On December 18, 2023, Furniture Today magazine held the "Retail Planning Guide" virtual event, with over 400 attendees, mainly furniture retailers from the US. This seminar was sponsored by 25home as a sponsor. The conference content was related to topics and insights regarding the Top 100 US retailers and other major retailers. Through this seminar, Furniture Today aimed to provide valuable business information and advice to furniture retailers, helping them plan their development path for 2024. 25home also got the opportunity to connect with major US retailers. This article summarizes the main views and predictions from the seminar for readers' reference.
As 2023 draws to a close, the furniture industry is also thinking about the outlook for 2024. This article predicts the situation the furniture industry may face in 2024, as well as analysis of influencing factors, through several conversations held at the "Retail Planning Guide" virtual event hosted by Furniture Today magazine. This involves multiple aspects including economic outlook, commercial real estate, M&A trends, etc. Hopefully these insights from industry experts can help furniture companies better plan their development strategies for 2024.
The Economic Outlook for 2024
Furniture Today Editor-in-Chief Bill Mclaughlin spoke with senior editors Sheila Long and Joanne Friedrich to predict trends in the furniture industry for 2023-2024.
They believe that in 2023, due to the softening housing market, consumers shifting spending towards experiences and services, the resumption of student loan repayments, and persistently high inflation, the furniture industry as a whole could decline by 3.2%. In 2023, nearly half of the top 100 companies suffered losses, and the industry also fell nearly 1% compared to 2022. The industry will continue to decline by 0.4% in 2024, with at least the first two quarters performing poorly.
Several key factors affecting the furniture industry include:
- Rising interest rates
The Fed has raised interest rates 11 times from March 2022 to July 2023. Entering 2024, with inflation still around 4%, interest rates are expected to continue rising, which will further impact the furniture industry.
- Real estate market
Housing starts and existing home sales are both declining, directly affecting furniture purchases.
- Shifting consumer spending
Consumers are shifting more spending towards travel, entertainment, clothing, etc., from which the furniture industry has not benefited.
- Limited purchasing power of younger generations
The reduction of stimulus spending and the resumption of student loan repayments further limited the purchasing power of Millennials and Gen Z.
- Persistently high inflation
Inflation is around 8%, further reducing real income levels.
Despite this, some categories in the furniture industry are performing well, such as outdoor furniture and power furniture. This is related to the lifestyles and furniture usage habits of younger generations. Their enriched indoor lives are driving purchases of more comfortable furniture. Retailers can consider adjusting their product mix to capture growth opportunities.
In addition, they should stay in contact with consumers and continue recommending complementary small items after the purchase of large furniture pieces. This will help increase customer return rates and repeat purchase rates. Attention should be paid to the diverse needs of different consumer groups, and product positioning needs to be diverse. Do not focus only on a single market segment.
The Commercial Real Estate Outlook for 2024
Bill Mclaughlin spoke with commercial real estate experts Julius Spineblue and Ben Haberty in turn, discussing the commercial real estate situation furniture retailers may face in 2024.
They believe that overall, commercial real estate supply is lower than demand, rents continue rising, and it’s a landlord’s market. High-performing large retailers are still actively looking for expansion opportunities. High-quality commercial real estate remains extremely scarce, with rent staying high. In comparison, rent for second-tier commercial real estate has fallen slightly compared to pre-pandemic levels, but only by about 3-5%. There are certain opportunities in third-tier real estate due to the limited tenant base, but retailers need to choose carefully.
The pandemic has led many large non-furniture retailers to plan smaller store footprints, which also provides opportunities for furniture retailers, especially those looking to expand. Many furniture manufacturers are also considering shifting production back to the US to avoid overseas transportation uncertainties. This also creates opportunities for domestic manufacturing.
Overall, 2024 will be a year of opportunities for furniture retailers looking to expand. When advantageous resources become available, retailers need to seize the opportunity to expand business. Such opportunities may not come again for many years. Of course, companies also need to ensure they have strong financial capabilities and solid teams to support expansion.
Merger and Acquisitioning Outlook for 2024
Bill Mclaughlin interviewed M&A expert Jerry Eperson to discuss M&A trends in the furniture industry for 2024.
Eperson believes that in recent years the overall industry has been rather weak, with many companies losing strength, creating opportunities for M&A activity. Private equity funds urgently need investment opportunities to earn management fees, which has also driven the M&A wave. In a high interest rate environment, banks will review risk exposures in lending and consolidate their loan portfolio, eliminating problem companies, which also gives rise to M&A opportunities.
Entering 2024, despite the possibility of further interest rate hikes, huge amounts of private capital still need to be deployed. Therefore, there will still be large-scale M&A activities. Some companies will also take this opportunity to consolidate resources and prepare for future sell-offs.
From the buyer's perspective, if the target company can perfectly fit their own business and fill market gaps, now is also a relatively good entry point. The buyers themselves also need to be prepared, ensuring smooth financing channels and solid teams to support M&A activities.
From the seller's perspective, timing is crucial. M&A experts can provide valuable advice on judging industry trends and capital environment, and selecting the optimal timing for selling the business.
Product diversification has also increasingly become the focus of many companies' development. Solid wood furniture companies hope to expand into upholstered furniture, and vice versa. This is related to changes in the supply chain, and also the expansion of retailer scale. Furniture companies need to adjust accordingly in order to achieve greater synergistic effects.
Finally, Eperson emphasized the opportunities brought about by changes in population structure. Millennials and Gen Z are gradually becoming the main consumer groups, with strong demand for home furnishings. This will drive a new growth cycle for the furniture industry during 2024-2030. Now is a good time for furniture companies to get prepared.
In summary, experts predict the furniture industry will still face challenges in 2024, and the weak situation will continue at least through the first half of the year. But there are also opportunities in the industry; the key is to grasp the changing consumption needs of younger generations, adjust product mix, and pay attention to the timing of mergers and acquisitions. The confluence of various influencing factors also makes 2024 a year of greater variables. Furniture companies need to maintain strategic resolve and take proactive actions in order to open up better development prospects amidst the changing circumstances.