January 19,
2023 by HFBusiness Staff in Business Strategy, Industry 
The rapid increase in mortgage rates in the Fall of 2022 put what many feel was much-need pressure on the housing market to slow its pace of record price increases. However, prices have not decreased as much as expected as tight inventories have protected the industry from sharp declines. In addition, falling mortgages four weeks in a row to December 8 has not spurred demand. At press time, mortgage rates were 2X the rate in January of 2022, but home prices still 6% higher.
A correction may be ongoing, but fewer economists now suggest there will be a 2023 housing crash. Some even predict that slightly declining mortgage rates beginning in November may suggest the housing industry has weathered the worst of it. How long the correction will last is in large part in the hands of the Fed and whether additional rate increases are forthcoming. Current, existing home owners are sitting tight. Also, there is another wrench in the new housing crisis and subsequent recovery. New household formations are now accelerating while housing supply remains near historic lows, with not enough new construction in the pipeline.
All of these housing factors and their impact on the furniture industry are examined in more detail in this insallment of Statistically Speaking. Each housing factor discussed is divided into two sections – (1) the current situation, and (2) the future drivers going forward.
Mortgage Rates
Current Situation. In the first week in January of 2022, a 30-year fixed rate was at 3.22% and a 5/1 ARM 2.41%. Eleven months later, the fixed rate had more than doubled to 7.08% and the 5/1 ARM had jumped more to 6.06% (Table A). Since that height last November, mortgage rates have continued to drop four straight weeks (at press time) almost three-quarters of a point, the largest decline since 2008. Last December 8, a 30-year fixed rate dropped to 6.33%. Since November 11, the rate for 5/1 ARM exceeded the 30-year fixed and has no longer become attractive.
Future Drivers. While the decline in rates has been large, according to Freddie Mac, “homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.” Interest rates have priced many homebuyers out of the market. Couple that with inflation and economic fears, and homebuyers have chosen to sit this one out for a while.
New and Existing Home Sales Current Situation. The surge in home sales that began during the pandemic and continued through 2021 peaked in January 2022 at a combined 7.3 million new and existing units (annualized). Both new home sales and existing homes sales have been in free fall since then. During the first nine months of last year through October, the most current data at press time, new home sales fell 23.9% and existing home sales were down 31.7% (Table B). Low inventories and declining pending homes sales data suggest November and December continued the trend.
Future Drivers. Besides the stability of mortgage rates, the key drivers for housing demand going forward include, among others, new household formations, consumer confidence, the affordability of housing, and new construction on the horizon, which is examined in more detail later in this article.
Home Prices
Current Situation. Housing prices, both new and existing homes sold, have been skyrocketing, especially since 2019. The annual median price of a new home increased 41.1% between 2019 and October 2022 YTD while existing home prices grew 42.2% during the same period. (Table C). Despite falling home sales throughout the summer, prices continued to grow, but softened for existing home sales with rising interest rates. New home prices slowed briefly with the impact of higher rates, but the median price of a new home in October was still $493,000, a new record. This price was 8.2% above the prior month of September following a two-month slump after recession fears surfaced in the media and larger interest rate increases became evident. October new home sales prices were also up 15.4% over October 2021. Meanwhile, the median price of existing homes sold fell in October for the fourth straight month from its peak in June of last year. October's median existing home price of $379,100 was 8.4% below June's record of $413,000.
Future Drivers. Low inventories should keep prices from falling significantly, especially if interest rates stabilize. More importantly will be whether the economy responds to anti-recessionary efforts by the Fed.
Housing Inventories Current Situation. Low housing inventories have been a hot topic over the last three years as one of the prime drivers of increasing home and rent prices. During the buying frenzy beginning in 2020 through October of last year, inventories for housing units for sale dropped 56.7% and available rental units declined 16.3% (Table D). But as housing demand has slowed in recent months, months’ supply of inventory has increased as this factors into available inventory and current demand, which has been low.
Future Drivers. New construction of homes and apartments and slower demand are the two key drivers of inventory levels and also key to easing the housing price wars. Unfortunately, in 2023, especially in housing units for sale, current housing starts don’t appear to be high enough to appreciably impact inventory without a sharp decline in demand.
Housing Construction Permits and Starts
Current Situation. It takes a while to permit, start, and complete a new home or condo (seven or eight months per the Census Bureau). And an apartment building takes well over 1-1/2 years (17.5 months per the National Association of Home Builders). The length of the process provides a unique window into the future inventory of new homes and apartments.
