Recovery has started, and could be huge for some
By Jerry Epperson -- Furniture Today, March 31, 2002
Don't look now, but the economy is warming up. It's fragile and has no momentum, but the numbers are encouraging. Furniture retailers are seeing traffic pick up, and many consumers actually are buying. Since November, our industry has had reason to believe the worst is past. Hopefully, this spring and early summer will continue the trend despite being the weakest months for indoor residential furniture.
The Fed's Alan Greenspan now is calling for a moderate recovery because overall consumer spending remained relatively strong in 2000 and 2001. As a result, the magnitude of the gain might be slight. The sectors hurt the most over the past two years, like corporate profits and capital expenditures, are expected to show more vigorous gains in 2002.
The opportunity is huge for retailers. Since 1999, our industry has lost about 6.2% of its retail base. That volume should be the easiest to capture.
The normalized gain after a recession is about 6.5% per year for the first three years. This recovery should be better because, unlike past recessions when housing sales collapsed, housing retained its vigor this time. This implies a substantial deferred demand is waiting for us to fill. We believe this is true but we must recognize the realities of our economy.
This recovery will be inconsistent. Consumer confidence, which was surging late in 2001, already has had a hic-cup. Remember, consumer confidence is a lagging indicator and correlates well with employment. Employment seldom shows gains until months after a recovery begins.
There will be regional differences. So far, the Mountain states and the Southeast are faring better, but we may see the Northeast and Midwest show the larger gains because they experienced the most severe declines.
Not all categories will respond equally. So far, motion and upholstery (including leather) have experienced a broader recovery than wood. This may be because of inventory imbalances at retail, fewer upholstery makers offering quick-ship programs, or because consumers are focusing on the more public rooms in the home. This likely will balance out over the coming months.
Not all retailers will prosper equally. For example, in 2001, independent and regional furniture stores outperformed the industry average, as did department stores. Manufacturers' branded stores continue to grow, but we have seen some leveling out in single-product specialty stores.
The recovery also will be inconsistent by price point. Today, there is a greater recovery in middle-low to midpriced goods than at either the extreme low or high end. The low-end has been affected by the layoffs in our nation's manufacturing sector, while the high end continues to reflect perceived wealth as measured by our volatile stock market.
It may take two years before this economic recovery reaches all sectors of our industry. But at least it has started.
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