Here’s what Ray’s talking about this week:
A year ago, I wrote a column that borrowed a line from Charles Dickens’ “A Tale of Two Cities” to describe the current state of the furniture industry: It was the best of times, it was the worst of times.
I went on to describe our best of times—unprecedented demand—and our worst of times—our inability to meet, satisfy and deliver on those demands due to roadblocks that included Covid-19, an ensuing dysfunctional supply chain, spiking costs for raw materials, transportation, and logistics, dramatic shortages of truck drivers, chassis, dockworkers and so on.
This year, I thought I would keep that tradition by quoting another famous ‘author’, Yogi Berra, who said, “It’s like déjà vu all over again.”
Every challenge that hurt our business last year unfortunately is still very much with us….from the pandemic and its latest variant, Omicron, to a still-tangled supply chain, to an ongoing shortage of drivers, chassis, erratic production from Asian factories, clogged ports both here and in Asia, spiraling costs for raw materials and so much more.
Some challenges, including ridiculous costs for containers and a seeming inability for trucking and logistics companies to deliver goods in a timely and usable condition, appear to have gotten worse since last year.
I’ve outlined what I believe may be our biggest challenges to growth this year.
Supply Chain Still Rattled
Without a doubt, I see a global broken supply chain as one of our leading roadblocks to growth again this year. If there is any consolation, it comes from the fact that home furnishings sector is not the only business taking it on the chin due to the tangled supply chain.
According to recent statistics from the U.S. Census Bureau, just about 40% of all businesses have either experienced or are still experiencing disruptions to their businesses as a result of the unresolved supply chain.
Ongoing factory shutdowns in Asia as a result of pandemic-related lockdowns continue to keep production erratic and spotty. Add in labor shortages here, coupled with a growing shortage of drivers and domestic ports that are still very much congested and it is no surprise that logistics has become the number-one issue for many home furnishings companies.
The Big Will Get Bigger
Since the onset of the pandemic, the bigger players have used their clout to cut to the head of the line, be it for container space, product, trucking slots, etc. Expect more of the same this year as retailers and suppliers alike look for the economy of scale through acquisitions.
Last year, was a whirlwind of mergers and acquisitions with Herman Miller grabbing Knoll, Ikea acquiring Geomagical labs, La-Z-Boy acquiring Seattle Market, Hooker acquiring Sunset West, Classic Home acquiring Braxton-Culler, and Décor-Rest acquiring Trendline and Superstyle.
Of all the activities, the biggest move was from Ashley, which acquired Missouri-based Wilson Logistics. The move gave Ashley an additional 1,000 trucks.
Big acquisitions continued this year when Bassett Furniture Industries Inc. recently announced that it will sell Zenith Freight Lines business to a subsidiary of J.B. Hunt Transport Services Inc., for $87 million.
Last week, A.P. Moller-Maersk announced plans to acquire Pilot Freight Services, a U.S.-based first, middle and last mile solution provider, specializing in freight transportation for B2C and B2B distribution models.
Earlier, the transportation giant acquired Corey 1st Choice Home Delivery and In 2017, J.B. Hunt acquired Special Logistics Dedicated, expanding its pool distribution and fulfillment delivery capabilities.
While the trend for the big to get bigger is clear, the future for smaller players is not. For small and mid-size firms that may not be flush with cash, their survival may hinge on how long they can hold out.
Consumers Are Saying “Ouch” At The Cash Register
Thanks to a broken supply chain, skyrocketing costs of raw materials, transportation, labor, and spiking demand for just about everything, inflation reached its highest point in more than three decades, according to the U.S. Bureau of Labor Statistics.
The annual inflation rate for the United States is 7.0% for the 12 months ended December 2021—the highest since June 1982 and after rising 6.8% previously, according to U.S. Labor Department data published January 12.
The furniture sector has been one of the most affected segments, with prices for furniture and bedding averaging a spike of 12% at the end of last year.
Just about every company in our sector announced multiple price hikes and or surcharges to offset spiking container, transportation, raw materials, and labor costs. Last last year, the issue was underscored when IKEA, long the darling for opening-priced furniture, announced that it was upping its prices by almost 10%.
The following chart from Morning Brew citing statistics from the U. S. Department of Labor underscores the impact inflation is having on the American consumer.
Online Retail Sales Going Nowhere—But Up!
According to Internet Retailing, shoppers this month continued to make more of their retail purchases online than they did before the Covid-19 pandemic, the latest sales figures from BRC-KPMG Retail Sales Monitor suggest.
And other tracking firms say the clout from online sales may represent more challenges ahead for brick-and-mortar retailers.
Stores, which were often forced to shutter due to the pandemic, left consumers with no options other than to shop online. And statistics seem to indicate consumers have grown comfortable with that option.
For example, recent statistics from market research firm McKinsey predicts a 30% spike in consumers purchasing furnishings and appliances online even after the pandemic.
Further, the pandemic seems to have answered the question of are only young shoppers purchasing online. According to Furniture Today, 58% of millennials, 49% of Gen X consumers, and 37% of baby boomers are likely to make their next furniture purchase on the internet.
No Place Like Home… If You Can Find One
Last year, the housing market was hotter than the third circle of hell. The median home sales price was $346,900 in 2021, up 16.9% from 2020, and the highest on record going back to 1999, according to the National Association of Realtors. Home sales had the strongest year since 2006, with 6.12 million homes sold, up 8.5% from the year before.
According to Lawrence Yun, chief economist for the National Association of Realtors, there were fewer homes for sale by the end of 2021 than ever. Specifically, the inventory of unsold existing homes fell to a record low of 910,000 at the end of December. That’s a 1.8-month supply of homes at the current pace, also an all-time low.
Although Yun anticipates total annual home sales to drop a bit in 2022 as rates for mortgages rise slightly, he feels that continued demand coupled with a steadily improving employment arena will keep home demand strong for the remainder of this year.
While an ongoing and robust housing market bodes well for our industry, furniture sales continue to be hampered by ongoing supply chain challenges.
Less Is Not Less… Less Is Less!
The sad reality is that even before the pandemic, there were a growing number of retailers and suppliers barely making payroll each week. Pressures from the pandemic did result in a flurry of retail failures and or significant store reductions.
Names you know include Art Van, Love’s, ABC Carpet & Home, Pier 1, which transitioned to online sales only, Macy’s, JC Penny, Furniture Factory Outlet, and scores of smaller second-and third-tier retailers.
Don’t be surprised to see more of this as the year unfolds.
The Moment of Truth
As the pandemic lingers, many retailers, even ones that have had success during the pandemic, are finding themselves more vulnerable than in the past. Due to the global shortage of products, they can no longer push back on price increases, demand specific delivery slots, insist on sweetheart deals, and the like.
I conducted an informal poll with a number of my retail friends, and I can tell you that what they want most from you right now (knowing they probably can’t get the product), is truthful, accurate information as close to real-time as possible.
To reiterate: next to the actual product, the most valuable asset you can share with them is accurate, real-time analysis. You can go to a myriad of content providers and find out what happened this morning.
What you will be hard-pressed to find is a source that will tell you what the news of day means to you and your business.
Our goal at The FAM is to be that trusted source.
Make no mistake: The road this year is going to be one tough and bumpy ride.
While no one can promise to repair every pothole on every road in Furnitureland, I will promise you that whether in my columns, or in my upcoming podcast called Under The Hood, I will call it like I see it with the goal of keeping you in the passing lane of the fast track.
Buckle up, hop in and come along for the ride.