For single-family homes and condos, building permits were issued in a frenzy and new units started beginning in the summer of 2020 and peaked at the end of 2022. About 50% of building units permitted are started within the same month and 90% are underway within two months. Therefore, housing and apartment starts track closely alongside permits. Single family starts peaked in the winter at the end of 2020 at 1.3 million annualized units but were down to 855,000 starts by October of last year. Total starts for the first nine months of 2022 were down 6.6% over 2021. Meanwhile, multi-family apartment starts stayed strong at 612,000 last April (Table E). Year-over-year October 2022 YTD total average multifamily unit starts are up 17.5%. Future Drivers. Home and apartment builders, much more so than existing home sellers, have to look into their crystal balls as the housing demand landscape may have changed by the time a project is started to completion. Understanding changing demographics is essential to the planning that goes into building, especially since the pandemic. For example, is there a trend toward moving out of the city and into the suburbs? Or, what is the affordability picture for younger households? No matter the current consumer demand, mortgage rate or inflation rate today, new home and apartment inventories were set in stone months ago for new homes and much earlier for apartments.
Housing Completions
Current Situation. With the flurry of building in 2020 and early 2021, new homes and condo completions remained strong in most of 2022 through September and then began to decline, as economic uncertainty set in (Table F). New homes were completed in the first nine months of 2022 at an average annualized rate of 1 million, which was 5.3% higher than the first nine months of 2021. Meanwhile multi-family completions, which had begun construction over 1-1/2 years prior, slowed slightly in 2022 to an average annualized rate of 343,000 for the first nine months, down 6.5% compared to the first nine months of 2021.
Future Drivers. Table F also shows estimated new home completions through the first six months of 2023 based on what is already in the pipeline, and the picture is not pretty. Based on starts seven to eight months prior, new home completions in the first six months of this year are estimated to decline a total of 26% in annualized units.
Multi-family units will pick up some of the slack in housing as there will be more apartment units built this year since the mid1980s (Table F). Buildings begun over 1-1/2 years ago, should come online growing an estimated 33% in total annualized units over the first six months of this year compared to 2022. The second half of this year could bring another 24% growth in units over the first half of 2023. With the high number of apartment completions coming this year, the furniture industry has an opportunity not seen in years, to market apartment-suited home furnishings, especially to the 25 to 39 year age group, which is growing rapidly.
Regional Outlook
The one-year growth in housing starts by region gives us a glimpse of what we might see in the months ahead for new houses and the longer future of multi-family apartment buildings. Compared to the first nine months of 2021, total new home starts were down 6.6% and multi-family starts were up 17.5%. One-year growth for new home starts declined in all regions, with the Northeast dropping the most by 15.6%. The Midwest was down 6.3% in one-year new home starts with the South declining 5.1% and the West 8.0%. All regions posted very good growth in multi-family apartment building starts during the same period, except for the West which was up only 2.7% for the first nine months of 2022 compared to 2021 (Table G).
Household Formations
Current Situation. The population has been growing for many years in the 25 to 39 age group as Millennials flooded into adulthood. However, numbers have been declining for the 40 to 54 group, the households in their prime earning years. Last year there were 7.5 million more people in the younger Millennial age group than the older adults (Table H). The Census Bureau is also reporting unexpected growth in new households coming out of the pandemic for younger adults.
Future Drivers. According to the Census Bureau, the demographics will change dramatically over the next 10 years impacting the housing and furniture needs of households under 55 in ways not seen since the Baby Boomers came on the scene. In 10 years, it is estimated the total population ages 25 to 54 will grow by 8.9 million, and almost half will be in their prime furniture buying years by then. This explosion of households will be the subject of an upcoming issue of Statistically Speaking.
November 30,
2022 by HFBusiness Staff in Business Strategy, Industry
While consumer spending on furniture grew 33% between 2019 and the end of 2021, sales began to slow by mid-2022 as the housing market cooled, furniture demand leveled and inventories swelled. Yet this fall’s mood is buoyed by supply chain improvements, dramatic reductions in transportation costs and the assurance that – for the first time in a couple of years – new products ordered are expected to arrive within a few months.
As retailers express an appetite for fresh new products and producers introduce expansive collections, the burning questions that remain revolve around the furniture consumer. Will the consumer’s new-found love for their homes be enduring? Have they changed their preferences about where they are buying furniture and why? How will the volatile housing market impact furniture purchases? Will the consumer continue to be willing to pay more for furniture? And will furniture continue to enjoy a larger share of consumers’ discretionary spending?
Survey of 1,000 Furniture-Purchasing Households Compares 2019 and 2022 These questions and more were the focus of a comprehensive Home Furnishings Business survey of 1,000 households who have purchased furniture in the last 18 months. As we compare today’s furniture consumer with the pre-pandemic benchmark of the 2019 consumer, some compelling and distinct changes are apparent. Many of the most interesting are highlighted here.
1. TODAY’S FURNITURE CONSUMER IS MORE ASPIRATIONAL. When asked, “What best describes your attitude towards decorating/ home furnishing?” the response, ‘My home furnishings must communicate who I am and reflect a sense of current style’ jumped over 11 points from 34.8% of responses in October 2019 to 46% in September 2022. (Table A)
While style and personal expression soared as a motivator, more practical attitudes toward furniture decreased. For example, those who said home furnishings should be “functional” and that furniture is mainly for “now” decreased from 13% to 11.8%, and those motivated mainly by comfort decreased from 21% in 2019 to 18% in 2022.
