US Furniture Market October 6 2016 - Fung Global · PDF fileEarlier this year we published A...

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OCTOBER6,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

D E B O R AH WE I N SWI G M a n a g i n g D i r e c t o r ,

F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s wi g @ f u n g 1 9 3 7 . c o m

U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9

C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

TheseareourkeytakeawaysontheUSfurnituremarket:

1) TheUSfurnituremarkethasbeengrowingsince2009,supportedbyafavorablemacroeconomicenvironment.Furnituresalesareexpectedtocontinuerisingbecausehome sales are increasing and consumers haveswitchedexpendituresbacktofurniture.

2) The back-to-school season is the second-largestseasonalshoppingperiodoftheyearandisexpectedtogenerate around $6.23 billion in furniture spending intheUSthisyear,accordingtoanNRFsurvey.

3) Furniture e-commerce is growing fast in the US.However, there is still a gap between online productresearch and online furniture purchase. Manyconsumers prefer to research online but purchase in-store.

4) Innovative products that connect furniturewith smartphones or combine furniture with technology andfashiondesignareemergingintheUSandglobally.

DEEP DIVE: US FURNITURE

MARKET 2016: Preferences

and Trends

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OCTOBER6,2016


TABLEOFCONTENTS

EXECUTIVESUMMARY....................................................................................................................3

MACROECONOMICOUTLOOK......................................................................................................4

CONSUMERPREFERENCES.............................................................................................................6

MARKETSNAPSHOT.......................................................................................................................8

FUTURETRENDS...........................................................................................................................13

TECHNOLOGYANDINNOVATION..................................................................................................16

CONCLUSION................................................................................................................................17

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EXECUTIVESUMMARYConsumer furniture and bedding expenditure in the US reached US$102billionin2015andweexpectthatthecategorywillcontinuetogrowatacompound annual growth rate (CAGR) of 3% until 2020 on the back ofhealthyfundamentals.

This year the back-to-school shopping season is expected to have afavourable impact on sales of furniture, which are forecast to reachUS$6.23billionaccordingtoNationalRetailFederation.

Source:Shutterstock

Surveydata shows thatUS consumers showapreference forqualityanddurability when purchasing furniture. They show a growing appetite foroutdoor furniture while also appreciating vintage pieces as well asenvironmental conscious options. In addition, US consumers necessitateshort delivery times and look to furniture of US origin, which favorsdomesticplayerswhononethelessoccupy9outofthe10toppositionsonthemarketbasedonrevenue.

Though US consumers value going online as a way to search and findinformationonproducts, furnituree-commerce is still inanascentstage.That being said, the channel is developing robustlywith the adoption oftechnologiessuchasVRandAR.

Inthisreportwealsointroducethreeinnovativefurnitureretailers.MicroDprovides online solutions for furniture retailers, HUMBlab combinestechnology with furniture design, and e15 cooperates with fashiondesignerstocatertoamoresavvyconsumer.

EarlierthisyearwepublishedADeepDiveintotheUSFurnitureMarket.Inthisreport,weupdatetheanalysisoftrendsanddriversthatwillshapethemarketforfurnituregoingforward.

Welookatthemacroeconomicoutlookthatimpactsthesector,prevailingconsumerpreferences,thecompetitiveenvironmentandfutureconsumerand technology trends that will underpin the development of the USfurnitureindustry.

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MACROECONOMICOUTLOOKThemacroeconomicenvironmentisfavorablefortheUSfurnituremarket.Increasinghomesalesand improvedunemployment ratesareallpositivedevelopmentsforsalesoffurniture.

Furniture store sales have increased continuously since the economicrecession in2009.Thisupwardtrend indicatesUSconsumersareshiftingback to furniture.Adjusted furniture andhome furnishings store sales inthe US increased 1.6% year over year to $8,986million in August 2016,accordingtotheUSCensusBureau.

Figure1.US:FurnitureStoreSalesvs.OtherRetailSectorsIndex

August2009=100;seasonallyadjustedSource:USCensusBureau/FungGlobalRetail&Technology

Astronghousingmarketisgoodnewsforthefurnituresector.Andrecentfigures showan improving real estatemarket across theUS.Newsingle-familyhomesales intheUSsurgedby31.3%yearoveryear inJuly2016,seeing double-digit rate for a fourth consecutive month. Existing homesalessaw7monthsofpositivegrowth,eventhoughthe indicatorslippedtoa(1.6)%yearoveryeardeclineinthemostrecentperiod,accordingtotheNational Association of Realtors. Despite themoderate slowdown inexisting home sales, the market still poses a positive environment forfurnitureretailingoverall.

