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Blog: 2021 disruptions in the home furnishings industry

By Stuart Stump Mullens, Strain & Company

E-commerce and the symbiosis of brick and mortar. E-commerce continues to thrive and comes full circle in interesting ways. Wayfair announced last week that they will begin opening brick-and-mortar stores in 2022. At the same time, HR’s flagship brick-and-mortar retailers at Costco are investing heavily in their website presence and business. com, which is booming.

In Costco’s latest earnings call, they said their .com business grew 44.4% from a year earlier and app downloads hit 10 million. It is no longer an online versus in-store story, but rather two cooperative channels with their own distinct advantages exploited by retailers to reach customers and generate traffic. A multi-channel (or omnichannel) approach will increasingly be the norm.

Excellence in transport and logistics is increasingly the key to the value proposition of manufacturers and retailers. We see 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 major ports across the country. As supply chain pressures persist into the New Year, those who focus on logistics and getting their products to customers will thrive.

Distinct channels are blurring. Over the past few years, we’ve observed that the once-distinct channels of residential, hotel, office, senior citizen, and student housing furniture are fading away, and suppliers for one of them are looking to move into develop by providing the same or similar products for different channels. Multiple divisions / channels are increasingly common among wholesalers.

For example, hotel companies have turned to residential manufacturing and OEM work, and office players are turning to residential as working from home has become the new normal. Herman Miller’s blockbuster acquisition of Knoll is a prime example of how this blur is accelerating: The # 1 office actor is now the # 5 residential actor. We anticipate an increase in cross-channel product pollination from all players.

Furniture players turn to larger furniture. When a nearly century-old brand like Hooker changes its name (Hooker Furniture is now Hooker Furnishings) it signals something important. Furniture to furnishings is a subtle but significant difference that speaks of a broad evolution.

Historically, furniture companies have manufactured / designed / imported furniture. But as customers turn to wholesale brands they trust, there is a growing focus on being able to deliver products for the whole home – the lamp that goes next to the sofa, the the carpet that goes under this chair, the placemats that go on the table. Historically, the vast majority of players in the home furnishings space only offered a handful of product categories; today, the reverse is happening and only a few players remain specialized in a narrow product niche.

This is evident in this year’s M&A activity: Norwest Equity Partners acquired Arteriors (lighting and decoration), followed by Thibault (wallcoverings, fabrics and furnishings), Best Buy (electronics and increasingly home goods) acquired Yardbird (D2C casual outdoor furniture), and Classic Home (importer of storage and decorating furniture) acquired Braxton-Culler (a national manufacturer of upholstery).

The relocation of upholstery is gaining momentum. As supply chains in Asia have stretched and container costs have skyrocketed this year, we have seen a swing towards domestic production of large upholstery fabrics. Currently, more than half of the upholstery fabrics sold in the United States are made in the United States, 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. However, only a very small percentage of merchandise sold in the U.S. is made domestically, which we don’t see this segment relocating given the EPA’s strict restrictions on important commodity processes.

One disruption that we expected but did not see unfold was an increase in vertical integration by large brands keen to control manufacturing in order to reduce their costs and better control their supply. But almost all players continue to opt for OEM over large-scale acquisitions. We are following this trend closely and expect important announcements in this direction in the years to come.

We can’t wait to see how these trends continue to manifest in 2022 and beyond!