Washington, DC, April 26--A surge in house buying and home improvement, helped by a maturing baby-boom generation with cash to spare, has created a profitable few years for furniture and home furnishings stores.
But recent data show that a different picture is emerging. The U.S. furnishings industry -- estimated to be worth $120 billion a year -- has been hit by slackening demand combined with red-hot competition, which has pushed some players into a damaging price war and sparked talk of consolidation.
"The sector had a really solid run for a few years up until last year, when we started to see a couple of hiccups in consumer spending," said Joan Storms, an analyst at Wedbush Morgan Securities.
"People were pointing to concerns about higher interest rates, a slowdown generally in housing activity. But there also appears to be some sort of a secular spending trend. Consumers have loaded up on home goods over the past few years and now there are some competitive spending alternatives, whether that be travel, apparel or consumer electronics," Storms said.
March retail sales figures showed that furniture and home furnishings stores were the weakest performers in the month relative to total retail. Division sales grew 1.9 percent year over year, continuing a notable slowing trend that first surfaced in early 2004, AG Edwards analyst Brian Postol noted.
One of the big changes in the outlook for furnishing stores is a shift in customer demographics, industry watchers say.
Peak spending for home furnishings is highest in the 45 to 54 age bracket -- the baby boomers -- according to a recent paper by analysts at AG Edwards. They said the age bracket grew 48 percent from 1990-2000 but that growth is projected at only about 19 percent from 2000-2010.
Looking to 2010-2020, it is projected to fall 12 percent over the current decade, Postol noted.
"As the baby boomers are getting older they are downsizing, potentially. They don't need to buy as many home furnishings and they may even be pushing some of their furnishings off on their children, who may not go out and buy," Storms added.
Rocketing house prices and cheaper mortgage rates had allowed homeowners to refinance their existing properties -- and released a huge pool of spare cash. But mortgage rates have started to rise since last summer and house prices have largely tapered off.
"We are seeing a pullback in consumer spending and home furnishings and furniture tend to be big ticket items," said Kurt Barnard, president of Barnard's Retail Consulting Group.
Over the past four years, competition among specialty stores has increased dramatically, creating a scramble in all aspects of the business, from furniture to bedding to candles and accessories.
Analysts say the home furnishings retailer has been off on both its merchandise and shopping experience -- overlapping with other stores' offerings, and cluttering its stores with too many assortments.
"Buying (home) products occurs in a life cycle when you're a home owner. In the beginning, you're buying different things to when you're a few years down the road," said Laura Richardson, senior vice president, equity research at BB&T Capital Markets.
"Appliance sales have been very strong in recent years, as a function of people moving into new homes, and that might slow down. But wall decor, curtains, textiles -- the things people buy later on -- might pick up."
Sales of storage and organizational goods -- think the Container Store -- are likely to be strong, Richardson said, and outdoor furniture is still attracting demand.