128.4

83.6

146.9

110.1

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Aug09 Aug10 Aug11 Aug12 Aug13 Aug14 Aug15 Aug16

FurnitureandHomeFurnishingsStores

DepartmentStores(ExcludingLeasedDepartments)

FoodServicesandDrinkingPlaces

ElectronicsandApplianceStores

TheimprovingmacroeconomicenvironmentispositivefortheUSfurnituremarket.HomesaleshavebeenincreasingandUSconsumersareexpectedtoincreasetheirexpendituresonfurniture.

Furniturestoresalesoutpaceddepartmentstoresalesandelectronicsandappliancestoresales.

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Figure2.US:ExistingandNewSingle-FamilyHomeSales:YoY%Change

Source:NationalAssociationofRealtors/FederalReserveEconomicData(FRED)

Consumersentimentstrengthenedasdisposableincomeincreased,whichis favorable for the furnituremarket. The online furniture industry newssource,FurnitureToday,forecastfurnituresalesintheUSwillcontinuetogrowinthenextfiveyearsandreach$122billionby2020,a3%compoundannualgrowthrate(CAGR).

Figure3.US:ConsumerFurnitureandBeddingSpending(USDBil.)

Source:FurnitureToday/FungGlobalRetail&Technology

(1.6)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Jul14 Jan15 Jul15 Jan16 Jul16

ExisfngHomeSales NewOneFamilyHomeSales

31.3

100.8 98.2 102.0 106.2

122.0

2007 2014 2015 2016E 2020E

CAGR:3%

FurnituresalesintheUSareexpectedtoseeaCAGRof3%andtoreach$122billionby2020.

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CONSUMERPREFERENCES

Key takeaways from consumer surveys are that US shoppers care aboutquality more than price levels when they purchase furniture, butmillennials have shown they are more price-sensitive than other agecohorts.

QualityandDurability

According to a survey conducted by Furniture Today in 2016, USconsumers want quality and durability when they choose furnitureproducts.

• The majority of the respondents preferred home furnishings thatcanlast5to9years.

• Among sofa-buyers, 91% said quality and durability are veryimportantwhen theymakeapurchase; 36% revealed theyexpecttokeepanewlypurchasedsofafor5to9yearsand28%intendtokeepitfor15yearsormore.

• Consumersexpectwalldécorandwoodfurnituretohavea longercomparativelifespan,ofmorethan15years.

DeliveryTime

Another 2016 Furniture Today survey found both brick-and-mortar andonline consumers expect to take delivery of purchased furniture withinonemonth.However,onlinebuyersbearlongerdeliverytimesthanbrick-and-mortar storebuyers.When furniture consumers shop in stores, theyexpect to find a larger inventory in the stores so goods are availableimmediatelyupontheirpurchase.

Figure4.US:Consumers’ExpectedFurnitureTime-To-Delivery


USconsumersexpresstheirpreferenceforqualityanddurabilitywhentheypurchasefurniture.TheyalsovalueshortdeliverytimesandproductsmadeintheUS.

40%

26%

34%

OnlineConsumers

Receivewithinonetotwoweeks

Receivewithinthreetofourweeks

Others

26%

30%

44%

Brick-and-MortarStoreConsumers

Receiveonthepurchaseday

Receivewithintheweek

Others

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In addition to short delivery times, customers also expect transparencyandtheabilitytotrackordersthroughoutthedeliveryprocess.Theywanttoknowwheretheproductisstoredandhowlongitwilltaketoarrive.

PreferenceforUSOrigin

According to a 2015 survey by Furniture Today, US consumers preferfurniture made in the US because they think American furniture is ofhigherquality.TheyalsobelieveUSfurnitureismoreeasilycustomized.

• Ofthosesurveyed,59%expressedtheirwillingnesstospendmoreonfurnituremade intheUS,upfrom33%inthepreviousyear’ssurvey.

• Mostrespondentssaidtheywouldpay20%moreforproductsofUSorigin.

LivingRoomRedecorations

According to the 2016 Home Decorating Survey conducted by FurnitureToday, the living room is the first stop for US consumers who plan toredecorate,andthefirstproductontheirshoppinglististhesofa,followedbyentertainmentfurnitureandarearugs.Additionalitemsconsumersmaypurchase when they redecorate their living rooms include occasionaltables,andlampsanddecorativeaccessories,suchasvases,candleholdersandsculptures.

• On average, US consumers are willing to spend $2,200 for livingroomredecoration.

