Statistically Speaking – The Changing Retail Landscape

November 7, 2018  by HFBusiness Staff in Business Strategy, Industry   

The U.S. became over-stored in many channels during the 1990’s and early 2000’s as developers kept building shopping centers and companies continued opening retail outlets. The Great Recession was the initial economic event to impact the retail landscape, especially for furniture and home furnishings stores as the housing and mortgage crisis escalated. Then with the influx of internet companies like Amazon and Wayfair, consumers altered spending habits and priorities. Over the last 10 plus years, dramatic shifts in distribution channels have taken place both in sales and in store counts.

 

Number of Establishments

 

Some retail channels have fared well during the last ten plus years, but many have not. Many channels peaked in total establishments (store fronts) just before the recession and some continued to grow. Except for electronic shopping, mail-order stores and general merchandise (variety) stores, virtually all other retailers of furniture and home furnishings continue to close stores. Furniture, electronics and appliance stores, and home centers peaked in 2007 and continue to decline. Home furnishings stores have been on a similar path, but did increase in number slightly in 2017. Department stores, warehouse clubs and superstores grew during and after the recession, but have been victimized from the pressure of internet companies and have decreased in number in the last couple of years. (Table A)

The number of furniture stores peaked in 2007 at 27,630 according to the U.S. Bureau of Labor Statistics. Since that time brick and mortar furniture stores fell to 22,052 store fronts this year. This 20.2 percent total decline or annual CAGR of 2 percent loss represents the largest decrease of all the key channels 2007 to 2018 Q1. The announced closing of 700 Mattress Firm stores will result in another 3 percent decline. Home furnishings stores did not fare much better falling 19.4 percent in number over the 10 plus years, but showed a slight uptick in the first quarter of this year of 0.3 percent.

 

During the same time period 2007 to 2018 Q1 pure electronic shopping and mail order houses surged by 100.9 percent or 6.5 percent annual growth.

 

Warehouse stores and supercenters (i.e. Costco, Wal-Mart, and Target) peaked in number two years ago in 2016 at 6,073 locations and have gradually closed 1.1 percent of the stores over the last 15 months. Department stores (i.e. Macy’s, Bloomingdale’s, Kohl’s, TJ Maxx) as a group also showed strong signs of post-recession recovery, increasing the number of stores by 22.5 percent (2007 to 2015) before a catastrophic closing of 14.5 percent of stores in just over two years. Electronics and appliances stores, the largest distribution channel in number, along with home centers (i.e. Home Depot, Lowes’s) continued to remove stores throughout the recession and after, maintaining an average annual decline of 1 percent and 2 percent, respectively. At one time the electronics and appliances stores totaled 53,343 but now number 45,351 in 2018 Q1. (Table B)

Table C tracks the percent of stores closed from two historical perspectives – (1) 2007 to 2012 during the recession and subsequent slow recovery years, and (2) 2012 to 2018 during economic recovery and high growth. During the recession and the immediate recovery years, furniture stores and home furnishings stores shuttered more locations as a percent of total than any other in the key retail furniture groups, closing stores at an annual rate of 3.8 percent over those five years. Meanwhile home furnishings stores closed 3.5 percent of locations each year 2007 to 2012. But these two primary channels took their hits early due to the housing and mortgage crises as did home centers. During the last five years furniture and home furnishings stores lost less than 1 percent of its outlets annually. Meanwhile home centers closed 2.2 percent of stores annually in the five-year recessionary/recovery period and continued to lose 1.2 percent annually 2012 to 2018Q1.

Other retail channels continued to grow during the early recession and post period or had minimal store closings, but have closed stores in recent years. These include department stores and electronics and appliances retailers. The only retailers to continue opening stores were warehouse clubs and superstores, general merchandise stores, and electronic shopping and mail-order houses (non store retailers).

Retail Sales

During the recovery period from 2012 forward, all furniture and home furnishings distribution channels grew in sales, despite store closings, with the exception of electronics and appliance stores and department stores (Table C).

Retail sales from electronic shopping and mail-order houses catapulted 131.3 percent from the peak of the recession in 2009 to 2017, but furniture stores and home furnishings stores experienced a healthy growth in retail sales, increasing by 23 percent and 21 percent from 2012 to 2017.

Both furniture stores and home furnishings stores’ sales have grown a yearly average of 4 percent in the past five years. Warehouse clubs and superstores have slowed momentum of sales in the last five years, but are still growing an average of 2.6 percent each year (Table E).

The net effect, especially for furniture, is that even though industry sales slowed and stores shuttered, the ones left standing had higher sales and continued to increase their sales per store, as shown in Table F. The average annual sales per store for furniture stores climbed steadily from $1.9 million in 2009 to $2.9 million in 2018 YTD – jumping 52.6 percent. Home centers have also benefitted from the net effect, increasing their sales per store by 73.7 percent during the same time period, mostly likely as smaller stores have closed.

Many have labeled the next few years a “Retail Apocalypse” as total retail chains in varied product areas are projected to exit the market and existing retailers pare down their stores in number and in size. Some predict entire malls will continue to close. However, furniture still remains one of the products where many consumers still like to “kick the tires” before purchase. And despite the store closings, retailers are finding ways to survive and perhaps re-gain some market share.