Streamlined Tax Refund Season Emerging as Major Advertising and Sales Opportunity

March 14, 2017   by Jane Chero in Advertising, Economic News, Industry   

Many home furnishings advertising and sales events throughout the year focus either on a national holiday or “end of season” promotion. National holidays presumably give consumers an extra day to get out and shop and “end of season” events help retailers clear inventory off floors to make room for new merchandise. Only recently taking form across all consumer products is a sales event that focuses on when consumers actually have extra money to spend – Tax Refund season.

Thanks to the proliferation of efiling and the increased sophistication of IRS processing, last year $318 billion in tax refund dollars poured into direct deposit accounts and home mailboxes of 111 million tax filers earlier than ever before (Figure 1).

The earliest the IRS begins direct deposits or mails returns is around February 1. About 45 percent of last year’s tax refunds arrived in the month of February and an additional 22 percent were received in March. In the last two months of the first quarter of the year, consumers had $202 billion dollars of extra cash in their bank accounts. For the furniture and home furnishings industry, the question becomes, are retailers doing the right kind of advertising to steer these tax refund dollars toward their stores and products?

The growth of efiling

Efiling has revolutionized the way people get refunds. In fact, mailing in tax forms is rapidly becoming a thing of the past. As shown in Table A, the percentage of tax filers efiling tax returns has grown from 30.7 percent in 2001 to 91.0% in 2016 - a climb of 60.3 percentage points. With the IRS currently issuing refunds within 9 to 14 days after receipt of a tax file, filers can receive direct deposits as early as the first week of February.

2016 Filing Season Statistics

In the 2016 tax filing season, over 111 million tax filers received refunds out of the 152 million tax returns processed. At 82.7 percent in 2016, the vast majority of people filing in February are receiving refunds. Table B shows that 41.9 percent of the year’s filers or 46.5 million returns received refunds in February. Another 21.8 percent of filers received refunds in March and 16.2 percent in April with the remaining 20 percent getting money between May and December.

Almost half of the money paid out in tax refunds (44.7 percent) for the entire year occurred in February – $142 billion out of $318 billion (Table C). March accounted for 19.1 percent and April for 13.2 percent of total refund dollars. Less than one-quarter of refund dollars were paid in months May through December.

With an average refund of $2,860 during 2016, those filing early in February received refunds 6.8 percent higher at an average of $3,053. Both March and April were less – averaging $2,506 and $2,327. Surprisingly, those waiting to file later (between May and December), received an average of $3,271 per refund (Table D).

How do Consumers plan to spend refunds?

In a study last year, GOBankingRates.com conducted a Google consumer survey asking consumers if they received a refund and if so, how they plan to spend it. Based on the survey, 70 percent of consumers expected to receive a refund. Table E shows how those 70 percent plan to spend their money. The majority plan to either pay off debts or put the refund into savings. Almost 13 percent want to use their extra money for a vacation and roughly 13 percent plan to either make a major purchase such as a car or home or splurge on smaller purchases.

Younger consumers are more likely to both receive refunds (Table F) and also spend those refunds on consumer purchases as opposed to paying off debt or sticking in a savings account (Table G). For the key target groups for the Furniture Industry, 81.0 percent of older Millennials (25 to 34) and 73.3 percent of 35 to 44 year olds expect to receive a refund.

While the 13 percent of tax filers receiving a refund expect to spend this money on major or splurge purchases, this number goes up significantly to 17.1 percent for younger Millennials and down to 7 percent or less for consumers ages 55 and over (Table G).

How do the 13 percent translate into possible dollars for the furniture industry? Combining IRS statistics with the survey, Table H shows that in 2016, $18.26 billion was available for use on major purchases and splurge spending in February alone – 44.7 percent of the $40.82 billion for the year. An additional $22.6 billion is spread out over the following months – 19.1 percent in March and 13.2 percent in April.

Based on the $26 billion plus dollars up for grabs each first quarter, is the Home Furnishings Industry advertising correctly and planning the best sales events to attract the dollars from tax refunds? With enticing deals and strategic advertising, can more dollars be lured away from vacation spending or other purchases and into home furnishings purchases? Now that efiling has streamlined income tax filing into an easy and fast turnaround for over 90 percent of consumers, a definitive purchasing season has emerged and advertisers should take notice.

Furniture Stores Top Selling Months

February 21, 2017   by Jane Chero in Economic News, Industry   

Many life events spur home furnishings purchases. But along with buying a new home, marriage, and having children, the time of the year plays an important part in overall furniture store sales (Figure 1). These sales are less important to other furniture distribution channels, for example, big box stores, but are the bread and butter of furniture stores. These event sales also serve the function of clearing out merchandise to make way for new styles.

