Larger Floor Plans Top Trends in New Home Building

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

According to a new HUD report, 477,000 new single-family one-unit houses were completed for resale in 2015, a number that is still only 37 percent of pre-recession levels in 2006. Single-family home building is up 23 percent since 2009 and for the first half of this year, new home completions are up 14 percent from the first half of 2015.

Some trends point to Millennials as they age as well as older, more established GenX families. These trends include an increase in multi-story homes with more bedrooms, baths, and multiple patios, porches and decks. Other trends point to the ballooning senior population downsizing to age-restricted communities with less interest in some design features such as fireplaces, but more interest in comfort features.

The median size of new homes grew 23.3 percent from 2000 to 2015– increasing from 2,060 square feet to 2,540 square feet according to the new report “Characteristics of New Single-Family Houses in 2015” from the U.S. Department of Housing and Urban Development (HUD). During the same time period, median lot size decreased 4.6 percent from 8,930 square feet to 8,521 square feet or about one-fifth of an acre. Table A compares the percent growth in new house sizes to lot sizes, 2000 to 2015. The drop in 2009 reflects the bottom of the recession.

As of 2015, over half (58 percent) of new single-family home lot sizes are less than 9,000 square feet or just over one-fifth of an acre. Moreover, lot sizes (cluster homes) under 7,000 square feet increased to 36 percent of new homes built.

Even with the housing market collapse in 2009, new homes have continued to get bigger since 2002. As shown in Table C, only 37 percent of new homes built in 2002 were over 2,400 square feet. Fast forward 13 years and 56 percent of new houses are now 2,400 square feet or larger. Also important is that in 2002, 34 percent of new homes were smaller than 1,800 square feet compared to only 15 percent in 2015.

As houses have increased in size, more bedrooms have become the norm. Over 53 percent of new single-family homes built in 2015 have four or more bedrooms – up from 38.2 percent in 2009 (Table D). Three-bedroom homes, once the majority in new constructions, have decreased from 52.6 percent to 40.7 percent since the recession – a drop of 23 percent. Homes with more bedrooms create product opportunities, not only for bedroom furniture, but also home office or other alternative uses.

Along with more bedrooms, a big jump has occurred post recession in the number of bathrooms. The percentage of new homes with three baths or more grew by 105 percent – from 23.6 percent of new houses to 41.1 percent in six years (Table E). Multi-story new single family homes are on the rise with 63 percent built in 2015 versus 58 percent in 2009 (Table F). Partly due to declining lot sizes paired with desire for bigger homes, single-story houses were down to 37 percent of completions in 2015.

As outdoor living has become a major feature in many new homes, multiple porches, patios, and decks are trending for the larger homes– up to 46 percent in 2015 from 43 percent in 2010 (Table G).

As more new houses are being built with multiple stories, laundry rooms are moving out of the basement and off the main floor and up to top floor (second floor).

In 2015, 29 percent of new homes have top floor laundry rooms compared to 16 percent in 2009 – an increase of 81 percent.

A surprising trend especially given the increasing size of new homes is that fireplaces are becoming less important except in the Northeast (Table I). And while over half (51 percent) of the new homes being built still have fireplaces, this is down from 61 percent in 2002. In the Northeast fireplaces are still important – climbing from 62 percent of new homes in 2002 to 66 percent of in 2015.

Air conditioning is becoming the norm across the country with 94 percent of new homes built with AC in 2015 – up from 89 percent in 2002 (Table J). The fastest increase in new houses built with air-conditioning has been in the Northwest and West – both jumping 10 percentage points from 2002 to 2015.

 

Another important new trend in new home communities, especially in the South, is the increase in the number of age restricted developments (generally 55+). Although still less than 5 percent of new homes built in 2015, these neighborhoods have increased 54 percent from 2009 to 2015 (Table K). The Midwest and South doubled construction in age restricted developments since 2009 while the Northeast declined 33.3 percent indicating seniors making this lifestyle move want to escape the colder climates. The West showed no growth. The growth in these age restricted communities may partially explain the decline in fireplaces in warmer climates as they become less important to seniors.

New single-family houses are increasingly being built in communities with structured homeowners’ associations (HOAs), except in the Northeast. In total, new homes with HOAs jumped 11 percentage points from 2009 to 2015 – 62 percent to 73 percent. In the South these structured communities are especially important with 81 percent of new homes built in neighborhoods with an HOA. Meanwhile, in the Northeast in 2015, homes built in HOA communities represented only 40 percent of the region’s new construction.