INTERNET PROVIDES STYLE INSPIRATION
Today’s more aspirational furniture consumer is getting her inspiration from the Internet. When asked where they find style inspiration, “Internet” is the top source, named by 38%. That’s nearly 20 points higher than the next source of inspiration, HGTV. As a source of inspiration, retail stores are next at 18%, followed by Magazines at 13% and Antiquing at 11%. (Table B)
“The stay-at-home dynamic in the early stages of the pandemic opened peoples’ eyes to what was possible for their homes as they used the web to do research,” observed Peter Keith, a senior research analyst for the furniture and mattress retail sector for investment firm Piper Sandler. “Consumers were able to see a much broader array of styles and items, rather than being limited by in-store assortments. While the initial market share shift toward online buying has now shifted back to the in-store experience, what has remained is that online research is a more integral part of the shopping process,” he said. “Consumers are coming into stores more informed with a vision of what they want for their home, which is helping to drive a higherticket sales and higher conversion rates.” What does a more expressive, aspirational and informed consumer mean to retailers and producers? No doubt, these shoppers have higher expectations for fashion, design and an elevated in-store presentation.
And, since the consumers are operating from a higher level on the hierarchy of needs, furniture merchants should be able to maintain pricing and margins, especially in the upper medium to high-end price points. 2. TODAY’S MALE FURNITURE SHOPPER IS DRAMATICALLY MORE ENGAGED THAN 3 YEARS AGO.
For years, the female consumer has been by far the dominant player when it comes to furniture shopping and home decorating. That dynamic has flipped on its head in the last 3 years. In October of 2019, 58% of respondents reported that the female in their household was the one who most frequently made the decision to purchase furnishings, while 26% said the male did and 16% reported a joint decision. (Table C)
This year, the percentage of households reporting the male as the one making the decision to purchase furniture rose over 20 points to 47%.
That’s a full 10 points higher than those reporting that the female makes the furniture-purchasing decision. Again, 16% report a joint decision. In a related question, respondents were asked who in their household was the first to mention a need to buy furniture. Females dominated in 2019, with 59%, while males were the first to mention buying furniture in 29% of households. This year, males and females pulled even at approximately 43% each. (Table D)
3. FURNITURE IS STANDING TALL AMONG CONSUMER DURABLES AND NON-DURABLES.
In both 2019 and 2020, households were given a list of five possible areas in which they might make a major purchase. These included leisure travel, home computer/laptop, communications/smart phone, furniture and a car. (Table E)
This year, furniture ranked overall as the highest priority for a major purchase. Furniture’s ranking improved from 2019, when cars were at the top of the list. As the number one spending priority, leisure dropped as a first choice for household spending by more than 10 points from 31% to 21% in . Furniture as the first choice for spending went up from 16% in 2019 to over 22% this year. Meanwhile, communications spending as the top priority almost doubled as 16% of respondents cited it as their number one choice for spending.
Leading industry analyst Jerry Epperson, managing director at Mann, Armistead & Epperson Ltd., believes furniture will maintain and even strengthen its clout as a contender for the consumer’s discretionary dollar.
“Over the last two-plus years, consumers have increasingly realized the value of their homes, become more willing to invest in them, and they have learned a lot about all the functionality and styles available in furnishings,” Epperson said. “As we head into the new year, many of the retail inventory imbalances will improve, and retailers are going to be bringing in a lot of fresh new product that will draw consumers back into stores.” While perishable and nondurables will continue to experience some inflation and product availability problems in 2023, furniture pricing in comparison will be stable, and our product availability will be the best in a few years. This dynamic, enhanced by exciting new products and promotions from retailers will put furniture in an advantaged position relative to other goods,” he believes.
4. CATALOG MERCHANTS, HOME IMPROVEMENT STORES AND MASS MERCHANTS GAINED AS DESTINATIONS FOR FURNITURE BUYING COMPARED TO 2019, WHILE REGIONAL FURNITURE CHAINS AND MANUFACTURER-OWNED STORES DECLINED AS DESTINATIONS. When asked, “What type of retailer did you make your most recent purchase,” the biggest gainers were:
• Catalogs of a retailer or manufacturer, up 4 points to nearly 9% of total responses.
• Home improvement stores (Lowes, Home Depot), up 5 points to around 5% of the total responses.
• Mass merchants, up 3 points to over 6% of the total responses. (Table F)
Remaining largely flat compared to 2019 were:
• Independent furniture stores at about 21% of the total.
• National chains also remained flat at 6% of the total.
• Internet/online outlets as a source for furniture stayed about the same over the period at 13%.
• Both interior designers and warehouse clubs stayed even at around 1% of the total. • Department stores made a slight gain to 9%.
Retailers who had the most decline compared to 2019 included:
• Regional furniture chains were down 6 points to 16% of the total.
• Manufacturer-owned stores like Ethan Allen and Ashley Furniture Home Store were down 3 points to 11%.
• “Manufactured by the retailer” stores like Pottery Barn or Crate & Barrell went down a point to 1.5%.
