The Home Run
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\"RR Don’t look now, but Wall Street is actually loving home furnishings retailers…finally.

Many of the stock prices of pure-play public retailing corporations that specialize in selling home furnishings —Bed Bath & Beyond, Home Depot, Pier One, Williams Sonoma, Ethan Allen—are at, or near, their recent historical highs.

Restoration Hardware, which went public only last winter after years of struggling to right itself financially, has nearly doubled in price in six months and

people are lining up for the company’s next stock offering. Even the recent poster boy of retailing disaster and disarray, JC Penney (née JCP) has seen its stock run up over the past two months by almost a third. And it’s not been on the departure of retail savant Ron Johnson or the return of Magic Mike Ullman, but on the speculative success of the re-launch of the store’s home department.

All of which begs the question: What’s up with that?

OK, first take the recent run-up in home store share prices in the context of the overall stock market. The Dow has been breaking records on a regular basis for much of the past year. Even as the overall economy continues to slowly recover and unemployment remains a huge drag on consumer spending, Wall Street is riding high as the place where people with money…well, put their money.

And the overall retailing segment has been relatively strong as well. Never a Street darling, the category has been keeping up with the total market pretty consistently. Stocks like Macy’s are near their 52-week highs.

But home furnishings retailers? Most investors historically have shown they would rather put their money in Bulgarian tech stocks than stores that sell sofas and sheets and frying pans. Over the years, home stores have made airline stocks look like good investments.

Home is Where the Market Is

So, what’s happening with home furnishings retailer stocks is indeed pretty remarkable. Which brings us back to the original question: Why? Most obviously, much of what is happening with home stores is the result of what’s happening with home. The home market is back and that means the home furnishings market is back.

Several years ago when I was editor at one of the industry’s business publications, we decided to really see how the housing market impacted home furnishings sales. We plotted the key housing statistics—new housing starts, sales and moves—and then overlaid home furnishing product sales from public companies and industry associations. What we discovered was that depending on the specific home product category, the timeline for furnishings sales trailed the housing market by six to nine months.

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Certain products like building supplies, kitchen cabinets and major durable products like carpeting, windows and doors tended to hit earlier while the more decorative purchases like furniture, textiles and decorative accents were on the trailing edge of the curve. It was pretty consistent and when we bounced these findings off of key industry players nobody really disputed the results.

Fast-forward to 2013 and we are well into a full-tilt recovery of the housing market. Even especially toxic geographic areas like Las Vegas, Arizona, Florida and parts of California are well on their way back to pre-2008 levels. When this all started is a fine point, but it’s safe to say it was somewhere towards the back end of 2012 when it became clearly and statistically clear that housing was back.

Gee, that seems to be about six to nine months ago. Hmmmmmmm….what a coincidence.

Simply put, the home furnishings business is about to explode. If stores like Home Depot are on the leading edge of this buying spree then we’re already seeing them report strong sales and earnings. Wall Street, in its infinite and diabolical wisdom, has already made its move and is now just waiting for the delivery trucks to show up.

Role Modeling

Perhaps no home furnishings retailer tells the story better than Restoration Hardware. This was a store that in its last iteration as a public company may have set the all-time record for most number of years without making any money. Then it went private and decided to double-down on a daring, go-for-broke strategy that took it way up-market with price tags that were only matched by the ginormous size of the products themselves.

\"photo-1\"Then-CEO Gary Friedman told an interviewer (it was me if you must know) about the new strategy, instituted as the entire American economy was sinking fast into the Great Recession: “If we’re going to go down, we’re going to go down with style.” Until Resto emerged back into the public markets with its IPO last year, nobody outside the company really knew whether that strategy was working. To make matters worse, Friedman had stepped aside as CEO, the result of a situation that may, or may not have, revolved around arguably inappropriate corner office behavior with a fellow employee. Freidman stayed on as spiritual guru and public persona for the company.

But the numbers turned out to be pretty good and they’ve stayed that way. The stock went public its first day at around $30 but is now trading in the high 50s. Following a 30% increase in its fourth quarter revenue, Resto announced it was going to offer another 7.5 million shares to the public. Resto is hot and while its singular strategy is turning out to be a good one, it is certainly riding the home surge.

So too is Bed Bath & Beyond. At the end of 2012, every analyst with a Bloomberg terminal was talking about this stock tanking and Bed Bath being among the most vulnerable brick and mortar stores to the online onslaught.

The trash talk was getting pretty nasty. In mid-February the stock was still mired in the mid-50s but since then it has climbed and now sits a buck or two on either side of $70 depending what day it is. The store really hasn’t changed its merchandising strategy, cut costs or otherwise altered its game plan. It is simply the beneficiary of a stronger home furnishings market.

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Williams Sonoma has gotten somewhat more promotional under new president Laura Alber and Pier 1 Imports has finally discovered this thing called the Internet after shutting down its online activities when it nearly went bankrupt five or six years ago. Those strategies have helped both retailers. But not enough to cause each of these companies to hit all-time highs in their stock prices recently.

It comes down to one simple fact: The entire home furnishings retailing world is reaping the housing market dividend. And it’s only just starting. Even if you are justifiably concerned that some of the run-up in housing sales is the result of bottom-feeding speculators—not the type voted most likely to buy a new couch—there still seems to be enough legitimate momentum to power home furnishings sales for the foreseeable future.

The old saying is that a man’s home is his castle. It turns out to be a pretty good little moneymaker for home stores too.

Warren Shoulberg is editorial director for several Sandow Media home furnishings business publications and he rents…just in case.

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