Monthly Issue
From Home Furnishing Business
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
As Americans spent more time at home during the pandemic, home entertainment furnishings received a sizeable share of home improvement spending. Industry research—from the FurnitureCore model developed by Impact Consulting Services, parent company to Home Furnishings Business magazine—estimates the entertainment furniture category grew an impressive 20.9% from 2020 to 2021. This double-digit growth compares to the strong, but not as astounding, 9.9% growth posted from 2019 to 2020.
In 2021, the entertainment furniture group finished at $6.92 billion over $5.73 billion the previous year. As with most categories, that dramatic growth has slowed in , yet the numbers are still positive with 5.8% growth showing from the first quarter of this year to the second.
New looks in media consoles dovetail with other casegood design directions and notably include wirebrushed, cerused, painted and clear finishes. Natural finishes and designs with a light, natural aesthetic are trending. Greenington’s best-selling Hanna console embodies this look and features a sustainable, earth-friendly Wheat finish crafted using heat, steam, and pressure to transform solid bamboo into a variety of tones. The environmentally safe finish displays a beautiful grain pattern with continuous color throughout the material.
“Hanna represents my commitment to working with Greenington to integrate sustainable and rapidly renewable bamboo material with minimalist design to evoke a powerful emotional response with high-performance consumer products,” says Greenington’s designer Jim Liu.
Console size is an evolving factor in the category, with larger sizes proving necessary to support larger TV screens. At Lexington Furniture, the 107-inch Artistica Signature Designs Logan media console is a best-seller and appreciated for its ability to anchor the 100- inch class of ultra-high-end monitors, says Robert Yount, president of Artistica. The growth of on-demand and digital programming and the subsequent decline of DVD-player usage has changed the styling of media consoles as well. While some console designs still feature open shelves or clear glass doors, the more popular look of closed-door cabinets has become predominant as multiple A/V component access is no longer required. This evolution in style has added versatility to the category as media consoles are increasingly being used in other areas of the home—and not just for displaying televisions.
“The Enrico entertainment center, which can fit in any room, reflects the next generation of home entertainment, and shows the versatility of our sleek and modern style,” said Frederik Winther, vice president of sales and marketing for Bellini Modern Living. “Younger consumers are minimalists, so entertainment centers tend to work better because they fit in a room easily and leave the wall space open. Enrico is our best seller because its contemporary features really speak to the modern-day consumer.”
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.
October 4,
2022 by HFBusiness Staff in Business Strategy, Industry
But what about furniture purchasers who have established a home (own or rent) and have the ability to make a significant furniture purchase? Home Furnishings Business provides the most recent statistics.
More importantly, how much furniture is being purchased by those households and specifically at traditional furniture stores? The percentage of purchasers is presented in the graphics below. Obviously these statistics are only meaningful compared to the number of households by age group. The matrix below presents the concentration.
As may be seen from the matrix, the older Millennials (35-44) are beginning to purchase but the front runner is Generation X (45-54), the often-forgotten demographic sector. READING THE CONCENTRATION, X.XX IS THE PROBABILITY OF PURCHASE BY THIS AGE GROUP OF A SIGNIFICANT FURNITURE PURCHASE FROM A TRADITIONAL FURNITURE STORE.
The take-away – start anticipating how to serve better the Millennials but don’t forget the Baby Boomers who still account for 43% of furniture purchases in traditional furniture stores.
October 4,
2022 by HFBusiness Staff in Business Strategy, Industry
Along with this surge in consumers returning to the stores came a surge in product cost initially driven by the increase in the cost of containers followed by an increase in production driven by growing raw material costs. This surge in costs resulted in a well-deserved consumer price increase as illustrated in Table B. The growth period coming out of the pandemic was unlike the industry growth in 2008/2009 coming out of the Great Recession where consumer prices did not increase. The pandemic increase was driven by other factors. Retailers quickly realized this relationship between units/revenue and reacted to the pricing shift with gross margins increasing accordingly to protect against future price increases. In 2021, gross margins increased industry wide 1.5 percentage points (48.9% - 50.4%) adding to the increase in the Consumer Price Index. (See Home Furnishings Business May/June 2022 issue Retail Metrics.)
