Year-end musings on the state of the industry

December is typically a month devoted to the holidays, gift buying, gift giving, holiday parties and saying goodbye (and often, good riddance) to the waning year.

But for me, and I suspect for many of us in the home furnishings sector, December also represents a window used to try and get a glimpse of what the new year might bring.

Ironically, while this year’s window is more important than ever, the lingering impact of the pandemic has rendered it more difficult to see through than in years past.

Since March 11, 2020, the day the World Health Organization declared Covid-19, the disease caused by the SARS-CoV-2, a pandemic, life — and business as we knew it — has been turned upside down.

On the bright (or at least brighter) side, some of the challenges related to the pandemic — container prices, logjams at the ports, both here and across the pond, and some supply chain issues are improving.

For example, a current Drewry composite World Container Index — a key benchmark for container prices — shows container prices have dipped to $2,773 per 40-foot container. That’s 73% lower than the peak rate in September last year.

While that’s good news for shippers, the not-so-good news is that those prices have dropped because of sizable drops in consumer demand. These diminished consumer demands, many economists say, foreshadow not only diminished consumer demand globally, but a recession here at home.

The pandemic also accelerated another trend that already had legs — the consumer’s growing appetite to shop online.

According to government statistics, the Census Bureau of the Department of Commerce announced this week that the estimate of U.S. retail e-commerce sales for the third quarter of 2022, adjusted for seasonal variation, but not for price changes, was $265.9 billion, an increase of 3.0% and just under 15% of all retail sales for the quarter.

And while consumers may have initially used shopping online more for window shopping than actual buying, recent data from  Searchmetrics indicates that more than 60% of online searches for furniture are ultimately transactional.

Another recent study by Comscore Digital Commerce Measurement, meanwhile, showed that furniture, along with appliances, was among the top growing categories in digital commerce, registering an 81% jump in year-over-year consumer spending.

The pandemic also helped set the stage for furniture retailers to finally raise prices. The combination of sheltering-in-place and three rounds of government stimulus money created a huge consumer demand for furniture that quickly exhausted the supply, thanks in part to the pandemic’s disruption of the global supply chain.

Now, however, with consumer demand dwindling, most furniture retailers find themselves with far too much inventory.  

Recent statistics indicate that American retailers are sitting on dangerously high levels of inventory. According to the information from the Census Bureau, retailers have been sitting on some $732 billion of inventory, which represents a 21% spike from last year.

Business of Home reported that Target’s inventory levels are up 35% over a year ago, and Walmart is in a similar situation.

Supply chain bottlenecks collided with high demand in the past two years, and as a result, furniture businesses struggled to meet the increased appetite for household goods. But consumer spending has shifted in more recent months because of uncertainty on a global level, leaving retailers with excess inventory. 

In August 2022, Bloomberg revealed that the amount of unsold furniture in inventory is 2.06 months, up from 1.43 months in the fall of 2020, setting a record for the furniture industry.

At press time, key retailers, including Nebraska Furniture, Ashley Furniture, Gallery Furniture and other market leaders were offering a combination of deep discounts, generous financing options and more to attract holiday shoppers.

Meanwhile, Wayfair, Overstock, Amazon and other online retailers were offering discounts, free or expedited shipping, and other incentives to drive traffic and sell home furnishings.

Many observers, including me, would not be surprised to see aggressive promotions and sharp prices carrying over probably until the second quarter of next year.

However, to me, the big question involves what our industry will do to ignite (or perhaps reignite) consumer demand for home furnishings as the new year unfolds, especially because inflation-weary consumers are spending more for necessities such as food, utilities, gasoline and other day-to-day expenses.

According to the latest survey by PYMNTS, a source for data, news and insights on innovation in payments and the platforms powering the connected economy,  the average U.S. household now spends 65.4% of its total income on essential purchases. This works out to a collective $64 billion more being spent on essential purchases now than at the beginning of the year.

And while Americans will tighten their belts next year, they will continue to buy furniture. And, according to a recent survey by Statista, the majority of shoppers — at least for the time being — will buy their furniture at a brick-and-mortar store.

According to the Statista survey conducted in March 2022 in the United States, more than half of respondents (53%) reported that they shopped for furniture in-store. In comparison, around 43% reported they shopped for furniture online: 25% opted for an e-commerce platform, while 18% opted for buying furniture directly on the brand’s website.

The survey also found that, for shoppers buying furniture online, ease of shopping was seen as the biggest benefit to buying from that channel.

Consumers also identified lower prices (34%) and more available inventory (24%) as other reasons for purchasing furniture online.

With an eye toward 2023, brick-and-mortar furniture retailers would be wise to incorporate as many of the perceived consumer benefits of online shopping into their store formats.

So, with all of this in mind, what might 2023 look like for the home furnishings sector? I think on Jan. 1, 2023, our world will look remarkably like it did at 11:59 p.m. on Dec. 31, 2022.

However, as the year unfolds, inventory levels for many suppliers and retailers will still be top-heavy and will probably remain that way at least until the second quarter of 2023.

Based on our industry’s history, I suspect we will also see a flurry of ongoing promotions, sales and special financing to help thin the glut of excess inventory.

Unless record levels of inflation mitigate themselves, don’t be surprised to see many suppliers and retailers, especially those who were struggling, throw in the towel: a move that will set the stage for well-heeled players (both from within the industry and from outside) to make acquisitions.

Should that happen, watch for the big to get even bigger, and keep an eye out for more consolidation, new alliances, new partnerships and a subsequent growing appetite among the biggest players to become even more efficient, seamless and dominant.

As for consumers, technology has and will continue to empower them as never before. Armed with a screen, be it on their phone, tablet or computer, they will have access to unlimited shopping experiences from a host of different channels.

And while they will spend more time shopping online, the sheltering-in-place recommendations by the government and various Covid-19-related lockdowns seem to have reignited many consumers’ desires for in-store shopping experiences.

According to a recent survey by Publicis Sapient, most consumers say they prefer to shop in a brick-and-mortar store for some items such as apparel and furniture.

However, now used to the ease and convenience of online shopping, the survey found that consumers will want to find those same benefits from a traditional retailer.

Specifically, the study reported that 69% of shoppers said they expect to see new merchandise when visiting a store or a site; 87% begin their search in a digital channel and a whopping 64% of the shoppers surveyed agree or strongly agree that retailers don’t truly know them.

Depending on whether one is a glass-half-filled or glass-half-empty type, that last factoid — that 64% of shoppers don’t believe retailers know them — can be devastating or exhilarating.

The pandemic has given each of us a fresh canvas. The question — and this one only you can answer — is this: What will we see when we look at your canvas?

2 thoughts on “Year-end musings on the state of the industry

  1. Ray’s last comment that consumers don’t believe retailers know them can explain Gallery’s success in Houston. The folks in Houston know Mattress Mac!

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