Statistically Speak: Small Markets Face Uncertain Future, or Do They?

January 22, 2021  by HFBusiness Staff in Business Strategy, Industry   

Many also reported, not just that they liked working remotely, but also getting away from the frantic lifestyle of a big city. There has been a lot of discussion in the media about the pandemic causing an exodus of people from big cities as more companies are looking at “working from home” as a viable, long-term solution. Early evidence suggests many families are already exploring alternatives. A late summer 2020 survey by Redfin, the home listing company, shows that before the pandemic, 37% of its online searches were in urban areas, but only 19% during the pandemic. Suburban area searches grew from 43% before to 50% during the pandemic. And perhaps, most shocking, 9% of the online searches prepandemic were rural areas compared to 19% during COVID-19 (Figure 1).

Redfin also reported that 29% of people looking for homes on its sites in the third quarter of 2020 were looking to move to a different city.

It is still too early to tell if the shift out of the urban areas will occur or how it will affect small markets. For decades smaller markets have seen steady decline across the country with population shifts to bigger markets. Despite the losses, many small markets are continuing to produce steady furniture industry sales. This month Statistically Speaking dives into the segmentation of markets by furniture industry sales looking at population shifts and employment and income growth with focus on the trajectory of small cities.

Small markets include small MSAs (under $50 million in furniture industry sales), micro statistical areas, and rural areas. These markets represent 18.4% of the U.S. population (2019), and include 68.6% of total counties. Small MSAs equal 29.5% of the total 404 metro areas. Of importance to the furniture industry is that small markets account for 14.2% of personal income as of 2020 Q3, but only 11.6% of furniture industry sales (Figure 2). Furniture Industry Sales As shown in Table A, the top 28 markets, contributing over $1 Billion each in furniture industry sales, make up 40% of the total industry. Mid-to-large MSAs, between $50 Million and $999 Million, contribute almost half (47.7%) of furniture industry sales, and smaller markets under $50 million make up the other 11.6%. All markets size segments increased in furniture industry sales each year since 2017 (Figure 3). However, growth varies significantly by individual MSA. The combined growth diminished slightly between 2018 and 2019 with many retail size segments – large and small – falling below a 5% increase. Despite the pandemic, 2020Q3 YTD combined sales in all retail sales ranges are above 5% growth with the exception of rural areas at 4.9%. The impact of Federal stimulus on this growth is unknown at this time.

Figure 4 shows a sample of key performing markets within these market size segments. Excluded are markets where positive industry growth may have been impacted by one of the many natural disasters seen in the past two years. Small Market Population Shifts While the population of the United States grew swiftly over the last 60 years, not quite doubling, the actual share of the population living in small markets did not change as much as one might think. Table B shows small markets lost only seven points in population share. However, because of population growth, these same small markets gained almost 15 million people 1960 to 2019.

Since 2010, population growth in general slowed. Over the last five years, large markets saw the most growth (over 4%) (Table C). Small markets struggled to maintain the current population levels. Rural areas began losing population gradually each year, and since 2014 lost 0.7% of its residents.

Over a third of the U.S. population lives in only 183 counties out of a total 3,142 (Figure 3). These 28 markets (MSAs) combined are the fastest growing in population – up 4.2% from 2014 to 2019. Meanwhile, the slowest metropolitan population growth occurred in MSAs under $50 Million in furniture industry sales. Markets with $25 Million to $49 Million in sales increased population by only 0.7% and those under $25 million just 1.3%. And over the last 10 years, rural areas gradually lost population for the first time in history. Table C and Figure 5 show for the five-years 2014 to 2019, rural areas lost almost 1% of its residents.

One of the biggest problems facing the furniture industry is the slow and often negative population growth of future prime furniture purchasers. Millennials are expected to take up some of the slack over the next 10 years as Baby Boomers continue to age out of prime furniture buying years. Table D shows the Millennial population now fully into adulthood with ages 25 to 34 years growing 5.7% over the last five years. On the flip side, the heart of the Baby Boomers (ages 65 to 74 years) grew by 19.5% 2014 to 2019 which in turn reduced the 45 to 54 age group populated by the smaller size of Generation X. This affluent cohort remains strong furniture buyers.

Figure 6 may cause many industry retailers to panic seeing the dramatic shift from 2014 to 2019 in the population age groups in the different sized markets. Some examples:
• Low U.S. birth rates reflect the negative growth in all markets for the 0 to 9 age group.
• Smaller markets show negative growth in almost all age groups up to 25 years old, further reflecting on the long-range future of these communities.
• Millennials are firmly entrenched in the larger markets over $50 million in industry sales.
Employment Growth
Coming out of the Great Recession, employment grew rapidly through last year – up 7.3% for the total U.S. from 2014 to 2019. However, this year the pandemic lowered U.S. employment to 2015 levels as of October 2020. From 2014 to 2019, employment grew rapidly in the big markets - jumping over 9% in markets with furniture industry sales above $500 Million. As with population growth, increases in employment grew at a slower rate (roughly 3%) among smaller markets. Conversely employment growth in smaller markets did not fall as far as bigger markets from December 2019 to October 2020 (Table E).

Income
Alongside employment, personal income grew rapidly for all market ranges between 2014 and 2019. Not surprisingly, the two biggest market segments showed the highest growth at 26.8% and 28.5% respectively. Markets ranging from $50 Million to $499 Million had income growth between 20% and 23%. Rural areas and markets with industry sales from $25 Million to $49 Million ranged in income growth from 13.8% to 17.6% over the previous five years (Table F). If furniture industry sales in smaller markets had kept up with these cities’ income levels, they would have gained an additional $2.4 billion dollars in industry share.

Questions remain: Can the bleeding be stopped in smaller markets? Will younger people and families be enticed to flee the big cities for a different lifestyle? Is the “work from home” or “work from anywhere” really a revolution or just a pandemic blip in our economic history? Small markets need a hook – either vacation spots, rural scenic areas, or cities where the drive into urban workplaces one or two days a week would be doable.