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From Home Furnishing Business


As can be seen from the graphic, the forward-looking statistic (compared to the previous quarter) indicates a definite slowdown while the back focused statistic (compared to the previous year) provides a more positive perspective.

But what about the balance of the year? Given no extreme external factors, FurnitureCore, LLC, sister company to Home Furnishings Business still has confidence in its 2023 forecast of 2.6%. Then why are retailers feeling so unsettled? One reason is the variance across the nation with one retailer reporting sales are up 13.4% (year-over-year) and another 17% down (year-over-year). Table C presents the range of variance.

Let’s now get down to the specific performance factors for the industry and your specific operation (for subscribers).


Despite inflation, supply chain disruptions, and a slowing in the frenzied demand seen in 2021, the furniture industry grew a respectable 6.47% in 2022 following 2021’s growth of 21.9% coming out of the COVID-19 pandemic. Furniture stores, however, did not fare as well. Table A shows that furniture store sales for the total U.S. grew only 1.1% last year compared to the traditional furniture stores.(See Figure 1 for the Methodology.)

For years the furniture industry experienced slow growth coming out of the Great Recession. Sales picked up a little steam around 2015 to 2018. Then when the pandemic hit, industry sales skyrocketed before slowing in 2022. Meanwhile, furniture store sales growth continued at a crawl until 2021, then fell to very slow growth last year. Table B shows the dollar growth.

Last year, quarterly growth over the prior quarter for all U.S. furniture stores went negative for three out of the four quarters, with only the second quarter showing positive growth at 8.66%. Quarter four was down 0.56%. Notably the first quarter of this year showed no improvement with flat growth over the last quarter of 2022. Traditional retailers participating in the retail metrics for this article also experienced significant slowing in the last half of 2022 (Table C).

The financials of the traditional furniture retailers participating in the retail metrics in 2021 told a story of high gross profit driven by increased volumes from higher prices. Segue to 2022 and those sky-high profits subsided, especially in the third quarter. Table D illustrates the percent dollar growth in key indicators for gross profit, sales expense, general and administrative expense and net operating income.

Table E shows the total quarterly performance as a percent of revenues, not dollars.

Key Performance Indicators 2022

(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%.

What Does The Barometer Say?

For those that remain, another management challenge is on the horizon. Many traditional furniture retailers learned to manage in an environment of supply chain problems and rapidly increasing prices. The result was a significant financial return. Now it is another set of management disciplines on the financial side. The starting point is financials on your desk by the second week after the close of the month. And yes, expect a cash flow from your financial team – not from your CPA. The following graph illustrates the cash flow factor for top quartile retailers. What is your cushion?

Fasten your seatbelts. It’s going to be an exciting ride. Understand your expenses and the impact on cash flow. Question every decision as to impact on cash flow.

What Sells: MOTION FURNITURE: A Study in Contrasts

Form vs Function
The longstanding battle between fashion and functionality has never been more evident than in reclining furnishings. Consumers are embracing the influx of stationary upholstery-inspired styles yet overstuffed traditional motion frames retain their place in the market. Similarly, demand is great for power motion innovations, yet manual recliners still dominate entry level price points. The fashion factor ensured by hidden buttons, cupholders and features is prized, while conversely, at the other end of the spectrum fully lit tabletops and worksurfaces are popular. When it comes to scale, more is more for consumers who equate volume with value. At the same time, many motion manufacturers are finding success with smaller silhouettes targeting apartment dwellers and downsizing boomers.

Design Options
Design directions in recliners and reclining sofas and sectionals continue to mirror the trends in stationary upholstery. “The cover is essential,” explains Marietta Wiley, vice president of merchandising and product development for Parker House. “Consumers are looking for fashionable fabrics on motion like what they’re seeing in higherend stationary upholstery—interesting textures and soft, lofty constructions.”