• Boomers are likely to spend the most on redecoration, with abudgetof$3,000, followedbybudgetsof$2,500 forGenerationXand$1,500formillennials.

Figure5.US:Consumers’Expected2016LivingRoomRedecorationExpenditures(USD),byAgeGroup


Amajorityofthosesurveyedsaidwhentheyredecoratealivingroom,thefirstthingtheyreplaceisthesofa,accordingtoFurnitureToday.

$2,200

$3,000

$2,500

$1,500

AllConsumers Boomers GenerafonX Millennials

USconsumersplacegreatemphasisonlivingroomredecorations,beingwillingtospend$2,200in2016onaverage.

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• Ofthosesurveyed,60%saidtheydesigntheirlivingroomaroundasofa.

• Nearlyhalfoftherespondentssaidtheywerewillingtospendmorethan $500 on a leather sofa and 19% would spend more than$1,000.

Figure6.US:Consumers’ExpectedExpenditureonaLeatherSofa


MARKETSNAPSHOTTheUSfurnituremarketisledbydomesticplayers;nineoutofthetop-10furniture retailers are American companies. This is in line with USconsumers’preferenceforfurnitureproducedinthecountry.

Source:Shutterstock

Ashley HomeStore and IKEA are ranked first and second place by sales,respectively, thesamespots theyheld in2014.TheUS’s largestspecialtymattress retailer,Mattress Firm, had a 38.6% year-over-year increase insales on the back of its acquisitions of Back to Bed, Bedding Experts,Mattress Barn and Sleep Train in 2014. The company maintained itsacquisitivestrategybymergingwithSleepy's,thesecond-largestspecialtymattressretailer in theUS, in2016.Theacquisitionaddedapproximately1,050storestoMattressFirm’sstorefootprint. Inturn,theacquisitionof

19%

29%23%

29%

>=$1,000 $500-$999 $300-$499 <=$300

TheUSfurnituremarketisledbydomesticplayers,withnineoutofthetop-10furnitureretailersofUSorigin.

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Mattress Firm by South African retail group Steinhoff was announced inAugust2016.

Also, impressively, sales increased26%atBerkshireHathaway’s furnituredivision in 2015, fueled by the new Nebraska Furniture Mart store inDallas, TX, that opened last year. Although it missed expectations,Restoration Hardware still saw 14.4% year-over-year sales growthsupportedbythelaunchofRHModernandRHTeen.

Figure7.Top-10USFurnitureRetailers:Furniture,BeddingandAccessoriesSales,2015

Rank CompanyEstimated

Sales(USDMil.)

YoY%Change

Rankin2014

(Change)

1 AshleyHomeStore 3,524.40 7.7 1(0)

2 IKEA 3,075.00 8.7 2(0)

3 MattressFirm 2,679.90 38.6 5(+2)

4 Williams-Sonoma 2,635.00 9.8 3(-1)

5 RoomsToGo 2,200.00 11.1 4(-1)

6 BerkshireHathaway 1,832.60 26.0 7(+1)

7 RestorationHardware 1,705.00 14.4 6(-1)

8 Pier1Imports 1,303.00 2.4 8(0)

9 BigLots 1,300.00 7.0 NA

10 SleepNumber 1,184.10 5.8 10(0)


Back-to-SchoolDrivesFurnitureSales

Perhapssurprisingly,theback-to-schoolseasonisanimportantoneforUSfurniture retailers: American consumers spent more than $6 billion ondormorapartment furnishingsduring theback-to-schoolseason in2015,accordingtotheNationalRetailFederation(NRF).TheNRFexpectsthistoreach $6.23 billion in 2016, behind electronics at $11.54 billion, andclothingat$7.49billion.

Theback-to-schoolseasoncoulddrivefurnituresales,especiallydormfurniture.

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Source:Shutterstock

Figure 8. Total US Expenditures on Back-to-College Dorm or ApartmentFurnishings,2007–15(USDBil.)

Source:NRF/FungGlobalRetail&Technology

OnlineResearchIsBecomingMoreImportant

Consumers increasingly use online tools to research buying optionswithdifferent age groups showing different online behaviors. For example,millennials and Generation X consumers embrace online research morethan in-store research when they purchase a furniture item, but babyboomers showed equal interest in online and brick-and-mortar research,accordingtoaFurnitureTodaysurveyin2016.

ConsumersintheUSprefertoresearchfurnitureproductsonline,butpurchasethemin-store.

