Home Furnishing Retailers Face Challenges Amid Housing Market Slump—From Williams-Sonoma To Wayfair To Home Depot

 Home furnishing retailers have yet to rebound from the post-pandemic slump, with major players from low- to high-end markets reporting drops in first-quarter sales—as rising mortgage rates and a related slump in home sales continue to weigh on demand for big-ticket furniture and home improvement projects.

RH, an upscale American home furnishings company formerly known as Restoration Hardware, reported a 1.7% revenue loss for the quarter ending May 4, to $727 million, amid what CEO Gary Friedman called “the most challenging housing market in three decades” in last week’s earnings call.

Williams-Sonoma saw its net revenue fall 5.4% year-over-year to $1.7 billion for the quarter ending April 28, with sales in Pottery Barn—its high-end brand and largest revenue driver—declining by 10.8%, while its second-biggest West Elm was down 4.1%.

Ethan Allen, a custom-made furniture retailer, posted a 21.4% decrease in net sales for the quarter ending March 31, citing “sluggish” demand in the overall industry amid elevated interest and inflation rates, according to CFO Matthew McNulty.

Wayfair, an online home goods company, reported $2.7 billion in net revenue for the quarter ending March 31, down 1.6% year-over-year, though the retailer narrowed its net loss by $107 million following a 13% workforce reduction in January.

Home Depot reported a 2.3% annual decline in net sales to $36.4 billion for the quarter ending April 28 due to “continued softness in certain larger discretionary projects,” according to a company statement.

Richard McPhail, CFO of Home Depot, said in last month’s earnings call that the significant decrease in housing turnover and high interest rates reduced demands for big-ticket home projects like kitchen and bath remodels—which customers typically use financing to fund.

Lowe’s, the second-largest home improvement chain in the U.S. after Home Depot, posted a 4.4% annual decrease to $21.4 billion in net sales for the quarter ending May 3, due to a decline in “DIY big-ticket discretionary spending.”

Consumers are yet to “reengage” and show that “home improvement is inflecting” amid housing affordability challenges and historically low turnover, said Lowe’s CFO Brandon Sink in last month’s earnings call.

Sales for furniture and home furnishings in May were down 6.8% year-over-year, the biggest drop among all retail sectors analyzed, according to a monthly retail report released Tuesday by the Department of Commerce. After furniture and home furnishing sales peaked in January 2023 at almost $13 billion—according to seasonally adjusted U.S. Census Bureau data—the furniture industry has faced a tough economic climate over the past year, with high interest rates and inflation impacting consumer spending on home goods. The housing market slowdown after the post-pandemic home buying boom—fueled by soaring mortgage rates, which hit a 23-year high in October—has further compounded these challenges, as fewer home purchases mean fewer large-scale furnishing projects. Major players in the industry, ranging from high-end to mass-market home furnishing retailers, have felt the brunt of this shift.

$53 billion. That’s how much furniture and home furnishing retailers in the U.S. are estimated to have generated in sales during the first five months of this year—down 7.9% from last year. No other retail industry saw a larger decline, with the building material and garden equipment sector coming on its heels with a 3.3% annual dip.

In the early stages of the pandemic, people spent more time at home and increasingly invested in home improvements, which led to a significant surge in home furnishing and furniture purchases. Low interest rates and government stimulus packages—coupled with the subsequent housing market boom—further drove demand for home furnishings. Monthly sales of furniture and home furnishings stores in the U.S. soared by more than 200% year-over-year in April 2021, and kept increasing until the end of the pandemic, peaking in January 2023, according to Census Bureau data. As the pandemic eased and consumer spending patterns began to normalize—along with the Federal Reserve’s hawkish rate hikes starting in March 2022—this had a cooling effect on the housing market and, subsequently, on the demand for home furnishings.

“We have seen a Covid boom and bust in the sales of many products, ranging from Peloton bicycles to liquor to fireworks. Home furnishing is another one in this boom and bust category. Furniture sales spiked at the end of Covid and now the industry is dealing with the bust,” noted Jay Zagorsky, an economics professor at Boston University's Questrom School of Business.

The soft demand has especially impacted bigger-ticket items or home projects. “Softness in big-ticket furnishings and furniture will persist until interest rates come down,” noted Neil Saunders, retail analyst at GlobalData, as moving activities declined and financing for large-scale items got more expensive—both due to elevated interest rates. “At present, people are more willing to buy smaller things as part of simple home refreshes,” he said. The trend is highlighted in major retailers’ first-quarter earnings calls. Home Depot’s transactions for items over $1,000 decreased by 6.5% from the previous year, while average-ticket transactions dropped by 1.3%. Lowe’s reported a 7.6% annual decline in sales for items over $500, and Williams-Sonoma’s high-end brand, Pottery Barn, also saw a continued softness in higher-ticket furniture sales, according to CEO Laura Alber. Yet Alber said the retailer has rather been “very focused on the smalls” and leaned into “easy updates,” meaning things that are easy to buy and improve for the home—as demand for furniture has dulled amid the housing slump.

While the overall furniture market is struggling, some high-end retailers seem to defy the trend, showing strong gains on Wall Street. Williams-Sonoma’s shares are up over 50% year-to-date, with first-quarter profits up 70% from last year. Shares of Arhaus, a premium home furnishing retailer, are also up 51% year-to-date, thanks to increased brand awareness due to more store openings and new product releases, according to Telsey Advisory Group analyst Christina Fernandez. Williams-Sonoma’s profit boost is mostly driven by lower freight costs, better supply chain efficiencies, and normalized e-commerce sales with lower merchandise returns post-pandemic, Saunders told Forbes. Despite higher share gains compared to competitors, both companies’ revenues still shrank in the first quarter, with Arhaus posting a 3.1% decrease in net sales for the quarter ending March 31.

Whether the home furnishing industry will rebound from the post-pandemic slump. Zagorsky told Forbes there’s a “bright spot” indicating a recovery: Retail prices for furniture and bedding, according to the Bureau of Labor Statistics’ Consumer Price Index data, fell 3.7% year-over-year in May. The cost of overall household furnishings and supplies dropped 2.5%—the first May decline since at least 2019. “Lower prices will help lure consumers back to purchasing larger pieces of furniture and bedding,” Zagorsky wrote in an email. A return of consumer confidence, higher travel costs leading to more staycations, and the normalization of home furnishing demand—which was pulled forward during the pandemic—could also revive the market, according to Saunders. Farooq Kathwari, CEO of Ethan Allen, commented in an April press release the retailer is seeing a gradual return of consumer interest in home furnishings “after being previously diverted to other areas like travel.” Additionally, although we’re still in the down part of the purchase cycle, in a few years it will start to pick up as people replace items they bought in 2020 and 2021, Saunders noted.