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Stay at Home, Remote Work Spurred Home Furnishing Spending, Is the Boom Over?

Home furnishings retailers reaped massive rewards from COVID quarantines and remote work, and a new research report explores if that surge is slowing as more Americans are vaccinated and return to work.

RugNews.com Editors
8/12/2021
Graphic or home spending over prior two years
With home furnishing and improvement growth climbing up five-fold from pre-COVID levels, in 2020, the most recent quarter saw the start of a meaningful slow down to 33 percent.

NEW YORK — At of the height of the pandemic last year, with much of the country ordered to stay at home and work remotely, home improvement and home furnishings retailers witnessed a major surge in in sales as consumers tacked DIY home projects and invested in their home offices and interiors.

So while the US economy shrank by 3.5 percent in 2020, spending on home improvements and repairs grew more than 3 percent, to nearly $420 billion, as households modified living spaces for work, school, and leisure in response to the COVID-19 pandemic, according to Improving America's Housing 2021, a study conducted by the Harvard Joint Center for Housing Studies.

As more Americans get vaccinated — the number today hovers around 59 percent having received at least one shot, according to Our World in Data — and many employees return to the office, experts are exploring just how long the boom in home furnishings and home improvement will continue and what shopping patterns may endure.

The National Retail Federation, among other experts, expects more consumer spending to shift to apparel for the remainder of the year, after 2020 apparel sales took a hit. “Nobody needed clothes,” David Marcotte, senior vice president at research consultancy Kantar, stated in an NRF report.

“What they did need, though, was furniture. Whether it was to accommodate work- and school-from-home setups or just to be more comfortable during a Netflix binge, home goods had a ‘huge year,’ Marcotte said. But that may be set to change as Americans head back to the office,” the report continued.

Earnest, a New York based market research company, in a new report, Will COVID’s Home Spending Boom Last?, digs into the current state of home retail to see where and how consumers are shopping, as well as which brands have won new customers during the pandemic.

Below is an excerpt from Will COVID’s Home Spending Boom Last?

KEY TAKEAWAYS

• Home spending Yo2Y (year-on-two-years) growth accelerated five-fold to 50 percent when the pandemic began but has now slowed to 30 percent; though still above pre-COVID levels of 10 percent.
• The home sector is highly reliant on consumer foot traffic. Pre-pandemic, over 80 percent of Home sales were executed in traditional brick-and-mortar, a figure that dropped to 75 percent when the pandemic began, but is now trending back up.
• Shoppers continue to grow at several home furnishing retailers and many of them are new faces. Over half the shoppers at Ashley Furniture, La-Z-Boy, Floor & Decor, and Overstock.com were new in 2Q21 and 2Q20. Wayfair, on the other hand, has slowed considerably from last year; and just 30 percent are new shoppers today vs. 45 percent last year.
• About 15 percent of Wayfair customers also shopped at HomeGoods, Bed Bath, and IKEA in 2Q21, up from 10 percent in 2Q20. Crate & Barrel, Pottery Barn, and The Container Store have the same [small] level of overlap as they did in 2Q20.

COVID BOOM FOR HOME CATEGORY SEES SLOWDOWN

It’s no surprise that stay-at-home behaviors over the past year drove up home spending to unprecedented levels. The big question is will it persist and for how long?

With growth climbing up five-fold from pre-COVID levels, up to 50 percent in 2Q20, the most recent quarter saw the start of a meaningful slow down to 33 percent; though still materially above pre-COVID growth levels of 10 percent vs. two years prior.

While vaccines continue to roll out, a new surge in cases from the Delta variant is driving the reintroduction of mask mandates and other restrictions, painting an uncertain close to 2021.

PANDEMIC SHOPPING SHIFTED MORE HOME PURCHASES ONLINE, BUT MOST SALES STILL HAPPEN IN-STORE


At its peak in 2Q20, online spending grew to over 130 percent, while in 2Q21, online growth slowed down to 70 percent
and in-store growth to 25 percent relative to 2019.

Prior to the pandemic, 80 percent of all Home purchases happened in-store. Naturally, COVID propelled a shift to online shopping, resulting in the online channel grabbing 5 percent more share (to just under 25 percent). At its peak in 2Q20, online spending grew to over 130 percent relative to 2019.

In 2Q21, online growth slowed down to 70 percent and in-store growth to 25 percent relative to 2019; and the overall channel mix began trending back to normal levels. Importantly, though, even if online growth supercharges again, the majority of Home sales remain in traditional brick-and-mortar, highlighting the sector’s reliance on consumer foot traffic.

Indeed, Earnest foot traffic data shows that consumer foot traffic to Home retailers reached just below the levels they were at this time two years ago, at -1 percent Yo2Y, up from its 15 percent YoY decline when the pandemic began.


HOME FURNISHING RETAILERS WEST ELM, OVERSTOCK.COM, FLOOR & DECOR, AND ASHLEY FURNITURE FIND NEW SHOPPERS



Several home furnishing retailers, including Ashley Furniture, Floor & Decor, Overstock.com and West Elm saw healthy shopper growth this year and last
 
Was the post-lockdown growth in the home category driven by new or existing shoppers? Looking at the growth of the number of shoppers in 2Q21 and 2Q20 relative to two years prior, we analyzed its mix of new vs. existing shoppers to assess the main drivers of growth.

Several Home Furnishing retailers, including Ashley Furniture, Floor & Decor, Overstock.com, and West Elm saw healthy shopper growth this year and last, where impressively ~40 percent to 70 percent of purchases were made by new shoppers (“new” defined as shoppers who have not patronized that particular retailer since Jan. 1, 2016).

Bed Bath, IKEA, Tuesday Morning, and Restoration Hardware saw the total number of shoppers decline, of which 10 percent to 30 percent were new shoppers.

Home Improvement retailers like Home Depot, Lowe’s, Menards, and Ace continue to see healthy shopper growth of ~7 percent to 20 percent, albeit slower than last year’s 10 percent to 35 percent pace. The sector’s main drivers continue to be retaining existing customers vs. acquiring new ones.

Online-only furnishing leader Wayfair has slowed considerably from its 200 percent+ growth pop last year, where 43 percent of shoppers were new. Wayfair is now growing 30 percent vs. 2019, of which [just] 27 percent are new shoppers.

ABOUT 15% OF WAYFAIR CUSTOMERS ALSO SHOP AT HOMEGOODS, BED BATH, AND IKEA


Given Wayfair’s extreme swings in performance over the past year, we looked at where else Wayfair customers shopped in 2021.

In 2Q21, 17 percent of Wayfair customers also shopped at HomeGoods, 16 percent at Bed Bath, and 12 percent at IKEA; importantly, all up from the 8 percent, 12 percent, and 7 percent overlapping figures, respectively, last year.

Additional retailers in this analysis like Crate & Barrel, Pottery Barn, and The Container Store have the same level of overlap as they did in 2Q20, although the majority only constitute 4 percent or less of Wayfair shoppers.
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