5. CONSUMERS BECAME FAR MORE COMFORTABLE PURCHASING FURNITURE ONLINE, ESPECIALLY AT OMNICHANNEL RETAILERS WITH BOTH BRICK AND MORTAR AND INTERNET SALES VENUES.
When asked “Have you ever purchased furniture online?” affirmative answers grew significantly from 59% in 2019 to 72% in , a 13-point jump. (Table G)
The growth area for online purchases of furniture is clearly omnichannel retailers, or brick & mortar retailers who have both a store and an online selling site – the best of both worlds.
Forty-six percent of consumers reported in that they purchased furniture online from an omnichannel retailer, growing nearly 6 points from 40.5% in 2019. Those buying from manufacturer websites also grew from 22.6% in 2019 to 27% in 2022. (Table H)
The decline in Internet furniture purchases during the period came for online-only retailers. While 37% reported buying from pure ecommerce players in 2019, that number dropped 10 points to 27% reporting that they purchased from a pureplay ecomm dealer in 2022. 6. SECOND HOMES GREW AS A PRIMARY REASON FOR BUYING FURNITURE.
When asked what the main reason for buying furniture was, “second homes” stood out by rising 4 points to 5% of the total. As the trend to remote work “from anywhere” took off during the pandemic, many consumers moved to their vacation/ second home and ended up staying there some or most of the time. While companies have returned to the office full-time, many others have adopted a hybrid model of having their employees work both in the office and at home. (Table I)
The number one reason for purchase in both 2019 and is furniture replacement, although it was down slightly to 26% in . “Desire new furniture” and “Redecorating” were tied at 18% each. Remodeling and recent move were next at 14% and 13%, respectively. Marriage was up 3 points to 5% of the total.
7. COASTAL COTTAGE AND GLOBAL ECLECTIC ARE GROWING AS “DREAM DÉCOR” STYLES.
The rise of second homes as a motivator for purchase could partially explain why “Cottage/Coastal” rose 3 points from 2019 to as the look consumers describe as their “dream style,” to 16.5% citing it as their ideal décor. The other look that grew in popularity as a dream look is “Global/Eclectic,” which was up 4 points to 15.4% of the total calling it dreamy.
Meanwhile, both contemporary/modern and traditional/classic decreased as a dream look. Contemporary fell in the dream category from 24% of the total to 21%, while traditional/ classic fell from 33% to 28%.
8. FURNITURE SHOPPERS’ RATINGS OF AND ENGAGEMENT WITH RETAIL SALESPEOPLE IMPROVED FROM 2019 TO TODAY.
Consumers were given a list of attributes on which to rate the professionalism, knowledge and helpfulness of retail salespeople. In every category, the overall ratings of salespeople improved from 2019 to, including:
• Appreciation for the helpfulness of the salespeople
• Salesperson’s greeting
• Remembering the names of salespeople
• Professionalism of the salespeople
• Their knowledge of furniture design and production
• Their decorating advice
• The salesperson made them feel special and more inclined to return to the store for future purchases.
9. AMONG FURNITURE CATEGORIES, BEDROOM AND DINING HAD THE MOST GROWTH IN PURCHASES FOR RESPONDENTS, WHILE UPHOLSTERED SOFAS AND CHAIRS BOTH DECLINED.
When asked about their most recent furniture purchase, bedroom furniture made the most gains from 2019 to , with about 31% citing bedroom this year compared to 26% in 2019. Youth bedroom and infant bedroom also grew. Youth bedroom grew 3 points to 9.3% of responses, and infant bedroom great about 1.5 points to 3.1%.
Another growth area was home office, increasing 1.5 points to 3% of respondents citing it as their most recent purchase. Compared to 2019, those citing their most recent purchase as an upholstered sofa fell 7 points to 17%, and those citing an entertainment center/armoire fell about 2 points to 1%. (Table J)
10. PURCHASERS REPORTED MAKING FASTER DECISIONS TO BUY FURNITURE COMPARED TO 2019. IN BOTH YEARS, VISITING 3 RETAILERS BEFORE MAKING THEIR DECISION WAS THE MOST POPULAR PRACTICE.
Compared to 2019, furniture shoppers are making faster decisions to buy. The biggest increase over the period was for those saying they made their decision in 1 to 2 weeks, which gained 5 points at over 32% of respondents.
At the same time, those reporting that it took them two weeks to a month to decide went down 2 points to 28%. (Table K) As for how many retailers purchasers shopped before making their most recent home furnishings purchase, that remained largely unchanged over the period. In both 2019 and , the greatest number – about 38% -- reported shopping in 3 stores before buying. (Table L)
Furniture Consumers Keep Looking Homeward Red-hot Housing Market Cools; Poised to Grow Again in 2023
Beginning with the safer-at-home practices early in the 2020 pandemic, consumers have rediscovered their homes and home furnishings, causing the housing industry and residential furniture to be among the stars of the U.S. economy.
