Monthly Issue
From Home Furnishing Business
November 7,
2018 by HFBusiness Staff in Business Strategy, Industry 
The U.S. became over-stored in many channels during the 1990’s and early 2000’s as developers kept building shopping centers and companies continued opening retail outlets. The Great Recession was the initial economic event to impact the retail landscape, especially for furniture and home furnishings stores as the housing and mortgage crisis escalated. Then with the influx of internet companies like Amazon and Wayfair, consumers altered spending habits and priorities. Over the last 10 plus years, dramatic shifts in distribution channels have taken place both in sales and in store counts.
Number of Establishments
Some retail channels have fared well during the last ten plus years, but many have not. Many channels peaked in total establishments (store fronts) just before the recession and some continued to grow. Except for electronic shopping, mail-order stores and general merchandise (variety) stores, virtually all other retailers of furniture and home furnishings continue to close stores. Furniture, electronics and appliance stores, and home centers peaked in 2007 and continue to decline. Home furnishings stores have been on a similar path, but did increase in number slightly in 2017. Department stores, warehouse clubs and superstores grew during and after the recession, but have been victimized from the pressure of internet companies and have decreased in number in the last couple of years. (Table A)
The number of furniture stores peaked in 2007 at 27,630 according to the U.S. Bureau of Labor Statistics. Since that time brick and mortar furniture stores fell to 22,052 store fronts this year. This 20.2 percent total decline or annual CAGR of 2 percent loss represents the largest decrease of all the key channels 2007 to 2018 Q1. The announced closing of 700 Mattress Firm stores will result in another 3 percent decline. Home furnishings stores did not fare much better falling 19.4 percent in number over the 10 plus years, but showed a slight uptick in the first quarter of this year of 0.3 percent.
During the same time period 2007 to 2018 Q1 pure electronic shopping and mail order houses surged by 100.9 percent or 6.5 percent annual growth.
Warehouse stores and supercenters (i.e. Costco, Wal-Mart, and Target) peaked in number two years ago in 2016 at 6,073 locations and have gradually closed 1.1 percent of the stores over the last 15 months. Department stores (i.e. Macy’s, Bloomingdale’s, Kohl’s, TJ Maxx) as a group also showed strong signs of post-recession recovery, increasing the number of stores by 22.5 percent (2007 to 2015) before a catastrophic closing of 14.5 percent of stores in just over two years. Electronics and appliances stores, the largest distribution channel in number, along with home centers (i.e. Home Depot, Lowes’s) continued to remove stores throughout the recession and after, maintaining an average annual decline of 1 percent and 2 percent, respectively. At one time the electronics and appliances stores totaled 53,343 but now number 45,351 in 2018 Q1. (Table B)
Table C tracks the percent of stores closed from two historical perspectives – (1) 2007 to 2012 during the recession and subsequent slow recovery years, and (2) 2012 to 2018 during economic recovery and high growth. During the recession and the immediate recovery years, furniture stores and home furnishings stores shuttered more locations as a percent of total than any other in the key retail furniture groups, closing stores at an annual rate of 3.8 percent over those five years. Meanwhile home furnishings stores closed 3.5 percent of locations each year 2007 to 2012. But these two primary channels took their hits early due to the housing and mortgage crises as did home centers. During the last five years furniture and home furnishings stores lost less than 1 percent of its outlets annually. Meanwhile home centers closed 2.2 percent of stores annually in the five-year recessionary/recovery period and continued to lose 1.2 percent annually 2012 to 2018Q1.
Other retail channels continued to grow during the early recession and post period or had minimal store closings, but have closed stores in recent years. These include department stores and electronics and appliances retailers. The only retailers to continue opening stores were warehouse clubs and superstores, general merchandise stores, and electronic shopping and mail-order houses (non store retailers).
Retail Sales
During the recovery period from 2012 forward, all furniture and home furnishings distribution channels grew in sales, despite store closings, with the exception of electronics and appliance stores and department stores (Table C).