As the population ages, Millennials and Baby Boomers will be defining the trends in new homes. Millennials may enter the home buying process a little later than earlier generations, but the demand will be there. Meanwhile the growth in new senior lifestyle communities is projected to accelerate. If the current new home trends continue, home furnishing product areas in bedroom and outdoor will be a main focus as well as lifestyle furniture designed for senior living.

The Rise of E-Commerce in Furniture Manufacturing and the Merchant Wholesale Trade

September 9, 2016   by Jane Chero in Business Strategy, Industry, Internet   

Mention furniture and home furnishings sales sold via the internet, and the focus immediately turns to B2C retailing (business-to-consumer). So it may be surprising to learn that it’s the e-commerce (e-shipments) B2B platform (business-to-business) that has been exploding and generating buzz in the furniture industry.

A recently released report from the Census Bureau shows B2B e-shipments within the furniture and related products manufacturing segment (NAICS code 337) is now approaching 51 percent of the value of total shipments or $35.2 billion dollars in 2014. (Source: U.S. Census Bureau E-Commerce Report 2002 to 2014, June 7, 2016). The Census Bureau defines manufacturers’ shipments to include “orders accepted for manufactured products from customers, including shipments to other domestic plants”. While this appears to be double counting in some instances, it does little to diminish e-commerce’s impact on the wholesale furniture industry. (See Methodology and Definitions box for additional information). B2B e-commerce is changing the way manufacturers market and sell their products to both retail brick and mortar customers and online furniture retailers creating increased sales on one hand and distribution channel crises on the other.

E-Commerce across Vertical Furniture Industry Segments

The product categories included in data published by the Census Bureau may differ somewhat between furniture manufacturing shipments, merchant wholesaler shipments, and retail sales; however, the trend in e-commerce is the same. (See Methodology and Definitions box.) As of 2014, e-commerce accounts for over half (50.6 percent) of all furniture and related product shipments – up from 14.4 percent in 2004 (Table A). During the same time period, e-commerce sales of furniture and home furnishings within the retail trade sector increased 503 percent – representing 15.3 percent of total retail dollars. While e-commerce among the merchant wholesale trade of furniture and home furnishings increased steadily since 2004, the share of overall sales have remained stagnant since 2009 – increasing from 14.3 to 14.4 percent.

Manufacturing Shipments

As Table B shows, the total value of manufacturing shipments in the furniture industry took a downturn alongside the economy during the recession. The 2014 value at $69.6 is still 9.9 percent below 2002. E-commerce shipments on the other hand kept an upward trajectory through the recession – increasing a total of 335.9 percent over 12 years. While total furniture and related products manufacturing increased by 15.4 percent since 2009, e-commerce shipments jumped another 70.3 percent to finish 2014 at $35.2 billion.

The percentage of total dollar shipments via e-commerce has climbed from 10.5 percent in 2002 to 50.6 percent in 2014 with the vast majority of growth (313 percent) occurring between 2002 and 2011 (Table C). From 2011 to 2013, increases of e-commerce as a percentage of total shipments tapered off. However, an 11 percent jump in 2014 pushed e-commerce to over half of furniture and related products shipment dollars.

E-Shipments: Furniture Manufacturing vs. Total Manufacturing

While e-shipments have grown at a rapid pace, furniture and related products manufacturers are still lagging slightly behind all manufacturing in the percentage of e-commerce shipments to total (Table D). In 2014, total e-shipments in all industries were 60.9 percent of total manufacturing compared to furniture e-shipments at 50.6 percent. Both total manufacturing e-shipment dollars and furniture e-shipment dollars increased an annual average of 14 percent from 2004 to 2014.

Merchant Wholesalers and MSBO’s

Merchant Wholesalers are wholesalers who sell goods on their own account such as distributors, jobbers, drop shippers, import/export merchants, and MSBOs. Manufacturers’ Sales Branches and Offices (MSBOs) are establishments maintained by manufacturing, refining, or mining enterprises apart from their plants or mines for the purpose of marketing their products. Sales branches will typically carry inventories, while sales offices typically do not. – U.S. Census Bureau

Since the turn of the century, e-commerce has slowly climbed its way into the furniture and home furnishings merchant wholesale trade. Merchant wholesalers weathered the recession well growing 43.8 percent in sales 2002 to 2014 to $76.9 billion while the e-commerce portion of those sales jumped 113 percent to $11.1 billion.  MSBOs total shipments at $21.0 billion in 2014 grew more slowly -- 17.3 percent 2002 to 2014. E-commerce shipments from merchant wholesalers alone have increased a yearly average of 7 percent, while furniture MSBO’s have increased by 3 percent.