In August of 2020, over one million new homes were sold at an annualized rate, the largest number in 18 years. Housing activity continued strong through around spring of 2022, when the ongoing shortage of homes, double-digit housing inflation and rising interest rates sent existing home sales down an estimated 13% in the second half. New single-family homes were down even more at 17% in the same period.
As most forecasters expect a recovery in housing in 2023 (Housing starts are forecast to grow nearly 8% for single-family units and 3.5% for multi-family units), we asked 1,000 furniture-purchasing households if they had recently purchased a home, what kind of home they purchased, how large it was and what furniture they bought to furnish it. If they had been sidelined from buying a home, we asked them why.
Here’s a look at the housing landscape among furniture purchasers: Nearly 60% of Furniture Purchasers Have Recently Bought or are Buying a Home When asked, “During the last 6 months to one year, have you purchased or are you in the process of purchasing a home,” 38% of respondents reported buying a home, and 18% reported they were in the process of buying a home, for a combined total of 56.6%.
On the other side of the coin, 43% said they have not purchased and are not in the process of purchasing a home. What type of homes are being purchased? Sixty-eight percent report buying a house. A combined 24% report buying multi-family housing such as an apartment, townhome or condo. According to the {U.S. Department of Commerce}, multi-family housing starts have been on fire, up significantly in Q1 and Q2 of this year, at 20% and 18% respectively.
During the last 6 months to a year, have you purchased or were you in the process of purchasing a home?
Housing square footage has stayed stable from 2019 to 2022 in most categories. The area of largest growth is in larger houses from 2,500 to 2,999 square feet.
In both 2019 and 2022, 27% of respondents reported their homes are 1,000 to 1,499 square feet, and approximately 20% reported their homes are 2,000 to 2,499 square feet both years. Those reporting their homes are 2,500 to 2,999 square feet went up 5 points during the period, from 6% then to 11% today.
The other area of change during the three years was a negative one. Homes of 3,000-plus square feet went down from 8% of respondents in 2019 to 5% in 2022 . Rising Prices + Interest Rates, Housing Shortage Sideline Home Buyers Especially in the second half of 2022, a number of consumers have left the active market for a home due to a myriad of reasons including the ongoing housing shortage and rising mortgage rates. We asked furniture purchasers, “In recent months, if you have delayed the purchase of a home or made offers on a home but have not had offers accepted, what was the reason you were unable to buy a home as desired?” The top four reasons in order are: 36% The rising prices of homes make them cost prohibitive for my budget 33% Lack of available homes in my area/price range 16% Rising interest/mortgage rates… 12% Unable to compete or have offer accepted during bidding wars over properties…
To those who had been sidelined, when do they anticipate re-entering the market for a home or being about to buy a home?
The greatest number of respondents – 42% -- anticipate re-entering the market for a home in 2023. Another 26% anticipate continuing their home search later in , while 19% expect to re-enter the market in 2024. About 4% say they don’t see the possibility of buying a home in the foreseeable future. Living Room Upholstery, Tables, Motion on Top of Buying Lists for New Movers For those who recently moved into a new home, we asked what kind of furniture they had purchased just before or just after moving.
Here, in order, are the top choices: 30% Sofa, sectional chair
15.5% Living room tables, consoles, shelves
11% Reclining chair/furniture
8.3% Entertainment center
5% Dining/kitchen table/chairs
3.3% Office furniture
As natural disasters, severe temperatures and shrinking waterways become alarmingly more frequent, climate change and environmental issues have become a top concern for corporations, state and federal lawmakers and voters.
But what about furniture shoppers? Do furniture shoppers have environmental and sustainability concerns top of mind, and are they willing to pay somewhat more for products sold by brands and retailers who tell a sustainability story? In the Home Furnishings Business survey of 1,000 households who have purchased furniture in the last 18 months, we asked purchasers what they are concerned about in the environment and their attitudes toward “buying green.”
Areas of concern that rated lower but still of some concern to purchasers include overloading of landfills, hazardous indoor air quality and unfair labor and trade practices.
Are shoppers willing to invest in their concerns? Nearly 86% of all shoppers said they would be willing to pay “moderately more” for a furnishings product made with sustainable, ecologically friendly materials, or materials contributing to healthy indoor air quality.
The willingness to pay moderately more for sustainable furniture items broke down significantly by age. Those 44 and younger were almost unanimous in saying they would be willing to pay more for an ecologically friendly furnishings product: 95% of those aged 25 to 34 were affirmative in paying more, and 94% of those aged 35-44 report they are willing to pay more. Among those aged 45 to 54, 78% said they are willing to pay more, and among those aged 55 to 64, 72% report a willingness to pay more.
In all income ranges, at least 70% report a willingness to pay more. Beginning in the 50K to 75K annual income range, 84% report a willingness to pay more, and beginning at income ranges of at least 100K annual income, 94% to 96% report a willingness to pay more.
