Statistically Speaking: E-commerce Strengthens Foothold on Furniture Industry

June 14, 2018  by HFBusiness Staff in Economic News, Industry   

The rise of e-commerce in the furniture industry continues its momentum as many brick and mortar stores search for strategies to compete with giant online retailers. And while many brick and mortar furniture retailers are strengthening their digital presence, their online furniture sales only account for 1 percent of e-commerce furniture totals. Meanwhile, furniture and home furnishings e-commerce retailers celebrate rapidly increasing sales, but struggle with how to become profitable.

 

It is estimated that 2017 Internet sales of furniture alone from both brick and mortar and pure e-commerce retailers totaled an estimated $19.7 billion or 18.8 percent of the total industry. This article picks up from Statistically Speaking’s August 2016 article The Rise of E-commerce in the Furniture Industry. 

Sources:  U.S. Census Bureau’s Annual Survey of Retail Trade (e-commerce) and Impact Consulting Services, Inc.’s proprietary FurnitureCore.com Industry Model.

Furniture Industry Sales

The retail furniture industry reached $105.2 billion last year, a growth of 3.9 percent over 2016 (Figure 1).

Of the $105.2 billion industry total, sales can be distributed between (1) brick and mortar stores, (2) e-commerce retailers plus e-commerce sales by brick and mortar companies, and (3) mail order houses. Pure e-commerce retailers are those that do not have physical store locations, like Amazon or Wayfair, or their e-commerce is operated as a separate business unit, like Walmart.com. Additional e-commerce sales from brick and mortar stores total only 1 percent of the total industry.

Last year furniture and bedding sales by brick and mortar stores (non Internet) totaled $83.1 billion compared to $19.7 billion e-commerce (all outlet types), and $2.3 billion from mail order houses (Table A).

As shown in Table B, e-commerce continues to gain a greater share of the furniture industry – jumping from 5.1 percent of sales in 2006 to 18.8 percent in 2017. Meanwhile, brick and mortar share of total sales fell from a 92.2 percent share to 79.0 percent – decreasing dramatically as the economy improved after 2009.

The total furniture and bedding industry grew 3.9 percent last year. It is estimated that brick and mortar store sales of furniture grew only 2 percent while e-commerce retailer sales grew 12.9 percent. 

Over the course of seven years since the bottom of the recession in 2009 furniture sales through e-commerce have grown at an annual rate (CAGR) of 22.2 percent compared to brick and mortar retailers at 3.0 percent. Total industry sales have grown at an annual rate of 5.1 percent (Figure 2).

Table C shows the annual year-over-year growth of the three outlet types. Note that the rate of e-commerce sales peaked at 26 percent in 2015, but has slowed somewhat over the last two years to 12.9 percent in 2017. Meanwhile, brick and mortar sales have struggled to reach 2 percent growth over the last two years.

Along with furniture e-commerce sales, other home furnishing products – floor covering, window treatments and home accessories – have grown at an even faster pace and surpass furniture in online sales. Consumers are still finding it easier and less daunting to buy home furnishings online without seeing or touching them in a store. Table D shows that while furniture e-commerce sales have grown from over 300 percent since 2009 (bottom of the recession) totaling $19.7 billion last year, home furnishings have grown 489 percent to $27.7 billion in 2017.

Brick and Mortar Stores e-commerce

 

In many brick and mortar stores, consumers have the option of physically visiting the store and/or using the store’s website to shop and make purchases. The online capabilities and offerings vary by retailer. Although “showrooming,” the customer’s act of checking out an item at a mall, brick and mortar or big-box store, then heading out to buy it from an online retailer, has grown commonplace over the years, the reverse is also true. Many consumers still need to see, touch, and feel an item and will do online research before heading out to a store to make a final purchase. While the success of online retailing among brick and mortar merchants has increased over the years, the e-commerce sales comparison remains vast between brick and mortar stores and pure e-commerce retailers. E-commerce sales among combined furniture and home furnishings stores jumped 200 percent from $367 million to $1.1 billion 2006 to 2016 but furniture stores only held one percent of that volume. (Note: 2017 data has not yet been released.)

Comparing combined furniture and home furnishings stores to other retail brick and mortar companies, furniture and home furnishings stores lag behind in percent of e-commerce sales to total sales but has shown 25 percent growth from 2014 to 2016. Just reaching 3.0 percent in 2016, clothing and clothing accessories stores have the highest volume of e-commerce sales as a percent of total sales among brick and mortar retail store types (Table E).