Although increasing just 30 percent in e-commerce sales from furniture MSBOs over 12 years, e-commerce accounts for 21 percent of furniture and home furnishings MSBOs (Table F) compared to other merchant wholesalers at 14 percent. As a percent of total shipments, e-shipment sales of both merchant wholesalers and MSBO’s have declined since 2011.

With more advanced websites and ordering portals that make it easier for a business to make purchases online, e-commerce should continue to grow as a key part of the furniture industry.  Manufacturers look to e-commerce to increase sales and broaden its customer base.  This approach, however, presents a challenge to manufacturers in terms of personalized customer service and maintaining that sales rep relationship.

The Rise of E-Commerce in the Furniture Industry

July 18, 2016   by in Business Strategy, Industry   

With the sophistication of the internet has come the booming growth of e-commerce. The combined furniture and home furnishings industry has been one of the big recipients of this growth second only to the clothing/footwear industry. It is estimated that 2015 internet sales of furniture alone now totals an estimated $14 billion or 15 percent of furniture industry sales. (Source: Impact Consulting Services, Inc. proprietary industry model and U.S. Census Bureau’s E-Commerce Report issued June 2016 covering years 2004 to 2014.)

Furniture Industry Sales

Since the bottom of the recession in 2009, total furniture industry sales have grown 24.1 percent, and much of that growth can be attributed to the rise in e-commerce. Actual brick and mortar store sales of furniture are up 13.8 percent since 2009 while e-commerce has grown by 168 percent. (Table A)

In 2004, e-commerce sales were inconsequential in relation to brick and mortar store sales which accounted for 93.4 percent of the total furniture industry. Over eleven years, the share of e-commerce has grown from 3.2 percent to 15.3 percent in 2015, while brick and mortar sales fell to 82.9 percent of total furniture dollars (Table B).

Along with furniture e-commerce sales, other home furnishings products – floor covering, window treatments and home accessories – have grown at an even faster pace than furniture. The table below shows that while furniture e-commerce sales have grown 440 percent since 2004, home furnishings have growth 697 percent to $13.9 billion (Table C).

Brick and Mortar Stores e-commerce

Retail sales of furniture and home furnishings products are sold through three avenues – brick and mortar stores, internet shopping (e-commerce) and finally mail order and other miscellaneous non-store retailing. In the first instance - brick and mortar stores -consumers can physically visit the store or they can often visit the store’s website and make an online purchase. Many of these retailers offer expanded product offerings on their websites not available in stores. While some large brick and mortar merchants have been successful in online retailing of furniture and home furnishings products, furniture and home furnishings stores as a whole have been much less successful with online attempts. These websites serve as much to draw the consumer into the store as to generate online sales. And while e-commerce sales among furniture and home furnishings stores almost doubled from $330 million to $651 million 2004 to 2014, this only increased internet sales to less than one percent of furniture stores volume in 2014.

Comparing 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, though none are exceeding three percent of sales via e-commerce (Table D).

E-Commerce Retailers

The phenomenon of e-commerce has been the rise of what was once called “Non-Store Retailers”, now referred to as “E-Commerce Retailers” – companies without physical stores competing with brick and mortar establishments. The new Census Bureau study reports sales of furniture and home furnishings through e-commerce retailers increasing from $4 billion to $24.3 billion in ten years (2004 to 2014) – a growth of 503 percent (Tables E).

Along with furniture and home furnishings, other consumer merchandise lines dramatically increased sales through e-commerce retailers. At $46.9 billion in sales, clothing/footwear leads e-commerce retailer sales in 2014 up from $7.1 billion in 2004. By far, the fastest growing products sold by e-commerce retailers, clothing/footwear increased 561 percent over the ten year period. Furniture and home furnishings experienced the highest growth among e-commerce retailers coming out of the recession 2009 to 2014 – jumping an average of 20 percent per year. Sporting goods sold through e-commerce retailers also experienced high growth in the last few years, but electronics and computer hardware have tapered off with sales increasing a yearly average of five percent since 2011 (Table F).

