After witnessing robust demand for household products and furniture in recent years, the home category’s winning streak has now come to a screeching halt.
Contemporary furniture retailer Z Gallerie filed for Chapter 11 in October citing liabilities and assets between $50 million and $100 million. That same month, high-end furniture retailer Mitchell Gold + Bob Williams started its liquidation process as the company owed between $10 and $50 million to its creditors. Meanwhile, Furniture maker Noble House Home Furnishings filed for bankruptcy in September blaming high inflation and soft sales.
The home category’s woes are another example of a pandemic boom that turned into a bust. Furniture and home furnishings’ retail sales climbed as high as 20.3% in 2021 and just 4% in 2022, according to data from Insider Intelligence. This year, Insider Intelligence expects the category to grow just 2% this year.
“During that part of the pandemic, 2020 and into 2021, we saw a boom in the housing market. That also boosted demand because consumers are more likely to upgrade their furniture and home furnishings when they move homes or renovate homes,” said Sky Canaves, senior analyst at Insider Intelligence. “The fortunes of the home furnishing market are very closely tied to the activity in the residential housing market in the U.S.”
The average rate on 30-year home loans hit 8.01% last week — its highest point since the year 2000, according to financial services company Bankrate. This elevated interest rate would make home buying difficult for consumers. And when people aren’t buying or moving into new homes, they’re less likely to buy new furniture, Canaves said.
“Demand for new furniture will be highest when people are buying new homes and moving in,” she said. “People are not buying as many homes and people are not moving as much because it’s very expensive to buy a home right now with the high interest rates.”
Troubled home retailers named roughly the same challenges: high inflation and consumers holding back spending on big-ticket items. Even consumers who may not be having financial difficulties are choosing to spend money on experiences rather than discretionary items.
Z Gallerie said in its bankruptcy filing that it had “severe liquidity constraints” that stemmed from its underperforming retail locations and headwinds in the industry. The company started its liquidation process not long after filing for bankruptcy. It is now deeply discounting products as it closes 21 retail stores in nine states.
Noble House Home Furnishings — which drop ships products to retailers like Amazon, Walmart, Target and Wayfair — also claimed that the market conditions led the company to file for bankruptcy. Its sales declined by almost 27% from $671 million in 2021 to $491 million in 2022. Last year, it garnered a loss of $34 million.
Mitchell Gold + Bob Williams also cited weaker sales and difficulties in securing financing as the reason for its filing. Due to the closure of its business, around 500 of its North Carolina employees are losing their jobs, a notice to the state’s Department of Commerce indicated.
Only a few years ago, these companies were riding the home goods wave. Prior to its bankruptcy, Mitchell Gold + Bob Williams rolled out efforts to expand and become a lifestyle brand in 2021 by launching bedding, bath, accessories and home fragrance products. The company entered new categories that were in high demand during the pandemic. Meanwhile, Noble House Home Furnishings even reported a $7 million income in 2021.
Sudip Mazumder, North America retail industry lead for Publicis Sapient, said that some furniture companies are doing better than others. Retailers with a wider product offering and a stranger e-commerce presence, for example, are in a much better position. Ikea’s retail sales for the fiscal year 2023 still grew 6.6% despite the industry’s challenges.
“[Retailers] that go after a more broader set of assortments and broader set of customers, those are the ones such as thriving,” Mazumder said. “The ones who are very specific to one or two of these demographics, very much focused on on brick and mortar stores, those are the ones which are going out of business.”
David Berliner, who leads BDO’s restructuring and turnaround services practice, said that the loss of some of these furniture retailers could bring more customers to the retailers left behind. Home retailers could also gain ground from shopping seasons like the holidays and back-to-school when college students start purchasing products for their dorms.
“Those customers go someplace else like a little PacMan effect,” Berliner said. “So the survivors theoretically get a little bigger and a little stronger, making it a little easier for them to survive these natural economic downturns.”