Manufacturers’ prices increased and inbound freight added to the total causing a 21.7% growth in prices in 2021. Table C illustrates the impact on a traditional fabric sofa comparing 2019 to 2021. The result is a 10%+ increase in average unit selling price.
The residential furniture industry enjoyed an unprecedented lift in demand (and prices) during the bulk of the COVID years of 2020 through early 2022, as homeowners invested in their indoor furnishings and outdoor/patio environments. However, by Q2 of 2022 demand began to soften due to a variety of factors including rising interest rates, lower new-home formations and rising costs and inflationary pressures. Also, the consumer saw a shift in mentality from “I need this” purchases to “I want this” discretionary spending. And with the COVID-19 pandemic mostly over, the world has re-opened as consumers have become more comfortable traveling and getting on airplanes, going out to restaurants and generally resuming a normal life. That said consumer demand in 2022 should still exceed pre-COVID volumes – despite soaring inflation, recession talk, and wobbly public stock markets.
Looking forward to 2023, we are optimistic that the U.S. economy will settle into a “new normal” and that home furnishings will resume a nice steady growth over the pre-COVID years. Container rates are coming down, gas prices are finally decreasing, raw material price increases have slowed, and the stock market is showing some strength. All these elements should boost consumer confidence and drive solid growth in furnishings’ purchases. Some key points to watch:
E-Commerce:
Adoption to buying furniture online continues and we are increasingly seeing companies take an omni-channel approach via marketplaces like Wayfair, One Kings Lane, and Overstock.com, while the big box stores offer their massive web-portals (WalMart, Costco, Target, etc.), and the lifestyle stores like RH, PB/West Elm, Arhaus and Crate & Barrel offer tremendous in-person and on-line shopping experiences. And increasingly we see consumers bypassing these more legacy retail brands and buying direct from brands like Joybird, Albany Park, and Burrow. We expect to see significant M&A activity in this space as legacy furniture companies seek this higher growth e-commerce channel.
Whole Home and broader furnishings: Increasingly we are hearing about the “whole home” as consumers want to make purchases that can create a holistic environment, the focus not just on one sofa or table but the entire room and a house that flows onto the patio as an extension of the interior of the home. Lighting, rugs, accessories and wall art will play a leading role in how CEO’s guide product development road maps and revenue growth. We also believe patio and casual furniture will remain a high-growth sector and prime acquisition target for legacy furniture companies.
Global Sourcing Rebalanced:
After a tumultuous several years of supply chain strife, our industry is scrambling to find the right combination of U.S.-made, vs. China, Vietnam, India, Mexico and the rest of the world. Tariffs, container rates and factory shutdowns have wreaked havoc with the global supply chain over the last 18 months, and our leaders are trying to assess what the new balance for supply will be. Labor pressures and geo-political strife continue to make this a complicated issue around the world. We anticipate continued exploration of increased reliance on India and Mexico and smaller outfits in Eastern Europe and Portugal, as well as the continued desire to re-shore manufacturing to the U.S. to the extent possible. Blurring lines of Resi-mercial Furniture: Home and non-home furniture continues to look more alike, as historically segmented players increasingly compete in each other’s spaces. MillerKnoll (the merger of Herman Miller and Knoll) has a huge home furnishings presence with its various brands including DWR, Muuto and HermanMilleronline.com. Steelcase has an alliance with several home furnishings companies. Haworth has huge residential product offerings. HNI has several online portals for home and home office furniture. Competition is growing around every corner, and we expect this to continue, and we expect these players to be major contenders for residential market share and digitally native direct-to-enterprise plays.
