Even though many people are stuck at home, they simply aren’t buying furniture like they used to.
Last week a pair of luxury furniture manufacturers announced massive sales slumps compared to 2022 were impacting them greatly. September 7th, RH reported a 19% drop in their revenue for the second quarter. Not to be outdone, on the 8th, Hooker Furnishings announced a 36% drop in their second-quarter revenue. As the manufacturer for Wayfair and Macy’s, as well as several other major furniture retailers, this represents a significant decline in the market.
This painted investors into a tight corner, and their uncertainty showed, with RH shares dropping 15% and Hooker Furnishings 17% on September 8th alone. They had tremendous growth thanks to COVID and working from home. Now, as many major companies order people back to the office, they are seeing tremendous slumps across the board.
In August, Williams-Sonoma reported a 20% drop in their West Elm company, as well as a 10% drop from Pottery Barn. Historic and legendary furniture manufacturer Lay-Z-Boy reported a 20% sales drop in August, with things not expected to improve in September. Williams-Sonoma CEO Laura Alber spoke on a call with investors and openly told them that consumers had shifted back away from the big ticket items as they are forced to adjust their spending.
Brad Thomas, a retail analyst at KeyBanc Capital Markets simplified the whole concept. “When the pandemic occurred, we all stayed home. Consumers stopped spending on travel and leisure experiences and spent on stuff. 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 has been an unwind of that.”
It makes sense, too. People spent more on their homes because it made being stuck there more bearable. Something that might have felt like a frivolous purchase in the past suddenly made sense when you would use it for 10 hours a day, 5 days a week. Especially since you weren’t seeing your work friends at a restaurant for lunch but were instead eating it at home, and it was whatever you made that day.
For many, this also meant upgrading normally overlooked items like couches, recliners, and TV sets. Previously, people would buy what they could comfortably afford, and it was good enough to do the job. Now, they had started to splurge on better materials and a higher build quality. This was especially true for office furniture. The cheap $75 chair from Walmart back in 2019 wouldn’t cut it anymore. It was time for the $1200 gaming chair with full lumbar support and massage.
By working at home, these expenses were justifiable, especially when it came time for tax returns and rules were looser. Now, many can’t justify that expense again. Nor do they want to do it again either. With that market cornered, they have little recourse but to drop projections and possibly will be forced to lower prices significantly to attract consumers with a lower price point.
For these companies, the realities of the nation are now more and more difficult to turn a profit in. They are finding new and different ways to innovate and have an incredibly clear concept in their minds for how they want to proceed with their sales and their production. The question is about if it is too little or too late. With the profit margin shrinking as units sit, it becomes harder and harder to deliver what right looks like.
Thankfully when RH’s CEO Gary Friedman spoke on the earnings call on the 7th, he didn’t mince any words. “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.” Being realistic about how America is changing will be the key to continued growth.