Monthly Issue
From Home Furnishing Business
January 27,
2024 by HFBusiness Staff in Business Strategy, Industry 
How Manufacturing Performed in 2023 Figure 2 summarizes the more current data from last year through October. This data highlights two time periods: (1) the first 10 months of 2023 compared to the same period in 2022, and (2) the most recent month-to-month comparison of October 2023 to September 2023 (one month). Shown are shipments, new orders, inventories, and unfilled orders for the two time periods. Also included are import numbers.
Over the last year, manufacturer’s shipments, new orders and inventories have slowed, and growth has been flat. Meanwhile over the year, unfilled orders are down 6.4%. This is against a backdrop of U.S. imports that were down 22.8% during the first 10 months of 2023 over the same time period in 2023. Data month-overmonth for the most current month (October versus September 2023) shows a similar picture with shipments and inventories down, but only slightly, and new orders up 1%. Unfilled orders growth is also flat. Meanwhile imports for October rebounded to grow 11.1% over September. Consumer spending has slowed, but for how long? And when it picks back up, will the consumer be forced to return to long wait times.” The road getting here has been interesting, with furniture manufacturers enjoying the backlog of consumer demand created during the pandemic. Table A shows that quarterly furniture and related products shipments peaked in the fourth quarter of 2022 at $20.78 billion but really began to slow in the second half of 2023, (down 2.9% by the end of the third quarter).
Along the way, U.S. manufacturers caught a break as foreign imports, Chinese in particular, struggled to keep supply chains up and running. Available data through the first three quarters of last year show foreign imports peaking at $15.4 billion in the second quarter of 2022 then ultimately falling over 30% to $11.01 billion in Q3 of 2023.
Monthly data in Table B details furniture shipments and imports December 2022 through October 2023, adding the extra month into the fourth quarter. For U.S. manufacturers, the final dip began in February of 2023 and has not yet recovered. Between January and October of last year, U.S. shipments fell 3.7%. Meanwhile, imports continued to struggle, falling 14.5% January to September last year, but rebounded 11.1% in October over September 2023.
Over the last 10 years, domestic manufacturers’ shipments of furniture and related products peaked in 2022 at $82.1 billion and are expected to be down less than ½ of 1% in 2023 (Table C).
The value of shipments began to decline in 2019 by 3.6% and fell further in 2020 by 5.8%. Shipments began to rebound in 2021 by 7.5% as shutdowns continued in China, and grew further by 8.5% in 2022. At the end of last year, domestic shipments were down 0.04% through the third quarter (Table D).
Also detailed in Table D is a comparison of the growth in manufacturers’ shipments to the growth in the producer price index for furniture 2014 to 2023 October. This graphic shows that until 2019, when inflation was low, manufacturers’ shipments grew faster than price increases/ inflation. However, the pandemic upended that trend somewhat. In 2021, when inflation surged, demand stayed high and ahead of price increases. Since that time, inflation has outpaced the growth in shipments, especially in 2023 when producer prices/inflation for furniture grew 4.5% while shipments have shown no growth October year-to-date.
Table D shows the annual dollar shipments since 2014 with preliminary estimates of $82.07 billion for 2023 yearend. Although not an exact apples-to-apples product comparison, the tables have turned for manufacturers and retailers when it comes to inventory levels. Throughout 2022 and the first half of 2023, furniture and related product manufacturers carried a much higher ratio of inventoryto-shipments compared to retailers’ inventory-to-sales ratios (furniture and home furnishings products) (Table E).
But by the summer of last year, retailers’ inventories stayed stable as manufacturers declined, with consumer demand eating into manufacturer’s inventories as imports dropped sharply. By October of last year, the ratio of inventories to dollar shipments for manufacturers was similar, 1.56X for manufacturers compared to retailers at 1.53X.
After unfilled orders increased consistently month-to-month throughout most of 2021, manufacturers began to whittle down the sizable backlog in 2022 and picked up more steam in the second half of last year. Coming out of the plant shutdowns in 2020, unfilled orders grew a total of 27.9% in 2021 and 3.8% in 2022 before going negative by 8% in the first 10 months of 2023. Table F details the reduction in unfilled orders.
In the years leading up to the pandemic (2018 – 2019), manufacturers’ monthly unfilled orders/backlog was mostly consistent at 130% of the value of shipments (ratio 1.3X). The ratio peaked in December of last year at 1.87X as unfilled orders approached double the shipment volume. In May of 2022, the backlog ratio dropped to 1.66X before popping up slightly to 1.69X in June (Table G).
New orders, the life blood of manufacturing, grew throughout 2022 finally peaking in January 2023 to a onemonth high of $7.01 billion. Then between January to July, new orders fell to $6.48 billion before rebounding in August of last year and growing monthly to $6.74 billion in October, the most available data at press time (Table H).
While manufacturers’ shipments grew consistently coming out of the Great Recession, the number of manufacturing establishments declined rapidly (Table I).
In 2011 the number of companies manufacturing furniture and related products totaled 18,985 before falling 7.2% over the next five years to a low 17,623 in 2016. A small two-year uptick that began in 2017 didn’t hold through 2019 and 2020 during the pandemic. But since 2020 the number of manufacturing establishments grew to 18,346 by 2023 Q2, an increase of 14% (Table I).
