Has the furniture sales slowdown begun?

Industry analyst Jerry Epperson hears anecdotal evidence of a retail pause, but robust housing activity could power furniture sales after the holidays

RICHMOND, Va. — Industry analyst Jerry Epperson said the investment community often references a popular German proverb: “Trees don’t grow to the sky.”

Now, the managing director of Mann, Armistead & Epperson and others are starting to see this perceived truth play out in home furnishings retail as pandemic-fueled business appears to be taking a little pause. (But also see an HFA survey that reaches a different conclusion.)

“Since mid-October, we have spoken to several larger furniture stores that have experienced a sudden leveling or decline in furniture and mattress sales,” Epperson wrote in his most recent newsletter. He told Home News Now that some see it as a pause and that they hope it’s just the consumer taking a breather until the election. In the newsletter, he added that some say supply shortages are a primary complicating factor, and some blame the inability of Congress to come up with additional stimulus, as well as the labor availability issue and credit problems.

var gi_protocol = document.location.protocol;
var gi_redir = “”;
var gi_dasrc = gi_protocol + “//display.hcgmedia.com/?dsid=548202072085523523&pid=329&skid=76&if=0&at=0&alid=728_90&adtype=0&exty=1&special=0&redir=” + gi_redir + “&r=” + Math.random();
document.write(“”);

var gi_protocol = document.location.protocol;
var gi_redir = “”;
var gi_dasrc = gi_protocol + “//display.hcgmedia.com/?dsid=57420208119551504&pid=329&skid=76&if=0&at=0&alid=728_90&adtype=3&exty=1&special=0&redir=” + gi_redir + “&r=” + Math.random();
document.write(“”);

“At this point, this leveling appears more evident among the larger furniture retailers on the East Coast,” he said in the newsletter. “Is the nice sales increase surprise since May over?”

Since the pandemic, consumers have been hyper-focused on spending on the home. And it has shown up in the form of scorching hot furniture and bedding sales following six weeks of lockdown. But Epperson told HNN the recent reports he’s received from retailers who are suddenly doing poorly “worries us.”

What’s more, the industry is facing more headwinds at least for the short-term. With the holidays just around the corner, Epperson said he wouldn’t be surprised to see a slowdown play out more broadly. Thanksgiving, distraction No. 1, is about family. And Christmas, distraction No. 2, is about family and gift-giving. Neither offers much promise to the industry.

“While we try to make a run at it, furniture and mattresses have never been very good as presents,” Epperson said. “We’ve got distractions, and we don’t fare well with distractions.”

Longer-term, however, the picture brightens. Last week the National Association of Realtors reported existing home sales soared in September to a seasonally adjusted 6.5 million. That’s up 9.4% from August and 21% from the same time a year ago. 

“That’s huge,” Epperson said. “That’s what we’ve been waiting for all this time and I just hope we can keep that up.” In his newsletter, Epperson said, “much of the new growth is being driven by Millennials, who previously had been reluctant to enter the housing market as family formation lagged and as they favored renting.” For the first time, though, Millennials accounted for more than half of new home loans.

“That’s the healthiest thing that could happen to our industry — existing home sales staying over 6 million,” Epperson told HNN.  We were praying as recently as last year to  get them to consistently stay above 5 million.”

The booming housing activity occurring now will provide fuel for furniture sales early next year as will tax refund season, he said. 

“I really think there’s a lot of demand remaining,” he said. “But from the calls I’ve had with retailers saying their business has slowed and my belief that distractions are coming, I don’t think we’ll see the kind of growth (for the rest of this year) that we’ve seen month after month since May.”

Here are a few more takeaways from Epperson’s newsletter and HNN interview:

On the First Tuesday initiative, encouraging High Point market exhibitors to open their doors to retailers on the First Tuesday of every month: “Anything that gives the vendor another bite of the apple, the opportunity to get to retailers, I’m in favor of, and I think the buildings and the High Point Market Authority are both trying to make sure no one is lost in the mix, and everyone will have access.”

On the extended October Market format: Epperson liked it and believes there’s a lot for retailers to like about it, too. He recalled how furniture markets historically have had a retail pecking order of sorts. If you are a big player, you get in long before the official opening, buy what you want, see whoever you want to see. Access trickles down from there and can vary based on a retailer’s size and importance. Years ago the access disparity was even worse between large and small players with some exhibitors actually posting signs or otherwise noting they do not do business with decorators or designers, he said.

“This has always been a market where you’ve had sort of a standing in line (approach),” Epperson said.  The extended time (of October market) allowed more people to feel like they have more access.”

On supply chain disruption. In the newsletter, Epperson said, “we agree with a friend who recently said it may be after the Chinese New Year before the logistical imbalances normalize. Some retailers are paying $1,000 to $3,000 more per truck from the West coast, and similar increases for containers over their existing contract agreement.”

That brings us to a general shift in power and control away from retailers and to suppliers. As one supplier told HNN during the October market, when you have more business than you can satisfy, you don’t’ have to submit to any retailers’ demands. The source declined to be disclosed, and his language was a little more colorful than that.

But evidence of this is showing up in several ways, ranging from some sources dropping their smaller accounts (or at least extending delivery so far out that they wouldn’t want to do business with the vendor) to suppliers forgoing October Market specials, such as discounts for orders written on the spot.

Epperson agreed that the balance of power has definitely shifted, and that it might not be a bad thing while it lasts.

“It’s going to allow them to pass through some price increases that are needed,” he said. “But I think what we’re going to see is things normalize in the next three months.”

On those suppliers dropping those small accounts, Epperson said in the newsletter two large vendors recently reduced their account base by thousands of retailers, though he didn’t name the suppliers. One, he said, stopped servicing accounts that order less than $100,000 a year to focus on the larger ones.

“This supposedly reduces the back-office workload about 80%, saving overhead and improving margins,” he wrote. But he told HNN they may come to regret the strategy, and in the newsletter, he explains why.

“In the last year, the two fastest retail channels have been the internet and the designer trade,” he said. “ One reason the designer is growing is because they are servicing a larger cross section of our demographic population. Another thought: As these manufacturers/importers abandon mid to smaller retailers, that creates an opportunity for other manufacturers/vendors!”

var gi_protocol = document.location.protocol;
var gi_redir = “”;
var gi_dasrc = gi_protocol + “//display.hcgmedia.com/?dsid=578202081881555635&pid=329&skid=76&if=0&at=0&alid=728_90&adtype=3&exty=1&special=0&redir=” + gi_redir + “&r=” + Math.random();
document.write(“”);

var gi_protocol = document.location.protocol;
var gi_redir = “”;
var gi_dasrc = gi_protocol + “//display.hcgmedia.com/?dsid=582202091474319419&pid=329&skid=76&if=0&at=0&alid=728_90&adtype=3&exty=0&special=0&redir=” + gi_redir + “&r=” + Math.random();
document.write(“”);

var gi_protocol = document.location.protocol;
var gi_redir = “”;
var gi_dasrc = gi_protocol + “//display.hcgmedia.com/?dsid=5892020108184154614&pid=329&skid=76&if=0&at=0&alid=728_90&adtype=3&exty=1&special=0&redir=” + gi_redir + “&r=” + Math.random();
document.write(“”);

var gi_protocol = document.location.protocol;
var gi_redir = “”;
var gi_dasrc = gi_protocol + “//display.hcgmedia.com/?dsid=566202081191214486&pid=329&skid=76&if=0&at=0&alid=728_90&adtype=3&exty=1&special=0&redir=” + gi_redir + “&r=” + Math.random();
document.write(“”);