Shows/Showrooms:
There is increasing pressure on the markets to become modern and relevant in this new economy. The casual market is leaving Chicago and moving to Atlanta. The Neocon show for commercial furniture now has two competing properties. The Las Vegas and High Point shows continue their relentless cadence of four “can’t miss” residential shows per year, amidst various challenges such as the 100+ degree weather of the Vegas market in July and staggering vacancies in the main buildings in High Point as more exhibitors are building their own destination venues, no doubt drawn by the allure of year-round showcases to key customers. More and more vendors are no longer showing at all and are using alternative marketing tools to reach their customers. There is no clear answer to this complex issue. We see a mixed bag of headwinds and tailwinds going into 2023. But overall, we are bullish on the furniture industry and the U.S. economy. 2023 should be a good year. Bring it on.
The bottom line is that the industry increase was significantly, but then not significantly, driven by consumer demand. Figure 1 summarizes from a historical perspective. Traffic is declining into the stores and has now become an accepted fact at the retail level by at least 30% or more of retailers as indicated in Table D.
The next performance indicator will likely be a decrease in selling price driven by retailers discounting due to excessive inventory. Therefore, without the other normal factors that impact the industry performance is the market conditions of product cost and gross margin.
Figure 2 presents the external factors that impact the furniture industry and whether the forecast for 2023 is for these factors to improve over 2022 or decline.
Looking at the factors that drive our industry, the forecast is obvious with all INDICATORS pointing downward. That part is over for now, but not forever.
The Furniture Industry Braces for a Downturn as Recession Fears Remain at the Forefront
The furniture industry will look back on much of 2022 as a profitable, if not chaotic, year, especially through the first half. But the U.S. is now inching towards a recession, more likely in 2023, with most forecasting it to be brief.
The coming forecasted downturn is difficult because it is unfolding in ways we haven’t seen before in any recession. Inflation is still high and consumer confidence has slowed. But job growth remains strong, unemployment low, and in most consumer products, consumption has slowed but remains healthy. Vacation and airline travel demand, usually one of the first industries to feel the effects of a downturn, is higher than airlines have been able to handle. Supply chain disruptions, both labor and material, are easing.
These opposing forces and other key trends are the basis for Home Furnishings Business’ furniture industry economic outlook and forecast presented below. The Furniture Industry The furniture industry averaged 3.2% growth over the first half of this year compared to the first half of 2021. Consumer spending in July shows furniture sales slowed 0.3% over the preceding June and were down another 1.1% in August over July. Most economists at press time placed a 50-50 chance of the U.S. entering a significant economic correction and downturn, if not in the fourth quarter of 2022, then the first half of next year. Furniture industry sales are projected to finish this year 3% higher than 2021 and primarily grow 2.5% in 2023 (Table A).
Bedding sales have slightly outperformed all other furniture products the first half of this year, 3.61% versus 3.09%. In the second quarter, however, growth slowed slightly for both segments in Q2 vs. Q2 last year to 3.07% (furniture products) and 3.2% (bedding). Spending is forecast to slow further during the second half of this year to 2.5% increase year-overyear for furniture products and 2.4% for bedding (Figure 2).
Distribution Channels.
The 3.2% industry growth in the first half of this year was stretched out over many types of retail outlets; however, furniture store sales grew at only 0.1% through the second quarter as consumers trended toward other retail channels. Home furnishings stores (outlets selling less than 50% furniture) have struggled to keep pace in recent years with pressures from e-commerce. But, surprisingly, these retailers of furnishings, accessories, floor coverings and tableware, have made a small comeback this year, outperforming furniture stores by growing sales 5.2% in the second half of this year compared to last. Electronic shopping again led the pack of all retail channels growing 9.9% in 2022 Q2 YTD for all products, not just furniture. Electronics and appliance store sales were down the most falling 6.9% (Figure 3). A notable slowdown occurred in the last month of the second quarter where sales in June compared to May declined in all of the retail outlets shown in Figure 3, most notably e-commerce shopping (-4.5%), home furnishings stores (-5.3%), warehouse price clubs (-1.7%) and furniture stores (-1%). Going forward through the rest of this year, with retail inventories already at high levels, heavy discounting may be coming this holiday season.