Of the five selected merchandise lines in Table G, clothing/footwear holds the highest share of e-commerce retailer dollars and grew from 13.3 percent share in 2004 to 18.4 percent share in 2014. Furniture and home furnishings also saw a gain in share – finishing 2014 at 9.3 percent. As more merchandise lines like clothing and furniture have increased their internet presence, two broad product areas have lost share among e-commerce retailers -- electronics and appliances and computer hardware. Once the king of e-commerce, computer hardware fell from 15.1 percent share to 6.3 percent in ten years. Electronics and appliances slipped down from 10.8 percent share of e-commerce retailer sales to 9.2 percent.

Retail Trade Total

While internet purchases have made major inroads into many consumer product areas, e-commerce is still a small part of overall retail sales. According to the new government e-commerce report covering years 2004 to 2014, sales from e-commerce for all U.S. retailers, both brick and mortar retailers and e-commerce, for all consumer products excluding gasoline totaled $298.6 billion in 2014. This reflects an increase of 14.3 percent from the year before and a 311 percent change over ten years (Table H). Meanwhile total retail sales, excluding gasoline, grew 30.3%.

According to the Census Bureau, the internet claimed 7.3 percent of all retail sales, excluding gasoline, in 2014, up from 2.3 percent ten years before (Table I).

While the growth of internet sales of some products appears to be slowing, other product areas, like food, are still in their e-commerce infancies. The rapid growth of furniture industry sales by successful e-commerce retailers are challenging the brick and mortar stores and presenting a distribution dilemma for manufacturers. In the next issue Statistically Speaking will continue to address e-commerce and the future customer.

Millennials: The Changing Face of Young Adults in the Furniture Industry

June 7, 2016   by in Economic News, Industry   

Millennials, Americans born roughly between 1982 and 2000, account for more than one quarter of the nation’s population. As of 2015, these 17 to 34 year olds numbered 83.1 million and have surpassed the 75.4 million Baby Boomers. The Millennial generation continues to grow as young immigrants move into the U.S., while deaths among Baby Boomers exceed the number of older immigrants. These children of the Boomers will emerge into full adulthood in 2017 as the largest consumer generation in history.

This is the first of two articles profiling this generation. The initial article explores demographically how the Millennials have altered the population, income, education and household characteristics of both the Under 25 and 25 to 34 age groups over a ten-year period. The article next month will explore how researchers think this generation will spend its estimated $200 billion dollars annually starting next year.

Population

As a whole, the number of 15 to 34 year olds has grown 9.5 percent from 2004 to 2014 (most recent population data). As shown in Table A, the glut of Millennials is in the 20 to 24 age group – totaling 22.9 million in 2014 after jumping 12.6 percent in ten years. Ages 25 to 29 have also grown dramatically, increasing 15.7 percent from 19 million to 22 million. While dipping down to 19 million in 2008, age group 30 to 34 has climbed up to 21.5 million. The Millennial stragglers are in the top end of the 15 to 19 age group. Once the highest young adult population in 2006 and 2007, most have since aged into their twenties leaving this age group relatively flat at a 3.7 percent growth over the ten-year period.

Income and Employment

The economy has had a major impact on Millennials. Many of them still live with their parents, have crushing student loan debt and are underemployed at best and unemployed at worst. Over the past ten years individual incomes have yet to reach pre-recession levels. Latest median income figures from the Census Bureau report Millennials ages 25 to 34 earn $31,219 annually, down over 10 percent from a peak of $34,459 in 2007. Many of the Under 25 age group Millennials are currently part-time employed college students, underemployed graduates or workers in unskilled low paying jobs.

Education

The percentage of Millennials that are college educated is higher than any generation preceding it, a fact that should bode well for future economic growth. Over seventy percent of Millennials have some higher education (Table C) a much higher percentage than their Boomer parents.

Unemployment

Despite the level of education, a staggering number of Millennials are still looking for work. At the end of last year, 9.4 percent of adults ages 20 to 24 seeking jobs were still unemployed (Table D).

Marriage

Of all of the characteristics of Millennials, perhaps none is more significant to the home furnishings industry than the tendency to delay marriage (Table E). In less than ten years, the marriage rate shifted from 38 percent of adults marrying by age 34 to only 26.8 percent. Marriage spurs home ownership and family planning which in turn feeds the home furnishings industry.

Homeownership

Although Millennials make up the largest and most educated generation in American history, the combination of economic factors,  delayed marriage and family formations and shifting consumer attitudes also make them the slowest to embrace home ownership. This is most evident in the 25 to 34 age group where home ownership has fallen 10 percentage points in 10 years. In 2004, 49 percent of Millennials owned their own homes compared to 39 percent in 2014. (Table F).