But while the number of stablishments was falling, employment was growing by 12.2% by 2012 to 2017 peaking at 93,100 employees. But by the end of 2018, employment was declining and has not recovered, even with the growth in establishments. Between the peak of 2017 and June of 2023, the most recent data, employment fell to 360,900 which is 8.2% below the 2017 peak.
Annual hourly wages for all furniture manufacturing and related product employees have increased every year over the last decade but the biggest gains were made in 2020, 2021, and 2022 growing 4.6%, 4.3%, and 4.8% respectively. In June of last year, average annual wages totaled $54,549 an increase of 1.35% over 2022. Wages last year were 39% higher than 2012. (Figure 3).
One of the major problems facing many U.S. industries is the slowing of worker productivity. And this is true as well for furniture manufacturers. (See Figure 4 for a definition.) The productivity index shown in Table K, indexed to 2015, indicates that over the seven years ending 2022, the most recent data, productivity has declined 10.5%. Meanwhile wages increased 26.8%.
In December of last year, the Feds announced that inflation was cooling and promised to reduce interest rates in several stages this year. Election years are usually stable for the economy. Yet with the turmoil of a contentious election coupled with international conflicts and a crisis deepening on our border, there could be surprises in store for the year. American Furniture manufacturers may also be sitting on pins and needles wondering if China will get its act together with imports and begin to take sizable share of the market away from U.S. manufacturers again.
December 29,
2023 by HFBusiness Staff in Business Strategy, Industry
Gen Xers households (ages 42 to 57) averaged $1,014 in furniture expenditures in 2022 followed by $770 for Millennials, $679 for Baby Boomers and $430 for Gen Z (adults 25 and under) (Table B). Our 2023 consumer spending article will focus on these generational households, quantify their spending and shed some light on what may be ahead for the furniture industry. A future article will look at each generation’s shopping choices and outlets and explore how each furniture channel can attract them to theirs.
In preparing this article, we have borrowed a quote from the Pew Research Center, a leader in generational studies, which says, “Generational signals can sometimes be lasting, but youth itself is not a permanent state.
Generational Influences Generational spending is sometimes a difficult concept to grasp as it follows the same groups through time who shared similar economic, domestic and world events during their coming of age. Generations get older together with the shared experiences and events shaping them throughout life. This approach is opposite to the traditional method of analyzing spending, and that is by looking at age and income at a moment in time. For example, traditionally, one might ask how much were 35- to 44-year-olds with incomes between $50,000 - $70,000 spending 15 years ago compared to today. In this example, the age group would have been from two different generations. The shared generational experiences can be wars, economic recessions, terrorist attacks, pandemics, medical discoveries, (i.e., birth control pills) or technological advancements, like the personal computer, cellphones or the Internet. Usually, the beginning of a generational identity (birth year) often begins with the adoption of a new technology.
Figure 1 gives an overview of each generational cohort and the cultural experiences and events that influenced them.
Demographics Millennials (ages 26 to 41) are now the largest generation alive numbering 72.3 million, which is 21.7% of the population and 27.7% of adults 18 and over (Figure 2). Immigration is expected to swell their ranks further. But not all Millennials have formed households, and are thus second to the Baby Boomers (ages 58 to 76) in consumer units/households. Boomers comprise 26.3% of the population 18 and over and are still the largest group of households at 32.4%. The smaller generation sandwiched between Baby Boomer and Millennials, Generation X (ages 42 to 57), represents 25.1% of the population over 18 and over 27% of households. Younger Generation Z (ages 10 to 25) comprise only 5.5% of consumer units, but their ranks will grow rapidly as more age into adulthood. Figure 2 shows the demographic detail followed by Table C which compares percent of adult population versus consumer units.
The growth rates in household formations for each generation prepandemic (2019) and post-pandemic (2022) were varied (Table D). Before the pandemic, very few Gen Zers (ages 10 to 25 in 2022) were out of college. But between 2019 and 2002, their numbers almost doubled. Millennial households (ages 26 to 41 in 2022) grew 5.7% over three years, which is a significant amount considering their already large numbers before the pandemic. Generation X (ages 42 to 57) grew less than 2% over the three-year period, and Baby Boomers less than 1%. The toll the pandemic took on the Silent Generation was wide spread with households declining 27.7% 2019 to 2022.
Income by Generation Generation X (ages 42 to 57) has by far the highest incomes averaging $126,892 per households in 2022, followed by Millennials (ages 26 to 41) at $100,315 and Baby Boomers (ages 58 to 76), $81,827 (Table E). But the higher the income bracket, the higher the taxes paid. In this case, Gen Xers paid 16.8% of income in taxes, Millennials 11.9%, Baby Boomers 11.6%, and young Gen Zers just starting out 5.3%.
