Financial news in the U.S. is rife with reports of inflation and a potentially looming recession. And yet, amid all the fiscal doom and gloom, trade brands and big-box retailers like Four Hands and Ashley are cutting their prices. How can that be?
The biggest factor is simple: Shipping container costs are finally going down. At the height of the pandemic, containers that once cost roughly $1,500 were going for upward of $20,000. That’s painful in any category but particularly brutal for furniture. “If you were bringing in shower curtains, you could fit about 60 trillion shower curtains in a container and mark them up, but if you were bringing in sofas, you could fit maybe 100 and your margins were razor thin,” says Business of Home contributor and retail industry expert Warren Shoulberg. “The cost per unit went up pretty substantially.” While those costs aren’t yet back to pre-pandemic levels, Shoulberg says that they’re going in the right direction, with containers clocking in closer to $3,000 to $5,000 each. “More than anything else, that’s going to give brands room to bring prices down.”
Matthew Briggs, CEO and president of Four Hands, says that’s exactly what prompted the company to cut prices by roughly 10 percent across the brand earlier this month. The staggering and sharp rise in ocean freight costs over the past three years caused Four Hands to issue three rounds of price hikes since 2020, ultimately amounting to a 20 percent increase. But now, with costs inching back down, the company was finally able to reduce prices—not quite to what they may have been in 2019, but certainly closer. “As we passed on those price increases, our hope was always that there would be an opportunity to lower them back again,” says Briggs.
Four Hands isn’t alone. Since November, design trade marketplace Daniel House Club reports that, along with Four Hands, five other vendors on the platform have lowered prices by 15 to 20 percent. “It’s great to see vendors recognizing that the unique market forces that drove up prices were temporary,” says Alexander Spalding, CEO and co-founder of Daniel House Club. “What’s even better is that the shift, at least from our perspective, does not seem to be due to a large dip in demand. Our sales have remained strong and even grown with most of the vendors we work with.”
Briggs wanted to be transparent about price reductions after years of increases; not all brands are as keen to highlight lower price tags. Several other companies that have lowered their prices in recent months declined to comment. There are valid reasons for their reticence: While the supply chain challenges of the past few years have drawn an unprecedented level of attention to the many variables that impact the cost of goods, there’s still perhaps a lingering fear that designers and consumers alike will equate a lower cost to lower quality. While not necessarily true, brands courting the high-end trade might understandably want to steer clear of putting such an idea in their customers’ heads. Plus, in a quickly shifting environment, some brands that are quietly lowering prices may be hoping their new rate card sticks but unwilling to trumpet the move in an uncertain climate. And as whispers of impending layoffs follow the manufacturing sector’s frantic efforts to staff up, the timing simply may not be right to share the news.
It’s also important to note that the decreases are by no means universal. Ray Allegrezza, executive director of the International Home Furnishings Representatives Association, is quick to point out that there are still many brands holding the line, unwilling to give up their margins despite some costs going down. And while shipping container costs have shrunk, other costs, from labor to freight, have not. “A lot of the supply chain issues have mitigated themselves, but there’s still the exorbitant cost of trucking,” says Allegrezza. “Gas is expensive, there’s still the truck driver shortage—it goes on and on. It’s getting better, but there are still some sizable speed bumps ahead.”
Briggs acknowledged those speed bumps as well. His company has seen prices come down at the Port of Los Angeles, but Four Hands ships much more of its merchandise to Houston. “The freight rates are remarkably better and way more tolerable, but they’re not at pre-pandemic levels by any means,” he says.
While shipping costs might be influencing the high-end, to-the-trade sector, an entirely different factor is causing big-box stores to cut prices: too much inventory. An October report from Morgan Stanley found a 19 percent discrepancy between inventory and sales growth, highlighting retailers like Best Buy and Williams-Sonoma as most exposed to those inventory risks. Allegrezza refers to it as a “pandemic hangover.” During the height of lockdown, when people were stuck in their homes with stimulus checks burning holes in their pockets, the home sector went through an unprecedented boom and many retailers ordered surplus products to capitalize on the change in spending patterns.
But, like all good things, the so-called home boom has mostly come to an end. “So many retailers have told me that they had to spend money on warehouse space just to house this stuff,” says Allegrezza. “You’ve got more supply now than demand, and until that works its way out, you’re going to see companies shaving prices to get rid of excess inventory and stimulate sales.”
Shoulberg sees the situation as a forecasting issue as well. “Everybody who bought sofas and bedroom sets and rugs and KitchenAid mixers during lockdown—you don’t really need to buy another one 18 months later,” he says. “People may be buying some accessories, but the big-ticket home furnishings business is going to be tough this year.”
The good news is that it makes for a more consumer-friendly market for those who are sourcing those big-ticket items. As shipping bottlenecks slowly but surely smooth out and brands look to unload excess COVID-era inventory, designers and their clients may be able to snag some far better deals than they could have during the height of the pandemic.
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