From sleek European styling to classic chesterfield tufting, reclining furniture encompasses every major design style. Contrasting welts, decorative stitch patterns, leather and mohair trims, and unique nailhead options are additional elements being used to elevate and distinguish motion designs. The result is an ongoing acceptance of motion sofas and chairs and their promotion from mancaves and home theaters to the living rooms of America.

This growing array of reclining options is resonating at retail. “Today’s consumer loves the ability to personalize sectionals to the perfect size and angles that enhance their living experience,” explains Anthony A. Teague, executive vice president of Jackson Furniture.

Statistically Speaking Post-pandemic sales in the motion category are holding steady. According to a FurnitureCore, Inc. survey developed by Impact Consulting Services (parent company of Home Furnishings Business), the combined upholstery category (stationary + motion), as a percent of total furniture sales, is holding at 34.1% in the first quarter of 2023, compared to 34.7% at the end of 2022 and 34.2% in 2021. Motion upholstery comprises 36.9% of all upholstery sales this year through the end of Q1—unchanged from its 2022 yearend share of 36.9% and down slightly from a 37% share in 2021.

As expected given macroeconomic changes, annual growth projections for the category are slowing. Motion upholstery is tracking 3.9% growth year to date in the first quarter of 2023—equal to the stationary upholstery category for the same time period—but down from 7.8% growth in motion sales in 2022, 24.7% growth in 2021, and 21% growth in 2020.

Statistically Speaking: Furniture and Home Furnishings Stores Face Marketing Challenges

Furniture stores rapidly increased sales beginning in mid 2020 during the pandemic and accelerated quickly during the consumer demand that followed. Since 2019, store sales have grown 23%. That growth, however, came in spurts with 3.1% decrease in 2020, 25.6% increase in 2021 and 1% growth last year. The paradox is that at the same time furniture store sales were growing, their share of total consumer spending on furniture fell at a rapid rate. Other furniture channels charged ahead further widening their gap. Table A shows that in 2022, the 1% increase in furniture store sales produced $78.96 billion, while consumer spending grew 6.3% to $213.45 billion.

Figure 1 details the growth for all products for the key furniture and home furnishings sales channels. Last year sales growth for both furniture and home furnishings stores was near the bottom of the list of other retailers marketing furniture products. However in 2021, the year before, as demand exploded, furniture and home furnishings stores growth was among the highest. At the top of the list in 2022 is e-commerce players with growth of 75.8% between 2019 and 2022 and 10.4% 2021 to 2022 in all products. All other channels except e-commerce fell below double-digit growth in last year.

Home furnishings store sales jumped coming out of the pandemic then flattened in 2022 to less than 1% growth (0.9%) (Table B). Home furnishings stores posted sales of $64.37 billion last year, unable to make a dent in the consumer spending total of $131.35 billion. Figure 2 details the primary home furnishings product categories.

The historical percent annual growth over the last five years 2018 to 2022 for furniture and home furnishings stores compared to consumer spending shows the slow growth of these channels heading into 2020 (Figure 3). Also shown are preliminary estimates for the first quarter of this year discussed in more detail below.

The ups and downs of the quarterly sales for both furniture stores and home furnishings stores are depicted in Table C. Advance March data from the Census Bureau suggests that sales in the first quarter of this year will be be up 2.3% for furniture stores compared to Q1 of 2021 and up 1.5% for home furnishings stores.

Over the last 10 years, the compound annual growth rate shows furniture store sales have grown at an annual rate of 4.7% versus consumer spending increasing at twice the rate at 9.8% annually (Table D).

Home furnishings store sales in the same 10-year period grew at a CAGR rate of 4.4% compared to 7.4% for consumer spending on lamps, floor coverings, window treatments, tabletop and cookware. But much of that growth occurred before 2017 after which e-commerce ramped up rapidly (Table E).

Growth in Stores
The competitive pressure on furniture stores began in earnest just before the start of the Great Recession in 2007. Although regional chains were also hit, mom and pop stores, especially, began closing, and that downward spiral continues for these small independents. Since 2012, 4.6% of furniture stores have closed. In 2021 there were 22,300 furniture stores in the U.S., down from 2007’s peak of 27,600, a difference of 19.4% (Table F).

