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Point Counterpoint: Optimistic about 2021?

Furniture World Magazine
Volume 151 NO. 1 January/February


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Ed says that he's never been more positive. Bill issues dire warnings and advises retailers and brands to batten down the hatches!

 

Editor’s Note: Editor’s Note: Here's more from Furniture World's point/counterpoint duo Bill Napier and Ed Tashjian who have debated numerous topics in the pages of Furniture World. See all of their commentary here.

 


POINT: Ed Tashjian 11 Reasons To Be Optimistic

I have never been more optimistic, and you should be too. Retailers have many positive things to look forward to in 2021 and the decade to come. You will be sorry if you don’t prepare for it.

  1. There will be nominal price increases from all manufacturers resulting in increased retail prices and margins.

    I can assure you that prices are going up because raw materials and logistics costs are increasing for manufacturers. Their margins are already razor thin, so they have no other choice. We have been taught to hate price increases, but there is no reason to fear them. Americans buy furniture so infrequently that they have no idea what a sofa or other furniture items cost. They are far more interested in the 40 percent off than the absolute price. No one has a time series graph of sofa prices on their refrigerator. Unless you tell your customers, they will have no idea your prices have gone up. And typically, an extra $100 means nothing to them financially. To quote my buddy Jerry Epperson, “If you are not raising your prices when all around you are raising theirs, your store will be remembered for its great values during the liquidation sale.” Raise your margin dollars. Your costs are going up too.

  2. Retailers have a lot of momentum moving into the new year. Sales are tracking at a much higher rate than the prior year.

    Holy mackerel. I can’t remember when business has been this good. My upper-end clients have the highest-ever number of orders and backlogs. Across the counter retail sales are also robust. According to the latest data from the Department of Commerce, furniture sales were up six percent in October and eight percent in September against high base numbers.1

    Even these are understated. According to a report by Smith Leonard the accounting and consulting firm that tracks the most relevant residential furniture manufacturers and distributors, new orders in September were up 43 percent over September 2019 orders, following a 51 percent increase reported in August, 39 percent increase in July and a 30 percent increase in June. October orders increased for 56 percent of the participants for the month and year-to-date orders are up 11 percent.2

    Whether in sports or in business, momentum tends to sustain itself. I have witnessed this many times over my 40-year marketing career. Momentum is a state of mind where individuals or teams feel things are going unstoppably their way. It definitely affects floor salespeople and interior designers. When they make a big sale their confidence soars. They start expecting to close sales and success breeds more success.

    The same is true of consumers. They see other people renovating their homes and it gives them permission to do the same. This leads to a domino effect where a new sofa purchase leads to the purchase of a new rug and chair because the old rug and chair just don't measure up.

  3. Economists are predicting excellent economic conditions for the upper end.

    Upper-end consumers have actually paid down debt during COVID and are understandably spending much less on “experiences” like travel, entertainment and gas. They are spending significantly more on renovation and home furnishings purchases. Anecdotally, just try to hire a contractor in any city large or small. They are booked for months into the future. Furniture always follows renovation.

    Upper-end consumers have actually paid down debt during COVID and are understandably spending much less on “experiences” like travel, entertainment and gas. They are spending significantly more on renovation and home furnishings purchases. Anecdotally, just try to hire a contractor in any city large or small. They are booked for months into the future. Furniture always follows renovation.

    A study recently completed by BOH (Business of Home) among 427 residential interior designers validates this, “Sixty percent of respondents said their company was either doing “very well” or “well”—and a tiny minority (only two percent) said business was “very negative.” What’s more, though COVID-19 has clearly impacted lead times and schedules, it has generated new business: Almost half of respondents said they had received an uptick in new project inquiries.3

    Bain’s 2020 Fall Luxury report, predicts 10 percent to 19 percent growth in 2021.4

  4. Housing numbers are bullish.

    The shift to remote work and remote learning has greatly increased the amount of time spent at home. Homeowners have been investing more in their homes to better utilize the space they currently have. Households that found themselves with too little space have sought more by either looking for larger apartments or single-family homes. The implications for the housing market will stretch out well beyond the pandemic. We can expect robust furniture sales not only in 2021 but throughout this decade.

    Not surprisingly, homeownership is growing fastest among the young, reflecting the rising number of millennials reaching major lifetime milestones such as marriage and having children. COVID has likely accelerated the timetable for buying a first home. Families want more indoor and outdoor space. This life stage is the sweet spot for furniture sales.

