Monthly Issue
From Home Furnishing Business
February 13,
2018 by Jane Chero in Economic News, Industry 
Since the turn of the century, diversity in America has continued to grow – impacting the political climate, education and the economy. One common thread in the home furnishings industry is that all Americans need and purchase home furnishings, regardless of ethnicity. However, understanding the components of diversity adds perspective to our retail landscape.
In the timeframe of six years 2010 to 2016, the U.S. resident population grew 4.7 percent – from 281.4 million to 323.1 million. As shown in Table A, all races grew in number but only White (Non Hispanics) have lost share of the population.
Census Bureau Race Classifications
White (Non Hispanic) encompasses Europe, the Middle East, and North Africa. Per the Census Bureau classification, people from the Middle East are considered White. There are an estimated 3.6 million Arab-Americans in the United States, but that doesn’t include other ethnic groups that could put the total Middle Eastern and North African population above 10 million. According to the Census Bureau’s American Community Survey about one million people from the Middle Eastern region are first-generation immigrants to the United States.
White Hispanics are not considered a “race” by the U.S. Census Bureau but an “ethnicity”. For the purpose for this report, White Hispanics have been broken out into its own classification.
Asians include persons from the Far East, South Asia, and Asian Indian.
Other race or ethnic classifications are Black/African American, American Indian or Alaska Native, Native Hawaiian Island or Other Pacific Island, and 2 or More Races.
Population Growth by Race or Ethnic Group
Whites (Non Hispanic) represent 61.1 percent of the population in 2016, down from 69.1 percent in 2000 and 63.9 percent in 2010. Meanwhile, White Hispanics already surpassed Blacks and African Americans in number by 2010 as the second largest ethnic group. In 2016 White Hispanics grew to 15.6 percent of the population compared to 13.3 percent for Blacks and African Americans. Asians, the fastest growing ethnic group in the U.S., grew from 3.6 percent to 5.7 percent of the population in 2016 (Table B).
The U.S. added 14.4 million additional residents between 2010 and 2016. By far, White Hispanics added the most at 5.9 million followed by Asians at 3.2 million, and Black/African Americans at 2.7 million. Of note is that while mixed-race persons represent only 2.6 percent of the U.S. population, in the six-year period they grew by an additional 1.5 million persons. Meanwhile, Whites (Non Hispanic) added just 643,174 residents to the total population in six years (Table C).
As shown in Table D, the contribution to population growth 2010 and 2016 came primarily from the White Hispanics, 41.2 percent of the total. But the one-year growth rates in 2010 to 2011 and more recently 2015 to 2016 illustrate the growing contribution of Asians to the population who represented 14.8 percent of the growth 2010 to 2011 but jumped to 23.9 percent 2015 to 2016.
The 14.4 million new residents to the U.S. population 2010 to 2016 account for an overall 4.7 percent growth as shown in Table E. Persons of 2 or more races was the fastest growing category increasing 21.4 percent to a total of 8.5 million residents or 2.6 percent of the population. Asians, at only 5.7 percent of the population in 2016, increased 20.8 percent in the six-year period and White Hispanics grew 13.3 percent. Whites (Non Hispanic) and Blacks/African Americans experienced the lowest growth at 0.3 percent and 6.8 percent respectively.
Natural Increase vs. Foreign Immigration
A resident population grows by two methods: (1) Natural Increase, which is the net result of births minus deaths, and (2) Net Foreign Immigration. Of the 14.4 million additional residents over the six-year period since 2010, 59.3 percent of the growth can be attributed to Natural Increase and 40.7 percent to Foreign Immigration (Table F).
Natural Increase
For the White (Non Hispanic) population, Natural Increase (births minus deaths) has been negative since the early 2000s meaning more have died than were born. Between 2010 and 2016, Whites (Non Hispanic) experienced a net natural decrease of 397,697 residents. As the aging Baby Boomers continue to die in record numbers and younger Millennials delay childbirth, this decline is expected to escalate.
By far, the much younger White Hispanic population has the greatest net result of births minus deaths accounting for over half of the Natural Increase of the total population occurring between 2010 and 2016 (Table G).
For the six-year period, the Birth to Death Ratio (the number of births per death) totaled 1.5 for the entire United States. Both younger ethnic groups in the U.S., the White Hispanic population and Asian population have much higher rates of births versus deaths – 5.8 and 3.4 in a six-year period (Table H).
