2021 Disruptions to the Home Furnishings Industry

by Stuart Stump Mullens

originally published in Furniture Today

E-commerce and brick and mortar symbiosis. E-commerce continues to boom and is interestingly coming full circle. Wayfair announced last week they will start to open brick & mortar stores in 2022. In parallel brick-and-mortar flagship retailers from RH to Costco are investing heavily in their website presence and .com business, which is booming.

In Costco’s most recent earnings call they reported their .com business is up a staggering 44.4% year over year, and app downloads crested 10 million. It is no longer a story of online vs. instore, but rather two cooperating channels with their own distinct advantages being leveraged across retailers to reach customers and drive traffic. A multi-channel (or omnichannel) approach will increasingly be the norm.

Transportation and logistics excellence is increasingly key to manufacturers’ and retailers’ value proposition. We are seeing evidence of this everywhere, for example Ashley Furniture announced the acquisition of a trucking company last week, and a number of companies have opened large new warehouses near key ports across the country. As supply chain pressures persist into the new year those with a laser focus on logistics and delivering their product to customers will thrive.

Distinct channels are blurring. We have observed for the past several years the once distinct channels of residential, hospitality, office, senior living and student housing furnishings are blurring, and providers for one are looking to expand by providing the same or similar products for different channels. Multiple divisions/channels are becoming increasingly common at wholesale companies.

For example, hospitality companies have turned to residential manufacturing and OEM work, and office players are catering to residential as work-from-home became the new normal. The blockbuster acquisition of Knoll by Herman Miller is a prime example of how this blur is accelerating: The No. 1 office player is now the No. 5 residential player. We anticipate seeing increased cross-channel product pollination from all players.

Furniture players are moving into broader furnishings. When a nearly 100-year-old brand like Hooker changes its name (Hooker Furniture is now Hooker Furnishings), it signals something important. Furniture to furnishings is a subtle difference, but a meaningful one that speaks to a broad evolution.

Historically furniture companies made/designed/imported furniture. But as customers look to wholesale brands they trust there is an increasing emphasis on the ability to provide products for the whole home – the lamp that goes next to the sofa, the rug that goes under that chair, the placemats that go on the table. Historically, the vast majority of players in the home furniture space only offered a handful of product categories; today the opposite is true, and there are only a few players that remain specialized in a narrow product niche.

This is evident in the M&A activity this year: Norwest Equity Partners acquired of Arteriors (lighting and décor) followed by Thibault (wall coverings, fabric, and furnishings), Best Buy (electronics & increasingly home goods) acquired Yardbird (D2C outdoor casual furniture), and Classic Home (importer of casegoods and décor) acquired Braxton-Culler (a domestic manufacturer of upholstery).

Upholstery reshoring is gaining momentum. As Asia supply chains stretched and container costs soared this year, we saw a pendulum swing towards domestic production of full-size upholstery. Currently over half of upholstery sold in the U.S. is made in the U.S., Canada, or Mexico. And we believe that percentage will continue to grow in 2022, but with a continued reliance on importing cut-and-sew kits and components parts. However, only a very small percent of case goods sold in the U.S. are made domestically, which we do not see this segment reshoring given the stringent EPA restrictions on prominent case goods processes.

One disruption we expected but did not see play out was an increase in vertical integration by major retailers looking to control manufacturing to bring their costs down and better control their supply. But almost all players continue to opt for OEM instead of large-scale acquisitions. We are watching this trend closely and expect major announcement along these lines in the coming years.

We are looking forward to seeing how these trends continue to play out in 2022 and beyond!

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