Retail sales from electronic shopping and mail-order houses catapulted 131.3 percent from the peak of the recession in 2009 to 2017, but furniture stores and home furnishings stores experienced a healthy growth in retail sales, increasing by 23 percent and 21 percent from 2012 to 2017.
Both furniture stores and home furnishings stores’ sales have grown a yearly average of 4 percent in the past five years. Warehouse clubs and superstores have slowed momentum of sales in the last five years, but are still growing an average of 2.6 percent each year (Table E).
The net effect, especially for furniture, is that even though industry sales slowed and stores shuttered, the ones left standing had higher sales and continued to increase their sales per store, as shown in Table F. The average annual sales per store for furniture stores climbed steadily from $1.9 million in 2009 to $2.9 million in 2018 YTD – jumping 52.6 percent. Home centers have also benefitted from the net effect, increasing their sales per store by 73.7 percent during the same time period, mostly likely as smaller stores have closed.
Many have labeled the next few years a “Retail Apocalypse” as total retail chains in varied product areas are projected to exit the market and existing retailers pare down their stores in number and in size. Some predict entire malls will continue to close. However, furniture still remains one of the products where many consumers still like to “kick the tires” before purchase. And despite the store closings, retailers are finding ways to survive and perhaps re-gain some market share.
November 7,
2018 by HFBusiness Staff in Business Strategy, Industry
Our very existence is based on the process of attracting shoppers and turning them into buyers. We often refer to these people looking for our products as traffic. On our websites that might be defined as clicks, whereas in our stores they would be called UPS. They are the most critical ingredient in our business because without enough of this raw material, we can not produce the sales we need to survive and prosper. Therefore, it is the consumers that we get to shop with us, or shoppers, that we really need to focus on. We like to talk about how to get more of them to visit, however, since most furniture stores (particularly smaller ones) are getting fewer then the year before, a very pertinent question might be where have all the shoppers gone?
Since I have been a musician and played guitar almost all my life, when this question popped into my head, it was quite natural for the title of a very popular folk song from my youth to come to mind. Where Have All the Flowers Gone? was written by Pete Seeger and made a hit by many others, including Peter, Paul and Mary, and The Kingston Trio in the early sixties. Seeger’s inspiration for the song came on the way to a concert at Oberlin College, which was one of the few venues that would hire him due to his politics during the McCarthy era. He read these lines from a traditional Cossack folk song: “Where are the flowers, the girls have picked them. Where are the girls, they have taken husbands. Where are the men, they are in the army”. He used these lines as the basis for his original three-verse ballad. In 1960, Joe Hickerson added the final two about graveyards and the return of the flowers, making it what’s called a “circular song”. Its anti-war message during the unpopular Vietnam War was widely embraced, and in 2010 it was listed as one of the top 20 political songs of all time.
While I am not trying to get too political here, I think it is fair to say that we as furniture retailers are currently at war, because each distribution channel is fighting for its share of the those that are shopping for home furnishings. Over the past few decades, we have seen the battle intensify as the consumer has been given more and more ways to buy the goods we sell. This huge increase in selection for both product and shopping experience has caused the demise of thousands of retailers. As people choose to shop elsewhere, revenue dries up and businesses must either change or go away.
This process has mostly impacted what used to be a once dominant main player of retail furniture distribution, the independent general furniture store. In the last ten years, we have lost roughly 21% of furniture storefronts, mostly from this segment. These entrepreneurial entities, many still family-owned, had as much as half of the business nationally in the latter part of the 1900’s, sank to 35% share in 2005 and now have roughly a third of that. Will they go extinct or will the lost shoppers return? Follow my rewrite of this great song to find out my opinion about it.
Where Have All the Shoppers Gone?
Where have all the shoppers gone? Long time passing
Where have all the shoppers gone? lLng time ago
Where have all the shoppers gone?
Small stores took them, everyone,
When will they ever learn, oh when will they ever learn?
