Furniture retailers confront tough choices as consumer demand slows | Bill McLoughlin

Imagine you had a hard time getting goods for your store at a time when shoppers were looking to scoop up anything they could get their hands on. Imagine if, instead of buying your best-selling looks, you took what you could get because anything is better than an empty sales floor. And imagine those goods took a long time to arrive, and when they did, they cost dramatically more than you budgeted. Then imagine when they finally arrived the demand for them had evaporated … poof, almost overnight.

For many today that’s not imagination but reality.

Over the past 18 months the goal has been to get inventory, by hook or by crook. Those retailers reporting the most success during the pandemic time and again attributed it to maintaining a solid in-stock position. Myriad dealers have added warehouses or expanded space to go deep with inventory, even while acknowledging that it wasn’t always the right inventory.

That was fine while consumer demand was setting records, while people were staying home and while there was limited competition for discretionary dollars.

That phase is officially over.

Instead, the current phase is defined by declining demand, rapidly rising inflation, climbing interest rates and consumers who are once again free to move about the country. You’ve read previously in this space about cancelled orders, but what happens to the inventory that arrived, was accepted and is now filling warehouses and sales floors?

The most nuanced answer is: It depends. It depends on the size of the retailer and the extent to which they were able to get the right goods in a reasonable time frame and within a manageable cost structure. It depends on how deep a retailer’s pockets are. It depends on whether they have the ability to carry the value of that inventory on their books rather than sell it, likely at a loss, in order to maintain cash flow.

Whatever the individual situation, it’s clear that there is now a glut of goods relative to demand. On top of that, the Fed is trying to slow sales of big-ticket purchase (like furniture) to bring inflation under control. At the same time, freight costs remain at near-historic levels, employees remain costly to retain and obtain, and competition for discretionary dollars is going to become more intense.

The last thing the furniture industry needs is a return to intense price competition. However, whether it’s around price or some other variable, there’s little doubt that competition is increasing, not only for retailers but for furniture manufacturers as well.

There’s a lot of inventory in the market, and there is more in the pipeline. How it clears itself out remains to be seen, but there’s no doubt that doing so will confront both retailers and manufacturers with some difficult choices throughout the remainder of the year.

And how it resolves could determine who’s still here to confront those challenges next year.

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