The impact of the aging White (Non Hispanic) population is shown in Table I. Whites still represent 61 percent of the population and 50.1 percent of all births. However numbers of deaths are overwhelming among Whites (Non Hispanic) totaling 78.8 percent of all deaths 2010 to 2016. This negative Natural Increase trend among Whites (Non Hispanic) is expected to continue for years to come. Meanwhile, the younger White Hispanic group 2010 to 2016 represented 22 percent of all births, but only 5.7 percent of deaths.
Net Foreign Immigration
Net Foreign or International Immigration accounts for 40 percent of the population increase 2010 to 2016 growing the U.S. population by 2 percent. During that time foreign immigrants added an additional 5.8 million people over six years. In 2016 alone the U.S. experienced a Net Foreign Immigration of almost one million (999,163 persons) compared to 703,824 in 2011.
White Hispanics represented the largest chunk of immigration in the early part of this decade representing 46.4 percent all Net Foreign Immigration in 2011. However, by 2016 that number had fallen significantly to 24.1 percent.
The biggest growth in Net Foreign Immigration has come from Asians who represented 24.3 percent of all immigrants in 2011 but 39.9 percent in 2016. In the six-year period, 2.3 million Asians immigrated to the U.S. compared to 1.3 million White Hispanics, 1 million Whites (Non Hispanic) and 851,355 Blacks. Table J shows the percentages.
For furniture and home furnishings retailers, the broadening ethnic diversity of U.S. households presents unique opportunities for products that address the cultural tastes and preferences of these new residents.
February 13,
2018 by Jane Chero in Carpets / Rugs, Economic News, Industry, Product
After a decent year in 2017, most producers are looking for at least modest growth this year. But they realize they must continue to focus on the blocking and tackling basics of the rug game, such as product design, logistics and customer relationships.
“I’m sure there are macro factors that influence the industry, but we still need to develop great product, build relationships with our customers and build our brand,” said Cyrus Loloi, a principal at Loloi Rugs. “You have to look at the areas of the industry that are growing and those that are diminishing, and focus your business accordingly.”
Like most of his competitors, Loloi said e-commerce is the company’s fastest-growing distribution channel, but said he’s also seeing growth from traditional furniture stores and national chains.
What distinguished rugs from other home furnishings categories is the seasonal nature of the product introduction cycle and the many trade shows in which vendors feel obligated to participate in order to remain relevant. Most now have product introductions four times a year – January, April, July and October – to accommodate the different segments of buyers they see at each show.
January and July have major shows for the category in Atlanta, Dallas and Las Vegas, while April and October, of course, are the months for the High Point Market. And vendors say the fast-changing nature of consumer tastes require new product in each of those four “seasons.”
“Monitoring consumer buying patterns has enabled us to see what is truly relevant to our (retail) customer’s customer,” said Satya Tiwari, president of Surya. “Our product development team has done a great job of predicting those trends early in order for us to bring to market the best quality products when demand is at its highest.”
Research by Impact Consulting Services, parent company of Home Furnishings Business, showed there was no dominant design element favored by consumers who purchased a rug in 2017. Solids were picked by 20 percent of respondents, but floral, geometric prints and traditional prints were each chosen by 17.8 percent.
Next was stripes at 11.1 percent, followed by contemporary prints at 8.9 percent and zig-zag at 6.7 percent.
When he came to color, however, neutrals such as black, white and beige were clearly dominant, being picked by 51.1 percent of respondents. Red was a distant second at 17.8 percent and blue was an even more distant third at 15.6 percent.
All other color choices offered on the survey – green, orange, pink and purple – were each purchased by less than 10 percent of those surveyed.
One aspect of rug sales not covered by the survey that has been very successful for many rug vendors is licensing programs.
Loloi, for example, has no fewer than three licensed collections that are doing well – Magnolia Home by Joanna Gaines, Ellen DeGeneres and Justina Blakeney – while Nourison debuted its Christopher Guy collection at the January markets and expanded its successful Calvin Klein lineup. And those are on top of Nourison’s existing licensed collections from Kathy Ireland, Barclay Butera, Joseph Abboud, and the Peanuts gang. In addition, Kas launched their Libby Langdon licensed collection last fall.