The survey asked recent purchasers to rate their concerns about the environment on a scale of 1 to 10, with 1 being the most concerned. These are the top areas of concern, in order:
1. Global warming
2. Deforestation/loss of rainforests
3. Using up natural resources
4. Extinction of species
5. Increases in natural disasters
Overwhelmingly, consumers prefer to buy sustainable furnishings, all things being equal.
All other things being equal, with comparable style, quality and price, a dramatic 88% of shoppers said they would prefer to buy a furniture brand that uses sustainable materials and environmentally friendly business practices. How can brands and merchants best communicate a message of environmental stewardship in their products and business practices?
One key is to use the right terminology. The Home Furnishings Business survey asked furniture shoppers what their preference is for terms used to describe products that are good for the environment.
Their preference for terms in order is:
1. Eco-Friendly
2. Sustainable
3. Environmentally Safe
4. Green
When shopping for furniture, how interested are shoppers if a brand or product has an environmentally friendly story or materials? When we asked purchasers about their level of interest, the answers were all over the board. While the 20% who indicated a high level of interest represented the largest portion, other levels of interest were just under that percentage. Notably, those rating the importance of an environmental story when shopping for furniture as a 1, 2 or 3 in importance represented a combined 43%.
“Apparel and footwear are ahead in offering a lot of messaging around sustainability,” said Peter Keith, a senior research analyst for the furniture and mattress retail sector for investment firm Piper Sandler. “They talk about products made with recycled materials, and products having more durability, so they last longer and create less waste,” he said. “In fact, in recent years the idea of ‘fast fashion’ has really gone away. People don’t want to buy shirts that last only three to six months and create waste. By the same token, consumers are paying up for premium quality, not disposable furniture that wears out in a few years.”
Keith believes furniture is “starting to catch up” in the area of environmental practices, products and messaging. “There’s a ripe environment toward environmental and sustainability storytelling in the furniture and mattress industry,” he said.
Much Ado About Millennials Generation is Massive, but Home Ownership Rate & Wealth Lag Previous Generations
I t’s no wonder that furniture marketers spend lots of time and energy trying to figure out how to reach the Millennial Generation.
Today aged 26 to 41, they are the largest generation in America at over 72 million strong. As trend setters in everything from fashion to culture and from shopping to entertainment, many consider Millennials the most influential generation. That’s not only because of their size. They also have enormous impact on the next-largest generation: their 70-million-plus Baby Boomer parents.
All that said, as furniture retailers consider how to connect with generations in their sales, marketing, merchandising and customer service, two major principles should be considered.
1. Millennials command a lower portion of those who are purchasing from traditional furniture retailers today, compared to the other two major generations.
According to FurnitureCore, LLC., sister company of Home Furnishings Business, Millennials are currently overshadowed in buying furniture from traditional furniture stores by two other generations. As shown on the pie chart, while Millennials accounted for about 30% of all purchases from furniture stores in 2021, Generation X and the Boomers combined for over 70% of purchases. (Gen Z, meanwhile, or those aged 25 and under, did not quite account for 1% of purchases) Generation X, currently aged 42 to 57, are truly the “prime” generation. They’re in their prime earnings years and the life stage for buying furniture and homes. They accounted for over 30% of all furniture store purchases last year. The Baby Boomers, aged 58 to 76, represent a 40% share of furniture-store buying all by themselves, as they command the most wealth and buying power – both for homes and furniture. 2. Millennials’ path to wealth and homeownership has been fraught with pitfalls and false starts.
First it was the Great Recession of 2007- 2010. That’s when a large percentage of Millennials were graduating high school or college, entering a dismal job market that languished for years. When many were finally getting on their feet, the COVID Pandemic struck, throwing the economy – and then the housing market – into chaos and turbulence. Members of the Millennial generation – the oldest of whom are 41 – have less wealth than previous generations, have delayed life milestones like getting married and starting a family and have lived with their parents longer on average. While their dream of home ownership is intense, their outlook is still clouded because of a massive housing shortage, rising home costs over the last couple of years and now rising mortgage rates. In the related article Furniture Consumers Keep Looking Homeward, {see page 20}, we reported findings of a survey of 1,000 households who have purchased furniture in the last 18 months. Many of them reported leaving the active market for a home in recent months.
Thirty-six percent said the rising prices of home made them cost prohibitive, 33% said there are a lack of available homes in their price range or area, 16% cited rising interest/mortgage rates, and 12% said they were unable to compete or have an offer accepted during bidding wars over properties.
The good news is that around 60% anticipate re-entering the market for a home late this year or in 2023. Yes, Millennials are the largest and arguably most influential generation, and should continue to be a focus of furniture marketers. But right now, two other generations are equally important and are more in the “sweet spot” of furniture purchasing.
But we’re not betting against Millennials – the most educated and diverse generation in history. They will land on their feet professionally, economically and as homeowners.