    The National Association of Homebuilders / Wells Fargo Homebuilders Index has successively hit new all-time highs in each of the past several months and surged to 90 in November,5 up from 76 the prior year. Builders’ assessment of current sales also jumped to an all-time high of 96. Mortgage rates continue to reach new lows. Conventional 30-year rates are at 2.875 percent as of this writing. More homes mean more furniture.

  5. GDP is expected to grow in 2021.

    According to Goldman Sachs, the US GDP surged a record 33 percent in the 3rd quarter as the economy reopened. It is projected to grow 3.5 percent in the first quarter of 2021 and return to pre-pandemic levels in the second quarter of 2021.

  6. Wealth transfer from boomers to millennials.

    According to Accenture6, more than $7 trillion is expected to transfer from boomers to the millennials by 2030. At its peak between 2031 and 2045, 10 percent of total wealth in the United States will be changing hands every five years. The accelerating pace of this transfer combined with the generational differences will have dramatic implications for the furniture industry.

  7. Additional stimulus packages in 2021

    As of this writing, Congress has wrapped up the second stimulus package. The CARES Act,passed in March, was the first stimulus package intended to help people financially affected by the pandemic. It included a stimulus check of up to $1,200 sent to more than 160 million Americans. That direct aid caused a jump in household spending and allowed others to save or pay down debt.

    As important is that new PPP funds will keep factories and suppliers in business. SBA is forgiving loans if all employee retention criteria are met, and the funds are used for eligible expenses. PPP loans have an interest rate of one percent, which encourages manufacturers to increase inventory to support demand without worrying about the vagaries of temporary market conditions.


  8. Economists are predicting
    excellent economic conditions for the upper-end consumer. Nothing to see here in my opinion. The typical furniture retailer does not target this audience.

    - Bill Napier

  9. A widened chasm between rich and poor.

    Most of the people buying upper end furniture don’t need a stimulus check. The wealthy are the least affected by COVID. They were the least likely to lose their jobs, the most likely to have benefited from the recent rise in the stock market, and control most of the disposable income.

    Most of the people buying upper end furniture don’t need a stimulus check. The wealthy are the least affected by COVID. They were the least likely to lose their jobs, the most likely to have benefited from the recent rise in the stock market, and control most of the disposable income.

    The country is increasingly split between the haves and the have nots. According to the Opportunity Insights' economic tracker, the employment rate for high-wage workers has almost entirely recovered to its pre-pandemic levels, while it is just 16 percent for low-wage workers.7 While you can argue about the ethics of wealth inequality, our job is to sell more product to more people at higher margins, and these are the people with the willingness and ability to buy it.

    According to the Associated Press-NORC Center for Public Affairs Research about 26 percent of people said in August that they had paid down debt faster than usual while the same proportion said they were unable to make a rent or mortgage payment or pay a bill.8

    Pam Danziger, the expert in luxury marketing, has always argued that the high-end market is driven by the psychology of affluent consumers. “When they feel good about themselves and on solid ground financially, they give themselves permission to indulge. When they don’t, they won’t. It’s that simple.9

    As of this writing, the stock market is near an all-time high. Those with investment portfolios or 401(k) plans are feeling pretty good about their wealth. Many are at an all-time high and feel more comfortable about spending. They can be traded up.

  10. We will be housebound until we are vaccinated.

    The vaccine roll out is going forward at a much slower pace than many people expected. This is horrible news for those of us with cabin fever, but great news for the furniture industry. The longer we are homebound, the more likely we will become dissatisfied with our furnishings. Even after we are vaccinated the world will not be the same psychologically. It will be a long time before people are comfortable traveling. We know very little about herd immunity, or the long-term effects of the vaccine. Our homes are likely to become more important for a long time to come.

    It also suggests that having an online strategy for shopping and purchasing is essential.

  11. Consumer confidence is ephemeral.

    The Conference Board noted that the recent resurgence in COVID has caused a significant decline in consumer confidence. “Heading into 2021, consumers do not foresee the economy, nor the labor market, gaining strength. In addition, the resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook.10” Consumer confidence is a leading indicator of future furniture sales. This is somewhat worrisome, but remember, global confidence is not nearly as important as the confidence of your target customer.