“Our licensed collections are pulling very strong numbers, but you can’t solely count on the name or the brand,” said Loloi. “But the brand gives it a boost, and adds an element of credibility.”
The Impact Consulting research showed that the internet was, indeed, the most popular place of purchase. Some 31.1 percent said they purchased their rug online, easily beating out furniture stores (22.2 percent), mass merchants (17.8 percent) and home improvement stores (15.6 percent). Rug specialty stores and floor covering stores were each cited by less than 10 percent of purchasers.
The survey also clearly showed there’s an opportunity to educate rug shoppers, as a significant percentage of buyers didn’t know basic facts about the product before they bought it.
For example, a whopping 71.1 percent of buyers said they did not know the country of origin of their new rug (India was cited by 13.3 percent), and 44.4 percent did know if their new rug was machine-made or hand-made.
And when asked what material their new rug was made of, “don’t know” was cited by the largest percentage of respondents at 28.9 percent. Another 22.2 percent said it was made of wool, and 20 percent each said natural fibers and synthetic fibers.
The research also showed that rugs costing $799 or less were purchase by the vast majority of participants. Price points of $100 to $399 led the way at 35.6 percent, followed by less than $100 at 26.7 percent, and $499 to $799 with 22.2 percent. No other price range was cited by more than 7 percent of respondents.
December 18,
2017 by Jane Chero in Economic News, Industry
The top 20 percent of all households make over half (52.8 percent) of all income and pay 78.5 percent of all taxes. This still leaves these households who make over $105,600 per year with 48.6 percent of all disposable income. As would be expected, the lower income families spend a higher percentage of their income on food, shelter, utilities, gasoline, and healthcare, leaving less disposable income for non essentials. However, surprisingly, when it comes to home furnishings and equipment, the disparity in percent of income spent between the ranges does not vary significantly.
The annual mid-year Consumer Expenditure Survey report (mid 2015 to mid 2016) by the Bureau of Labor Statistics divides the 129 million households in the U.S. into 20 percent quintiles of around 25.8 million consumer units each from the lowest to highest earners. Not surprisingly, the majority of income earned before taxes along with the tax money generated and disposable income after taxes belong to households in the top quintile.
Income Groups
As shown in Table A, over three-fourths (75.4 percent) of total income comes from the top two quintiles. The average income for the highest 20 percent is $192,051 before taxes and the second 20 percent of average $82,561. The remaining three income segments make up 60 percent of U.S. households and earn less than $63,800. They account for under a quarter (24.5 percent) of all household income.
The majority of tax dollars, 78.5 percent, comes from the top income segment (Table B). And although the highest earning households pay on average 20.6 percent of their income to taxes, their share of total U.S. income after taxes is still at 48.6 percent, down from 52.8 percent before taxes. Paying roughly 10 percent of income to taxes, the fourth 20 percent quintile has an average of $73,827 of income after taxes – maintaining 23.5 percent share of all disposable income.
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After taxes, the bottom three earning households bumped up to 28 percent of total disposable income but much of it will be swallowed by the essentials like food, shelter and healthcare. (Table C)
Household Characteristics
There are distinct household characteristics that separate the income levels as depicted in Figure 1. Most notable is that the higher the income level, on average the more people in the household. The highest 20 percent have almost double the number of people (3.1 persons on average) compared to 1.6 persons on average in the lowest 20 percentile. This reflects the higher income concentration of married couple families. The top 20 percent also have on average 2.0 earners while the lowest earning households have 0.5 earners. It also shows the lower the household income, the higher concentration of individuals over 65 years and the fewer the number of children. The highest income households have on average three vehicles, compared to less than one for the lowest group. All of these characteristics contribute to the things consumers buy for their households in conjunction with their ability to pay.
Spending on Essentials
Essentials like food, shelter, utilities, gasoline, and healthcare eat up much of the income of lower income families, leaving less disposable income for non essentials. Yet, as stated earlier, when it comes to home furnishings and equipment, the disparity in percent of income spent between the ranges does not vary significantly. Table D shows how the percent of income being spent on most essential goods or services declines as the income brackets increase. As expected, shelter consumes the greatest portion of each income bracket – at 17.5 percent for the highest earners on up to 25.1 percent for the lowest.
