How can furniture brands overcome inflation fatigue?

HIGH POINT—As stubborn inflation continues to weigh on household budgets, furniture retailers serving value-conscious consumers are facing a delicate balancing act: protecting margins while continuing to convert shoppers who have grown increasingly sensitive to price.

According to Ben Johnston, chief operating officer of small-business lender Kapitus, today’s marketplace is becoming increasingly bifurcated as higher prices for essentials consume a larger share of many consumers’ budgets.

“While inflation is impacting all consumers across nearly all goods, it is not impacting all consumers equally,” Johnston said. “We now live in a K-shaped economy where the wealthy minority drive growth in consumer spending and everyone else struggles to make ends meet.”

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That divide has become more pronounced in recent months as rising energy costs add another layer of pressure to household finances. Johnston noted that higher fuel and grocery costs affect lower- and middle-income consumers far more than affluent shoppers, creating two distinct customer segments for retailers to serve.

“The result is a bifurcated market for small businesses to target where one customer group continues to demand premium quality and service items while the other is looking for value and ways to reduce expenses,” he said.

For furniture retailers targeting promotional and value-oriented consumers, that reality means maintaining affordability without sacrificing profitability.

Rather than relying solely on discounts, Johnston said many businesses are looking for ways to lower costs while preserving a baseline level of service. In furniture and home furnishings, financing options can also play an important role.

“Retailers in the furniture and home goods sector may also partner with buy-now-pay-later firms to help customers finance their purchases,” Johnston said.

At the same time, retailers and suppliers continue to navigate a series of external pressures that have squeezed margins over the past year. Businesses have spent months adjusting to tariffs, reshaping supply chains and pursuing domestic sourcing opportunities where possible. Those efforts have come alongside elevated inflation, higher interest rates and now increasing energy costs.

With oil prices still high, Johnston said many companies are once again wrestling with whether to absorb higher operating costs or pass them along to consumers.

“We expect that retailers and suppliers will likely delay raising prices as long as possible — similarly to when tariffs were first introduced — but that they will ultimately need to pass these expenses on to customers should prices remain elevated,” he said.

The uncertainty surrounding those costs is also affecting broader business decisions, and Johnson suggests keeping the focus firmly on meeting consumers where they are.

Small businesses in the furniture and home goods sector should be focused on customer demand, cost of goods, operating expense, and free cash flow,” he said.  “Finding a dependable market at prices that are sufficient to cover the cost of the business is critical…Companies should also maintain several financing relationships to help them finance growth and handle any volatility in cash flow.”

Johnston said many retailers and suppliers are taking a measured approach to expansion, testing new markets on a small scale and validating demand before making larger investments. Others are looking to automation and artificial intelligence to improve efficiency and reduce operating expenses.

“They are also looking for automation and AI solutions to reduce headcount and their dependence on volatile labor markets,” he said.

In the current environment, Johnston believes the most successful businesses will be those that remain flexible.

“Successful retailers and suppliers today maintain options in their supply chain, their headcount, and in their access to capital,” he said.

He added that companies should keep a close eye on customer demand, cost of goods, operating expenses and free cash flow, while maintaining multiple financing relationships that can help manage growth and cash-flow volatility.

“Having options in difficult times is critical to managing a durable business,” Johnston said.