Luxury consumers are still willing to pay a premium for quality home goods while discounting to thin out excess inventory is ahead for many retailers. Those are just two of the findings of a recent summit of 12 public and private management teams from the home goods industry hosted by investment banking group Jeffries.
Leaders from such companies as Mitchell Gold + Bob Williams, Howard’s, Fernish, Diamond Mattress, Burrow, Boll & Branch, Brooklyn-Helix, Branch and CSC Generation Holdings, among others, shared insights on what they’ve seen in the industry this year, and what they anticipate next. Here are a few takeaways:
Luxury consumers willing to spend
Though inflation has slowed spending for many consumers, high-end shoppers are still willing to ante up for luxury home goods. Mitchell Gold + Bob Williams reported customers are willing to pay higher prices versus pre-pandemic levels for luxury home goods. And Boll & Branch noted its new Reserve Collection, which starts at $458 for a full-size sheet set, sold out within the first month.
Steep discounting ahead
While luxury spending is strong, expect to still see plenty of discounting going into the remainder of 2022 as manufacturers and retailers attempt to burn through the glut of inventory that has come in this year. Inventory at the mass-market level, in particular, has been unmanageable for many retailers such as Target and Walmart and will lead to more promotions heading into the holiday season. Burrow CEO Stephen Kuhl said there have been much larger spikes during promotional periods recently than in years past, signaling that consumers are more discount sensitive.
Direct-to-consumer going wholesale
Direct-to-consumer brands are increasingly dipping their toes into wholesale waters. Boll & Branch is now in 45 Nordstrom stores and has become the department store’s No. 1 bedding brand. And just last week, Branch announced its partnership with Williams-Sonoma, Inc., to bring its office furnishings to West Elm. Additionally, Brooklyn Bedding said it’s increasing its branded retail footprint is in the future, as the Helix product has done well in its existing stores.
Slowdown to come for 2023
While the demand for home goods has certainly softened since pandemic-inflated highs of 2020 and 2021, many see that decline sharpening in 2023. Fernish CEO Michael Barlow said that while the company has grown tremendously since the pandemic, it doesn’t see that trend continuing into the coming year.
“Growth multiples will compress, and management will turn their focus more towards operating profitability,” he said.
Diamond Mattress CEO Shaun Pennington said he sees unit growth for the bedding industry to decline in 2023 due to reduced consumer confidence and housing headwinds. Brooklyn-Helix CEO Adam Tishman also reported consumer slowdown due to inflation, and while repeat customers have been strong for Boll & Branch, new customers have been more challenging.
Mergers and acquisitions possible in Q1 2023
CSC Generation Holdings, which owns One Kings Lane and Sur La Table, among other brands, sees the potential for an uptick in mergers and acquisitions in the home category during the first quarter of 2023.
“There are a lot of companies in this space that are simply weathering the storm right now and trying to make long term strategy changes to help offset these pressures,” said Justin Yoshimura, chairman and CEO for CSC Generation Holdings, which also owns Z Gallerie.
Yoshimura also said that legacy retailers are struggling in particular due to two major problems: they are over-stored and they have technical problems. While having multiple stores in a city was once a good thing, now it’s a drawback, according to Yoshimura. And with many legacy retailers using third-party engineers overseas to manage their e-commerce arm, it’s more expensive and difficult to make changes.