November 30,
2022 by HFBusiness Staff in Business Strategy, Industry
The net impact was that a lot of money was pumped into households. In addition, the stay-at-home nesting frenzy contributed to the furniture industry surge initially, but it was the inflationary price increases that followed that drove growth, especially over the last year. Regardless of the reasons for the industry growth, one thing is certain, the demographics of consumer spending on furniture products changed. People went back to work in the midst of surging increases in wages along with competition for workers whose work habits had also changed. The roller coaster ride of the pandemic in 2020, gave way to post-pandemic 2021 when inflation began to take hold late in the year, followed by the economic chaos of as the furniture industry has been unsure exactly what to do to right the ship going forward. Will the furniture industry eventually retreat to the prepandemic days or build on lessons learned? Consumer spending on furniture slowed at the beginning of the pandemic in 2020 Q1, then picked up steam through the second wave in August/September. The industry received an additional bump when with the vaccine rollout in the first quarter of 2021, then slowed briefly September to December 2021 as the Delta variant surged.
Table A
But when inflation took hold and prices rose, growth has been steady through the third quarter of this year. Table A shows the progression.
It has been more difficult to quantify whether after the initial store re-openings in the second quarter of 2020 what portion of the spiraling industry growth can be attributed to more consumers purchasing furniture versus the increase in prices. However, data available on traditional furniture stores, one of the prime furniture distribution channels, shows that, especially this year, growth came in most cases from increased prices as opposed to selling more product to more customers. (See the sidebar article, “Traditional Furniture Store Average Ticket Sales Rise as Traffic and Number of Purchasers Falls”. Data from FurnitureCore, LLC. a subsidiary of Impact Consulting Services, Inc., parent company of HFB.)
Building on this background of COVID stimulus packages, heightened consumer interest in home furnishings and spiraling inflation, the remainder of this installment of Statistically Speaking examines consumer spending on furniture at the demographic consumer unit/household level looking at age (tied to generations), income and living arrangement (marital status). Data from the Bureau of Labor Statistics’ Consumer Expenditure Survey (CE) helps to bring into focus how the final impact of the pandemic in 2020 and 2021 compared to the “way it was” in 2019 before COVID changed the course of consumer spending, whether temporarily and permanently. The Methodology is presented in Figure 1.
The terms consumer unit, family and household are often used interchangeably for convenience; however, the proper technical term for purposes of the CE data is consumer unit. References to households in this article are synonymous with consumer unit. Also, the reader should keep in mind that even though average expenditures and sales went up dramatically in many segments, much of it was due to inflation.
Generational Furniture Expenditures Millennials (ages 26 to 41) are now the largest cohort of the generations as Baby Boomers continue to age. And they showed up in numbers both during and post-pandemic buying a lot of furniture in the process. Millennials increased average consumer unit furniture expenditures 44.1% between 2019 and 2021 from $583 to $840 (Table B, expenditures; Table C, growth). This large generation that the furniture industry has waited patiently to set up households, proved during the pandemic and recovery that they are ready to finally take over control of the furniture industry as the older Millennials beginning to age into the higher income categories. Meanwhile, GenXers (ages 42 to 57), though much smaller number, are still the most affluent workers and spend the most on furniture, surpassing the Millennials. In 2019, GenXers averaged $640 in annual furniture expenditures and grew that number to $909 in 2021, an increase of 42%. Of concern to the furniture industry is that the high-income GenXers (ages 42 to 57) are beginning to age out of this key prime 45 to 54 age group and as they age into the 55 to 64 age group will spend less on furniture. The industry is hopeful that the onslaught of Millennials will reach their same economic affluence as they age. Baby Boomers (58 to 76), who have been the heart of the furniture industry for decades, were more conservative spenders during the pandemic increasing average furniture spending from $514 in 2019 to $601 in 2021, a growth of only 16.9%. Baby Boomers should continue to slow expenditures as they age and their numbers dwindle (Table B, expenditures; Table C, growth).
Millennials (ages 26 to 41) continued to form households during the pandemic and recovery, increasing 6.1% and now represent 26.2% of total households increasing their share by 1.2 percentage points. As the youngest members of this Millennial generation continue to form households, they should soon surpass the GenXers (ages 42 to 57), who represent 26.5% of households, but have slowed their household growth (Table D). New to the scene is Generation Z (ages 10 to 25), only 4.5% of adult households in 2021, who are now beginning their assent into adulthood. The furniture industry will see their impact for decades to come as they continue to age in to the furniture buying population (Table D, growth in consumer units; Table E, percent of households). GenXers (ages 42 to 57) still have the largest share of industry sales at 33.7% with growth of 41.7% in 2021 compared to 2019. But the high growth in spending by the trailing Millennials during the pandemic of 52.8% 2019 to 2021, moved them closer to first place at 30.8% in share of industry sales (Table F, growth in total industry sales; Table G, percent of industry sales). Millennials (ages 26 to 41), being a larger cohort than GenZers will most likely take over their rightful place as the primary consumers of furniture in the near future. Baby Boomers, prior to the pandemic, controlled 32.2%, the second highest total dollar purchasers of furniture in 2019 behind the GenXers but ahead of the Millennials. Their purchases increased 18.2 during the two years of the pandemic and recovery. But as they continue to age, the Baby Boomer influence will continue to wane.
