by Recent retail results suggest smaller purchases and the feeling of getting a deal may be winning out in an uncertain economy
HIGH POINT What do furniture and lipstick have in common? On the surface, not much. When Leonard Lauder, chairman of Estée Lauder, coined the phrase “lipstick effect” in 2001, he was talking about cosmetics, but I believe it applies to the furnishings industry right now, too.
The lipstick effect is an economic theory that when people cut back financially, they still want something that feels like an indulgence. For example, buying a small lipstick instead of a bigger-ticket purchase.
As consumers remain hesitant to make major purchases but unwilling to stop spending altogether, recent retail results suggest lower-commitment home purchases could be benefiting from the same psychology as the lipstick effect.
In its most recent quarter, HomeGoods reported a 7% increase in comparable sales, while net sales increased 10% year over year to $2.5 billion. For the first half of the fiscal year, comparable sales at the home décor retailer increased 8%. Parent company TJX also reported that home comparable sales growth outpaced apparel during both the second quarter and first half.
Williams-Sonoma’s second-quarter results offer another clue. Pottery Barn comparable sales increased 5.1%, with the retailer reporting strength in furniture, textiles and lighting. West Elm comparable sales increased 6.4%, with strength in both furniture and non-furniture products.
Consumers also appear to be applying a similar mentality to home improvement. As I reported for Home News Now last month, Home Depot said customers “continued to engage in smaller projects” during its second quarter. Lowe’s, meanwhile, continued to report pressure on discretionary DIY spending.
The trend comes as fewer Americans are moving. An August report from Bank of America Institute found that mobility declined across income groups, generations and move types. The bank’s data also suggested some homeowners are opting to renovate their existing homes rather than relocate.
For furniture retailers, that could make smaller-ticket categories particularly important right now. Accessories and accent pieces can give cautious consumers a lower price of entry while keeping them engaged with the category until they’re ready to make a larger purchase.
Getting customers to feel like they’ve gotten a deal is something Fawad Zavary, vice president of operations at Houston-based Exclusive Furniture, sees in today’s landscape.
“I think the customer wants to feel like they got a deal. They already have a mattress, a bed and a sofa,” Zavary said. “In times (like these) where you don’t know if we’ll be in a war next week or everything’s going to be fine, you want to feel like you won today. I think if we all go out there and promote and make the customer feel like they won, we will get the business.”
Consumers haven’t stopped buying furniture, nor are they explicitly trading sofas for throw pillows. Taken together, the latest results point to a consumer who still wants to spend on their home while becoming more selective about how much of a financial commitment that purchase requires. In the furnishings industry, the lipstick effect isn’t really lipstick; it’s more like a lamp.
