retail watch | Mar 31, 2022 |
Is the party over for the home retail business?

Spurred on by the tragedy of a global pandemic, the home retail business has been on an absolute tear for the past two years. Will the ripple effects of another tragedy—the crisis in Ukraine—slow it down?

Reports both quantitative and qualitative are starting to come in that sales in the retail sector—specifically home furnishings but also in the broader consumer goods market—have taken a precipitous drop over the past few weeks, largely attributable to the Russian invasion of Ukraine and the resulting aftershocks.

Combined with rising inflation, skyrocketing gas prices, never-ending supply chain issues and—for lack of a better term—a general malaise, there appears to be a genuine slowdown in shopping activity. Whether it is a momentary blip or the start of something longer and more troubling is difficult to accurately predict. But for the moment, the numbers are painting a picture.

According to a report by research company Placer.ai, over the week of March 7, nationwide retail visits declined by 4.3 percent compared to the equivalent week three years ago. Placer says it’s “the most severe decline in weekly retail foot traffic over the past 12 months that wasn’t directly tied to COVID-19 waves or holiday calendar shifts. And while visits the week of March 14 bounced back somewhat, the downward shift remains evident.”

Placer.ai specifically tied these declines to rising gas prices, but the fact that they took place during the early stages of Russia’s invasion of Ukraine cannot be a coincidence. The research firm adds, “The report also notes that spikes in gas prices have, historically, led to disruptions in foot traffic to retail stores and may be further contributing to changing consumer behaviors, like spending less time in stores overall.”

What research shows on a nationwide scale is backed up by specific examples. In announcing its fourth quarter numbers, RH says it had noticed a drop in business recently, and CEO and chairman Gary Friedman specifically cited the war in Ukraine. “I wouldn’t call it happy days now,” he says, noting RH “experienced softening demand in the first quarter that coincided with Russia’s invasion of Ukraine in late February and the market volatility that followed.”

But, echoing the Placer.ai report, Friedman thinks the situation in Ukraine may only be part of the story. “I think it just became a kind of reckoning point, if you will, where people had to stop and pay attention to everything.” Pointing to inflation, housing prices and interest rates, he adds, “I don’t think it’s all about Ukraine and Russia. It’s triggered a greater awareness.”

In a recent edition of retail newsletter The Robin Report, editor in chief Robin Lewis cited a report from consulting firm AlixPartners addressing the point that the consumer mood may be shifting. “We’re at a kind of inflection point today where the future looks harder,” he writes. “It was a good holiday, it’s been a good start to the year, but we have a lot of disruption ahead. The ripple effect of the global crisis with Ukraine, coupled with inflation … the supply chain crisis is not over. You keep putting all these things together … it all ends with the consumer. It’s going to be more challenging for the consumer.”

In the meantime, vendors of home furnishings products have noted that they see retailers starting to cut back on orders for the balance of the year. One supplier in the soft home space told me one of his key national accounts had slowed incoming deliveries, claiming a 15 percent decline in business in his category. He added that another big retailer was reducing its forecast for Black Friday sales in his products by 40 percent.

The big question: Is this a temporary blip caused by (hopefully short-lived) global events, or is this an indication that the party is over for the home furnishings industry? Demographic trends still point to a surge in business for the next decade (millennials, the biggest generational cohort, are aging into their home-buying years). The overall American economy remains stronger than it was pre-pandemic. The macro signals are all good. But for those in the industry, it’s hard not to fret.

Friedman may have had the best take on the current climate: “In 22 years here, I’ve never been more excited, but I’ve also never been as uncertain.”

Homepage image: ©bodnarphoto/AdobeStock

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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.

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