  12. I remain unabashedly optimistic.

    The great business regrets of our lives are missed opportunities. It seems like every time there is a crisis, the world is full of pessimism, and the common wisdom is to lie low while someone else makes a killing.

    No, it’s not the Pollyanna variety of optimism, but rather a belief that human ingenuity has a way of solving whatever problems are facing it, from harnessing fire to splitting the atom. I have no doubt whatsoever that we will not only survive but come out of this pandemic stronger, more resilient and better prepared for the next time.

    COVID is a black swan event. Historically, the development of vaccines has taken years. This time, new technologies fast tracked vaccines in less than a year through the coordinated efforts of industry and science. It is testament to the genius of mankind and our ability to solve problems.

    It is also testament to our humanity. Whether it’s an epidemiologist developing a vaccine or everyday people like us helping our neighbors, we can all do our part by listening to the scientists, wearing masks, social distancing and maintaining a can-do spirit.

    We owe a great debt to the brave men and women in the health care community who are on the front lines of this pandemic. But we also owe a debt to those in our industry who have trudged onwards, in spite of the risks and hardships of coping with COVID. The people who make the furniture, from the sewers to the finishers, can’t work from home, nor can the truckers or the floor salespeople. They are just as brave, just as committed, and just as important to our economic recovery.

COUNTERPOINT: Bill Napier

I hear that my friend Ed Tashjian has nicknamed me Darth Napier; I only take issue with that nickname because those retailers who haven't read and looked at my research over the years are either gone or close to that scenario. I have written and warned retailers for years in these Furniture World articles and “Retail Rants“ at https://www.social4retail.com/my-retail-rants-blog.html. Needless to say, I am not optimistic about 2021 for the following reasons.

  1. Struggling retailers owe $52 billion in rents.

    As of Dec. 8, 2020, $70 billion in unpaid back rent and utilities are set to come due, according to a report via Moody's Analytics Chief Economist Mark Zandi.

    Unfortunately, that still holds true with the majority of furniture retailers. With that said, I’ll talk about Ed’s points.

    Bloomberg, citing new data via CoStar Group Inc., outlines how restaurants, gyms, and other businesses have accumulated insurmountable rent payments that have been deferred for months. This has resulted in landlords demanding outstanding balances be paid immediately, which could drive some retailers into bankruptcy.

    “You're going to have big bubbles that are going to be hitting next year or even in the fourth quarter,“ said Andy Graiser, co-president of A&G Real Estate Partners, an advisory firm. “I'm not sure if they are going to be able to make those payments in addition to their existing rent.“

  2. Furniture won't be a priority for those hit hard during the pandemic.

    According to a recent article in USA Today Dec. 8, 2020, 68 percent of Americans had financial setbacks in 2020 and 38 percent of those surveyed said they will spend the year in “survival mode,“ meaning they'll focus on the day-to-day rather than long-term goals to try to get themselves and their families through 2021.

    What always bothered me about the so-called COVID-19 crisis is that governments shut down businesses, yet the officials shutting them down all got paid. Why is that? Employers cannot earn money; employees can't earn money; people start going into severe debt, and so on.

    When this storm clears, furniture will not be the first “buy order“ for millions of consumers; keeping their home, paying off debts, and saving what they have left will be a priority. Think about how our relatives reacted after the Great Depression. I believe people who were not prepared for this will never forget and will change their purchasing habits dramatically.

  3. Better margins doesn't mean all that much.

    To my friend Ed's point about manufacturers' price increases, let me state that I passionately believe that will happen, and is happening if they can get any product to sell.

  4. Retailers losing ground on the technology side.

    I've ranted for years about the industry's supply chain, branding, selling online, technology investments, and so much more. The new e-commerce solutions our industry magazines all talk about make me chuckle. I warned about the furniture e-commerce apocalypse as long as a decade ago, and that the home category would account for over 32 percent of all furniture purchases by 2020. According to Statista, furniture and homeware accounted for $45.142BN in 2020 and will rise to $54.230BN by 2024. So if you're just starting to understand and address this trend, you're probably too late to the game.

    If you are a manufacturer, the same holds true for you, but probably even worse. It bothers me that you didn't invest in your web platform 3D Imagery, selling technologies and more to inspire consumers to find your product locally. You also did not invest in content descriptions (critical for SEO). You should have started to sell your products on your website and give your retailers' sales credit for those sales in that zip code, and so much more.

