Home furnishing has been one of the more interesting retail categories to watch the past several months. We’ve previously looked at why At Home stands out in what has been one of the more challenging retail categories, why this retail category is ripe for consolidation, and why Ikea’s $2B investment plan makes sense despite industry headwinds. Nevertheless, the past few months have seen a wide range of results from companies in this category and we thought we’d shed some light on what is going on.
For starters, home furnishings remain one of the more challenged categories in discretionary retail, with visits down in the high-single-digit to low-double-digit range on a year-over-year basis for much of the year (below). We attribute the softer visitation trends to higher mortgage rates, slowing home sales, and inflationary headwinds (rising costs for essentials eroding consumers’ discretionary purchasing power).
That said, there has been quite a bit of variability in the month-to-month visitation trends across various home furnishing retailers (below). Looking at this data and comparing it with the commentary from some of the retailers that have reported the past several weeks, it looks like there may be a few concurrent trends taking place, as we discuss below.
Across several retail categories, we're seeing evidence that consumers are showing up during holiday periods. Most of the discretionary retail categories we look at have seen visits decline by a mid- to high-single digit clip on a year-over-year basis, but for certain holiday/event weeks (Valentine's Day, Easter, Mother's Day, Father's Day/Juneteenth, 4th of July), we've seen a spike in visitation trends (often exceeding pre-pandemic visits in many cases). This has been particularly true with fine dining restaurants, and our guess is that some of the event driven spend is also helping to lift trends for the retailers that skew more toward housewares/home entertaining products like Williams-Sonoma. A few of the department stores called out home furnishing as a positive category during their Q2 2023 updates, and we believe it's more housewares than furniture driving these visits.
Based on Target's recent commentary, it's evident that the mass merchants and department stores aren't ordering as much discretionary inventory (Target's discretionary inventory is down 25% year-over-year as inflation in food and other core products has removed spending power for more discretionary products). When combined with Bed Bath & Beyond's departure, we've seen more furniture/home furnishing products move to the off-price and other value channels. HomeGoods strong visitation trends the past three months would also support this viewpoint.
What does this mean for home furnishing retailers for the balance of 2023? With interest rate, housing turnover, and inflation headwinds still persisting, It’s unlikely that we’ll see a reversal in visitation trends for the more furniture-oriented retailers in the back half of the year. This is consistent with comments from RH's Q2 2023 update--"We continue to expect the luxury housing market and broader economy to remain challenging throughout fiscal 2023 and into next year as mortgage rates continue to trend at 20-year highs and the current outlook is for rates to remain unchanged until the second quarter of 2024"--but value furniture stores could still outperform due to urban residential migration trends among younger families we’ve seen this year. Housewares/home entertaining retailers, on the other hand, may sustain their momentum given consumers’ willingness to spend during holidays.