TD Cowen/Home News Now panel addresses issues, potential demand at the high end in what could be a challenging year for many
HIGH POINT — Luxury furniture resources participating in a panel hosted by TD Cowen and Home News Now offered a cautiously upbeat forecast for their businesses next year despite ongoing headwinds including an uncertain economy and what promises to be an acrimonious political year.
The Oct. 25 panel discussion included Alex Shuford III, chief executive officer of Rock House Farm; Becky Greene, executive director of merchandising at Furnitureland South; Mike Jolly, president and CEO of Baker Interiors Group; Alan Galbraith, CEO of John-Richard; and Michael Uvanni, owner of Michael J. Uvanni Interiors.
While acknowledging the slowdown at retail and larger issues such as the impact that high interest rates are having on housing sales, the executives believed that by and large, their customer base will continue to spend even if it is on smaller projects such as redecorating or renovations.
“If interest rates continue as they are, moving may not seem like such a great option right now,” Greene said. “So what do you do if you don’t move? You redecorate. So right now, we are not getting overconfident, but we feel pretty good that consumers are going to want to make their home more beautiful.”
To that point, Greene noted that Furnitureland South has a 300,000-square-foot outlet that is part of its 1.3-million-square-foot campus. Having this dedicated area of the campus allows the retailer to move some older items to the outlet and keep its main store fresh with newer product. That said, the outlet carries many of the same luxury brands that are found on the main campus, albeit at discounted prices.
“We have an outlet that’s bigger than most retail footprints,” she noted. “We have one of the highest-end outlets you would ever see in the world where you can find every one of our luxury brands.”
She noted that the outlet simply gives customers access to those brands while also affording them a wide assortment of goods in its main showrooms.
“They are still going to spend money, but I think that people who have money still like to feel like they’re using their money wisely,” she said, noting that the outlet business “is up significantly and that’s luxury product. So part of your house is special order and part of your house is outlet. You may not have done that before.”
Shuford, of Rock House Farm, said that the outlet concept also speaks to the idea of immediate gratification afforded by smaller cash-and-carry items that customers can buy and take home the same day. Thus, that type of business represents an area of opportunity for luxury manufacturers and retailers in both good and challenging times, including during the pandemic when consumers had to wait many months for custom product.
For many manufacturers, including Rock House Farm, the parent of Century Furniture, Highland House, Hancock & Moore, Hickory Chair and others, those lead times have been reduced significantly, allowing customers to get custom product in less than half the time they could receive it over the past year and a half or more. But Shuford noted that the idea of immediate gratification has still stuck.
“I do think that now a share of the customer’s wallet is going to something I can take home today or have delivered this weekend,” he said. “We used to call it the Amazon effect — buy it today and tomorrow it shows up on your doorstep. And so if I’m waiting for my custom sectional and my custom breakfast room table, I might be able to take a pair of club chairs home today and start enjoying them this weekend. And I think that’s something that we can’t discount as a more permanent effect of the pandemic.”
Galbraith, of John-Richard, said that the company saw less demand for higher ticket items earlier this year as customers gravitated toward smaller items such as accessories and lighting.
“Our accessories business took off and grew during that period,” he said. “So there is still, at the luxury end of the business, that consumer who wants to spend and who wants to freshen up their home maybe a piece at a time.”
Things shifted, however, midyear as orders for the larger, higher ticket items began to bounce back. Thus, he believes the company will do well in 2024 as more homes that drive design projects are completed.
“Our success and our growth now is with the project work,” he said. “It’s not foot traffic going into a retail furniture store. We think that will continue on into 2024. We still have a big backlog on the design side of the business.”
Michael Uvanni noted that, while the year could have ups and downs, he doesn’t see any major declines in business, particularly with regards to his upper-end clients from seven states.
“I think next year is going to be a good year at least through the second half,” he said, noting that while some clients say they are not doing as well in some quarters, “they still spend.”
“We are not a large company but we put an awful lot into both of our showrooms and it makes an absolutely huge difference,” he added of having a full selection to draw their interest. “Having product on the floor and having new product on the floor we can definitely see that it helps drive our business without question. And we are always bringing new product in.”
He added that the consumer for luxury goods is willing to pay for and even wait longer to get what they want. But he also noted that his business continues to educate the consumer about what sets the product they are considering apart from other goods in the marketplace even if it’s at much higher price point.