Furniture stores with multiple locations appeared to stabilized around 2018, and the vast majority have survived. Many have either added locations or additions are planned. Table F below compares the number of corporate firms (in thousands) with the number of stores (establishments) since 2001.

Note that there have been some closing announcements during and following the pandemic. In the second quarter of 2020, Art Van closed all 85 of its stores in Michigan. A few large independents and regional chains announced closings last year, with many of the independents citing retiring family owners as the reason. Independents going out of business in 2022 include N.E. Liebman, Mechanicsburg, PA; Whitley Furniture Galleries, Zebulon, NC; Larrabee’s Furniture, Littleton, CO; Lastick Furniture, Pottstown, PA and Rotman’s, Worcester, MA (announced at the start of this year). Regional chain Weekends Only (eight stores in Missouri and Indiana) also announced it was shutting down.

Home furnishings stores have battled to say open, with 10.3% closing since 2012. And while they tend to be one-store locations, between 2018 and 2022 big chains have either shut down completely, like Pier 1 and Tuesday Morning, or suffered significant store closings, like Bed Bath and Beyond. In 2021 there were 23,100 home furnishings stores, compared to 33,200 at their peak in 2007, a difference of 30.5%.

The decline of the mom and pop independent furniture and home furnishings stores is evident in Table H which shows that the ratio of number of store locations to corporate entities. For furniture stores, the average number of stores per corporate firm up to 1.8 in 2020 (the most current data available). For home furnishings stores that tend to be more independently owned single stores, that ratio is 1.47, not significantly different in almost 20 years.

As the number of furniture and home furnishings stores closed, so with them went employees. Over the years, the actual average number of employees per store fluctuated more because of economic downturns and upturns than anything else. In the early 2,000s employment tended be a bit higher when furniture stores carried more employees in warehouse and delivery jobs that are now outsourced or no longer needed. Table H shows that especially for furniture stores, employment per store grew to an average of 10.2 employees in the years following the Great Recession before falling during the pandemic. This increase in average employees per store can be attributed to the demise of smaller mom and pop furniture stores who carried fewer employees. In the recovery following 2020, employment grew quickly to a current average of 9.9 employees per furniture store location. Home furnishings stores have taken a similar path with current average employees per store at 9.7. Table J shows the total industry employees since 2002. In terms of total shakeout of stores and employees, furniture store employment fell 3.6% in the four-year period 2018 to 2022 from 228,800 employees to 221,700. At the start of this year, February employment is down .05%, which is typical coming out of the holiday season.

Home furnishings store employment fell 11% from 2018 to 2022 with big hits from store closing, some scattered over years by Pier 1, Bed Bath and Beyond, and Tuesday Morning, to name a few. Home furnishing store employment fell from 267,200 employees in 2018 to 236,800 in 2022. Employment is down 4.6% in February this year, which is also typical of employment seasonality.

Editor's Letter: What Goes Up, Must Come Down

Since 1974, the compounded annual growth rate (CPGR) has been 6.1%, gradually falling from the 8% level as we experienced economic ups and downs. The graphic below presents the historic growth annotated with the significant happenings:
While our CPGR growth is below what is defined as good (10-15%) there are challenges that are unique to our industry. The pandemic gave rise to an increase in revenue at retail driven by an increase in prices due primarily to transportation and increase in gross margin objectives enabled by supply and demand. Now that prices are declining and written orders at retail are weakening, it is tempting to lower the gross margin objectives. The industry should hold strong and resist the urge to discount. Note I said the industry. When one competitor does so, others follow.

Our products are a bargain when compared to other consumer products and have been so for years – refer to our feature article on page 8 for consumer price index compared to all consumer products. Let’s stop the race to the bottom. Just realize you can’t make money buying/displaying/selling/delivering a $399 sofa.

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