Somewhere, in that great classroom in the sky, Adam Smith is standing there behind his lectern, saying “I told you so.”
As you probably may not remember from your high school Economics 101 course, Smith — pretty much considered the father of the field — was the one who came up with the fabled Law of Supply and Demand. And if you ever needed a practical example of how the law works, all you need do is look at the current state of the home furnishings business. In perhaps the greatest boom period in generations for its products as people have been stuck at home and focusing their attention on making where they live a nicer place, the industry is facing severe shortages in being able to meet that demand.
[callout]Raw material shortages in everything from lumber to electronics. If you needed things like fabrics or fittings to make your goods you were largely out of luck.[/callout]
Nobody ever said Smith didn’t have a sense of humor.
The reasons for the short supplies are similar to situations facing any number of consumer and industrial products during the pandemic era, from toilet paper and Clorox early on to semiconductors and rare earth minerals more recently. The industry is facing shutdowns and reduced output from Asian factories coupled with the diminished capacity of the entire supply chain. Virtually every component from the actual containers to the ports where they are processed and the ships and trucks that move them is dealing with capacity issues, backing up deliveries for thousands of miles and months at a time .
Home Is Where the Goods Aren’t
What has made home furnishings a more acute problem has been an unprecedented demand driven by changing consumer spending priorities. Without vacations, restaurant meals, airfares and events like sporting games and movies, we have all been spending some serious percentage of our stimulus-fueled disposable income to get where we live spiffed up.
The home business has a few other unique circumstances to enhance its problems:
- Raw material shortages in everything from lumber to electronics. If you needed things like fabrics or fittings to make your goods you were largely out of luck.
- One particular raw material — the foam used inside of products like couches and mattresses — was hit big-time in February when crazy weather impacted the U.S. gulf coast where much of this stuff is made. Production is getting back online now but the backlog will take some time to get worked off.
- American importers and wholesalers, particularly in the furniture sector, are still reeling from the disastrous Trump-era Tariff Wars that threw much of the existing production process into utter chaos. U.S. suppliers scrambled to move out of China only to discover that no other Asian nations — much less domestic producers back home — were capable of meeting their needs. But with the transition in process any hope of some semblance of normalcy was pretty much gone once Covid hit.
- About the only good news when it came to the supply chain was that as far as anybody knows there was not a single stitch of home furnishings goods aboard the Ever Given when it went aground in the Suez Canal a few weeks back. (Not that it probably hasn’t stopped more than one supplier from using it as a dog-ate-my-homework excuse for delayed deliveries.)
Supply Chain of Fools
All of this is causing some rather interesting solutions for the big box retailers that dominate the home furnishings business: Walmart and Target at the mass merchant level, specialty chains like Bed Bath & Beyond and both the Williams Sonoma and TJX staple of brands and the countless regional furniture dealers that still hold a pretty good market share in that space. While none of them especially want to talk about it other than to say they are handling the situation as best as possible, between the lines there are several readily apparent consequences.
- For the first time in a long time — a very long time — there have been price increases on some goods. For an industry that has long been a buyers’ market, this is most unusual. Sure, they are small — a few percentage points maybe — and by no means across-the-board, but for some executives in the field it’s the first time they’ve ever been able to hit the plus signs on their pricing guns.
- Inventories are being cleaned out at both the wholesale and retail levels. With few or no incoming goods, suppliers are dumping whatever has been sitting in their warehouses and retailers are emptying out their back rooms. More than one supplier has said that when their customers ask about availability, they basically will take whatever is offered. There are no dogs in a sellers’ market it seems.
- Suppliers, finding themselves with full order books, backlogged deliveries and no relief in sight, are taking the unprecedented step of not even showing up for industry wholesale market events, live or virtual. There are those who would argue that hiding from your customers when you’re disappointing them may not be the best example of handling industry relations, but some vendors decided it was better than hearing endless griping about back orders.
- And lastly, apparently the consumer has decided that spending money on their homes is not such a bad thing. All the need for experiences, fancy meals and hanging out with their pals was nice but gee … my place is a dump and I better fix it up.
So, the inevitable question is one we may have an answer for much faster than many people thought as recently as 90 days ago. As we emerge from our caves, throw off our masks and venture out to airports, baseball games, movie theaters and get-togethers with more than two people, what happens to the home furnishings business?
Here’s the thing: Ask anybody in the industry when they think supply will catch up with demand and they get a sad look on their faces as they say it will be when demand slows down…not the other way around. The industry doesn’t believe factory production, supply chain logistics or raw material shortages are going to be fixed anytime soon. So, in an ironic case of be careful what you wish for, their problems will lessen when business does. And most see that coming either in the fourth quarter of this year or shortly thereafter in the early stages of 2022.
Some do believe there will be some residual, perhaps lasting effect from all this attention on home. Retailers from Williams Sonoma to RH to Room & Board believe the consumer has truly come to value their homes more than they used to and if the initial surge of remodeling, redecorating and refurbishing subsides, spending levels in at least the immediate future will still be higher than they were pre-Covid.
So, all those big boxes out on the highway will eventually get refilled with club chairs, toaster ovens and towels. The pandemic boom will be just a memory by then and once more, all will be right again with the Law of Supply and Demand.