Back when my parents first shopped for furniture, after World War II, the main destination for most people to get ideas and purchase furniture was usually a small store in their community. There were a few larger chain stores and the traditional department stores which catered mainly to the “carriage trade” or higher-end customers. Selection was limited, and this was a good solid business to be in for a long time.
Where have all the small stores gone? Long time passing
Where have all the small stores gone? Long time ago
Where have all the small stores gone?
Gone to big stores, everyone,
When will they ever learn, oh when will they ever learn?
As we moved through the latter half of the 1900s, the Big Box, category-killing stores became the place to go. Good selection, quick delivery of many in-stock items and promised savings based on their big volume attracted many who would have been smaller store customers. Regional and national chains grew their share substantially, as did Sears, Penney’s and Wards, mainly at the expense of the smaller stores. In addition, we saw the emergence of specialty vertical and branded stores like Ethan Allen and La-Z-Boy that drew even more good shoppers away from the local general furniture store.
Where have all the big stores gone? Short time passing
Where have all the big stores gone? Not so long ago
Where have all the big stores gone?
Gone to websites, everyone,
When will they ever learn, oh when will they ever learn?
With the turn of the last century and the rapid growth of the internet as a retail channel for virtually everything, an entirely new dynamic hit the furniture industry. Whereas in the past nearly everyone ended up purchasing their furniture locally, now they had the opportunity to shop outside their physical market and have it delivered. Previously there were several highly successful retailers that used mail-order catalogs and 800 numbers to do this, but while they did well, it was never a huge percentage of the overall business. More recently with the growth of dedicated home furnishings sites and the advent of Amazon throwing its substantial marketing/selling power at the industry, we have seen this channel grow from nothing to roughly 15% in a very short time. Big stores have jumped on board and found some success selling online. The last segment to get onboard with it for various reasons, has been the smaller retailers. How big will it get? Will shoppers buy a “pig in a poke” as far as color, size, finish and comfort goes?
Where are all the websites going? In no time passing
Where are all the websites going? Here’s where they’ll go
Where are all the websites going?
Going to small local stores, everyone,
When will they ever learn, oh when will they ever learn?
As good as it has been over the last few years for online only sellers, we have recently seen the huge year-over-year growth slow a bit, falling from 26% in 2015 to 12.9% last year. This channel is still far and away the fastest growing one, but have they begun to tap out their available market share? Are most of those willing to purchase big ticket items for their home on the internet already doing so? While it is a given that online sales will continue to dominate in accessories, flatpack furniture and other easy to ship items, will they gain a similar piece of the action for “real furniture” and particularly better goods? I think that the jury is still out on this, but there are some indications that the party may be winding down a bit. If the Amazon’s and Wayfair’s of the world think that all of their future growth will come from people buying online, why then are they building small brick and mortar stores? Why are successful online and traditional retailers like Target and Nordstrom’s reportedly investigating building boutique size stores in smaller markets?
Where will all the shoppers go? In the future
Where will all the shoppers go? Not too far away
Where will all the shoppers go?
Going back to small stores, everyone
When will they ever learn, oh when will they ever learn?
Because the best place to be in order to build long lasting relationships based on trust and value is still person-to-person and face-to-face, I believe that the local small stores will rise again! So don’t give up. Take advantage of who you are and where you are to sell the services you provide to the people you can reach out and touch. When will we ever learn that there is no place like home!
Oh wait, isn’t that another song?
November 7,
2018 by HFBusiness Staff in Business Strategy, Industry
According to FurnitureCore (the research arm of Home Furnishings Business) data, accents have held their place with furniture sales (excluding bedding) at 5.56%. With all the emphasis of online marketing from manufacturers and online retail sites like Wayfair, it is likely that the percentage will continue to grow.
Why all the excitement around the accent furniture category? There are many perceivable factors that may contribute to this. Accent pieces are items that emphasize or complement a room’s décor. They are produced in a seemingly endless variety and are often a segue into emphasizing consumers’ personal style. Consumer tastes have become more inclined to steer away from matching groups of furniture, opting instead for eclectic pieces that create a bit of fun or personality in a room. Often these pieces do not necessarily have a utilitarian requirement, but simply serve as an addition to an existing space.
