Declining prices a reason for shrinking share
By Jay McIntosh -- Furniture Today, March 7, 2004
WASHINGTON — Furniture just keeps getting cheaper.
That's one conclusion that can be drawn from new statistics on U.S. consumer spending for furniture and bedding.
Another is that the industry is getting a declining share of total consumer spending, largely because of the falling prices but also because people are spending more on other goods and services, like cell phones and prescription drugs.
Of every $100 that consumers spent in 2003, according to the U.S. Department of Commerce, 92 cents went to buy furniture and bedding, down from $1 in 2000. If the industry had maintained the $1 per $100 share of spending, about $6 billion more furniture and bedding would have been sold in 2003.
Put another way, spending on furniture and bedding grew about 6% between 2000 and 2003, lagging behind the 15% growth in spending on all goods and services.
Declining prices appear to be one reason for the shrinking share. In dollars adjusted for deflation, the share remained almost stable from 2000 through 2003.
According to the government, prices on furniture and bedding products, on average, fell by about 5% from 2000 to 2003. If prices had stayed at 2000 levels, furniture and bedding spending would have grown a little over 11% in the past three years rather than 6%.
What's behind the price slippage? Likely reasons are the onset of low-cost imports and erosion of the average retail markup.
"Furniture, for decades, hasn't raised its prices to the same degree as almost any other expenditure," said Jerry Epperson, an industry analyst with Mann, Armistead & Epperson in Richmond, Va. A store that sold sofas for $399 in the 1970s might be selling them for the same price today, he said.
In certain furniture categories, prices have fallen sharply. Some Asian-made case goods are significantly cheaper than comparable products made in the United States a few years ago.
"We've also got products out there today that we've never had before," Epperson said. "The most obvious example is leather. You can go back to the 1960s and 1970s and you can't find a leather sofa for under $800 or $900. Now you can find a lot for under $500."
U.S. furniture imports have more than tripled in a decade, rising from $4.3 billion in 1993 to $14.4 billion in 2002, enough to exert a big influence on prices. Estimated U.S. furniture factory production last year was $24.8 billion, according to BDO Seidman.
Another factor is the rise of low-margin retailing, seen most starkly in the growing popularity of warehouse clubs and other discounters. Wal-Mart may have a narrow selection, but last year it became the largest single U.S. retailer of furniture and bedding. And one of the fastest-growing stores in the United States is Ikea, much of whose furniture is promotionally priced.
The Internet also may be contributing to deflation, letting shoppers compare prices on some products more easily.
Epperson calculates a "retail add-on margin," taking furniture including imports at cost plus expenses including freight, and adding an amount that represents retailing's aggregate gross margin to arrive at total retail sales. This margin declined from 46.5% of wholesale cost plus expenses in 1992 to 37.6% in 2002, he believes.
While the industry's sliding share of spending in the past three years seems related partly to price, there have been previous dips that probably haven't been. The 92 cents per $100 in 2003 tied the number for 1992, when the industry was just pulling out of a recession.
"Any time there's a hint of recession, furniture hurts because you can easily postpone the purchase," said Richard Bennington, a furniture marketing professor at High Point University.
Some of that may be happening today, as consumers worry about a slow economy and job security.
The new figures also show how spending priorities have changed. While furniture and bedding spending rose 6% from 2000 to 2003, consumers spent 22.9% more on higher education, 26.8% more on medical care, 45.7% more on prescription drugs and 55.5% more on cell phones.
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