retail watch | May 4, 2023 |
Retailers are feeling the post-boom pain

At the beginning of 2023, people in the home industry said the worst was over and business would start to get better soon. People in the home industry said the first few months of the year would show good retail sales results. People in the home industry said consumers would return to spending.

People in the home industry were wrong.

In a broad cross-section of results from public retailers across the home furnishings spectrum for the first quarter of 2023, the numbers show that sales were worse than expected and worse than the year before.

The optimism of a few months ago has turned into, if not quite pessimism, then at least guarded concern. The ongoing housing market slowdown, triggered by rising interest rates and a lack of supply, is taking its toll throughout the sector; and the meltdowns of such onetime stalwarts as Bed Bath & Beyond and Tuesday Morning are contributing to the lackluster performance of the first few months of 2023.

As dismal as some of the numbers are, they do need to be put into the context of the pandemic boom. Most retailers are continuing to beat their 2019 results before Covid hit, and it’s only in comparison to 2020 and 2021 that things look inauspicious. However, that’s small comfort for retailers trying to impress investors.

Looking at individual retailers, we see many similarities in their performances, tempered by minor differences. Some beat analyst estimates, some didn’t, but it’s the absolute sales numbers that tell the story here. Profitability reflects many factors, often having little to do with top-line results, so let’s look at revenues for the first few months of 2023.

Williams-Sonoma, which had been resisting the downturn of 2022 better than just about anybody else, finally hit the wall in its fourth quarter, which wrapped up at the end of January—although the dip was modest to be sure. Revenues dropped just .6 percent for the preceding three months, and its early financial calendar might have saved it from further declines as 2023 progressed. Still, the retailer was up 6.5 percent in sales for its fiscal year.

RH, which had been warning of a downturn for months, showed a much more substantial year-over-year sales drop of 14.4 percent for the period. The company also predicted soft business for its first quarter, which ended in April and will be reported soon. Meanwhile, Ethan Allen, which plays in a similar upmarket space as RH, showed a 9.5 percent decrease in retail net sales for its third quarter. However, the company made a point of saying its “written orders” continued to increase over pre-pandemic numbers.

Havertys, the regional furniture chain based in the Southeast, showed a 5.9 percent decrease in sales with comp totals down 6.7 percent for its first quarter, also through the end of March. It too said it was showing positive results versus the “normal” pre-pandemic period.

La-Z-Boy, which is both a wholesaler and a retailer, and therefore has some apples thrown into its oranges when reporting numbers, said its third-quarter sales across the entire company were flat—though it reported that “written orders” at its own stores were up 8 percent.

Overstock, the pure-play online retailer that has transitioned to a home-only merchandising strategy, showed one of the biggest drops in sales, by 29 percent. How much of that was due to the 2022 elimination of nonhome categories is unknown, but the number of active customers on the site fell by a whopping 35 percent.

Wayfair was the most recent reporter, announcing its numbers on Thursday morning, and it was not a case of saving the best for last. Its first quarter, through the end of March, showed a 7.3 percent decline in net revenue and a 5 percent drop for its U.S. business. Most of its matrices of order performances were also down, but compared to the previous few quarters, those declines lessened.

The one outlier in the home retail universe seemed to be Arhaus, which earlier this week reported a 23.7 percent rise in revenue based on a 5.6 percent jump in “demand comparable growth.” However, it seemed to temper its results by noting most of its increase came in January and February, with March flat. It said the start of its next quarter in April was also flat.

Even with the encouraging news from Arhaus (the smallest of any of the public home furnishings retailing companies surveyed), taken together, the results for the past few months confirm a tough environment for the sector. What is encouraging is the general consensus that this slowdown really began in the spring of 2022, and from here on out, most retailers will be performing better against softer results from the year before. That should make the year-over-year comparisons starting to come out in the weeks ahead more positive. Or, at the very least, less negative.

Homepage photo: ©Tada Images/Adobe Stock


Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.

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