    One of the reasons I turn down work with many furniture manufacturers and retailers is their refusal to invest in website/e-commerce platforms and new technologies. Over 90 percent of searches start online, and if your website/ease to buy and logistics sucks—so will your sales, and I won't be taking the blame for that!

  5. Retailers are likely to face a cash flow crisis.

    With all the importing chaos, supply chains have ground to a halt. Backorders are months out. If retailers spend consumer down payments trying to stay alive, they could be in further trouble when consumers start canceling their orders due to financial burdens, impatience, and more.

    To Ed's point about recent sales increases, I'm not sure if that means anything, especially if the retailers continue to have trouble delivering and getting paid. All the while their costs including rent, mortgages, payroll etc., continue to accumulate with interest.

    AND to my point above, if consumers are buying online and you, the retailer, don't have a seamless solution, you lose! Virtually every retailer I talk to complains about the cost of an excellent website. They cut corners, which is not what smart businesses do in today's digital economy.

  6. Typical retailers don't focus on the high end.

    Ed says that economists predict excellent economic conditions for upper-end consumers.

    There's nothing to see here in my opinion. The typical furniture retailer targets consumers at promotional and mid-level price points. That's the bread and butter of this business, and it is too late for most retailers to shift now.

    Ed is right to point out that the longer people remain housebound the more they will become dissatisfied with their furnishings and want to invest in home improvement. He might also be correct in his assertion that many people will be uncomfortable about traveling for some time to come. All this information is irrelevant if people don't have jobs and are short of funds.

  7. The hot housing market may be a mixed blessing.

    Ed is right about new home sales being a positive for our industry, especially considering insanely low-interest rates. People can afford $300K+ mortgages IF they have a job and will still have it six months from now.

    BUT where I live, they aren't building new homes. They are building massive apartment complexes everywhere. The rents they want are insanely high for most renters. Sales of existing homes under $270K are on fire because young families can't afford a mortgage at that price. The drawback is that many of these affordable houses are within city limits—and cities are in turmoil. Right now people would rather move to the suburbs where home prices are much less affordable.

    Townhomes and condos sell in price ranges people can afford, BUT the room sizes are smaller, and there are fewer bedrooms. This translates to a lot less furniture demand.

  8. Stock market & business closings are big concerns.

    Well before the election I believed that we would see a brighter 2021.

    A study done by Yelp, however, found that roughly 160,000 businesses across the U.S. closed between April and September 2020. These businesses have closed permanently, NEVER to re-open, ever. That's only the beginning, and it will get worse. It is estimated that over 800 businesses close every day. In five months, that's another 240,000 businesses gone. How many more employees that could have purchased furniture will have no income?

    Promises to raise taxes on businesses, the wealthy, the minimum wage, and so much more will result in less hiring, less new business investment, and less employment. Sure they say they won't raise taxes on people making less than $400K, but look at reality. Those who get taxed at the higher income, people and businesses, aren't going to sit around and take it. They'll raise their costs, cut back employment, and take steps to protect their assets.

    Remember what the old saying was: “If everyone was guaranteed a base salary of $50K, what would a loaf of bread cost?“

    My biggest concern is the stock market. So far (as of mid January), so good. The reason I'm concerned is the huge number of people that are vested in a 401(k). Today they are up around 30 percent, which is incredible. If the market goes down, so does virtually everyone's net worth, which will scare people into not buying or investing.

    We are in uncharted territory, and I don't believe pollsters or anyone else. No one knows anything. They are all guessing, including me.

    Ed says that $7 trillion is expected to transfer from boomers to the millennials by 2030. I hope so. I pray that our economy doesn't go south and that my kids and their kids can have a better life than I've had. As of this writing, I don't see that as coming true. I hope and pray that I'm wrong!

  9. The so-called stimulus is a temporary fix.

    Any money that people—who have been hit financially by the pandemic—get from here on in will NOT be spent on furniture. I can guarantee you this. Any stimulus will go to political recipients and bailouts, NOT much of it to consumers. A payment of $1,200.00 might pay rent for a month. Furthermore, it will NOT resurrect the 160,000 businesses or ensure that the employees of those businesses have jobs. They are closed, gone, and never to be opened again.