Economic events can always alter consumer confidence, but the overall monthly ebb and flow of furniture store sales has changed through the years. Once the pinnacle of furniture purchases, the November/December holiday season has lost some of its sales glamour, not only for furniture but all consumer products as a total group. It is still the biggest season in total retail sales of consumer goods, but no doubt the 4th quarter has lost market share. For furniture stores, May and August have always been steady and strong, but March has emerged as a huge sales month. Online filing of income tax returns has resulted in quick returns for the end of February and especially throughout March.

Throughout the 1990’s and up until the mid 2000’s leading up to the Great Recession, November and December trended as the largest sales months for furniture stores, often combining to capture 18 percent to 19 percent of annual sales. The exception was in December 2002 and 2007 when economic downturns and uncertainty impacted furniture store performance in December. However, since coming out of the Great Recession, the entire 4th quarter has garnered less importance to the Furniture Industry. Table A tracks monthly indexed furniture store sales. Note that an index of 100 represents the average month (annual sales divided by 12 months). An index of 115, for example, indicates sales were 15 percent higher this month than the average.

Two decades ago in 1997, the 4th quarter far outreached the previous three quarters in furniture store sales (Table B). At 27.6 percent, the 4th quarter was 4.4 percent higher than the 1st quarter’s dismal 23.2 percent. Over the next 15 years, both quarter 1 and quarter 3 percentage of sales increased, while quarter 4 dropped below 25 percent. Although 2016’s holiday season performed better than 2012, quarter 3 rises as the year’s top-performing period.

Furniture store monthly sales center around calendar events and holidays. These events translate into the highest performing months in most cases.

1st Quarter

While the 1st quarter contributed less than 25 percent to furniture stores sales in 2016, tax refunds issued at the end of February and throughout March propelled sales upward impacting March significantly (Table C). January is negatively impacted especially in markets sensitive to winter weather. And with no big sales event to lure customers, it is the worst performing month of the year for furniture stores. February has the draw of big Presidents’ Day sales which helps the weather-sensitive markets recoup somewhat. However, consumers seem to be holding out until spring when income tax refunds arrive. In 2016, almost two-thirds of total annual refunds totaling $203 billion (out of $317 billion) were paid before March 25. March is the only month in the quarter that consistently out performs the average for all months, which is 8.3 percent of sales.

2nd Quarter

The 2nd quarter typically produces lower furniture store sales than the remainder of the year because of a historically poor performance in April. Memorial Day sales in May always produce excellent sales– an average of 8.4 percent throughout the past two decades. In recent years June has also performed above the average (Table D).

3rd Quarter

Since 2002, Quarter 3 has climbed to the best selling quarter of the year – mostly due to high August sales. The end of summer sales and the lead into Labor Day has kept the month of August percentage of sales at 8.8 percent until 2016 (Table E). Last year the Labor Day holiday weekend fell solidly in September which boosted it to the highest performing month of the 3rd quarter. Meanwhile July 4th events are producing average sales during a traditional consumer vacation period.

4th Quarter

Table F shows how market share of November and December combined has dropped from 19 percent in 1997 to 17.2 percent in 2016. While still commanding above average sales, the holiday season has lost some appeal as more consumers are choosing to take advantage of income tax refunds in the early spring and late summer sales. In addition, other consumer goods and electronics also compete for consumer dollars during the holiday season. Meanwhile, October has become the second worst performing month behind January averaging 8.0 percent of sales since 2002.

In a perfect world, furniture store retail sales would produce 8.33 percent of sales per month. And while all retail entities have seasonal variations based on consumer life events, which are beyond the retailer’s control, and holiday sales, which are within its control, every month that falls short of this mark potentially sends consumers to other product markets. If the 4th quarter of 2016 had generated the percent of sales as the average of the 1990’s, an additional $1.3 billion in furniture and bedding sales would have shifted to the holiday season. Is this loss a result of a shift to other seasonal sales and events, or is it a decline in the importance of furniture purchases to the consumer in the 4th quarter?

