From Home Furnishing Business
These lifestyle developments are changing the look of bedrooms as much as their functionality. While matched suites of furniture and formal finishes have been gone for years, design directions continue to favor curated collections of furnishings that feel related and complementary. Style categories such as traditional, glam, cottage, coastal, and modern are being mixed and melded to create bespoke environments that feel personal and reflect the owners’ individuality.
Style continues to be a driver for bedroom furniture sales, according to major furniture manufacturers. “Our popular Meadowbrook collection combines timeless design elements of cottage-style bedroom with an updated finish story,” says Rusty Morris, vice president of sales and marketing for American Woodcrafters. “While cottage has been synonymous with white finishes, Meadowbrook stands out with its sandy-caramel colored finish, as it retains the relaxed casual warmth of cottage decor.”
Porter Designs is finding success with a bedroom group that combines traditional elements of quality with a fresh design direction. “The modern styling combined with the heirloom-quality solid-wood and tremendous value are the key ingredients to the success of our Fall River bedroom collection,” explains Jeff Schwall, national sales manager for Porter Designs. From bed linens to flooring and furnishings, sustainability is a desirable feature for homeowners furnishing or updating a bedroom. Troy Lerew, vice president of sales for sustainable supplier Greenington, says its modern, elegant Ventura collection is a best-seller. “Ventura is a proven winner for our dealers and a top seller overall for Greenington,” he explains. Consumers support the earthfriendly brand and its bamboo construction with environmentally safe finishes.
The design of bedroom furnishings has far-reaching impact, according to David Koehler, president of Aico. “Our La Rachelle collection is more than a bedroom set, it’s a lifestyle. Its sleek design, glowing neutrals, and top-tier craftsmanship make it special. People aren’t just seeking furniture—they want magic in their home and this beautiful collection helps them achieve that desire.”
As a category, sales in bedroom furnishings are tracking slightly upward. According to the FurnitureCore Industry Model developed by Impact Consulting Services, parent company to Home Furnishings Business, research shows the category finished last year with $27.96 billion in sales (furniture and bedding), up 7.7% over 2021’s $25.95 in annual sales. This year is starting off favorably with $6.77 billion in sales for Q1 compared to $6.5 billion for the same period in 2022. Bedroom (including bedding) comprises 14.5% of total industry sales in 2023 Q1 sales, up over the same period last year where bedroom/bedding’s share was 13.9%.
This article comes on the heels of last month’s installment of Statistically Speaking entitled, “Furniture and Home Furnishings Stores Face Marketing Challenges” and addresses employment and wages in retail brick and mortar distribution channels that serve the furniture industry.
Where Have the Workers Gone?
Retail companies add employees when demand dictates. An interesting statistic, and perhaps a key one for brick-and-mortar furniture distribution channels, is that since 2017, most retail store types decreased in number of employees, especially retailers whose main product line is furniture and home furnishings (Figure 1). In other words, the highest year of employment was back in 2017. eCommerce growth is no doubt a significant part of the reason. Furniture store employment, however, fell only 3.1% during this period, the best performance of the “2017 highest employment” groups featured in Figure 1.
The stores that did add employees throughout the pandemic and beyond were home centers and other building material dealers, up 4.2% in workers 2017 to 2023 Q1, with employment peaking in 2021. Other retail outlets gaining employees were warehouse clubs and superstores, up 9.7% and still growing through 2022, and lawn and garden equipment retailers, increasing 13.0%. These retailers that are still growing reflect the cultural attitude prevalent during the pandemic as consumers began to place greater importance on their homes and purchased accordingly.
One key shift that has occurred among the workforce is that the ratio of workers in the total workforce that are in supervisory or non-production roles has grown over the last four-plus years compared to the decline in the percent of production workers and NONsupervisory employees (Tables C-1 and C-2). The ratio for the total retail trade has remained stable at 14.9% in both categories, but in most all furniture distribution categories the percent of the workforce that is now in supervisory or non-production jobs has grown. For furniture retailers, in 2019 Q1 17.2% of employees were considered supervisory or non-production, compared to 19.3% in 2023 Q1.
Tables D-1 and D-2, show that the decline in employees is caused by a decrease in production and non-supervisory workers, while supervisory and non-production workers increased for most retail store types. The production/non-supervisory category declined 5.7% for furniture retailers and 15.6% for home furnishings stores.
Table D-2 shows that among the other retail store types, home centers, paint, wallpaper and other building material dealers showed a more stable employee mix between the two categories, with production/non-supervisory employees declining 1.0% in number, and supervisory/non-production workers falling 1.6%. This retail outlet had the lowest total employees decline of 1.1%.
