Prediction: Sales growth slowing for next 2 years
Jay McIntosh, News Editor -- Furniture Today, January 14, 2007
Here at predictions central, we hope we're wrong but fear we're not. Our consensus economic forecast for the industry for this year and next, which we reported last week, calls for U.S. furniture and bedding sales to grow much more slowly than they did in 2006.
We think sales will be up 1.5% in 2007 and 2.2% in 2008, compared with an estimated 7.1% increase in 2006.
That '06 performance estimate may sound high, especially for retailers like Pier 1 Imports and The Bombay Company, which have reported sales declines, and in view of chains that have downsized or disappeared. It's an average, so while some companies were struggling, others were growing, like Ashley Furniture HomeStores, Ikea and R.C. Willey.
Moreover, the 2006 number is based in part on a U.S. government estimate, which almost certainly will be revised as more data come in. A more solid number should be available in a few months. If business slowed in the last quarter — and there were anecdotal reports that it did — that should be reflected in the update.
We also believe one factor driving 2006 growth was the continued rise of retail channels other than traditional furniture and department stores, ranging from discount chains to the Internet to grocery stores. Such growth would be less visible to those of us used to watching traditional stores.
Sales at retailers defined as furniture stores, with half or more of their business in furniture and bedding, rose 5.4%, substantially less than the overall sales number for all retail channels in 2006. We think furniture store sales will track closer to the industry's total growth, meager though that may be, over the next two years, with increases of 1.8% this year and 1.1% in 2008.
Some of the newer channels work at relatively low profit margins — another reason, along with the shift of more and more production to Asia, that furniture price increases are likely to stay small. At the consumer level, prices crept up just 2% last year and are expected to rise only 1.5% in 2007 and 1.8% in 2008, according to our forecast.
Just because sales growth is slowing doesn't mean there won't be success stories. We look forward to seeing what's next on Ashley's agenda. And companies that struggled in '06 could stage a comeback — upholstery maker Rowe, for instance, could get back on track under a new owner.
And maybe this will be the year when the global manufacturing picture starts to stabilize. So many North American case goods plants have shut down that there aren't many left to close. Some upholstery making has migrated offshore, but the business doesn't seem to be moving en masse.
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