E-commerce shopping is on pace to capture over 20% of all retail sales this year for durable and nondurable goods (excluding motor vehicles and parts) and surpass $1 trillion in revenue for the first time. And although the pace of e-commerce slowed to under 10% growth the first half of this year and shake-outs are expected in the future, it remains the major force of retailing (Figure 4).
Furniture Buying Population Shifts.
The prime furniture buying population has been identified as consumers ages 25 to 74. The 65 to 74 age group has been included as this group remains a powerful purchasing presence in the industry. The youngest prime purchasers, ages 25 to 34, continue to decline in population as the Millennials completely age out of this segment. Worrisome for the furniture industry is that the 55 to 64 group, a smaller cohort but one that has the highest incomes, is flooding into the older ages 65 to 74. Will this high dollar group slow its furniture purchasing patterns in retirement? The good news is that the Millennials are currently between the ages of 26 and 41 and will continue to advance into the 35 to 44 age group, the prime purchasers of furniture. And as baby boomers begin their assent into the 75 and over population, the furniture industry will feel their loss for years to come.
The Economy
GDP. Gross Domestic Product took a roller coaster ride through the heart of the pandemic in 2020 before settling into solid growth the second half of the year as consumer spending went a bit crazy. This year brought fiscal reality with GDP sliding 1.6% in Q1 and down 0.6% in Q2. Many economists are predicting third -quarter GDP will be up over 1.5%. Another downturn has not been forecast until maybe late this year, but most likely in early 2023. Year-overyear forecasts for 2022 are ranging from 0% to 1.7% growth for the year.
Most economic forecast projects the 2023 downturn to be mild, ranging from -0.4% go 1.1% growth (Table C). Unemployment. The unemployment rate continued to fall from 5.4% last year to 3.6% in the second quarter of this year. Rates have fallen to just below December 2019 levels. August saw an uptick to 3.7% unemployment; however, the rates are expected to remain low through the rest of the year around 3.6% to 3.7% and rise a full percentage point in 2023 as the economy weakens.
Consumer Prices (Inflation).
The elephant in the room for the U.S. economy continues to be inflation and the price gains made by furniture products in 2021 and the first half of 2022. Prices stayed relatively stable throughout the last half of 2020 after the worst of the Covid pandemic. But in May of last year, price increases exploded with July of this year 21.7% higher than January 2021, a period of 18 months. Meanwhile consumer spending on furniture grew at less than half that rate (9%) during the same 1-1/2 years. Much of the price impact came during the supply chain disruptions of last year. This year both consumer spending on furniture and price increases tracked on parallel lines over the six months February to July. Consumer spending in July was 5.3% higher than February, and price increases were 4.0% more (Table F1).
These increases have helped make up for the years of stagnant price growth. In the second quarter of this year, furniture prices increased at an annual rate of 13.6% well ahead of all consumer products, which grew 8.6%. Higher transportation costs throughout the second half of last year and the first half of this year is a big contributing factor. As inventories increase and the competition adds pressure, prices are cooling in the second half of this year which should take the overall average price increase for the year to 7.2%. Falling gasoline prices should also impact price declines as transportation costs lessen for most consumer products. Next year as the economy continues to struggle, prices could fall even more (Table F2). Consumer price increases for furniture products grew more slowly in the second quarter of this year at 2.2% versus the preceding Q1. In the first quarter, prices grew 4.2% over Q4 of 2021 (Table G).
Stock Market.
The Dow Jones has been volatile since before the Covid pandemic began as if unsure which domestic or global event to react to next. Inflation and interest rate increases have spurred negative market reactions. Meanwhile, consumer spending growth and low unemployment have evoked positive reactions. In the second quarter, more negative than positive news sent the Dow Jones down 11.3% at the end of the quarter compared to 2022 Q1. And hawkish talk from Federal Reserve Chairman Jerome Powell at the end of August sent the Dow down further hovering around 32,000, which is 14% less than January levels of 36,600. Historical data suggests there is more pain to come. Numerous long-range forecasters suggest 2022 will end at around 31,500 and 2023 could possibly go a bit lower (Table H).