Among the various furniture and home furnishings retail distribution outlets, floor covering retailers have the highest hourly wages at an average of $32.69 (2023 Q1) followed by electronics and appliances at $27.38 (Figure 2). Furniture stores and home furnishings stores are next at $26.36 per hour and $26.33 per hour. General merchandise retailers, which broadly includes warehouse clubs, superstores, department stores, and other general merchandise retailers, averaged $21.03 per hour. Home centers average $22.04 and hardware retailers, $21.69. The combined average hourly wage for all employees in the U.S. retail trade in all product areas in 2023 Q1 was $23.72. Figure 2 also highlights the vast difference in the growth of wages since 2019 and throughout the pandemic and inflationary period. The highest hourly wage growth was among floor covering retailers of 27.28% 2019 Q1 to 2023 Q1, far outpacing inflation, followed by home furnishings stores at 22.38% and furniture stores at 18.19%. The lowest hourly wage growth 2019 Q1 to 2023 Q1 was among electronics and appliances stores at 3.76%.
Of note is that hourly wages of furniture retailer employees declined 3.6% in 2023 Q1 over the prior 2022 Q4, the highest decline of all distribution channels (Figure 2). All other distribution channels showed increases, except furniture retailers and floor covering stores.
The wage growth of these distribution channels during the two years prior to the pandemic and through 2023 Q1 shown in Tables E-1 and E-2, contrast the differences in the average hourly wages. Table E-1 shows average hourly wage for the primary brick and mortar distribution channels 2018 through 2023 Q1. Note the significantly higher wages of floor covering stores followed by furniture/home furnishings stores.
Table E-2 graphic shows the other distribution channels where furniture/ home furnishings are not the primary product categories. The higher wages for electronics and appliances retailers stand out in this graphic.
In the desperate search to hire and maintain production and non-supervisory employees for many retail store types, including furniture stores, the rate of hourly wage growth was higher for these workers than for supervisory and nonproduction employees (Figure 3). Hourly wages for production and non-supervisory employees grew 24.1% between 2019Q1 and 2023Q1 for furniture stores compared to total retail trade employee hourly wage growth 20.4%. For home centers, paint, wallpaper, and other building material dealers, hourly wages for production and nonsupervisory employees skyrocketed 44.8%.
As discussed previously, most of the salary growth among retail employees has been mitigated by inflation. So, the final question to be answered is: If hourly wages grew faster than inflation, why did weekly wages struggle to keep up with inflation. Part of the answer is that employees worked fewer hours through 2021 and 2022 as inflation soared. The lost hours are not dramatic, but they add up (Figure 4). For many retail store types, the average employee works fewer than 30 hours a week. The maximum average weekly hours for any of the retail channels discussed in this article is 35.4 in floor covering stores. With inflation ebbing, where are we now? Fewer workers, with higher wages, and working less hours than ever before.
As can be seen from the graphic, the forward-looking statistic (compared to the previous quarter) indicates a definite slowdown while the back focused statistic (compared to the previous year) provides a more positive perspective.
But what about the balance of the year? Given no extreme external factors, FurnitureCore, LLC, sister company to Home Furnishings Business still has confidence in its 2023 forecast of 2.6%. Then why are retailers feeling so unsettled? One reason is the variance across the nation with one retailer reporting sales are up 13.4% (year-over-year) and another 17% down (year-over-year). Table C presents the range of variance.
Let’s now get down to the specific performance factors for the industry and your specific operation (for subscribers).
Despite inflation, supply chain disruptions, and a slowing in the frenzied demand seen in 2021, the furniture industry grew a respectable 6.47% in 2022 following 2021’s growth of 21.9% coming out of the COVID-19 pandemic. Furniture stores, however, did not fare as well. Table A shows that furniture store sales for the total U.S. grew only 1.1% last year compared to the traditional furniture stores.(See Figure 1 for the Methodology.)
For years the furniture industry experienced slow growth coming out of the Great Recession. Sales picked up a little steam around 2015 to 2018. Then when the pandemic hit, industry sales skyrocketed before slowing in 2022. Meanwhile, furniture store sales growth continued at a crawl until 2021, then fell to very slow growth last year. Table B shows the dollar growth.
