The home furnishings business should be hitting…well, home runs right now. The only thing is that it’s not: a couple of bloop singles at best.
Housing has rebounded and prices are approaching pre-Great Recession levels. Unemployment continues to drop, and more importantly, people with jobs feel less spooked that they’re going to lose them suddenly. Consumer confidence, despite the occasional outlier survey and Election Day polls, is generally positive. Gas prices are down, creating more disposable income for even budget-stretched households. And the costs of consumer goods, thanks largely to low inflation and a never-ending supply of third-world sourcing options, are a downright bargain in historical terms.
Yet sales of home furnishings products continue to struggle, even as sales of other perennial larger discretionary purchases – new cars and vacations – have rebounded from the dregs of their 2008-2009 levels.
Home may be where the heart is, but it ain’t where the spending is. What’s going on? As with most things in the universe, it’s not just one development that is causing a seminal change in the dynamics of home furnishings purchasing patterns. It’s three uneasy pieces.
1. Hello Muddah, Hello Faddah
With all due ethnic respect to Alan Sherman, the fact of the matter is that this generation of young people finishing up college is increasingly moving back in with their parents, rather than setting up their own households. And that’s a huge part of the home furnishings problem today.
The folks who keep track of such things say that there are 2.3 million so-called “missing” households in the country today. That is, new households that would exist if historical patterns of home formation had held true the past few years.
Before the Great Recession, about 27% of 18-to-34-year-olds lived with their parents. Now that number is 31%.
Do that math and that’s almost one in seven more kids heading home rather than getting their first place.
Another study makes the case even more persuasively. In the six years before the Great Recession, an average of 1.35 million households were
created every year. In the six years since, that average has dropped to just over 550,000 a year.
Even with all the hand-me-downs and trash day curbside pickups resourceful kids usually repurpose, there are still a lot of dishes, toaster ovens, sheets, rugs and other household paraphernalia that are still not being purchased.
These kids who are moving back in with their parents, doing extended stays with friends, or otherwise camping out in basements and attics
of unsuspecting relatives are using somebody else’s existing home products. Let’s face it: chipped plates and somewhat frayed towels will do just fine when you’re looking at $80,000 in student loans and no job.
2. Going Rental Mental
Ok, so we know there are simply fewer people starting households. That wouldn’t be so bad if those that were starting up were choosing the great American tradition of buying a house. But they are not.
The number of people deciding to rent rather than own is at a level this country hasn’t seen since the Reagan administration. Between 2007 and 2013, the country added about 6.2 million tenants but only just over 200,000 homeowners. While new single family home construction is finally coming around again, it’s nothing compared to multifamily construction, which last summer hit its highest level since at least 2006 and maybe even further back to 1989.
And first-time home ownership is down 5% to 33%, the lowest level since 1987. These are staggering statistics for a country that has based a wildly disproportionate percentage of its economy around the idea of home ownership. In case anyone forgot, it was the boom in the housing market that fueled the boom of the first half-decade of the new century. And it was the housing collapse that drove the nation into its biggest economic downturn in more than 80 years.
So, maybe you’re thinking what difference does it make whether someone lives in an apartment or a home? They still need those dishes and towels. Yes, that’s true, but not all home furnishings products are created equally. A renter is likely to buy the same sheets as a homeowner. They each will want some cookware and a blender and some comfortable places to sit. But is a renter likely to put in wall-to-wall carpeting as a homeowner would? How about replacing the washing machine or getting a new fridge? Will they spring for the bedroom set of their dreams if they’re not sure it’s going to fit in the next apartment they move to? And they certainly aren’t going to put in new windows, doors or kitchen cabinets if they are just passing through.
3. Home Sweet Home… or Not
The Millennial generation that is increasingly becoming the prime consumer of stuff in America does not have quite the same love affair with their homes as their parents did. Most anecdotal studies will tell you that decorating their homes is not a priority for many Millennials, no doubt because they are still cash strapped with those student loans. And maybe even more to the point, storage capacity in rentals doesn’t accommodate large collections of stuff.
They eat more meals out, be it at Chipotle or the latest all-you-can-eat Quinoa place. Big fancy kitchens don’t have quite the same appeal as they did for their parents. They also don’t seem to have the interest in some of the brands – and their corresponding premium prices – that have characterized the home business for the past few decades. Which is not to say they don’t like Ralph and Calvin and Donna. They just may not love them. Or be as loyal to these labels as previous generations have been…at least right now, anyway.
Put all of these things together – fewer households being started, an increasing number of renters with less need for some home products, and demographics pointing to an emerging less-home-conscious consumer – and it starts to make sense why the home furnishings business is not booming the way many thought it would.
That helps explain today. But what about tomorrow? Is this a fundamental change in the way America lives that will define the home furnishings industry for a generation or more? Or is it just a moment in time, and the more traditional patterns will slowly but surely return the natural order?
Tough to say, but somehow I think you shouldn’t throw in the towel and write off the home – literally or figuratively – quite yet.