While it’s difficult to predict exactly what next year will look like in terms of sales — panelists estimated that business could be anywhere from flat to up 5% based on what could be an uneven trajectory of business with revenues up in the first half only to be sidelined during the summer and fall election cycle.
As lead times have come down for custom product, many on the panel believe that customers will gravitate more toward that segment of the business, which tends to support domestic manufacturing, particularly at the upper end.
“At the upper end, there’s been more resiliency so our brands that are more arrayed toward the trade or the true upper end have held up better,” said Shuford, noting that the company has seen an uptick in revenues as the company has been reducing its backlog.
He added that “there’s two ways to look at backlog — it used to be a problem and now it’s a reserve fuel tank. So nine months ago, all of our customers were mad at us because of high backlogs and long lead times — and frankly, we did a lot of brand damage and caused some of our own headwinds from an order standpoint. We’re now to the point where the backlog is — instead of being measured in months — is measured in weeks. We believe it will last us through the end of November, early December and we are actively taking measures to dial back overtime and be a little more careful on the hiring side in order to stretch that out to the first quarter of next year when we think the order rates will be more in line with our production capacity.”
“You know we changed a lot of customer habits during the pandemic to purchase in-stock or quick-ship goods,” Shuford added, noting that during the pandemic furniture was taking longer to ship than the actual remodel or build. “And now we’ve got to get them kind of retrained that special order products … are quick enough now that you don’t have to settle — you can actually have what you want and still get it long before your remodel or your new build is complete.”
Greene, of Furnitureland South, said that it now has a significant backlog in sold goods that can’t be delivered as some consumers’ new homes or remodels are not completed.
“We want to get that stuff delivered, but in terms of revenue, that’s a good thing for us between now and the end of the year,” she said. “And the backlog with our vendors is — to Alex’s point — significantly shrinking. But there’s an interesting phenomenon I think that’s happened with luxury goods is that consumers remember when we were saying 40 weeks. Now 14 weeks doesn’t seem so bad anymore. So we’re finding the luxury customer having a widespread acceptance of reasonable lead times. Do people still have the RH mentality of “I’ve got to have it immediately?” Sometimes, but I think that the post-Covid bulge actually really helped the luxury brands because now the consumer is willing to wait for something that’s worth waiting for.”
Baker Interiors Group also is a custom manufacturer of upholstery and case goods that depends on the customer willing to pay for and wait for what they have purchased. As lead times have come down, it too can deliver product more quickly, which like others it believes will result in more satisfied customers.
Mike Jolly, of Baker Interiors Group, predicts that next year business could be up as high as 5%, although, he said that a lot will depend on politics and the economy. But he also believes that the company is addressing an increasingly important part of the market for furniture — younger consumers, many of whom don’t want to wait too long for the things they purchase.
According to recent research by Home News Now, some 70% of consumers in the market for furniture in the second half of this year are under age 42. Baker’s latest collection, the 92-piece Resort, addresses this part of the marketplace with its casual yet sophisticated designs that also utilize mixed media elements. Launched at the October High Point Market, about half of the product mix is from sister company McGuire, which specializes in mixed media looks.
“It mixes quite well together,” Jolly said of the pieces from both Baker and McGuire.
Jolly also hearkened back to the immediate gratification side of the business, particularly for younger consumers that are becoming an increasingly larger part of the market for furniture.
“I think we’ve got a younger crowd of millennials that are starting to drive a lot of the business,” said Jolly, who has been president and CEO of Baker since September 2018 . “And our lead times are now down as low as they have been since I’ve been with the company. And about two markets ago we also started ordering production at the same time as we do all our samples and we back it up six weeks later. So our goal is to have everything in stock from market within a month or so after market. I think this younger crowd wants instant gratification and we’re putting the money into it to see if that really pays off.”
Alan Galbraith, of John-Richard, said that the company has shifted its product line in recent years from a more traditional design aesthetic to what he calls more casual, approachable luxury.
“Which we believe, and we are seeing, is attracting a younger buyer,” he said. “We’re also trying to hire people who are actually a much younger demographic on the design side. So that’s a challenge that we have, but we definitely want to have that younger consumer.”