By Nathan Weber
NEW YORK–To state the obvious, it wasn’t a very good year for sales of home furnishings.
Retail sales of virtually every broad area of home goods were either down or flat, with the exception of housewares, which grew 3.2 percent. But that was not much higher than the year’s average inflation rate, which grew around 3 percent (depending on which measure is used). Which means that, in “real” dollars, even housewares sales were no cause for celebration.
What happened?
Well, where to start? There was, of course, a housing meltdown, the related credit crunch, rising interest rates, growing unemployment and an economy that showed signs of moving steadily into recession. Add to this high raw materials and transportation costs, rising labor costs in China, that country’s ending of tax rebates, allegedly unfair competition from overseas manufacturers, and not least a weakened dollar.
The economic factors, along with continuing sticker shock at the gas pump, led to an annual drop in consumer confidence, a key motivator of buying behavior. Not even the rise of all three stock market indices during the year—Dow up 6.3 percent, S&P 500, 3.7 percent, and Nasdaq, 9.5 percent—was sufficient to loosen the consumer’s tightening grip on her or his wallet.
Textiles, sales of which were flat during the year, typified how a confluence of factors—economic downswing, declining value of the dollar, higher unemployment—affects sales and the fortunes of both manufacturers and retailers, according to industry observers. For example, the weakening U.S. currency worsened the problem of high materials and transportation costs: the lower the value of the dollar, the more are needed to purchase the materials and pay the freight. But when the resulting increase in costs is translated into higher retail prices, consumer resistance in the face of growing job uncertainty becomes only one more factor.
There were other factors as well, many specific to the individual subcategories. In mattresses, for example, increased delivery expenses helped keep consumers at bay. In vacuum cleaners, consumers are said to be loathe to part with more than $100 to $150 for a machine that features all the latest improvement—below what both manufacturers and retailers consider reasonable. “To increase this price as manufacturing costs increase in overseas products is going to be extremely difficult to achieve,” said one observer.
Sometimes consumer attitudes were fingered as a problem. One observer said the challenge faced by manufacturers of wooden furniture included low consumer awareness and interest. For sterling-silver flatware, one problem is said to be consumers’ ever-growing embrace of casual entertaining, thereby limiting sales of this traditionally formal category.
Some blamed a lack of creativity among manufacturers. Referring to massagers, for instance, one industry member said that pricing is now as low as it can go, and vendors must come up with something new. “Innovation is sorely needed,” this person said. Although cookware sales were up last year, manufacturers still face the need to assure both retailers and consumers of the safety of products offered for sale, a critic noted.
Finally, some blamed retailers. In kitchen textiles and table linens, one person felt, retailers seem to lack the desire to promote higher fashion items and patterns.
To be sure, the picture was not entirely dismal. Some subcategories fared well. Casual furniture, for example, rose, especially for patio items manufactured or imported by some of the larger vendors. Indeed, the very economic downturn adversely affecting home in general may have contributed to casual’s success, as consumers directed their declining discretionary income away from traditional indoor furniture toward less expensive outdoor items that are increasingly suitable for indoors as well. Alternative wall decor, such as sculptures and hangings, also did well. And the growing popularity of gourmet food preparation at home, buttressed by a flood of television food programs, likely contributed to sales growth of cookware, bakeware, and kitchen tools and gadgets.
But the overall picture was disheartening. Most traditional big-ticket items, such as major appliances and furniture, fared the worst, no doubt a direct consequence of the housing meltdown. Major appliances dropped more than 5 percent, with refrigerator sales declining more than twice that rate.
A.J. Riedel, senior partner of the Riedel Marketing Group, a Phoenix-based research firm specializing in home consumer trends, named the economy and housing situation as the overriding problems, especially when it comes to big-ticket purchases. Sales of such items are, to a notable extent, contingent upon home renovation projects.
“Consumers are feeling insecure about their financial security,” Riedel said. “For many years now, it has been easy to justify home improvement and remodeling projects because you could be fairly certain that you would get a good return on your investment in improving your home. This is not necessarily true in this economy.”
She added that among her firm’s panel of influential home consumers, known as “HIPsters,” only 55 percent said they are now planning a major improvement project, down from 71 percent a year ago. Further, only 44 percent had undertaken such a project during 2007, down from 55 percent in 2006.
“Downturns in the home improvement market have a major effect on the home furnishings market,” she said, “so it is no surprise that major appliances are down by over 5 percent.”
Asked why she thought housewares, as a whole, were up slightly during the year, Riedel cited several counter-trends to the declining economy. Among them were more consumers “eating at home and … spending more time on food prep than they had in the past.”
Also, when consumers can’t purchase the big-ticket items, she said, “they often buy smaller-ticket home storage and home decor items so that they can make their homes as comfortable and uncluttered as they can.”