One of the outcomes of the pandemic, was the explosion of incomes in the midst of a very tight labor market (Figure 3). Pandemic monetary assistance was also a factor. Millennials that had been crying the blues were all of a sudden getting higher paying jobs. Salaries for Millennials (ages 26 to 41 in 2022) who were three years older in 2022 than 2019, grew 27%. For Generation X (ages 42 to 57 in 2022) salaries grew 19.4%. Baby Boomer income rose only slightly by 1.2%. The average Gen Xer (ages 42 to 57) had 21.1% more disposable income than the average Millennial (ages 26 to 41) and 48.6% more than the average Baby Boomer.
Expenditures by Generation
So how did the different generations spend their money in 2022? With Gen Xers (ages 42 to 57) having the highest incomes, they in turn spent the most, $91,382, followed by Millennials at $74,782, and Baby Boomers averaging $66,362. Newly forming households by adult Gen Zer households (25 and under) spent on average $47,975 (Table B and Figure 4).
For all consumers, over one-third of their expenditures was spent on their homes, which included paying for the actual structure (rent/mortgage), utilities, household furnishings and equipment (including furniture), and household operation and supplies. And even though Gen Xers (ages 42 to 57) still spent more actual dollars on average on household furnishings and equipment, as a percent of their total spending, this generation also spent the lowest at 31.2%. The general rule for spending on the actual housing structure, either rent or mortgage payments, property taxes, etc., was that the younger the generation, the higher percentage of expenditures on basic housing. For example, Generation Z (adult ages 25 and under) averaged 25% of expenditures for rent or mortgages, Millennials 21.6%, Generation X 18.6%, and Baby Boomers 18.8%. However, the opposite was true for utilities. The younger the generation, the less they paid as a percent of expenditures. The same applies for household furnishing and equipment. Baby Boomers spent more of their income, 3.9%, on household furnishings. Figure 4 shows the total percentages of expenditures, including transportation, housing, food, healthcare, entertainment, education, and contribution to retirement accounts.
Household Furnishing and Equipment
Like many other consumer products, spending on household furnishings and equipment grew rapidly between 2019 through 2022. This category includes furniture, floor coverings, major appliances, small appliances/miscellaneous housewares, household textiles, and miscellaneous household equipment. Spending by Generation X (ages 42 to 57) for household furnishings totaled $3,355 on average per household (Figure 5), which was over 30% more than Millennials or Baby Boomers. In fact, Gen Xers (ages 42 to 57) outspent Millennials and Boomers in every household furnishing product area, except small appliances and miscellaneous housewares, and that difference was very small.
Table F shows the dominance of Generation X in household furnishings spending. In average household spending on furniture, Gen Xers outspent Millennials by 31.7% and Baby Boomers by a significant 49.3%. For major appliances, the difference was less than 20%. In the popular household textiles category, Gen Xers (42 to 57) outspent Millennials by 96.1% and Baby Boomers by 54.2%
In 2019 just before the pandemic, Gen Xers (ages 42 to 57) were leading all other generations in spending on household furnishings, but not by a lot compared to Millennials (ages 26 to 41) (Table G). But throughout the pandemic and beyond, the Gen Xer gap widened significantly. Bear in mind that all generations were three years younger in 2019.
Furniture Expenditures
Coming out of 2019, furniture sales were increasing across all generations but some took different sending paths in the immediate pandemic of 2020. Table H graphically shows the spending, while Figure 6 presents the detail. In 2020, during the worst of Covid fears, spending cooled among Generation X (ages 42 to 57) to 3.4% and more so with Baby Boomers where furniture spending was down 13% for the average household. All the while, younger generations, Millennials and Gen Zers (25 and under) were posting doubledigit increases in furniture spending in 2020 as pandemic money flowed in and a moratorium was placed on student loans. The spending craze for Generation Z (25 and under) and Millennials (ages 26 to 41) continued through 2021, and then slowed in 2022 as inflation set in. Gen Xers (ages 42 to 57) and Baby Boomers were a different story. While conservative during the heart of the pandemic in 2020, in 2021 and continuing through last year spending grew over 35% in 2021 and over 11% in 2022 for both Gen Xers and Baby Boomers.
As shown in Table I, when it came to buying furniture, in 2022, the average Generation X (ages 42 to 57) household outspent Millennial households by 31.7% and Baby Boomers by 49.3%.
Gen Xers (ages 42 to 57) will continue to dominate the furniture industry through 2025 as their affluence continues to grow. Some older Gen Xers are inheriting money from the quickly declining Silent Generation parents. However, Millennials will get the biggest boost for years to come inheriting billions from their Baby Boomer parents. Younger Generation Z (under 25) is also bursting on the scene, better educated, more ambitious and some say learning from the mistakes of Millennials.
A future installment of Stat Speaking will explore where they are spending their money, and how each furniture and home furnishings channel can lure them their way.
July 28,
2023 by HFBusiness Staff in Business Strategy, Industry
Style Driven
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.”
Growth Outlook
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%.
July 28,
2023 by HFBusiness Staff in Business Strategy, Industry
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%.
Wage Increases
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.
June 15,
2023 by HFBusiness Staff in Business Strategy, Industry
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).
RETAIL METRICS
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
(Table F)
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
(Table G)
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
(Table 0)
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)
(Table P)
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)
(Table T)
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)
(Table U)
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%.
