Furniture Industry Faces Challenges as Demand for Big-Ticket Items Declines
Recently, two furniture retailers reported substantial drops in sales compared to the previous year. Luxury furniture brand RH saw a 19% decrease in second-quarter revenue, while Hooker Furnishings, a Virginia-based furniture manufacturer that supplies products to Wayfair, Macy's, and other retailers, reported a 36% decline in second-quarter revenue.
Investors have expressed concerns, with shares of RH (RH) falling 16% and Hooker Furnishings (HOFT) dropping 17% on Friday. These two companies join a growing list of furniture retailers experiencing a slowdown after benefiting from pandemic-induced stay-at-home trends.
In the previous month, Williams-Sonoma, the owner of West Elm and Pottery Barn, reported a 20% revenue decline for West Elm and a 10% decline for Pottery Barn. Online furniture seller Wayfair witnessed a 3.4% drop in second-quarter revenue, and furniture manufacturer La-Z-Boy reported a 20% decrease in sales in August. Williams-Sonoma CEO Laura Alber noted during an investor call that consumers are buying fewer large-ticket furniture pieces compared to the previous year as their spending patterns shift.
Retail analyst Brad Thomas at KeyBanc Capital Markets suggests that this decline in furniture sales is part of a broader shift in consumer spending patterns that has occurred since the pandemic.
"When the pandemic occurred, we all stayed home. Consumers stopped spending on travel and leisure experiences and spent on stuff," said Thomas. "The furniture category was one of many categories that saw a big benefit at the end of 2020 through 2021. In 2022 and the beginning of 2023, there has been an unwind of that trend."
Home improvement retailers like Home Depot and Target have also experienced declining sales in recent quarters.
The housing market has contributed to the slowdown in home improvement spending. US home prices have been rising for five consecutive months as of June, and mortgage rates remain relatively high, above 7%. The reduced affordability of housing leads to fewer transactions in the real estate market and less disposable income for furniture purchases.
Gary Friedman, CEO of RH, expressed his expectation of continued challenges in the luxury housing market and the broader economy throughout fiscal 2023 and into the next year, especially as mortgage rates remain at 20-year highs. According to the Mortgage Bankers Association, applications for mortgages to purchase homes recently hit a 27-year low. Thomas emphasized that housing activity plays a crucial role in driving demand for home goods.
"With elevated mortgage rates and low inventory levels, we're not seeing much home purchase activity," Thomas remarked.