by the distributor. The only downside of this particular route is that the items are available only in pre-selected fabrics and finishes, which allows the UK distributor to purchase to stock in quantity. They have developed the manufacturing partnerships, and volume pricing structures over many years, and they take all the distribution costs and risks.

The preselected design schemes that we have put together with Geraghty Taylor Architects will save the client not only significant purchasing sums on both project volumes and top up items, but will also bypass the time-consuming selection process, and save on further design fees.

D. Built in furniture

Often the built-in furniture – primarily the fitted wardrobes and kitchens – are part of the main contractor’s joinery package. But it doesn’t always need to be, and there can be a cost-effective alternative in considering it as part of the FF&E procurement package.

Certain specialist manufacturers are able to perform either (or both) of these disciplines, aswell as design and manufacture some of the loose furniture items. The potential benefit of considering them is i) to get economies of scale and further discounts on the loose furniture if they were also making some of the fitted products; ii) to get greater co-ordination of design styles, and consistency of finishes across the flats furniture, and iii) to provide a competitive cost comparison to joinery manufacturers. We have identified 3-4 potential suppliers with the right skills and track record to partner on this type of requirement.

E. Specialist products

The finishing details of a project are also extremely important to help personalise and complete a project – Artwork, ornaments, cutlery and crockery, curtains, and rugs are also important considerations in the FF&E package of a BTR development.

Artwork, ornaments and rugs are a real specialist area, and we partner with two different companies, taking two different approaches to fulfilling this need. Similarly, to provide quality made curtains at a competitive price, it is also about selecting the right fabrics with the right design of curtain – the scheme designer working with the consultant and the factory.

In summary, all of these five potential procurement routes are an appropriate starting point of conversation with a client team looking to procure for a BTR development. Depending on the brand identity and concept design scheme, it will quickly become apparent which route – or combination of routes – will be the most appropriate ones to follow for each project. A BTR operator will be wanting to buy effectively in volume, be able to manage stocks and replacement items easily, but also to give their clients and tenants a personalised living space that is not simply a replication of every other flat in the development. And this can be done very effectively by combining different client choices for fabrics and finishes, and artwork and accessories. Generally maximum volume discounts are obtained on batch quantities of 100 and over, and so a scheme can often use different but complementary colour choices without sacrificing either cost or control.

If the procurement process is set out from the outset, there is no reason why all the key function, design and budgetary criteria cannot be balanced and achieved to realistic expectations.


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Author

Martin Stocks
mstocks@operandum.co.uk

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