While households with more money spend a smaller share of income on essentials, the amount of money spent is much greater. For those in the lowest 20 percent, an average expenditure of food is $3,651 at 15.1 percent of their earnings, while the highest 20 percent on average spends $12,646 – just 11.3 percent of income. For furniture and equipment, all levels of income still spend between 2.6 percent to 3.3 percent of their incomes.
Household Furnishings and Equipment
Among home furnishings and equipment, the percent of income spent on furniture and major appliances are the two largest segments. Aside from the lowest 20 percent quintile at 0.6 percent share, all income levels use between 0.8 and 0.9 percent of their income on furniture purchases (Table E). While the share is roughly the same, the dollars spent differ greatly. With an average annual expenditure of $1,054 on furniture, the highest income segment spends twice as much as the segment below it ($514) and almost four times the amount as the second 20 percent segment ($267). (Note: The Consumer Expenditure Survey conducted by the Bureau of Labor Statistics which is the basis of this article tends to reflect lower average annual expenditures compared to the Personal Consumption Expenditures tracked by the Bureau of Economic Analysis.)
Similar to furniture spending, the share of income spent on major appliances does not change much between income levels – ranging from 0.4 percent to 0.6 percent of income, regardless of earnings. Since a refrigerator or oven is more likely to be considered a necessity compared to a new sofa or table, average expenditures do not vary as much with highest earning households spending an average of $482 and the lowest spending $108 (Table F).
Despite the similarity in percent of expenditures spent on home furnishings and equipment among income segments, the vast differences in disposable income put much of the purchases within the top 20 percent of households. As shown in Table G, 65.6 percent of total furniture expenditures come from the top two income brackets with 44.1 percent from the highest 20 percent. Major appliances and home textiles are somewhat less concentrated in the highest 20 percent of households with the bottom three income levels accounting for 40 percent of their total expenditures. At 48.1 percent of total expenditures coming from the highest earning households, floor coverings are primarily being bought by households making more than $105,600.
Middle income families at one time were the bread and butter of the home furnishings industry. Median household income now stands at $55,775. This places the third quintile or 20 percent of consumer units earning between $38,000 and $63,800 purchasing only 17 percent of all furniture. Most of the home furnishings industry, 65.6 percent of furniture purchases belong to 40 percent of households earning over $63,800 annually.
In the next issue: Mapping age with the income.
December 18,
2017 by Jane Chero in Business Strategy, Economic News, Industry
Even though furniture industry sales are projected to grow by a modest 4.1% in 2018, retailers who made the prestigious Power 50 list compiled by Home Furnishings Business undoubtedly will be disappointed if they don’t exceed that growth rate by a wide margin.
It will take an aggressive, play-to-win strategy to beat those industry projections, but that mindset is one of the factors that landed members of the latest Power 50 on the list in the first place.
But the list is not simply based on annual revenue – that’s why a handful of smaller independents made the cut. Instead, it takes into account factors such as market share, expansion, and social engagement.
Market share, in fact, is the most heavily weighted factor determining who makes the list, accounting for 46 percent 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’s a metropolitan statistical area, micro statistical area, or a rural area. Sales of electronics, appliances and housewares are not included.
The list gives revenue the second most weight, accounting for 20 percent of the score. Revenues are compiled using publicly-available information or HFB estimates.
The factor getting the third most weight – social engagement – is the most complicated, but accounts for 19 percent of the score. It considers social signals, website metrics, and third-party scoring platforms to arrive at a list of home furnishings retailers with the strongest online engagement, as measured by 14 separate metrics.
Sources include Alexa, Facebook, MOZ, OpenSEO, Twitter 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 Twitter 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 final social engagement score.
The final factor in the Power 50 ranking is retail expansion, which accounts for 15 percent of the total score. Using public records, it measures 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.
December 18,
2017 by Jane Chero in Economic News, Industry
Rapidly changing consumer work patterns and even more rapidly changing technology are continuing to drive the home office category, despite the move toward designing homes with more open floor plans.
Such floor plans typically don’t allow for a dedicated home office space, but producers say that doesn’t seem to have crimped sales. Instead, consumers are creatively developing spaces for multiple uses in their homes. And producers say some are even buying home office furniture with no intention of setting up a home office.