  10. A wide chasm between rich and poor.

    Margaret Thacher once said, “What happens when you run out of other people's money?“

    At the end of November the unemployment rate was 6.7 percent. That number won't hold up. Cities and towns are bleeding population, and nothing is open except the big-box stores in many states whose online sales are insane. So many retailers and brands in the furniture industry didn't invest in e-commerce when all the research was staring them in the face. People said they'll never buy a sofa for $X online. But they did, FREE delivery, FREE Returns, no questions asked.

    How long can we pay stimulus funds and unemployment when people are not working or paying into the system to support these payments? You borrow and borrow and eventually get to the point of no return. Our debt is over $27 Trillion, which equates to $82,833 for every U.S. citizen. Who has that laying around under their mattress?

    People want and need to work, and the resentment of not being able to do that will cause chaos and dysfunction for years, maybe decades to come. That is NOT a good omen for our industry, or any durable products industry.

    If Ed's point about being housebound until we are vaccinated is the case, that's at least five more months of no work, no money, and most likely, minimal opportunities for employment by the time this all winds down. Again, if this is true, another 240,000 businesses will close, bringing the number to over 400,000 businesses. Do the math on how many people will be unemployed. It scares the hell out of me.

  11. Many consumers have lost hope.

    Ed says consumer confidence is high, but other factors will likely erode that confidence. We have to look at the statistics of increased domestic violence, drug use, overdoses, alcohol consumption, and other societal abnormalities. That says it all. Most people know hope is not a strategy. They are losing what hope they have and everything they've worked for.

  12. Insane reactions to COVID.

    What I've witnessed is an insane reaction to this COVID issue. Politicians are ruining people's lives and their businesses.

    I do believe in the American Dream. We've overcome so much in our history. We will overcome this, too. I fear that our industry may not persevere long enough to be part of that recovery.

  13. So many missed opportunities.

    I agree with Ed that humans in general are wonderful problem solvers, but the track record of legacy home furnishings brands and brick and mortar retailers is pitiful. We as an industry have missed so many consumer trends I question whether we will stage a long-term recovery.

    I could go on and on as Darth Napier, but I believe we will overcome all this chaos and insanity. I just pray that our industry does not suffer any more than it has. It's an industry with incredible people, incredible visionaries and leaders that can mentor our next generation to be even better.


Footnotes:

  1. https://www.census.gov/retail/marts/www/marts_current.pdf
  2. https://www.smith-leonard.com/
  3. https://businessofhome.com/articles/a-new-study-finds-reason-for-optimism-in-residential-design
  4. https://www.bain.com/about/media-center/press-releases/2020/covid_19_crisis_pushes_luxury_to_sharpest_fall_ever_but_catalyses_industrys_ability_to_transform/
  5. https://www.nahb.org/news-and-economics/housing-economics/indices/Housing-Market-Index
  6. https://www.accenture.com/us-en/~/media/accenture/conversion-assets/dotcom/documents/global/pdf/industries_/accenture-cm-awams-wealth-transfer-final-june2012-web-version.pdf
  7. https://tracktherecovery.org/
  8. https://apnorc.org/projects/economic-consequences-of-the-coronavirus-outbreak/
  9. https://unitymarketingonline.com/shop/affluent-consumers/henrys/the-henrys-after-covid-19-what-comes-next-for-the-luxury-market/
  10. https://conference-board.org/data/consumerconfidence.cfm


See all of Bill and Ed's Point/Counterpoint articles at https://www.furninfo.com/Series/Debate/57.

Bill and Ed write Furniture World's popular and controversial Point-Counterpoint series.

About Bill Napier: Bill Napier is Managing Partner of Napier Marketing Group. He has been the chief marketing officer of several small, medium and large companies throughout his career, most notably Ashley Furniture Industries Inc. Bill is  a featured writer and speaker in the retail industry. His passion is to help retail brands & brick mortar retailers grow their businesses by creating, guiding and deploying successful marketing B2B/B2C solutions integrating traditional marketing with the web/social media. His FREE website www.social4retail.com includes hundreds of articles and “how To” strategies. Bill can be reached at; billnapier@napiermkt.com or 612-217-1297.

About Ed Tashjian: Tashjian Marketing provides senior marketing leadership to the Home Furnishings Industry. It specializes in business analytics and in helping its clients to segment the market, define and communicate a sustainable differentiated value proposition. Get more information at www.Tashjianmarketing.com or call (828) 855-0100.


Read other articles by Bill Napier and Ed Tashjian