From Home Furnishing Business
The Chinese trade war has caused many companies to become hesitant and cautious during 2019 with many consumers sharing the same concerns. At press time rumblings of a possible trade war truce could ease some future fears. Forecasters surveyed in November by the National Association of Business Economics put the odds of recession this year at 47%, down from 60% in the spring. This month’s Statistically Speaking will highlight 2019 yearend economic indicators and point to a hopeful 2020.
U.S. Economic Indicators
As shown in Table A, GDP growth continues to be slow but stable – showing increases every quarter in 2019 through Q3, the most recent data at press time. Many indicators slowed in the second quarter of 2019 and declined, most notably U.S. imports and exports, as companies began to grapple with the longer-term repercussions of the tariff wars. Imports slowed in the Q2 2019 – decreasing 2.8%, while exports took a downturn in the third quarter – dropping 5.9%.
But the consumer shrugged off the negative economic news with slow but steady spending, up 2.9% in Q3 2019. Private residential investment, which has consistently fallen in 2018 and through the first half of 2019 found its footing in the third quarter, growing 5.1% Additional economic indicators from the Bureau of Labor Statistics (Figure 1) show the unemployment rate remaining low – fluctuating around 3.6 for most of 2019 and finishing November at 3.5. Average hourly earnings continued to slowly rise each month – increasing from $27.82 in May to $28.29 in November. Prices indexes, both consumer and producer showed virtually no growth. And not surprisingly the U.S. Import Index has showed negative fluctuations due to the ongoing trade war with China, but finished November at 0.2.
Personal Consumer Expenditures
Personal consumption expenditures have maintained growth throughout 2019, despite business’ pulling back over trade war concerns and a slowing global economy. Spending on both services and durable goods have propelled positive growth (Table B). Consumer spending on healthcare and housing increased above 4% every quarter in 2019 compared to 2018. Among the biggest losers in the battle for the consumer dollar are motor vehicles and gasoline which dropped dramatically from 2018, along with clothing and footwear that showed only slight growth.
After a disappointing first quarter in 2019, the second quarter posted good growth in all major spending categories before slowing in the third quarter and through October of Q4 (Table C). At press time, data from Adobe Analytics estimates that the sales for the full weekend (Thanksgiving through Cyber Monday) topped $29 billion, or 20% of total revenue for the full holiday season, up from 19% last year. Many retail tracking analysts reported brick and mortar traffic down and mobile phone shopping significantly up.
As shown in Table D, spending on furniture increased each quarter in 2019 over the same period in 2018. All categories of furnishings and durable household equipment maintained positive growth with the exception of carpets and other floor covering – dropping 0.6% in 2019 Q2 and major household appliances down 0.1% in the first month of Q4 2019.
Furniture and furniture accessories (clocks, lamps, lighting fixtures, and other household decorative items) both outperformed all U.S. durable goods in 2019 (yearto-date through October) with strong growth in the second quarter (Table E). Retail Sales by Home Furnishings Outlet Total U.S. retail sales, including brick and mortar stores and Internet shopping, were up each quarter in 2019 over the previous year’s quarter. Starting out 2019 with just 1.8% growth in the first quarter over 2018, each quarter followed with increases over 3% (Table F).
After increasing by 6.3% in 2018, furniture store sales were down 2.4% in the first quarter of 2019 compared to Q1 2018, while home furnishings store sales also declined 0.9%. Furniture store sales were the first to pick up – increasing 0.4% in Q2 2019. Home furnishings store sales began to show a positive change over 2018 in the third quarter of 2019 – increasing 0.9%. October sales were up 3.9% for furniture stores and 0.6% for home furnishings stores (Table F).
The much higher reported increases in personal consumption expenditures for furniture products and home furnishings emphasize the pinch retail furniture and home furnishings stores are feeling from online retailers and big box stores. E-commerce shopping for all products, including furniture and home furnishings continued double digit growth throughout 2019. Meanwhile, the biggest home furnishings retail loser, electronics and appliances stores, saw sales drop 2.9% to 5.2% every quarter in 2019 compared to 2018.
Table G details the other major types of retail sales categories. Retail sales of electronic shopping and mail-order houses continue to skyrocket as more consumers turn to online shopping. On the flip side, department stores (excluding discount department stores) continue to plummet – down 12.1% in 2019 Q2 and 10.9% in 2019 Q3. Although discount department stores also show negative growth, warehouse clubs and superstores have posted slow growth each quarter in 2019 over the same quarters in 2018.