Furniture Expenditures

The glut of the Millennials, the Under 25 age group, is one of the few groups to increase expenditures on furniture in the last 10 years, although expenditures still comprise only about 5 percent of industry sales. Many of these Millennials, however, still rely heavily on family financial support. Millennials ages 25 to 34 as well as the older GenX 35 to 44 group, traditionally the core of the furniture industry, have both failed to reach pre-recession furniture expenditures – down 8.2 percent and 12.3 percent.

For the home furnishings industry, the Millennials always seem to be just over the horizon but yet to make their big entrance. In terms of furniture industry sales, sales to the Baby Boomers are still growing, but they will begin to lessen their impact and make way for the Millennials.

Many things add up to help explain the slow arrival of the Millennials on the home furnishings consumer scene. The long recovery from the recession brought stagnant wages and higher unemployment. Add to that the delaying of marriage and slow home purchases. But the industry is ready. In the next issue, Statistically Speaking will examine the attitudes and lifestyle characteristics of Millennials and whether home furnishings purchases will become as important to them as they have been to their Boomer parents.

Do Election Years Spur Industry Growth?

May 19, 2016   by in Economic News, Industry   

Is an election year partly responsible for a healthy economy? Are furniture sales higher and unemployment rates lower? Looking back over the past 20 years and the elections those years encompassed yields interesting results. With the exception of the Great Recession in 2008, a possible heightened sense of confidence and hope for the future during election years may partly be responsible for higher furniture sales growth, consumer confidence, gross domestic product and lower unemployment rates.

Furniture Sales

In presidential elections over the last 20 years since 1997, the last year of each term with one exception, has produced the highest furniture industry sales growth of all four years of that presidency. The one exception was the second term of George W. Bush which ended during the Great Recession. The last year of each term is also the Election Year for next term, as the nation is experiencing now in 2016. If the pattern continues, 2016 should grow in excess of the 5.3% furniture sales growth of last year.

Table A shows the furniture industry growth by year over 20 years encompassing five presidential terms, including the current 2016 election. Note that the industry’s highest growth was in the last years of Bill Clinton’s second term and George Bush’s first term.

Consumer Confidence

Consumer Confidence was highest during the Clinton years – topping out at 139 during his last year in office (an election year). Taking a big dip post 9/11, Consumer Confidence dropped to 80 in 2003 before climbing back up to 96 during George W. Bush’s last year of his final term. During the Great Recession, Consumer Confidence hit its lowest at 45 during Barack Obama’s first term but grew 22 percentage points to 67 in the Election Year of 2012. Consumer Confidence has continued to grow over Barack Obama’s second term, but at 95 in March 2016, it is still below the 1985 base of 100.

Gross Domestic Product

The Gross Domestic Product or GDP is defined as the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. As Table C shows, the GDP has made its largest gains during election years with the exception of the Great Recession. In both Bill Clinton’s 2nd term and George W. Bush’s 1st term, the value of U.S. goods and services increased by more than 6.5 percent from the previous year. It remains to be seen whether 2016 will follow the same trajectory.

Unemployment Rate

Like the highs in Consumer Confidence, the Unemployment Rate was at its lowest during the Bill Clinton years (Table D). The Great Recession caused the unemployment rate to skyrocket near 10 percent, but by the election year of 2012, the rate has decreased to 8.1 percent and continues to fall almost a percentage point each year. Currently at 4.9, the Unemployment Rate looks to be continuing the trend of other election years with the lowest unemployment of the presidential term. 

Election Year vs. the First Year in Office

While the majority of election years in recent times have ended on a positive economic note for the furniture industry, did the momentum carry over to the first year of a president’s new term? The continued upswing did occur in the 1980’s and 1990’s, but since the turn of the century, furniture industry growth during a president’s first year in office did not surpass the election year preceding it.

Table E shows that in the 80s and 90s, with the exception of Ronald Reagan’s second term, the first year of a president’s four-year term experienced higher furniture industry growth than the previous election year.

Unlike the 80’s and 90’s, in recent elections (Table F), the economic momentum of the election year did not carry over to the first year of a presidency. No president’s first year of the term exceeded the previous election year’s growth. If this trend continues into 2017, the Furniture Industry will not experience quite the growth of 2016.

With America facing what pundits are calling a polarizing election year, the hope is that the U.S. economy will follow tradition and industry growth will continue and consumer confidence grow.n