Home Furnishings Prices Continue Four Year Decline

January 23, 2017   by Jane Chero in Economic News, Financial Reports, Industry   

The Consumer Price Index is defined by the Bureau of Labor Statistics as the measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI-U (Consumer Price Index – Urban Consumers) represents all urban consumers, about 89 percent of total U.S. population. This article focuses on the Consumer Price Index from 2010 to 2016.  To interpret the CPI note that the base year indexes is always shown as 100.  The index for subsequent years indicates the percentage growth over that base year.  For example, an index in the year 2013 of 119.3 indicates the price of that consumer item has grown 19.3 percent since the base year of 2010. On the other hand, an index of 86.2 indicates the price of that item has fallen 13.8 percent.  Each year represents the growth over the base year.

The prices of consumer items grew steadily coming out of the recession for virtually all broad product categories until 2012 to 2014, when Durable Goods, including furniture, appliances, and electronics, along with Non Durables, and Commodities began to decline.  The Services sector, led by skyrocketing medical costs, is the only broad group continuing to see large price increases.

According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) for all consumer items increased 9.9 percentage points over the last six years – an average of 1.6 percent a year. Meanwhile, the purchasing power of the dollar decreased with time – declining 9 percentage points since 2010 (Table A) Durable Goods has been the worst performing sector in price growth compared to Non Durables, Services, and Commodities (Table B).

Durable Goods prices grew slightly coming out of the recession, but began declining in 2012, and this year are 3.3 percentage points below 2010. With a constant upward trajectory, the price of all consumer Services has increased 14.4 percentage points from 2010 to 2016 –due in part to escalating medical costs. 

Housing

Except for home furnishings and operations, housing and home energy costs have grown over the past six years. Both Rent and Home prices have crept up an average of 3 percent (Rent) and 2 percent (Homes) a year – resulting in overall growth of 18.6 and 15.7 percentage points. And while Household Energy prices peaked at an index of 106.8 in 2014, prices quickly fell back down this year to just 1 percent growth since 2010. With Rent and Home prices growing, consumers may have fewer disposable dollars available for Household Furnishings and Operations which are both below 2010’s index by 2.9 percent (Table C).

Furniture and Home Furnishings

Focusing on Household Home Furnishings prices, the accessories category (Clocks, Lamps, and Decorator Items) has the most negative price growth – dropping 29.1 percentage points since 2010 (Table D). Major Appliances is second with a 13.9 percent decline. Furniture and Bedding, Window Coverings, and Floor Coverings all experienced slightly less negative growth – falling between 3.9 percent and 8.8 percent from 2010 to 2016.

Furniture Products

The CPI breaks Furniture into three broad categories – (1) Living Room including Upholstery, Kitchen, and Dining Room, (2) Bedroom including Bedding, and (3) Other Furniture. All three categories are down in price from 2010 (Table E). Bedroom Furniture experienced small price increases leading up to 2012, most likely via Mattresses, but has declined steadily in price since then. Currently Bedroom and Bedding is down 4.9 percent from 2010 prices. Living Room, Kitchen, and Dining Room Furniture peaked at 102.1 index in 2012 before falling to 96.1 this year, a level 3.9 percent below 2010.

Television and Cable

In many electronics categories, the price of the durable good has fallen while the cost of operating that product has increased. For example, Television prices have dropped dramatically, but the cost of programming services has skyrocketed. The price of televisions has fallen 65 percentage points since 2010 or about 16 percent a year.  During the same time period, Cable and Satellite Television and Radio Services have jumped a total of 17 percentage points – a roughly 4 percent yearly increase (Table F).

Computer and Electronic Services

Similar to Televisions, Personal Computer prices continue to fall – down 41.6 percentage points in six years (Table G). Surprising to some, Wireless Telephone Service prices are also down, while Internet Services have stayed steady with a slight increase of 0.5 points from 2010 to 2016.

New Vehicles and Gas

New cars and trucks is one Durable Goods area that has seen steady price increases, up 6.8 percent since 2010 (Table H).  On the flip side, however, is that while cars have become more expensive, gasoline prices have become cheaper. Gas prices peaked in 2012 at levels 30.8 percent above 2010, but began their decline three years ago.  In 2016 the price of gasoline is down 23.4 percent down from 2010.

Food and Beverages

Food, both groceries and restaurant prices, have experienced overall growth from 2010 to 2016 (Table I). Food away from home showed the most growth – increasing 16 percentage points.

Medical and Drug Prices

By far the largest increases in prices come from the Medical Industry (Table J). Aside from Health Insurance which has fluctuated since 2010 with the introduction of Obamacare, all medical services and drug prices have maintained an upward trajectory. Hospital Care alone is up to 30.5 percent in 2010 to 2016. All other physician services, dental services, and prescription drug costs have grown between 16.5 percent and 22.8 percent. Even medical care for your pet is skyrocketing growing over 20 percent since 2010.