Consumer Price Index
The Consumer Price Index (CPI) rose last November by 2.1% compared to November 2018, but was down 0.1% versus October of 2019. Many Furniture and Home Furnishings product categories increased their year-overyear prices from Nov. 2018 to Nov. 2019 with the exception of Floor Coverings, Window Coverings and Major Appliances. Exactly how much of this increase is associated with the Chinese tariff trade war is unknown, but portions of the tariff increases have been passed along to the consumer. However, compared to October, month-to-month November CPI growth declined less than 1% in all home furnishings categories, except for Window Coverings which increased slightly and Major Appliances which fell 2.9%. (Table H).
Although housing inventory in 2019 has been slow to keep up with demand, both new single-family home sales and existing home sales increased from January to October. Existing home sales grew from 4.93 million to 5.46 million, while new single-family home sales increased from 644,000 to 733,000 (Table I).
Housing starts have fluctuated throughout the year – peaking at 1.38 million in August, while completions dipped in September down to 1.14 million before finishing October at 1.26 million. The most promising outlook for 2020 is building permits took a significant leap in October to 1.461 million permits, the highest of 2019 (Table J).
Imports and Exports
Partial import data from the fourth quarter of 2019 showed October imports of furniture and bedding posting the ninth straight year-overyear monthly decline falling 10.5% over October 2018. Compared to the previous September, October one-month imports increased 3.1% primarily due to the surge from Vietnam. Chinese imports of furniture and bedding fell 37.4% over October 2018 and a one-month September to October decline of 6.6%. Outsourcing to Vietnam, Malaysia, Taiwan, Indonesia, and Cambodia has been evident as these countries have increased imports.
Trump announced mid-December of 2019 a “Phase One” deal that shelved new tariffs on $160 billion of Chinese smartphones, electronics and other goods that had been set to take effect before Christmas. He also cut the tariff to 7.5% from 15% on another $120 billion in Chinese goods. As the trade deal moves further along, a future issue will look more closely into the impact this war has had on the furniture industry and what temporary and permanent steps U.S. companies have taken to protect themselves against future wars.
In the past year, the Power 50 increased sales by 4.4%, maintaining market share. Expansion occurred in new markets (91 markets) and within markets with new stores (147). What will 2020 bring?
The decision is whether to move forward with haste or is it time to “hunker down” and consolidate gains? The economy, at best, can be described as “choppy.”
We believe the next two years, while not signifi cant growth, will not be a signifi cant downturn either. History is our best guide as can be seen below.
Except for the second term of Barack Obama, election years have experienced growth in Real GDP over the last 20 years. Recessions occurred in 1990, 2001, and 2008-2009, but never in election years, except of 2009, which ended mid-year.
Growth in mass merchants/discount retailers, such as Target and Big Lots, have shown growth as they discover the contribution of gross margin per square foot of selling space that the furniture product category provides.
The emerging consumers that follow the Baby Boomers are choosing their preferred channel of distribution based upon retail experience off ered. A recent survey by FurnitureCore (the research arm of Home Furnishings Business) separated the choices by age group. As can be seen from the table at left, regional chains are emerging as a preference for the under 45 age group, showing less of a preference for the Internet. It should be stressed that this survey is for furniture purchases over $300. The younger consumer (25-44) was very satisfi ed on a scale of 1-5 with 5 being very positive. The table below divides the response by age group.
Both of these points are contrary to the noise around the decline of traditional retailing. POWER 50 — METHODOLOGY Market share is the most heavily weighted factor determining who makes the list, accounting for 46% of the total score. It is determined by dividing the retailer’s estimated sales by the estimated retail sales of furniture and bedding in each of the markets in which the company participates, whether it is a metropolitan statistical area, micro statistical area, or a rural area. Sales of electronics, appliances, and housewares are not included. To arrive at a list of home furnishings retailers with the strongest online engagement, we measure by 14 separate metrics. Sources include Alexa, Facebook, MOZ, Open SEO, Twitt er, and Pinterest. On Facebook, for example, the number of “check-ins” and “likes” were among the metrics, as were the number of Twitter followers, Pinterest “pins” and Google Page Rank, just to name a few.
From that data, we used a basic ranking methodology, assigning a numerical value to the ranked list of each metric. (For example, the retailer with the highest number of Twitt er followers received a “1,” and so on.)