Furniture Industry Growth by Income Range Between 2019 and 2021, the average expenditure on furniture per household grew 37.3% from $521 to $716, and total furniture expenditures grew 38.7% (Table H). (Note: The BLS CE Survey’s consumer spending on furniture growth number here is higher than the 33.2% growth published by the Bureau of Economic Analysis, Personal Consumption Expenditures data. See “Figure 1: Methodology” for an explanation of the differences.) Three income ranges had higher growth than the U.S. household average, two being the lowest income ranges and the other being the highest income range. The two lowest income ranges, (1) less than $15,000 and (2) $15,000 to $29,999, increased their average furniture expenditures by 135.6% and 38.4% over the duration of the pandemic 2019 to 2021. These large increases suggest the major pandemic stimulus programs had a significant impact on lower-income household spending on furniture, as well as other durable and non-durable goods. On the other end of the spectrum, households over $200,000 annual income increased average furniture spending by 44.6% to $2,054 annually (Table H, average furniture expenditures; Table I, growth).
When the COVID-19 pandemic had calmed by the end of 2021, there were 1% more households than 2019 just before the pandemic began, but the economic structure of those consumer units had changed dramatically. The number of high-income households $150,000 to $199,999 had increased 16.2% 2019 to 2021, and households with income over $200,000 had grown an astounding 23.8%. Meanwhile middle- and low-income households with incomes under $70,000 declined in 4.7% in total between 2019 and 2021, with the only exception being households $15,000 to $29,999 which grew 1.4% (Table J).
The decline in the number of lower- and middle-income households again reflects the impact of the pandemic stimulus and unemployment programs. In 2021, 44.8% of U.S. households made $70,000 or more (Table K).
The additional expenditures in 2021 versus 2019 by the lower income groups provided an additional $5 billion in furniture sales based on the BLS Consumer Expenditure total of $98 billion in 2021 (see Figure 1. Methodology). However, these two brackets under $30,000 total only 6% of industry sales, up from 4% in 2019. It should be noted that this income group declined in number of households, but gained industry share with increased spending. Meanwhile, with the increase in household counts and spending, high-income households over $200,000 or more annual income gained 3.9 percent points in share of industry sales, growing from 20.7% of industry sales in 2019 to 24.6% in 2021, adding an additional $9.2 billion in CE calculated furniture expenditures (Table L).
The Future? As the leading edge of high-income GenXers (ages 42 to 57) begin to age into their 60s, they will still make a significant and positive impact on the furniture industry for the next 15 to 20 years. They will provide industry stability as they age, as did their parents, the Baby Boomers, just not to the same degree.
And if the economy does not throw the Millennials another catastrophic economic downturn next year as it did during the Great Recession when they were mostly in high school, college and their mid-20s and starting out, they will continue to form households, have children and buy furniture. Much of the future is in their hands.
And it will be interesting to see how the up-and-coming Generation Z (ages 10 to 25) will begin to make their mark. Early data suggests they may behave very different as consumers.
COVID-19 Pandemic Stimulus and Unemployment Benefits
Economic Impact Payments (EIPs). Research has shown that some of the furniture industry growth can be attributed to the three government stimulus packages as well as lengthy regular and special pandemic unemployment packages initiated by the government The distribution of pandemic stimulus payments began in late March 2020, with the last two payments occurring in the first quarter of 2021
Unemployment Benefits
The severity of the COVID-19 crisis was evident on March 21, 2020, when a then-record 2.9 million people filed initial claims for unemployment. The government acted quickly creating the Pandemic Unemployment Assistance (PUA) program which expanded eligibility to workers not covered by regular UI, including self-employed workers, gig workers, independent workers and others. According to the Department of Labor roughly $400 billion was spent on unemployment expansions.
Traditional Furniture Store Average Ticket Sales Rise as Traffic and Number of Purchasers Falls Traditional furniture stores spent years watching other durable and non-durable goods increase prices, only to see furniture prices fall further behind the curve. After the mandatory shutdowns issued by the Federal government at the start of COVID, other furniture distribution channels stayed open and gained ground, including online retailers, home improvement centers, mass merchants, and warehouse price clubs. The COVID-19 pandemic and subsequent recovery brought with it spiraling inflation, and for the traditional furniture stores, higher profits.
FurnitureCore’s industry database of traditional furniture store sales, tracked the pattern of growth, shown in the graphic below, including average store traffic/ups, average ticket sales and number of purchasers. This growth is also compared to the Census Bureau’s data on total furniture stores sales among all traditional furniture stores. Data is presented in indexed format with 2019 Q4 = 100 as the base quarter, just before COVID began. Indexing growth against a base year is an effective way to compare graphically dissimilar data with dissimilar formats.
After the initial shutdown at the beginning of COVID in 2020, average ticket sales rose gradually as shown in the graphic below until the fourth quarter of 2021, when inflation really took off. Meanwhile, since 2021 Q3, traffic has slowly declined and the number of purchasers with it.