Education and Childcare

As shown in Table K, education for all ages along with childcare costs are close behind medical care in services that have sharply increased over the past six years. Up to an index of 126.1 in 2016, College Tuition and Fees have jumped an average of 4 percentage points per year. Consistently on an incline, childcare has increased 14.6 percent points from 2010 to 2016.

The Consumer Price Index clearly shows how consumers are faced with growing prices in the Services area but over the last two years have seen overall declines in durable and non-durable goods.  The problem for the home furnishings industry is that prices have been consistently falling since 2012 which may be good for consumers, but not so good for the retailer.

Reality Bytes

December 13, 2016   by Jane Chero in Economic News, Industry   

A Disappointing 3^rd Quarter
For the Furniture Industry

The first quarter of this year in the furniture and bedding industry started off continuing the 5 percent plus growth over the previous year for all quarters in 2015. But as the year wore on, subsequent quarters did not perform to those levels. Quarter two fell to 3.7 percent growth and quarter three fell to 3.0 percent growth over the same quarters of 2015 (Table A). Year-end sales in 2015 totaled $92.5 billion.  Third quarter year-to-date industry sales reached $71.5 billion, a 3.0 percent increase over the first three quarters last year.

These numbers reflect a weakening furniture store sales growth (which includes lifestyle retailers) and are in line with the government’s reports of personal consumption expenditures. Retailers are hoping for a bump in consumer confidence in the fourth quarter to help ramp up growth.

Furniture Store Sales

Furniture stores, which include all lifestyle furniture retailers, posted a dismal 1.3 percent increase in the third quarter of this year compared to the same quarter in 2015 (Table B). Retail store sales are at an average quarterly growth of 3.2 percent – down from a 5.7 percent growth (2014 to 2015). Furniture Store sales increased from $14.3 billion in the second quarter of 2016 to $14.9 billion in quarter three, an increase of 4.3 percent.

Personal Consumption Expenditures

Personal Consumption Expenditures for furniture also experienced a third quarter slump this year – increasing 2.1 percent over the same period in 2015. Over the previous six years, third quarter year-over-year growth averaged 4.4 percent. (Table C).

Economic Influencers and Catalysts

Real GDP. The furniture industry, aside from demographics, is driven by economic influencers and catalysts. Gross Domestic Product the measure of goods and services in the U.S., is chief among them. Real GDP growth has continued to decline since the first quarter of 2015 when growth was at 3.3 percent. Growth in 2016 has been steady, but slow, with quarterly averages between 1.3 percent and 1.6 percent (Table D).

Payroll Employment. The number of employed workers (non-farm) was at its highest level in history in October of this year at 149 million. However, employment growth this year has slowed throughout each quarter. In 2015 growth averaged 2.1 percent year over year, but has fallen to an average of 1.4 percent increase in October of this year (Table E).

Consumer Price Index. For furniture and bedding, prices have been relatively stable, falling less than 1 percent from the prior year’s quarter, until the second quarter of this year.  In 2016 Q2 prices were down 2.8 percent and in 2016 Q3 down 3.1 percent (Table F).

Unemployment Rates

Over the last five years, the Unemployment Rate has declined rapidly – dropping from 9 percent to 5 percent (Table G). From 2011 to 2015, the third quarter each year has decreased an average of 1.0 percentage points. Although only slightly moving 0.2 percentage points from 2015 Q3 (5.2 percent) to 2016 Q3 (5.0 percent), employment is now at pre-recession levels.

Consumer Confidence

Consumer Confidence has not moved more than 6 points in any quarter over the last two years hovering from 95 to 101 (Table H). A confidence level of 100 usually indicates neither extreme confidence nor lack thereof. The year 1985 was chosen by the Conference Board as the base index of 100 because that year showed neither a peak nor trough in the business cycle. Consumer Confidence was at its highest in the year 2000 at 139. Conversely, Consumer Confidence was at its lowest of 39 at the bottom of the last recession in 2009.

Housing Industry

Nothing impacts furniture industry growth perhaps more than home sales both existing and new.

Existing Home Sales. Home re-sales experienced healthy first and second quarters this year growing 5.0 and 4.2 percent from 2015. However, 2016 Q3 dropped 0.4 percent from 2015 Q3. At an annualized rate, third quarter existing home sales totaled 5.3 million units. (Table I).