Then, we arrived at 14 individual scores calculated for each metric. After dropping the two highest scores to eliminate any outliers, the statistical average of the 12 remaining scores was used to calculate the fi nal social engagement score.
The fi nal factor in the Power 50 ranking is retail expansion, which accounts for 15% of the total score. Using public records, it measured store expansion and expansion into new markets. In addition to the Power 50, HFB compiled separate lists that ranked regional chains, large independents, vertically integrated retailers, and independents with sales of less than $50 million in a single state.
The concept of the home office has evolved alongside technology at an increasing rate. Advancements in technology have been added to desks themselves with the popularity of adjustable height desks on the rise. Alongside this, multiport charging stations and lighting can also be found in many of today’s desk solutions. To get to the heart of the conversation, we need to know what today’s consumer wants and needs are for their next home office purchases. After all, their need for these pieces may be just around the corner. According to Remote.co, a resource for businesses exploring the possibility of remote work, 73% of the workforce will be remote workers by 2028 as Millennials and Gen-Z flood the market.
Manufactures aware of this shift have weighed in with their foresight. “The concept of a home office continues to evolve as technology gets more minimalistic, says Stefanie Lucas, Bassett Furniture’s chief merchandising officer. “We find the key to consumers is the ability to be flexible for whatever room you may need. Building your own idea of a home office, rather than to be locked into a heavy, masculine look, is what we believe to be trending today.”
With open floor plans and more work from home, consumers are integrating their spaces for multi-use. Consumer research conducted by FurnitureCore, Inc., the research arm of Home Furnishings Business, showed that of consumers who recently purchased home office furniture, 69.77% define their home office space by the activity performed there while only 30.23% define it by the type of furniture in the room. The same research found that 46.51% of consumers define the primary use of the home office as an area to work when not in a regular office, followed by 39.53% as an area for home and family business, and 13.95% as a space for home-based business.
Lisa Cody, vice president of marketing at Twin Star Home, echoes these findings saying, “Thanks to the fact that more and more companies have embraced the concept of employees working remotely and the impact that is having on products and services that cater to consumers who work from their kitchen or family room, the future of the home office category is very bright.” Looking back on the FurnitureCore industry model, of consumers polled on their home office location, 60.47% reported the home office being in a dedicated space with 39.53% reporting it to be in shared space. We can expect this number to continue to shift along with open floor plans, more minimalistic technology, and increased remote workers.
When working from home, the entertainment area is close at hand if not already in the same room. Just as with home offices, technology shapes this category at accelerated rates. And it’s not just technology, but how the consumer accesses their entertainment today — think streaming services like Netflix or Hulu. Just as we faded away from VHS into DVDs in the early 2000s, we are fading away from DVDs into these services and similar offerings (Disney has recently released its own much anticipated streaming service, Disney+). These services have offered flexibility to consumers. As Tonja Morrison, director of marketing at Hancock & Moore pointed out, “With so many streaming services online, families can go to the movies whenever they like – in their home theater.”
Based on the same FurnitureCore industry model exploring consumer purchases in the home entertainment category, we find that 91.76% of consumers have their entertainment center in their living room or family room! Families certainly have a designated, central location to enjoy their favorite movies and shows together. Other locations included the bedroom at 8.25% and ‘other’ was indicated by 3.09%
Central to the entertainment center is of course the television. How the consumer wishes to display their television impacts the type of entertainment center they will purchase. Largely, consumers wish to place their TV on top of a console with media storage (53.61%) followed by wall mounted TVs (36.08%). As consumers make the switch to consolidated, minimalistic technology, we can expect wall mounted options to rise. Just as important is size of screen. 47.42% of consumers reported that their next TV purchase within a year would be a screen 55” or larger! 25.77% will purchase a screen 37”-52”, and 6.18% will purchase a screen 36” or smaller. The remaining 20.62% do not plan a purchase over the course of a year. Obviously these consumers will be looking at sizable display units to match. Read on to discover popular entertainment center displays and home office solutions that are sure to move off of your retail sales floor.
Metropolitan Statistical Areas come in all sizes, the largest being New York-Jersey CityWhite Plains, NY-NJ (a subset of the larger CBSA) and the smallest being Fairfield, IA. Statistically Speaking has divided the counties in larger markets over 1 million in population into three designations for analysis – Core, Central, and Outlying. The layers of these markets have unique demographics and marketing within them is not a one-sizefits-all approach. Core counties always contain the principal city of the MSA, followed by Central counties that also contain large distinct metro areas. Outlying counties are still part of the MSA, but are further out from the Core and contain smaller towns. Markets with less than 1 million in population are smaller and are divided into only Central and Outlying areas.
