The current housing market is experiencing a significant downturn, characterized by record-high home prices and a 30-year fixed mortgage rate surpassing 7%. This situation has created the most challenging housing affordability landscape in a generation, leading many homeowners to reconsider expensive renovations and reconsider their living situations. As a result, the residential renovation market has started to cool, which is impacting home furnishing companies significantly. With consumer spending waning, these businesses are feeling the pressure to provide better deals and attractive pricing to stimulate demand within a sluggish market.
In November, a team of analysts from Goldman Sachs, led by Kate McShane, updated their proprietary promotional tracker for home furnishings. The findings revealed that notable retailers are increasingly resorting to promotions, markdowns, and free shipping to entice customers. Key players in the home furnishings sector, such as Arhaus, Wayfair, and Pottery Barn, are all stepping up their promotional strategies, indicating a wider trend within the industry. The analysis showed that retailer promotions were up both sequentially and year-over-year, with specific brands occasionally standing out, such as Williams-Sonoma, which maintained relatively stable offers compared to the previous year.
The data gathered indicated some critical trends across this competitive retail landscape. For example, the average markdown across the industry in November rose to 40%, slightly up from previous months and reflective of a year-over-year increase, which had averaged 39% in November 2023. Additionally, certain retailers such as Pottery Barn Kids and Wayfair stood out, each offering average markdowns of around 58%. The growth in promotional activity suggests that consumer demand remains tepid, pushing retailers to adapt their strategies swiftly to attract buyers with compelling offers.
The trend regarding free shipping was equally noteworthy, with home furnishing brands expanding their shipping promotions substantially in November. The average number of days of free shipping rose to 14 days, compared to previous months’ averages. Brands like Kirkland’s, Pottery Barn, and Williams-Sonoma led this initiative, providing customers with consistent free shipping offers. Overall, the substantial increase in days of free shipping indicates retailers are employing diverse strategies to counteract the challenges presented by a cautious consumer base still reeling from the post-COVID-19 reality.
Despite some brands like Williams-Sonoma not significantly increasing their promotional offers, the general pattern across the industry reflects a shift towards adaptation due to economic pressures. Additionally, brands such as RH are noted for advertising substantial clearance sales, underscoring the competitive atmosphere within the market. Retailers are adjusting to the economic landscape which has prompted consumers to be more selective in their purchases, waiting for the right deals before committing.
Consumer patience may yield opportunities for deals, especially for those who had deferred home renovation plans during the pandemic surge in demand. With the residential renovation market experiencing a notable decline and an abundance of promotions being offered, consumers have more options available to them than in recent times. Overall, the findings from Goldman Sachs reflect a turbulent market where home furnishing retailers are gearing up for a challenging retail environment and are beginning to make accommodations to bridge the gap between consumer expectations and the realities of the current economic climate.