Accent pieces tend to be extremely versatile in terms of functionality and come in a range of affordable options, colors, and designs. According to ZUO’s CEO, Luis Ruesga, “Furnishings are fashion for every style and passion. Working with global trends we manufacture innovative, fashionable and affordable styles that can be enjoyed in any application.”
What does this mean to brick and mortar stores? It means opportunity. An opportunity to tack on the item that has caught their customer’s eye as they are making their purchase for a sofa, dining, or bedroom set. An opportunity to increase the average ticket of each sale. And, perhaps most importantly due the category’s versatility in both functionality and price, it means an opportunity to make a sale even when total sales are slow.
October 23,
2018 by HFBusiness Staff in Business Strategy, Industry
The U.S. economy is expected to have grown at its best pace in four years in the second quarter, and a part of the boost may have been from inventory building and exports ahead of the implementation of tariffs. Economists say it’s difficult to determine how much tariff-related activity added to the expected 4.1 percent growth. Some economists say it could be just a few tenths of a point, but NatWest Markets economists say it could total a full point.
However, the news is filled with the closing of stores that have been in business 75 years plus. In 2007 at the furniture industry peak, the U.S. had 27,630 furniture stores (store fronts). By the end of last year, that number had fallen 21 percent to 21,765 stores. Over 50 percent of the 5,865 stores that closed between 2007 and 2017 did so in 2008 and 2009, unable to survive the recession. Preliminary data from first quarter of this year shows the first possible increase since 2007 with the addition of 287 stores compared to the fourth quarter of 2017. The graphic below presents the facts.
The political environment which is driving much of these external factors shows no signs of abatement. Even with a change in the midyear elections, the resulting turmoil for the next two years would intensify this change.
All of this disruption has added to the concern of the impact of ecommerce on the traditional brick and mortar stores. While we believe the increase in growth to the ecommerce channel has peaked, we see Amazon’s latest move to create a better online experience in furniture shopping, along with Wayfair’s expansion into the higher end segment with its private label products, promising showroom /gallery quality furniture at a price the consumer can “comfortably” afford, offering an “unparalleled” way to shop online for their homes.
What is the solution? There is no magic answer. However, a trusted map to guide your decisions—or should I say a reliable GPS—that is updated consistently for changing industry conditions, is helpful.
Today, the industry needs more than a sextant or compass to avoid the shoals.
Stay tuned to the next issues.
October 23,
2018 by HFBusiness Staff in Business Strategy, Industry
The overall U.S. economy is experiencing the second largest period of economic growth since World War II. And if the growth continues through 2019, it will be bigger than the dot.com boom. Economic growth in the U.S. is expected to remain above average through the end of 2019 but could fall back from growth levels seen in 2018. Most economists believe a recession is out to at least the end of 2020, perhaps 2021 or even 2022.
The Furniture Industry
Forecast. New data from a comprehensive revision of Personal Consumption Expenditures by the Department of Commerce, U.S. Bureau of Economic Analysis (BEA), confirms what industry experts have suspected for years. The furniture industry grew more slowly immediate post recession years than the prior PCE numbers indicated, cumulatively almost 10 percent less. This data detailing personal consumption of furniture is tied to the U.S. National Accounts including GDP.
The newly revised PCE numbers also readjusted furniture industry growth upward to a 4.9 percent increase 2016 to 2017. And through August of this year, PCE furniture consumption increased 7.4 percent compared to the same 8 months last year.