New Home Sales. Part of the third quarter decline in existing home sales this year is offset by new single-family home sales that surged 23.1 percent in the third quarter to an annualized rate of 599 thousand units. After double-digit growth in 2015, 2016 year started with very slow growth in the first quarter of 1.6 percent. The second quarter rebounded, however, to 14.5 percent increase followed by the third quarter surge (Table J).

Housing Starts. Despite the strong third quarter in new home sales, housing starts did not keep up the momentum. Single-family unit starts increased by only 1.9 percent from 2015 Q3 to 2016 Q3 (Table K). Third quarter annualized starts totaled 759,000 single-family units. On a positive note, September starts were at the highest level since last February and the year should end with over 13 percent growth.

For multi-family units, the picture is not so bright. After a flurry of building in 2014 and 2015, starts are off significantly this year. While the first quarter of 2016 experienced 5.2 percent growth, the second and third quarters have posted negative growth of 9.5 percent and 7.7 percent respectively (Table L).

Many economists are projecting new single-family home building and sales to be strong in 2017, with moderate growth in existing home sales. Much of home buying is by first-time home buyers, the young Millennials who are finally making their move to be the consumers the furniture industry and many others have been waiting to see. But political and economic uncertainty can throw a wrench in at any time.

Generation X Might Not Be a Bust After All

November 9, 2016   by Jane Chero in Economic News, Financial Reports, Industry   

Historically named the “Baby Bust Generation,” Generation X babies are now roughly 35 to 50 years old and born between 1966 and 1981. Sandwiched between the Baby Boomers and Millennials, Generation X is often overlooked by media and marketers as a worthy target – instead focusing on upcoming Millennials and their future economic influence. Once considered too small in size to make an impact, Generation X is now almost 70 million strong and is the largest generation of consumers alive, ages 21 to 65. Moreover, they are increasing their earning power rapidly with more going toward their home furnishings purchases.

They have been much maligned as a generation of latchkey kids growing up in an era where divorce rates more than doubled. They have been purported to distrust the big corporations they feel mistreated their loyal parents and yet are now taking over the high paying jobs of baby boomers as they retire in record numbers. Gen Xers are revolutionizing the business world with their demands for a work-life balance and place a high priority on their families and homes.

These 35 to 50 year olds also have over 50 percent of the children under 18 – further extending their buying power. With homeownership rates up and furniture expenditures at their highest in years for ages 35 to 44, Generation X is poised to make a significant mark over the next five years and beyond.

As shown in Table C, the population of the “Baby Bust Generation” is now much larger than originally projected due to immigration. With 58.5 million births between 1966 to 1981, Generation X has grown by almost 20 percent (19.3) in numbers.

Although smaller in total population, Gen Xers are the largest adult consumer population at 37.5 percent of adults ages 21 to 65 (Table D).

Income

Gen Xers are in their prime earning years. As Baby Boomers retire more high paying jobs will open up to experienced and ready Gen Xers. In 2015, median income (Table E) was the highest for Generation X 45 to 49 year olds at $76,095, followed by 40 to 44 year olds at $72,143. In addition, the youngest of the Gen Xers, the 35 to 39 year olds, had the fastest growing incomes last year with median income increasing 9.2 percent over the previous year (Table F).

Children

Gen Xers ages 35 to 50 are in their prime family purchasing years for both themselves and their families. Over half (52.9 percent) of children (65.7 million children) under 18 reside in Gen Xer homes (Table G). Over 80 percent of those Generation X households are married couples.

Education

Gen Xers are only slightly less educated than the younger Millennials with 35.7 percent attaining bachelor’s degrees or higher.  For 35 to 50 year old Gen Xers, 38 million have some college or higher degree.

Homeownership

Gen Xers have followed the Baby Boomers in their love of homeownership but were temporarily stymied by the recession. Homeownership among all three Gen X ages is now well above 50 percent with 61.6 percent of 40 to 44 year olds owning a home and 68 percent of 45 to 49 year olds (Table I). With homeownership rates bouncing back, Generation X has dramatically increased furniture spending.

Furniture Expenditures

Last year saw a dramatic increase in furniture expenditures by Gen Xers according to the government’s Consumer Expenditure Survey. The heart of Gen Xers (ages 35 to 44) is spending the most on furniture of any consumer group averaging $672 annually. This survey reflects about 55 percent to 60 percent of furniture expenditures.

With the Baby Boomers aging out of prime buying years and the Millennials still pouring into adulthood, Generation X is the here now for the furniture industry. Industry leaders should keep their focus on this bread and butter generation that may just be the consumers that transition our industry toward real prosperity.