5.43

4.74

3.90

5.31 5.515.91 5.74

5.11

6.05

2007 2008 2009 2010 2011 2012 2013 2014 2015

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Figure 9. Channels US Consumers Use To Research and Buy Furniture, by AgeGroup


When it comes to specific furniture items such as upholstery and rugs,online isan importantchannel forproduct research.Accordingtoa2015Furniture Today survey, buyers for upholstery items and area rugsresearched online much more often than they researched by visiting abrick-and-mortarstore.

Figure10.ChannelsUSConsumersUseToSearchforUpholstery ItemsandAreaRugs


Although75%ofupholsterybuyerssearchedonline,54%ofthemsaidtheywouldneverbuyupholsteryonline.

47%

40%36%

15% 15% 15%

24%

31%

38%

0%

10%

20%

30%

40%

50%

Millennials GenX BoomersShoponlineandbuyin-store Shoponlineandbuyonline

75%

60%

71%

43%

SearchedOnline ResearchedbyVisifngaBrick-and-MortarStore

UpholsteryItemsBuyers AreaRugsBuyers

USConsumersresearchedupholsteryandrugsonlinemuchmoreoftenthaninphysicalstores.However,54%oftherespondentsrevealedunwillingnesstobuyupholsteryonline.

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This tendency differs among products. For lamps, only 7% of therespondents would not purchase online, according to a 2016 FurnitureTodaysurvey.

Socialmedia isalsobecomingamorepopularchannel foronlineproductresearch and sharing. Pinterest is the leading social media site USconsumersuse to research furnitureproducts,and thepopularity for thesiteisthestrongestamongmillennials,accordingtoFurnitureToday.

Source:Shutterstock

Figure11.BreakdownofUS FurnitureConsumersWhoUsePinterest forOnlineResearch,byAge


E-commerceisGrowing,ButItsImpactIsStillModest

ThesurveysfromFurnitureTodayshowthereisstillagapbetweenonlineresearch and online purchase. US consumers increasingly utilize onlinesourcesasresearchtools,butthatdoesnotnecessarilyleadtopurchasingtheproductsonline—mostconsumersstillprefertopurchasefurniturein-store.

Even so, the percentage of furniture sold through online channels hasincreased.

60%55%

50%

36%

Millennials GenerafonX YoungerBabyBoomers

OlderBoomers

Only7%oftherespondentswouldnotpurchaselampsonline.

Pinterest,theleadingsocialmediasiteforUSconsumerstoresearchfurnitureproducts,isthemostpopularamongmillennials.

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• Theonlinechannelaccountedforanestimated10%ofUSfurnitureandbeddingretailsalesin2015,accordingtoFurnitureToday.

• According to Statista, furniture and homewares e-commercerevenues in the US totaled US$21 billion in 2015. Revenues areexpected to grow at a five-year CAGR of 7.6% to US$31 billion in2020.

• International e-commerce solutions provider, PFSweb, forecastretail e-commerce sales of furniture will rise by roughly 16% in2016.

Theshareoffurnituresoldthroughmobiledevicesisalsoincreasing.

• Of online furniture shoppers who purchased throughFurnitureDealer.net, an internet marketing solutions provider forthefurnitureindustry,52%usedamobiledevicein2015,adrasticincreasefromthe5%whodidsoin2010.

We expect the growth of online sales to continue apace in the comingyears,consideringtherapidgrowthinm-commerceandtheimpactofnewtechnologiessuchasvirtualreality(VR)andaugmentedreality(AR),whichbridgethedigitalandphysicalworlds.

• Formore on the online channel, see our report,Global FurnitureandHomewaresE-Commerce.

FUTURETRENDS

Inthissection,wenoteseveraldevelopmentsandtrendsthatarelikelytoimpactthefutureshapeofthefurnituremarket.Theseare:thegrowthofthe outdoor furniture category, the popularity of vintage furniture andinterestinsustainability.

OutdoorFurniture

The outdoor furniture category is growing fast: outdoor furniture retailsalesclimbedfrom$3.7billion in2010to$4.39billion in2015,accordingto Casual Living. This represents a CAGR of 3.48%. Market researchcompanyTechnavio'sanalystsforecasttheoutdoorfurnituremarketintheUSwillgrowatCAGRof4%overtheperiodto2019.

A survey by Furniture Today conducted in 2016 showed that 37% ofrespondents with outdoor space at their homes would purchase chatgroup furniture‒furnitureof fourormore chairs placed arounda centraltableorfirepit.

Outdoor,vintageandenvironmentalsustainabilityareimportanttrendsintheUSfurnituremarket.

