Look no further than Thursday’s bleak retail numbers. November retail sales fell by the most in nearly a year, with home furnishing and building supplies showing some of the steepest declines from the previous month, according to the U.S. Census Bureau.
Home improvement and furniture companies saw concurrent lifts in business as the housing market tightened during the early pandemic years. Lowe’s Cos. Inc., Home Depot Inc. and previously struggling furnishing companies such as Wayfair saw soaring sales from people cooped up at home with money to spare from stimulus checks. People could no longer ignore their disorganized garages, that one hole in a wall or the cracks in their old bathroom tiles as offices, restaurants and bars closed. Low interest rates helped folks tap their home equity and refinance to tackle larger projects.
Many potential homebuyers, put off by rocketing property prices, turned instead to fixing up their existing homes or rentals with new paint or maybe a DIY garden bed. At nearly every level, people were looking to spruce up their homes in whatever way they could.
But that fast uptick in home spending has fallen off fast, too. Much of the initial pandemic spending has receded, and inflation is driving people to focus on necessary purchases. That pivot favors home improvement over furniture in a tough selling environment.
Already, these shifts are apparent: Home improvement retail sales have grown by about 7% over the year, while home furniture sales have grown just 1%, according to the U.S. Census Bureau. Lowe’s and Home Depot have been cautiously optimistic about their prospects for next year. There’s still pent-up demand for larger home renovation projects, and the companies anticipate that elevated home prices will encourage people to continue to invest in their homes through DIY projects or replacing broken appliances.
But the likes of Wayfair, Williams-Sonoma and R-H are in for a tough year. R-H’s Chief Executive Officer Gary Friedman put it bluntly when he told investors in September that “anybody [who] thinks we’re not in a recession is crazy.’’ New home sales have fallen most months this year and the outlook for next year is clouded by continuing Federal Reserve interest-rate increases. That means fewer new buyers on the market looking to fill their shiny new homes with furniture and appliances.
It’s not all doom and gloom, though. Shopping behavior has dramatically changed with the pandemic as phones and laptops became people’s most consistent connection to the world. In that time, retailers discovered that browsing the internet and home-improvement shows on Netflix and the like are an important and valuable demand generator both online and in-store.
Homebuyers, renters and stretched homeowners may not be in a position to spend like they did in 2020, but they are still dreaming about it. For retailers, that amounts to pent-up demand that will be unleashed later down the line. Retailers who recognize this opportunity will come out the other end of a rough economic moment with more loyalty than they had before. And in a competitive market, the better companies can tap into shoppers’ Instagram home-decor dreams, the better they’ll survive.
More From Bloomberg Opinion:
• Waiting for Home Prices to Drop? Bad Strategy: Alexis Leondis
• The American Dream Needs an Extensive Renovation: Editorial
• Homebuilders Buy Time With Huge Pandemic Backlogs: Conor Sen
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.
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