Gasoline Prices. One of the biggest economic indicators driving consumer at $4.07 a gallon for regular gas and 2023 at $3.59 (Table I). Consumer Confidence. In June of this year, the Consumer Confidence Index dropped below 100 for the first time in over a year signaling consumers are less optimistic about the economy and worried about persistent inflation and stayed at 95.3 in July. Many economists were surprised by the August jump to 103.2 when the initial forecast was 98.2. Lynn Franco, senior director of economic indicators at The Conference Board, explained the difference in the initial forecast as consumer “purchasing intentions increased after a July pullback, and vacation intentions reached an 8-month high. Looking ahead, August’s improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term” (Table J).
Looking at the forecast for the rest of the year, the third and fourth quarters of this year should show a slow deterioration in confidence and 2023 could see it drop consistently below 100.
Prime Interest Rate. Mid-March of this year the Federal Reserve began to increase the prime interest rate that had been at 3.25% for over two years. In a stair-step approach, at press time rates had increased four times to 5.5% in August, with continuing hawkish talk by the Fed to continue to increase them more to further gain control of inflation. Additional smaller increases may also occur in November and December (Table L).
panic over rising inflation is gasoline, the life blood of U.S. commerce and consumer transportation. A gallon of regular averaged $3.05 last year and $4.64 in second quarter of this year, an increase of 23.1%. At press time, prices had fallen to around $4.00. The U.S. Energy Information Administration forecasts 2022 average gasoline prices Mortgage Interest Rates.Rates for mortgages have responded in kind to the moves by the Fed to bring inflation under control. At press time, 30-year fixed rates were around 5.7%, up from an average of 3% at the end of last year. Meanwhile 5/1- year hybrid adjustable rates were 4.4%. Rates are projected to continue to increase in the second half of the year to an average rate of 5.2% for the year for a 30-year fixed mortgage and 4.0% for a 5/1-year hybrid adjustable mortgage. In 2023 rates should move even higher at an average rate of 6% for 30-year mortgages and 4.8% for 5/1-year hybrid adjustable (Table M).
The Housing Market
Housing Sales. The housing industry has been the star of the U.S. economy pre-pandemic as well as post-pandemic. Coming out of the worst of the COVID-19 shutdown, in August of 2020, 1.036 million new homes (annualized rate) were sold, the largest number in 18 years. In July of this year, that number was more than cut in half to 511,000 homes (annualized rate). After the third quarter 2020 peak, new homes have continued to trend downward. Forecasters believe the industry will fall further in the second half ending 2022 with existing home sales down 13.2% and new single-family homes down more at 17% decline. The forecast for 2023 should be brighter for new home sales, but existing home sales will show little growth (Table N).
Housing Starts. With new single-family housing starts lagging for 10 years coming out of the Great Recession, starts finally picked up in earnest during the Covid pandemic in 2020 and continued growth into 2021. This year, new single family starts slowed and went negative monthover-month beginning in February, dropping each month through July (-2.13% July over June). Meanwhile, multi-family starts have been on fire, up significantly in Q1 and Q2 of this year, at 20.3% and 17.5%. Housing starts are forecast in 2023 to grow 7.9% for single-family units and 3.5% for multi-family units (Table O).
Housing Prices. The much-publicized increase in housing prices this year has stirred fears of another housing crash. However, according to a report issued by the Conference Board, US Housing: Boom- Bust Redux?, “Supply and demand factors—not speculation, predatory lending and/or bad underwriting practices—are at the root of the latest home price upswing.” This year existing home prices are forecast to be up 14.1% and new home prices 10.2%. Prices should level off to more normal growth in 2022.
When business is trending downward, it is easiest for economists to say that weakness will continue. And today, more economists are saying the recession will hit its worst in the fourth quarter of this year or in early 2023.