Industry sales, all channels, are forecast to slow slightly the remainder of the year, but should finish at least in the 6 percent increase range by year end. Growth should moderate in 2019 to between 4.8 percent and 5 percent continuing to 4.7 percent in 2020. (Table A)
The Bedding industry has been the fastest growing segment of the industry since the recession until last year when the industry was disrupted by consolidation as well as increased internet presence from online companies marketing primarily bed-in-a-box product. Growth in 2017 was 1.5 percent compared to 5.3 percent for all other furniture products. This year the Bedding industry has begun to recover and should expect growth of 4.4 percent while all other furniture is on track to increase 6.3 percent. Both furniture and bedding sales should approach 5 percent growth in 2019 and slightly lower in 2020. (Table B)
Distribution Channels. For Furniture Stores, one would have to go back to 2004 to see a higher growth year. Furniture Store estimates through August show a 7.8 percent increase in sales compared to the same period last year. This increase exceeds the performance of all other home furnishings channels, except electronic shopping (internet)/mail order retailers that grew 9.7 percent August year-to-date. These two channels, along with General Merchandise Stores, are the only furniture and home furnishings channels that are outperforming the 5.4 percent growth among U.S. retail sales for all products. Electronics and Appliances stores continue to decline in number. Home Furnishings stores sales have slowed. (Tables C and D)
Prime Furniture Buying Population. The good news is that Millennials are finally working their way through their prime furniture purchasing years. The age group 35 to 44 is now the fastest growing category under 65 and is expected to increase 1.3 percent 2018 and 2019. As the largest generation since the Baby Boomers, they have delayed marriage and household formations. Jobs coming out of the last recession were hard to find, didn’t meet their salary expectations, or were not the jobs they wanted. Whether this generation will place the same importance on their homes and home furnishings as their Boomer parents is not entirely clear at this time. Nevertheless, they are the prime consumer force in the United States. Unfortunately, GenXers in their mid 40s and 50s with their high salaries and big homes are still impacting the industry but are the fastest declining age group of prime purchasers falling 3.1 percent this year in numbers and another 3.6 percent next year. Baby Boomers are still impacting the industry as the older age groups continue to grow. (Table E)
The U.S. Economy
Despite a politically charged climate with concerns over international trade alliances and tariffs, upcoming mid-term elections, and polarized political parties, the U.S. economy continues to barrel forward at a record pace. The Home Furnishings Business (HFB) forecasts that follow are a result of a compilation of predictions by leading U.S. economists. Figure 1 provides the complete sources.
Real Gross Domestic Product. GDP of 4.2 percent in the second quarter, up from 2.2 percent in Q1, reflects the economy’s robust growth. Most economists agree the second half of the year won’t be able to keep up that pace and the year will finish around 3 percent growth. GDP is expected to slow in 2019 to 2.7 percent and further to 2.0 percent in 2020. A large number of experts feel this historical expansion will continue to cool with a recession looming toward the end of 2020 or 2021. (Table F)
Payroll Employment and Unemployment Rate. The U.S. worker shortage still looms large, especially in retail stores, as businesses struggle to find the right workers to match the job. (See the May, 2018 issue of HFB Magazine, “Statistically Speaking: Companies Look to Technology to Help Solve Nationwide Worker Shortage.”) Furniture store executives, in particular, have expressed frustration at turnover rates while trying to implement new strategies to attract and maintain quality employees. Non farm workers are forecast to grow 1.7 percent in 2018, slightly higher than the 1.6 percent growth in 2017. And although growth will slow over the next two years, companies will still add employees at a forecasted rate of 1.5 percent in 2019 and 1.3 percent in 2020. (Table G)
As the economy adds jobs, unemployment is forecast to continue to be low at 3.8 percent this year and into 2019 with only a slight uptick in 2020. (Table H)
Stock Market. The Dow Jones continues to express little interest in the political climate, instead focusing on increase business performance. The Dow Jones is forecast to end this year at 28,000 plus and grow above 30,000 in 2019. The market is expected to remain strong for most of 2020, but performance will depend on when an often predicted recession might arrive at the end of 2020 or wait until 2021 or even2022. (Table I)
Consumer Prices. The furniture industry continues to struggle to get prices up. This year growth in prices is expected to be negative again, down 0.5 percent from 2017, primarily in bedding. Hopefully, furniture and bedding prices will go positive in 2019 and continue to grow slowly into 2020. Meanwhile all consumer goods prices are forecasted to grow 2.6 percent this year and 2.3 percent in 2019. (Table J)
Gasoline Prices. The International Energy Administration predicts that the United States will become the world's largest oil producer by 2023 growing enough to meet domestic demand. While OPEC walks the tight rope between increasing and lowering production to insure profits and continued exploration, in a free U.S. economy that may prove to be more difficult. Oil companies must find the right balance between increasing supply slowly enough to keep prices high enough to pay for increasing exploration. Perceived shortages caused by hurricanes, the threat of war in oil-exporting areas, or refinery shutdowns can cause panic and prices to spike. Gasoline prices are expected to remain below $2.50 for a gallon of regular gasoline 2019 and 2020, with this year forecasted to average $2.70. (Table K)
Consumer Confidence. The current high level of confidence at press time reflects a sturdy economic expansion in the U.S. that’s about to turn nine years old with no end in sight, according to Market Watch/Barclays. Job openings are at a record high and unemployment is at a 17-year low. Confidence grows despite trade rhetoric, stock market volatility, and political unrest.
