“I’m bullish on the home sector in general, whether it is from the home furnishings or the home improvement standpoint,” said Naveen Jaggi, JLL president of America retail advisory services. The surge in sales of home furnishings that exploded in April and May could continue into 2022, he says.

Consumers indeed are pouring more money into upgrading homes, according to Natalie Kotlyar, an assurance partner and leader of the Retail & Consumer Products practice at professional services firm BDO. “Instead of spending money on an experience, they are moving their money to more tangible products, and much of that is on home furnishings and home goods because that’s where people are spending all of their time,” she says.

The $900 billion stimulus package approved at the end of December will give people additional funds to spend, some of which likely will flow to home furnishings. The sector also is benefiting from a robust housing market. 2020 home sales, when fully counted, are expected to reach $5.5 million, the highest annual level since 2006, according to the National Association of Realtors.

There is a strong correlation between home sales and, six to nine months later, spending on home furnishings and home improvement, notes Seth Basham, Wedbush Securities managing director of equity research for hardlines retail. Wedbush expects the housing market to remain strong at least through mid-2021 due to high demand and low interest rates. In addition, there is pronounced strength in suburban markets, which have larger homes and therefore more space to furnish, adds Basham.

Those tailwinds are providing a needed boost to U.S. home furnishings retailers. Home furnishings stores in the U.S. generated an estimated $30.9 billion in sales in 2020, according to research firm IBISWorld. However, the sector experienced negative annual revenue growth over the past five years, due in large part to competition from e-commerce and from discount stores like Target and Costco. IBISWorld forecasts that improving economic conditions and increasing homeownership will raise the annual growth rate to 2.1 percent over the course of 2021 to 2025.

Foot traffic is falling, though

Despite a positive near-term outlook, home furnishings retailers face stiff competition, shifts to online channels and supply chains disrupted by the pandemic. Online retailers like Wayfair and Overstock.com are grabbing more market share. “People are shopping more for home furnishings and even furniture online at the mass-market level as they get more comfortable buying online without touching and feeling it first,” said Basham. “Traffic is down substantially at [retail stores], and the pandemic has exacerbated that trend.”

Those challenges are creating some shakeout in the sector. Pier 1 and Bed Bath & Beyond have made headlines in the past year for store closures, albeit for different reasons. Pier 1 announced in May it was filing for Chapter 11 bankruptcy protection and would close all 540 of its stores permanently. Bed Bath & Beyond announced in July it would close more than 200 stores over the next two years in a move that could save the company $250 million to $350 million annually.

The Pier 1 brand has been around for more than 30 years and was burdened by infrastructure challenges that went far beyond COVID-19, says Jaggi, while Bed Bath & Beyond is a good retailer with a good offering but just has too many stores. According to Bed Bath & Beyond, about 450 of the firm’s 1,500 stores worldwide generate over 60 percent of its in-store sales.

Even strong retailers have seen sharp declines in store sales. For example, Williams-Sonoma  Inc. outperformed expectations in the third quarter, as sales rose 24 percent across all its brands. However, much of that came from a spike in e-commerce while in-store sales declined by 11 percent. The retailer, which operates brands like Williams Sonoma, Pottery Barn, West Elm and Rejuvenation also closed more than 30 stores in 2020. “So they are not immune to this trend,” says Basham.

Consumers of higher-end home furnishings still like to touch and feel products before buying, which does benefit luxury and aspirational retailers like Williams Sonoma and RH, notes Basham. RH also has done a good job of creating a unique experience with flagship stores that feature high-end restaurants and wine bars that draw consumers, he adds.

Retailers position for the future

Retailers are shoring up their business models, reducing costs and driving traffic to stores and online channels.

“Many of the store closures we are seeing today are the result of store rationalization and retailers trying to determine what is the right number of stores and the right place to have these stores,” said Kotlyar. That means that as with Bed Bath & Beyond, more store closings are ahead. Williams-Sonoma CEO Laura Alber also has said her company plans to have fewer and better stores.

Furniture and home goods retailers also need strong digital capabilities, adds Kotlyar. Many have sophisticated apps that allow customers to shop online and see how that sofa or this coffee table will look in their living rooms. Retailers also need a good product assortment and availability, which has been challenging given the supply chain issues caused by the pandemic. Pricing is equally important, she says.

Convenience and proximity to home also remain important factors for consumers. “What you’re going to see even more in 2021 and 2022 is that retailers that are in the neighborhood centers or power centers closer to the home, versus the mall, will spend more money on improving the customer experience and improving safety, says Jaggi.

Aspirational brands like Williams-Sonoma and RH have created loyal followings and unique shopping experiences. Other brands, such as Living Spaces, also have created a great customer experience or value proposition that drives foot traffic to their stores, he says. “I think the big pivot in 2021 and 2022 is not selling a product; it’s creating a pleasant experience for the consumer.”