By Bo Stump
We are all aware of the booming demand for residential furniture – more people are home due to covid and working remotely has led to a desire for a nicer environment in the home office and beyond. New couches. New comfortable ergonomic desk chairs! We foresee several years of solid growth in this sector, and supply finally starting to catch up with demand.
As reported in prior Stump newsletters, e-commerce is getting a lot of attention and continues to capture market share as consumers increasingly adapt to online purchases.
Casual/outdoor furnishings are also an extremely hot category. COVID drove us all outside and led to a desire to have comfortable new furniture outdoors, as an extension of the living room. With expanding options for performance fabrics (all made in the USA), more indoor companies are entering this high growth product category.
Importantly, we are also seeing a return and surge of demand in other sectors that were disproportionately negatively impacted by Covid, specifically:
Hospitality. This sector got hammered in 2020 as hotels shut down and CAPEX was slashed for new guest room and public area decor. But now that Covid is receding in the US and planes are full and hotels reopened, our hospitality clients are experiencing huge quoting opportunities with new hotel projects and refurbishment bids. However, many are reporting that margins are thin on this first wave of new opportunities given the eagerness of all the players to ramp back up. Since hospitality is a “bid now, ship later” business, most suppliers will show a poor 2020 performance, an improving 2021 fiscal year, and a booming 2022. We are closely watching who will emerge strong or weak from the “Covid dip” as several players exited the sector, and several others are angling to grab market share. As always, a crisis creates opportunities and trauma.
Office/Commercial furniture suppliers also suffered in Covid as offices shut down and most vendors had no way to serve the home office end-user. The aggressive businesses sought growth via acquisition: see Herman Miller’s acquisition of Knoll, Inc. And Kimball International’s acquisition of Poppin. We expect to see more M&A in this sector in the coming months.
Given these strong 2021 tailwinds in furnishings across all sectors, keep an eye on M&A as a critical part of growth plans. Abundance of capital will be the fuel and consumer confidence will drive the car. And wealth generated by rising stock prices and home valuations will undergird the underwriting by corporate boards. Further propelling M&A discussions is the proposed Biden tax plan leading many to consider: is selling now a good idea?
The upcoming High Point Market will give us all a chance to learn more, and the August Las Vegas Market for both residential and hospitality players will highlight some interesting trends in these blurring sectors.
What’s going on with you?