“People are finding ways to integrate office pieces throughout the home,” said Lorri Kelley, president of office and entertainment furniture resource BDI. “That’s why we’re designing pieces that are more modular in nature. We are making sure that our product offering will fit into a variety of rooms, for a variety of functions in a variety of layouts.”
She said increasing real estate costs, and the ease of conducting meetings and collaborating with co-workers without everyone being in the same room is decreasing the need for workers to go to a company office every day. Instead, she said many are choosing to work from home at least part of the time.
“We know the category is going to continue to grow just for that reason,” said Kelley. “That just makes the development and integration of these types of products even more important.”
Consumer research by Impact Consulting Services, parent company of Home Furnishings Business, showed that, among recent purchasers of home office furniture, nearly half (46.4%) use their furniture for work when they’re not in their regular office. Another 42% said they use it for home and family business, while only 11.6% said it is used for a home-based business.
Nearly 60% of those surveyed said the furniture was going in a room specifically set aside for a home office, while 42% said their office was in a room also used for other functions.
Tim Donk, director of marketing at Legends Furniture, said he believes the increasing use of rooms for an office and other functions is contributing to strong sales of his company’s writing desks. Such desks will more easily blend with almost any type of room décor, unlike the large executive desks that once dominated the category, he said.
“We do really well with our 60-inch writing desks … and the matching bookcases,” he said. “The bookcases are something that can be used virtually anywhere. They don’t even have to be in an office.”
Among consumers in the Impact Consulting survey, some 26.1% said a writing desk was their preferred style of desk, which was second only to an L-shaped desk at 27.5%.
Corner desks came in third at 15.9%, and executive desks were next at 14.5%. They were followed by desks with a hutch (8.7%), a secretary (4.4%) and roll-top desks (2.9%).
Donk said he was surprised by the strong showing from L-shaped desks, given the trend toward smaller living spaces and the reduced need to accommodate desktop computer towers and large amounts of storage space for paper files and books.
“It’s always interesting to see how furniture industry trends are driven by electronics,” he said. “We used to sell a lot of computer desks, but back then, almost everybody was using a desk top, and there were no smart phones.”
Desks with an adjustable-height feature that allows the user to stand while working wasn’t included among the survey choices, but Kelley said that style is rapidly gaining in popularity. In fact, BDI and other producers, notably resources such as Twin-Star and Turnkey, are devoting increasing amounts of time and showroom space to develop these products.
“We have been exceptionally pleased with the (sales) results from our standing desks,” Kelley said. “It will be significant part of our product development strategy going forward.”
She said the adjustable-height feature is being marketed as a health benefit, noting that many health experts now recommend that office workers stand 45 minutes to an hour in the morning and afternoon. Kelley, who uses an adjustable-height desk in her office at BDI’s headquarters in Chantilly, Va., said they also help alleviate neck and shoulder cramping that can result from long periods of sitting “hunched over a computer.”
Donk said he also has an adjustable-height desk in his office at Legends Furniture in Phoenix, but is more skeptical about the long-term prospects for the product. He believes it will continue to gain strength in commercial office settings, but may not catch on in residential use.
“There’s some novelty to it. But I think the jury is still out,” said Donk. “We decided it would not be that strong of a residential item.”
Donk and Kelley are in agreement, however, about the trends in finishes they’re seeing. Suffice it to say the lighter and grayer the better.
“The growth of gray has been remarkable to watch,” said Kelley. “It’s fun to see fashion start to come into furniture, particularly in case goods.”
Donk said the gray finishes that are most popular in the Legends line have a casual rustic feel. “Most of our better-selling writing desks are along the rustic line. The grays still have legs.” he said.
Desks have always been the centerpiece of the home office category, and the Impact Consulting survey showed that more than 59% of respondents had purchased a traditional desk or computer desk in the past two years.
The most frequently mentioned item, however, was a desk chair, which was purchased by 47.8% of respondents. Some 36.2% said they had purchased bookcases for their home office, 15.9% had purchased a file cabinet, and 10.1% had purchased a work table.
In addition, one-third of survey respondents said they spend more than 15 hours a week in their home office, while another 10.1% said they spend 10 to 15 hours. Another 30.4% said they spend five to 10 hours per week, while 26.1% spend less than 5 hours.
