By Nancy Meyer
NEW YORK–The housing market crash combined with skyrocketing energy costs to slam the category last year, particularly in the furniture segment.
“The furniture business is a good barometer of the economy because it’s a deferrable purchase,” said Jeff Cook, president of Broyhill. Cook likened today’s economy to that of the first quarter of 2001, when politicians and economists were saying all was well, but “furniture guys were slitting their wrists and threatening to jump off buildings. That’s where we’re at now,” Cook said.
Many furniture and home decor vendors are carrying heavy inventories, as retail sales drop off steadily and more traditional furniture dealers fail. Over the past year, Levitz filed bankruptcy and began liquidating; The Bombay Co. shut down and began liquidating; and Wickes Furniture, a 43-store regional chain, filed for Chapter 11 protection and was awaiting an asset auction at press time.
Furniture and home decor executives predict further retail consolidation, which will likely thin the ranks of vendors, they said.
The one bright spot last year was the outdoor casual furniture segment, which posted a modest but still respectable 6 percent increase over 2006. Even though the 2007 increase was slightly below that of the year before, the ability of patio to sell against the tide may reflect some of the changes marking the category over the past few years. Chief among them are deep-seating construction, which renders patio chairs and sofas, for example, as comfortable as those indoors; and the greater utilization of rattan and bamboo, which appeals to a growing popular conviction that “green is better” in all areas of life.
The case goods segment declined nearly 3 percent last year, which wasn’t as bad as expected, sources said. In case goods, the big issues continue to be competition from imports for those manufacturers who want to keep production stateside, and price pressures, which are putting the squeeze on profit margins. This segment is also suffering from “low consumer awareness and interest,” as one manufacturing executive put it. But there were some standouts among manufacturers, such as Century Furniture, which had an “excellent year—one of our best,” said Ed Tashjian, vice president of marketing. Century is focused on providing customized furniture solutions geared toward designers, and building its luxury brand, he noted.
Retail sales of upholstered furniture decreased a full 7 percent from $22.2 billion in 2006, HFN’s research shows. Price deflation is a major factor here, as prices have dropped steadily in all manner of upholstered products, from arm chairs and fabric sofas to full-leather sectionals, primarily due to the flood of imports. A big winner here is Ashley, which can produce low-cost upholstery. Sources fear a continued shakeout among vendors, many of whom are taking big financial losses from failed retail chains.
The flattening out of the growth curve in mattress sales continued in 2007, to the point where sales actually fell off slightly. HFN’s research showed the mattress sales dipped below the $8.4 billion mark last year, after having topped that level in the previous year.
The economy, in particular the flagging housing market, is at the top of the list of concerns for mattress-industry executives. In addition, manufacturers are continuing their struggles with compliance with the flame-retardancy regulations from the U.S. Consumer Product Safety Commission last July 1, which have added significantly to their costs of manufacturing.
But although sales growth has braked to a halt, the manufacturers appear to be resisting the urge to fight for market share by way of price. Speaking to analysts, David McIlquham, Sealy’s chairman and chief executive officer, said the company would approach the market this year with a greater emphasis on products priced at more than $1,000 and by investing more on marketing and advertising.
Focusing on the upper end has been a staple of Tempur-Pedic’s strategy, and Rick Anderson, president of that firm’s North American division, said during the recent Las Vegas Market that predictions of an economic downturn would not change this course. Tempur-Pedic has upped its advertising campaign so that it now reaches national TV networks and syndicated networks during key retail times of the year.
Steve Fendrich, president and chief operating officer of Simmons, said new and better products would be the company’s strategy as well. Also during the Las Vegas Market, Fendrich said getting the right products to retailers’ floor has been Simmons’ goal all along, and that the weakening economy wouldn’t change that.
The ready-to-assemble furniture business started out strong in 2007 and remained so until midyear, when it seemed that someone just turned off the faucet, sources said. Price pressures continued, adding to an already difficult environment, the said.
The good news in RTA is that TV unit sales, which drive the entertainment RTA segment, are strong and are expected to remain strong as the country moves from analog to digital format in 2009.
“December was huge, and what we’re seeing is that 70 percent of consumers get their new TV home and realize they need furniture, and that’s where home furnishings retailers can win,” said Jim Schmidt, vice president of marketing and merchandising for Bush Industries.
Hardest hit of all the furniture and home decor categories, according to HFN’s research, was the lighting fixture category. Because fixture sales are directly tied to new home construction, which was down about 40 percent for the year, as well as remodeling, which was also down double digits, retail sales for fixtures took a beating. The average lighting showroom, according to sources, posted annual sales decreases of roughly 17 to 20 percent in 2007, as the majority of showrooms are heavily dependent upon builders. Meanwhile, the home center segment, dominated by Home Depot and Lowe’s, also posted significant sales decreases in lighting, HFN research showed.
Portable lighting, which includes all manner of decorative and functional lamps and lighted sculptures, posted a decrease of 8 percent in 2007. The category seemed affected by all the economic factors, plus some changes in merchandising at retail, and the tremendous price and margin squeeze that has happened throughout home.
In 2007, the framed art category posted a 6 percent decrease in retail sales, mostly attributed to the economic pressures. In the mass channel, an oversaturation of inexpensive canvas art may have contributed to the decline. As one vendor pointed out, “how can you compete with a $19.99 canvas at Wal-Mart?”
But retailers who are doing well in art are those who stay on top of the color and design trends, and convey their store’s point of view through the artwork they sell, vendors said.
The framed mirror business posted a small increase last year, thanks to an influx of new and appealing products. Clearly, consumers are getting the message that they can decorate with mirrors and that they can find these decorative accessories in new frame materials, finishes and treatments to express whatever look they want in their homes. Manufacturers identified pricing pressure as a big concern in this category, as well as retail consolidation.
It’s the alternative wall decor segment that’s showed the most growth—a full 12 percent increase over 2006. This dimensional decor that doesn’t fit in the “framed art” or “under glass” art segment includes wall plaques and reliefs; wall sculptures; and all manner of metal, wood, resin and other dimensional decor items that hang on the wall. Some major retailers have taken space from the traditional art segment and devoted it to alternative wall decor, which is a relatively small business. According to one major middle-market vendor, metal pieces are trending down, as metal has proliferated throughout the mass channels. Decorative wall clocks have become a key item in all materials, shapes and sizes. — David Gill and Nathan Weber contributed to this report.