Lynn Franco, Director of Economic Indicators at The Conference Board says that, “Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.” (Table L)
Prime Interest Rate. This short-term interest rate is the most commonly used in the banking system. The average rate for the year should be at 4.9 percent, according to leading economists. The 5 percent rate at press time, however, is forecasted to be raised to 5.25 percent by the Federal Open Market Committee (FOMC) before year end and continue through 2019. Another increase to 5.5 percent is forecast for 2020. The Prime Rate is generally increased if the FOMC determines that the pace of inflation within the U.S. economy is too high so as to bring inflation under control. (Table M)
The Housing Market
30-Year Mortgage Interest Rate. As the Prime Rate has edged up, so has 30-Year Mortgage Interest Rate to a forecasted average of 4.6 percent this year. While still low, rates should edge up again in 2019 to 5.1 percent and 2020 to 6 percent. (Table N)
New and Existing Home Sales.
With low inventories and slow residential construction, existing home sales are forecast to decline this year 1 percent and pick up slightly in 2019 at 2.1 percent growth, according to the National Association of Realtors (NAR). These low inventories are contributing to higher home prices. With existing home low inventories, new single-family homes are being cobbled up, many pre-construction. Sales of new homes are forecast to grow 8.6 this year following a 9.3 percent increase in 2017. As new residential construction ramps, up 2019 single-family sales should hit double digits. (Table O)
Housing Starts. Despite a recent slowdown, residential construction shows a positive trend. According to Kiplinger, “Increases in the cost of building materials and shortages of land and labor have left builders unable to ramp up construction faster, despite optimism in the industry about the direction of the market. Prices for building materials, however, have recently begun to ease somewhat.” (See HFB Magazine, July 2018, “Statistically Speaking: Housing Industry Struggles to Keep up with Consumer Work/Lifestyle Demands.”) The National Association of Realtors (NAR) forecasts Housing Starts for single-family units to grow 7.7 percent this year and is optimistic about double digit growth in 2019. No economists on HFB’s list ventured a forecast past 2019 but the trend should be positive. Likewise, after a negative growth year in 2017, multi-family units have rebounded and should increase 7.6 percent this year. The NAR predicts Housing Starts growth should then be flat in 2019. (Table P)
Home Prices. In July this year, the Census Bureau reported the median price of a new home sold in the U.S. was $328,700. Existing homes sold, tracked by the National Association of Realtors (NAR), reflect a July median price of $269,500. Low inventories of existing homes should help increase the price by 5 percent this year, with prices continuing to increase in 2019 at 3.6 percent. New home prices should be down slightly this year less than 1 percent, but grow 2.6 percent in 2019. (Table Q)
Conclusion. The U.S. economy appears very healthy. This growth should continue throughout next year, but at a slightly slower pace. In 2020 the economy should moderate further with increased anxiety among businesses as to how long the expansion can last.