Last year, quarterly growth over the prior quarter for all U.S. furniture stores went negative for three out of the four quarters, with only the second quarter showing positive growth at 8.66%. Quarter four was down 0.56%. Notably the first quarter of this year showed no improvement with flat growth over the last quarter of 2022. Traditional retailers participating in the retail metrics for this article also experienced significant slowing in the last half of 2022 (Table C).
The financials of the traditional furniture retailers participating in the retail metrics in 2021 told a story of high gross profit driven by increased volumes from higher prices. Segue to 2022 and those sky-high profits subsided, especially in the third quarter. Table D illustrates the percent dollar growth in key indicators for gross profit, sales expense, general and administrative expense and net operating income.
Table E shows the total quarterly performance as a percent of revenues, not dollars.
Key Performance Indicators 2022
KPIs at their broadest levels, showed a decline in profits in 2022 compared to 2021 and an increase in expenses. (Table F) Gross profit as a percent of revenue fell to 50.13% last year compared to 51.17% in 2021. The fourth quarter showed the strongest performance at 51.67%.
Sales Expense was up over a percentage point, 23.25% in 2022 versus 22.2% the year before.
General and Administrative Expense (G&A) was up the most of the broad expense items at 16.54% of revenue compared to 14.72% in 2021.
Net Operating Income, as a result of increased expenses, fell from 14.25% of revenue in 2021 to 10.33% in 2022.
Above the Line Performance
Merchandise Returns in 2022 were slightly more than in 2021 at 0.59% of revenue versus the prior year of 0.35%. Merchandise Protection Sales were off slightly last year at 3.11% of revenue versus 3.42% in 2021.
Delivery Income was half a percentage point higher as a percent of revenue in 2022 (3.61%) than 2021 (3.17%) driven by additional revenue in the fourth quarter.
Cost of Goods Sold (Table H)
Of significance is that the total cost of goods sold was up over one percentage point in 2022 at 49.87% of revenue compared to 48.83% the year before. CGS eased somewhat in the fourth quarter.
Gross Profit on Sales (Table I)
Increased cost of goods sold impacted gross profit a full percentage point, down to 50.13% of revenue in 2022 compared to 51.17% in 2021.
Selling Expense (Table J)
All facets of selling expense increased as a percent of revenue in 2022, except for store sales expense. Total selling expense as a percent of revenue grew from 22.2% in 2021 to 23.25% last year. The following details the individual selling expense categories. Advertising/Public Relations took the highest jump in percent of revenue from 3.56% in 2021 to 4.36% in 2022. In 2021 consumer demand was so strong that retailers didn’t feel the need to increase advertising. However, in 2022 across the board – broadcast/air, Internet advertising, print and direct mail increased. Broadcast/ air advertising is still king among retailers at 58% of advertising expenditures in 2022. Internet advertising is still less than 1% of revenue annually.
Sales Expense for 2022 was also up slightly as a percent of revenue – 9.81% in 2022 compared to 9.61% in 2021. Increases in sales commissions and draws account for most of this increase.
Warehouse/Delivery/Services Expense as a percent of sales was mostly the same in 2022 compared to 2021, 8.0% versus 7.88%. Store Sales Expense was comparable to 2021 at 1.04%.
General & Administrative Expenses (Table K)
G & A expenses is the largest group of fixed expenses. These accounts are those that keep the doors open, the lights on and the place running. Each component of this broad category, except human resources, saw an increase in 2022 as a percent of revenue. G&A increased from 14.72% of revenue in 2021 to 16.54% in 2022. Information Systems expense was up over half a percentage point in 2022 to 1.13%. Occupancy Expense, a significant expenditure, increased to 6.27% of revenue in 2022 compared to 5.67% in 2021. Rent and lease payments represent 62% of this category and increased to 3.9%. Utilities, building maintenance and taxes also grew. Administration Expense, is the largest segment of G&A growing to 8.7% of revenue in 2022 compared to 7.97% in 2021, with growth in salaries as a percent of revenue being the main contributor.
Human Resources expenditures remained at less than half a percent of revenue. Net Credit Expense (Table L)
Net credit expense at 2.63% of revenue in 2022 was similar to 2021. Net Income (Table M)
While net income before interest and taxes in 2022 at 7.92% could not compare to the high 2021 number of 13.72% in 2021, it was still higher than the industry has seen in many years before 2021.
Key Performance Indicators
Gross profit as a percent of revenue in 2022 was a full percentage point lower than 2021; however, it was consistent last year at just over 50% across all sales volume ranges. Retailers $25M to $75M in sales posted significantly lower sales expenses, which in turn impacted the higher 11.57% net operating income compared to smaller retailers at 8.63% and large retailers at 9.71%.