Furnituresalesthroughe-commerceandm-commercechannelsareincreasingrapidly.

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Source:Shutterstock

According to Casual Living, consumers expect an approximate 6-year-lifespan when they choose outdoor furniture. More than 70% of USowners prefer cushions made from performance fabrics; this numberjumpsto82%forthosewholiveintheNortheast.

FurnitureretailersshouldnotethatMarchtoMayisthemostpopulartimeforAmericanconsumerstopurchaseoutdoorfurniture.Ofthosesurveyed,23%saidtheypurchaseinMay,followedby17%whosaidMarchand16%buyinApril,accordingtoFurnitureToday.

Figure12.USConsumers’PreferredTimetoPurchaseOutdoorFurniture


17%

16%

23%

44%

March April May Others

TheaveragelifespanofoutdoorfurnitureUSconsumersexpectisapproximately6year.

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Vintage

Vintage furniture ispopular amongUS consumers.Anaverageof57%ofthosesurveyedexpressedapreference forvintagepieces,according toa2016FurnitureTodaystudy.

Figure 13. Percentage of US ConsumersWho Prefer Vintage Furniture, by AgeGroup


Source:Shutterstock

This preference for vintage furniture leads to the popularity of second-hand and used outlets. Sales in these two sectors accounted for anestimated4%offurnitureandbeddingsalesin2015accordingtoFurnitureToday,andthisrepresentsmorethan$4billioninretailsales.

EnvironmentalSustainability

Both consumers and furniture retailers are paying more attention toenvironmentalissues.Accordingtoa2015FurnitureTodaysurvey,70%ofconsumers are willing and prepared to spend more for eco-friendlymaterials,andthemajorityofthemarewillingtopayanadditional20%.

As a result, leading US furniture retailers are likely to focus onenvironmentallyfriendlybusinesspractices,productsandpackaging.

57%

62%

52%53%

AllConsumers Millennials GenerafonX Boomers

Furnituresalesinsecond-handandusedoutletsaccountedformorethan$4billionin2015.

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TECHNOLOGYANDINNOVATION

Furniture retailers are using technology to reachmore customers and tocreateinnovativeproductsandnewbusinessmodelsthathelpopenmoremarketopportunities.

MicroD:OnlineSolutionsforFurnitureRetailers

MicroD provides furniture merchandising solutions that givemanufacturersandretailerstheabilitytobuildtheirbrandonline.Itgivescustomersamorepersonalizedvirtualshoppingexperience.Forexample,its Room Planner feature enables customers to arrange furniture in avirtual floorplan and seewhat theproductswill look like in their roomsbeforetheybuy.

Source:MicroD

HUMElab:FurniturewithTechnology

HUMElab provides high-tech furniture. One of their key products is theTABATA touch table,an interactivecoffee table. Inaddition to servingasanordinarycoffeetable,TABATAenablesuserstoplayvideogamesonit,handledocuments,sendemailsandwatchvideos. Itcanbeconnectedtousers’ smartphones, tablets, internet boxes, TVs, home automationsystemsandotherequipment.

Source:HUMElab

MicroDhelpsfurnitureretailersbuildtheirbrandonlinebyprovidingcustomerswithapersonalizedvirtualshoppingexperience.

HUMElabdevelopsTABATAtouchtable,whichenablesuserstoplayvideogamesandsendemails.

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e15:CooperationwithFashionDesigners

Frankfurt-headquartered company, e15, works with designers, architectsand artists to developproducts thatmerge furniture and fashiondesign.Collaboratingwithfashiondesigners,e15providedfurniturefortheGothicHeiliggeistkirche in Germany. The chairs were designed to match themodernandminimal church interior.Materials, colorsand the shapesofthechairswerespeciallydesignedtofitthesetting.

CONCLUSION

Considering the favorablemacroeconomic environment,we feel positiveabouttheUSfurnituremarket.USconsumerswantqualityanddurabilitywhen theypurchase furniture. They alsoexpect short delivery times andproductsmade intheUS.Althoughe-commerce isstillanascentchannelfor the product category, brick-and-mortar furniture retailers shouldembrace its development and grasp the opportunities emerging in themarket.

Source:e15

E15collaborateswithfashiondesignerstomeetthedemandofsavvycustomers.

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comKirilPopovSeniorAnalystSauWaiChimResearchAssociateIvyHuangResearchAssistantHONGKONG:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com

US Furniture Market October 6 2016 - Fung Global · PDF fileEarlier this year we published A...

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Transcript of US Furniture Market October 6 2016 - Fung Global · PDF fileEarlier this year we published A...