I disagree. I think our recession began early this year and the furniture and mattress industries hit their trough during the summer. Why? First, we already have two quarters of negative GDP, a key indicator of a recession, and the summer did not feel any better. Second, our economy is disjointed. From May of 2020 through 2021, durables prospered thanks to governmental generosity driven by the COVID-19 Pandemic, low interest rates that helped housing sales along with great demographics and a broad shortage of places to live and government restrictions that discouraged Americans from leaving their homes or being around others. Since early 2022, with high inflation, rising interest rates, shortages among many durables and a decline in COVIDrelated restrictions, American consumers have been catching up with services and consumer non-durables. Travel, dining out, event attendance and much more has rebounded, shifting spending away from durables— at least on a temporary basis. Third, the furniture industry has been hurt by one of the most unusual combination of circumstances most of us can remember. As consumer spending slowed this year, logistical difficulties (ports, trucks and rail) have begun to improve, and delayed shipments from Asia began to catch up, while many retailers, importers and manufacturers have been able to deliver long delayed furnishings. A dramatic shift from shortages early in the year, we now have excessive inventories, but these will be normalized as the year progresses.
Fourth, home furnishings have historically sold 55% of annual revenues in the second half of our calendar year caused, I believe, by Americans finding new homes in the first half of the year and moving in the summer and fall.
Finally, we believe there is unmet demand for many home products created by the great housing sales in 2019 through 2021. Also, remember that, for many reasons, we could not meet the strong demand we experienced in 2020 and 2021. Consumers are enjoying their travel, restaurants, sporting events and shopping no doubt, but as colder weather returns and we go indoors, we believe home related spending will recover slowly but this should set great prospects for a much improved 2023.
Let’s hope I am right. I am overdue!
JERRY EPPERSON
Managing Director Mann,
Armistead & Epperson, Ltd.
If I thought I could forecast the residential furniture industry for 2023 with any accuracy, I would not be worried about deciding what investments my retirement plan should be making. I think we are all just trying to forecast —with the hope of being close to right—when this slowdown we are in will phase out, and when business will get back to normal. As one executive and I were discussing recently, we are hoping that something that resembles normal will return by maybe November, just a few months away. Then we reminded ourselves that we believed those words three or four months ago. There is good news for some, however, in that quite a few companies still have good backlogs. Those companies will have some time to see what the next few months bring. Others may not be as lucky.
Of course, the real question is what is normal? We all thought 2019 was the last “normal” year. But that was before the craziness of new orders in late 2020 and 2021. Then, most added some 30% to the selling prices at wholesale, hoping that would cover the increased cost of raw materials, labor and overhead as well as imported finished products and freight— whether ocean or domestic. Now many costs have leveled out, but the price increases continue through a lot of the supply chain and inflation in general.
The Federal Reserve is committed to lowering inflation and their theory is that raising interest rates will lower people’s ability to buy therefore forcing prices down due to lack of demand. To some, this brake pumping seems to feel more like brake slamming. When this will end is not clear to most of us at this time. However, a good deal of the inflation relates to energy, especially gas prices, and with the Federal policies we wonder if that can happen.
What impact the elections will have is another big question. At one point, folks thought the Democrats were going to lose in a big way. But that does not seem as clear as it did a month or so ago as the politicians are doing all they can to make things sound and feel better. So, with all that said, what will 2023 look like for residential furniture? We think, as has been the case in the past, the general economy will need to pick up to be able to drag furniture along. We would expect that to happen in a small way sometime in the first quarter of 2023 with meaningful improvement not happening until maybe the second quarter. This should allow the furniture business to get back to a more normal 3% - 4% growth rate by the second half of the year. That growth will be impacted by what we are comparing to as if the ocean freight costs decline even more, then the surcharges that many have added will decline, causing more difficult comparisons the other way.
Many have started comparing unit sales to take all the clutter out of comparisons. For many, this is difficult due to the variety of products offered, but it is not a bad idea if you can do it, even for given product lines.