Above the Line (% of Revenue)
Merchandise returns were highest among the $25 to $75 million retailers at 1.86% of revenue. Merchandise protection sales and delivery income were highest among larger retailers $75M and over in sales.
Cost of Goods Sold (Table Q)
Cost of goods sold was consistently just below 50% of revenue for all sales ranges. Gross Profit on Sales (Table R)
Gross profit was consistent across all sales ranges at just under 50%, a full percentage point higher than 2021. However, that increased performance was more than offset by higher fixed and variable expenses.
Selling Expenses (Table S)
Selling expenses were highest for small retailers (25.9% of revenue) and larger ones (24.3%), but somewhat lower for mid-sized retailers $25M to $75M at 21.23%. Smaller retailers spent more as a percent of revenue on advertising and sales expense than the medium and larger counterparts.
General & Administrative Expenses (% of Revenue)
G&A expenses were highest among mid-sized retailers $25M to $75M in sales at 17.24% of revenue compared to 15.8% for smaller retailers with less than $25M in sales and 16.16% for larger $75M and over. Occupancy costs were higher for the midsize group.
Net Credit Expense
(Net of Credit Income)
Credit expense was much higher for larger retailers with sales over $75M at 3.07% of revenue compared to the midsized group at 2.08% and smaller retailers at 2.15%.
Net Income Before Interest and Taxes (Table V)
Lower selling expenses contributed to the mid-sized retail group $25M to $75M having significantly higher net income before interest and taxes at 10.36% compared to 6.62% for small retailers under $25M and larger retailers $75M and over at 6.42%.
For those that remain, another management challenge is on the horizon. Many traditional furniture retailers learned to manage in an environment of supply chain problems and rapidly increasing prices. The result was a significant financial return. Now it is another set of management disciplines on the financial side. The starting point is financials on your desk by the second week after the close of the month. And yes, expect a cash flow from your financial team – not from your CPA. The following graph illustrates the cash flow factor for top quartile retailers. What is your cushion?
Fasten your seatbelts. It’s going to be an exciting ride. Understand your expenses and the impact on cash flow. Question every decision as to impact on cash flow.
Form vs Function
The longstanding battle between fashion and functionality has never been more evident than in reclining furnishings. Consumers are embracing the influx of stationary upholstery-inspired styles yet overstuffed traditional motion frames retain their place in the market. Similarly, demand is great for power motion innovations, yet manual recliners still dominate entry level price points. The fashion factor ensured by hidden buttons, cupholders and features is prized, while conversely, at the other end of the spectrum fully lit tabletops and worksurfaces are popular. When it comes to scale, more is more for consumers who equate volume with value. At the same time, many motion manufacturers are finding success with smaller silhouettes targeting apartment dwellers and downsizing boomers.
Design directions in recliners and reclining sofas and sectionals continue to mirror the trends in stationary upholstery. “The cover is essential,” explains Marietta Wiley, vice president of merchandising and product development for Parker House. “Consumers are looking for fashionable fabrics on motion like what they’re seeing in higherend stationary upholstery—interesting textures and soft, lofty constructions.”
From sleek European styling to classic chesterfield tufting, reclining furniture encompasses every major design style. Contrasting welts, decorative stitch patterns, leather and mohair trims, and unique nailhead options are additional elements being used to elevate and distinguish motion designs. The result is an ongoing acceptance of motion sofas and chairs and their promotion from mancaves and home theaters to the living rooms of America.
This growing array of reclining options is resonating at retail. “Today’s consumer loves the ability to personalize sectionals to the perfect size and angles that enhance their living experience,” explains Anthony A. Teague, executive vice president of Jackson Furniture.
Statistically Speaking Post-pandemic sales in the motion category are holding steady. According to a FurnitureCore, Inc. survey developed by Impact Consulting Services (parent company of Home Furnishings Business), the combined upholstery category (stationary + motion), as a percent of total furniture sales, is holding at 34.1% in the first quarter of 2023, compared to 34.7% at the end of 2022 and 34.2% in 2021. Motion upholstery comprises 36.9% of all upholstery sales this year through the end of Q1—unchanged from its 2022 yearend share of 36.9% and down slightly from a 37% share in 2021.
As expected given macroeconomic changes, annual growth projections for the category are slowing. Motion upholstery is tracking 3.9% growth year to date in the first quarter of 2023—equal to the stationary upholstery category for the same time period—but down from 7.8% growth in motion sales in 2022, 24.7% growth in 2021, and 21% growth in 2020.