The largest MSAs, those with populations 2.5 million and over, consist of 23 markets with 169 counties. MSAs with 1 million to 2.5 million population have 43 markets encompassing 248 counties. Figure 1 shows a summary of MSAs by size and by Core, Central, or Outlying counties and the number included in the U.S. Census Bureau’s ongoing American Community Survey. Bottom MSAs consist of many smaller counties and markets.
It might surprise some to learn that 21.9% of all industry sales are sold in only 31 of the 3,142 counties – the Core of the largest MSAs. (See Figure 2.) Over 60% of industry sales occurred in 66 markets with population over 1 million. The MSAs with populations between 250,000 to 999,000 account for 22.6% of sales. While containing 344 counties, markets with less than 250,000 population only account for 7.8% of total furniture industry sales.
The Core urban areas of the top populated MSAs, 1 million and over, have the greatest concentration of 25 to 54-year-olds at 42%, while Central and Outlying areas have a higher percentage of older people (Table A). Central counties are the next layer out from the Core in the mega metro areas. Smaller markets under 1 million are not designated with Core counties rather only Central or Outlying. These Central counties also have more people in prime furniture buying years (25 to 54) compared to Outlying counties. In general, the less populated markets have a higher percentage of people over 55 – roughly 34% in Central micropolitan statistical areas and Outlying markets with less than 250,000.
As shown in Table B, Central counties beyond the Core within MSAs that have a population 1 million and over make the most money – a median income range of $75,000 to $99,000, partially due to more married-couples with dual incomes. Both the Core and Outlying counties within the largest MSAs have a median income between $50,000 and $74,999. Central counties in smaller MSAs and Micropolitan Statistical Areas also earn between $50,000 and $74,999, while Outlying counties in smaller MSAs that have a population less than 250,000 have a median income of $25,000 to $49,999.
Consistent with the median income chart (Table B), Table C shows the Central counties out from the Core in large MSAs over 1 million population have the highest household incomes with 11.7% earning $200,000 or more, compared to only 4.2% in Central counties in small MSAs with a population less than 250,000. The highest percentage of lower income earners under $50,000 can also be found in the smaller MSAs under 250,000 population. Urban, highly populated Core counties within top MSAs have a higher percentage (39.3%) of households earning under $50,000 than Central and Outlying counties within those markets, 31.3% and 35.7% respectively.
In terms of average incomes (as opposed to median), Central counties, suburbs closely connected to the Core areas, also have higher average household incomes than both the Core and Outlying counties regardless of the size of the MSA. Central counties in MSAs with a population above 2.5 million have an average income of $108,866 compared to $99,585 for Core counties and $98,772 for Outlying counties. In populations 1 million to 2.5 million, Central counties have incomes 18% higher than Core counties (Table D).
Not surprisingly, the larger the MSA the higher percentage of occupied housing units versus vacant housing units. Central counties within MSAs with populations 1 million and over have 91.9% occupied housing units, compared to 85.8% for Central counties in MSAs with population less than 250,000 (Table E).
The percentage of owner-occupied versus renter-occupied housing units fluctuates based on whether the counties are Core, Central, or Outlying within the MSA (Table F). As expected, Core counties within the largest MSAs have the most renters – roughly 47% percent of renter-occupied housing units. Outlying counties have predominately owner-occupied units, above 70% for both top and bottom MSAs.
While bigger MSAs contain households making higher incomes, housing is also more expensive and many more homeowners carry mortgages. Therefore, the smaller the MSA, the greater the percentage of owner-occupied housing units without a mortgage (Table G). Central counties in MSAs with population over a 1 million have 32.1% of owner-occupied housing units without a mortgage compared 37.2% for Central counties in populations between 250,000 and 999,999 and 41.5% for Central counties in populations less than 250,000. Over half of owner-occupied units (50.8%) in Outlying counties within the smallest MSAs are without a mortgage reflecting an older population.
The percent of occupied housing units with family households versus non-family households varies by type of county within the MSAs. At 70.8%, the highest percentage of family households in occupied units, are in Outlying counties within MSAs of a population 1 million and over. The percentage of family households ranges between 61% and 69% in all other counties types (Table H). In all counties within MSAs both big and small, married couple households are the majority type of family household – most above 73%. The larger MSAS, Core counties have the fewest married-couples in family households at 69% (Table I).