The residential furniture industry enjoyed an unprecedented lift in demand (and prices) during the bulk of the COVID years of 2020 through early 2022, as homeowners invested in their indoor furnishings and outdoor/patio environments. However, by Q2 of 2022 demand began to soften due to a variety of factors including rising interest rates, lower new-home formations and rising costs and inflationary pressures. Also, the consumer saw a shift in mentality from “I need this” purchases to “I want this” discretionary spending. And with the COVID-19 pandemic mostly over, the world has re-opened as consumers have become more comfortable traveling and getting on airplanes, going out to restaurants and generally resuming a normal life. That said consumer demand in 2022 should still exceed pre-COVID volumes – despite soaring inflation, recession talk, and wobbly public stock markets.
Looking forward to 2023, we are optimistic that the U.S. economy will settle into a “new normal” and that home furnishings will resume a nice steady growth over the pre-COVID years. Container rates are coming down, gas prices are finally decreasing, raw material price increases have slowed, and the stock market is showing some strength. All these elements should boost consumer confidence and drive solid growth in furnishings’ purchases. Some key points to watch:
E-Commerce:
Adoption to buying furniture online continues and we are increasingly seeing companies take an omni-channel approach via marketplaces like Wayfair, One Kings Lane, and Overstock.com, while the big box stores offer their massive web-portals (WalMart, Costco, Target, etc.), and the lifestyle stores like RH, PB/West Elm, Arhaus and Crate & Barrel offer tremendous in-person and on-line shopping experiences. And increasingly we see consumers bypassing these more legacy retail brands and buying direct from brands like Joybird, Albany Park, and Burrow. We expect to see significant M&A activity in this space as legacy furniture companies seek this higher growth e-commerce channel.
Whole Home and broader furnishings: Increasingly we are hearing about the “whole home” as consumers want to make purchases that can create a holistic environment, the focus not just on one sofa or table but the entire room and a house that flows onto the patio as an extension of the interior of the home. Lighting, rugs, accessories and wall art will play a leading role in how CEO’s guide product development road maps and revenue growth. We also believe patio and casual furniture will remain a high-growth sector and prime acquisition target for legacy furniture companies.
Global Sourcing Rebalanced:
After a tumultuous several years of supply chain strife, our industry is scrambling to find the right combination of U.S.-made, vs. China, Vietnam, India, Mexico and the rest of the world. Tariffs, container rates and factory shutdowns have wreaked havoc with the global supply chain over the last 18 months, and our leaders are trying to assess what the new balance for supply will be. Labor pressures and geo-political strife continue to make this a complicated issue around the world. We anticipate continued exploration of increased reliance on India and Mexico and smaller outfits in Eastern Europe and Portugal, as well as the continued desire to re-shore manufacturing to the U.S. to the extent possible. Blurring lines of Resi-mercial Furniture: Home and non-home furniture continues to look more alike, as historically segmented players increasingly compete in each other’s spaces. MillerKnoll (the merger of Herman Miller and Knoll) has a huge home furnishings presence with its various brands including DWR, Muuto and HermanMilleronline.com. Steelcase has an alliance with several home furnishings companies. Haworth has huge residential product offerings. HNI has several online portals for home and home office furniture. Competition is growing around every corner, and we expect this to continue, and we expect these players to be major contenders for residential market share and digitally native direct-to-enterprise plays.
Shows/Showrooms:
There is increasing pressure on the markets to become modern and relevant in this new economy. The casual market is leaving Chicago and moving to Atlanta. The Neocon show for commercial furniture now has two competing properties. The Las Vegas and High Point shows continue their relentless cadence of four “can’t miss” residential shows per year, amidst various challenges such as the 100+ degree weather of the Vegas market in July and staggering vacancies in the main buildings in High Point as more exhibitors are building their own destination venues, no doubt drawn by the allure of year-round showcases to key customers. More and more vendors are no longer showing at all and are using alternative marketing tools to reach their customers. There is no clear answer to this complex issue. We see a mixed bag of headwinds and tailwinds going into 2023. But overall, we are bullish on the furniture industry and the U.S. economy. 2023 should be a good year. Bring it on.