Mail Order Retailers

Technically the mail order business is a small part of the furniture industry but the lines between mail order and e-commerce are blurring and print catalogs are making somewhat of a comeback as another medium to reach out and touch the consumer. Data from the Census Bureau and Impact Consulting’s FurnitureCore.com Industry Model estimates the furniture mail order business at $2.3 billion in 2017, only 2.2 percent of industry sales. These sales were flat compared to the previous year. And according to the U.S. Postal Service and research by Data & Marketing Assn., in 2016, consumers are getting fewer catalogs in the mail compared to the glory days. In 2016 9.8 billion catalogs of all types reached American mailboxes compared to double that amount in 2007 (Table F).

Despite the gloomy statistics, last year saw evidence that print catalogs are resurging but not in traditional mail order formats.  For example, home furnishings e-commerce giant Wayfair produced its first print catalog at the end of 2016 and continues to roll them out. Wayfair claims its catalogs are meant to inspire a lifestyle as opposed to promoting a brand. 

 

Research points to several reasons print catalogs are growing.  First, consumers are getting less and less mail overall as the “paperless” movement has become popular and therefore catalogs now stand out in consumer mailboxes. Also, the advertising clutter in email boxes along with saturation in social media has driven companies to give the old fashioned catalog another look. Plus, software ad blockers are causing fewer marketing messages to actually reach the consumer. And finally, research by Data & Marketing Assn. suggests simply that Millennials really do like them.

E-commerce Retailers

E-commerce retailers are defined as companies without physical stores competing with brick and mortar establishments. Sales of combined furniture and home furnishings through e-commerce retailers have increased from $7.9 billion in 2006 to an estimated $46.3 billion in 11 years (2006 to 2017) – a growth of 486 percent (Table G).

Growing at an average annual rate (CAGR) of 17.4 percent a year, e-commerce furniture and home furnishings retailers show no signs of slowing down. The two giants in the industry, Amazon and Wayfair, are both looking at ways to incorporate brick and mortar stores into their portfolios. These companies see the desire held by a majority of consumers to see especially higher ticket furniture items in person before making the leap to buy. Along with Wayfair’s entry into the print catalog business, according to Boston Magazine, the company is looking to open its first showroom in an old Marshall’s storefront in downtown Boston. Rather than resist the looming presence of Amazon, mattress manufacturer Tuft & Needle has partnered with the online company to expand its brick and mortar stores using Amazon technology and selling various Amazon products in the stores. These moves could put more stress on traditional furniture retailers.

In addition to furniture and home furnishings, other consumer merchandise lines dramatically increased sales through e-commerce retailers. At $59.1 billion in sales, clothing/footwear leads e-commerce retailer sales in 2016 up from $12.9 billion in 2006 – skyrocketing 358 percent. Although not as high as clothing/footwear, furniture and home furnishings experienced the highest growth among e-commerce retailers over two years 2014 to 2016 – jumping 54 percent. Sporting goods sold through e-commerce retailers also continue a positive trajectory, increasing 44 percent in two years and passing the slower growing computer hardware merchandise line (Table H). Note that data for 2017 is not yet available.

Retail Trade Total

Internet sales of all consumer products from all retail types of outlets, whether brick and mortar or e-commerce companies, are estimated to have reached $437.5 billion in 2017 (Table I). It may be surprising to some, however, that these internet sales represent only 8.6 percent of all retail sales for all consumer products (Table J). But Internet purchases continue to make major inroads into many consumer products with no sign of slowing down.

The rapid growth of furniture industry sales by successful e-commerce retailers are challenging brick and mortar stores, but traditional store fronts still offer a customer experience that an e-commerce retailer cannot. But e-commerce companies are quickly moving into areas (for example, store fronts and print catalogs) to challenge the customer experience of traditional brick and mortar retailer.

Understanding the Role Geography Plays

Research is emerging to help both brick and mortar stores and online retailers better target customers. For example, the affluent urban customer has totally embraced the e-commerce experience.

However, in more rural areas where shipping costs are higher and delivery times longer, e-commerce has been slower to catch on. It also appears the less affluent consumer responds better to online sales events. Understanding these economic and geographical profiles will be a feature in a future Statistically Speaking article.