Home Furnishings: Investing Essentials

Find out what you need to know about investing in the home furnishings industry.

Aug 13, 2014 at 11:12AM

Rh Furniture
Home furnishings retail is an important business. Source: Restoration Hardware.

The housing industry plays a major role in driving the U.S. economy. Homebuilders provide new homes for homeowners, while building materials companies prepare the essential components of those new homes before they're built. An entire subsector of the finance industry deals with loans for home construction and mortgages for home purchases. And after homebuyers close on their purchases and move in, they typically need home furnishings, such as furniture, electronics, appliances, household gadgets, and other accessories in order to complete their house.

A host of home furnishings companies seek to meet the demand for the goods that help you make your house a home. Let's take a closer look at the home furnishings industry and its opportunities for investors.

What is the home furnishings industry?

The home furnishings industry most typically refers to companies that specialize in furniture and decorative accessories. From a broader perspective, department stores often have a wide range of furniture to complement their offerings of appliances and electronics, and several big-box electronics retailers have added appliances to cater to new homebuyers. But even though many homebuyers see television home-theater systems, refrigerators, and washer/dryer sets as essential purchases, those areas are treated as separate industry groups. That leaves home furnishings companies to focus on bedding, dining room tables and chairs, living room sets, and accessories ranging from lamps to gourmet coffee makers as their staples.

Different companies focus on various segments of the home furnishings industry. Companies like Bed Bath & Beyond and Williams-Sonoma offer one-stop shopping for a large selection of household items, although their furniture selections are often somewhat limited. By contrast, specialists like Ethan Allen Interiors focus on producing furniture sets throughout the home. On the bedding side, Tempur Sealy and Select Comfort make mattresses and related bedroom furniture sets, along with pillows and other accessories.

Tpx Bedding
Image source: Tempur Sealy.

How big is the home furnishings industry?

Home furnishings have a larger impact on the U.S. economy than you might expect. Nearly 450,000 employees in the U.S. work in the home furnishings industry, according to the latest figures from the Bureau of Labor Statistics, and almost half of them hold jobs as retail salespeople. In addition, the home furnishings industry employs managers to oversee salespeople as well as workers to stock shelves and transport goods from manufacturers to retail stores.

As you'd expect, the size of the home furnishings industry has risen and fallen with the prospects of the broader housing market. In the mid-2000s, furniture and home furnishings store revenue reached peak levels above $110 billion, according to figures from the U.S. Census Bureau. But the end of the housing boom led to a dramatic contraction in overall industry sales, and home furnishings revenue only climbed back above the $100 billion mark in 2013.

Statistic: Furniture and home furnishings store sales in the United States from 1992 to 2013 (in billion U.S. dollars) | Statista
Find more statistics at Statista.

How does the home furnishings industry work?

Like most retail businesses, the home furnishings industry involves manufacturers that make the products consumers want, as well as intermediaries to get those products into the hands of retail stores, and retailers that make the final sales to customers. Most of the major companies in the home furnishings sector are retail establishments, so they rely on homeowners and other consumer buyers to drive sales. Furniture manufacturers, on the other hand, have to cater to their direct retail customers in order to fulfill their function as suppliers, while also keeping in mind that they ultimately serve the consumers who buy their products.

Two things that distinguish parts of the home furnishings industry from other retail businesses, though, are the high ticket prices of furniture and other items as well as their large physical size. The logistical difficulties involved with those items and the financial challenge consumers face when considering purchases make the home furnishings industry a particularly competitive environment in many respects.

Wsm Bed
Source: Williams-Sonoma.

What drives the home furnishings industry?

The most important driver of home furnishings sales is the housing market. When people are moving in and out of new homes, they often take the opportunity to buy new home furnishings or upgrade their existing furniture and accessories, driving sales higher. During times of economic hardship, however, more people stay put in their existing homes, and they don't have the disposable income to finance major purchases of furniture and other high-ticket items.

The rise of Internet retail has also had a major impact on home furnishings. For smaller household goods like kitchen appliances, online retailers have posed a substantial competitive threat, undercutting home furnishings specialists and forcing them to establish their own e-commerce presence in order to counter attempts to take away their market share. For furniture and other bulky items, physical stores have more of an advantage against online retailers, but innovative retailers continue to look for ways to make even sales of larger items more efficient and logistically feasible. That could threaten the high margins some manufacturers currently enjoy on those items.

The home furnishings industry is inexorably linked to the level of housing activity in the market. Investors need to consider the current state of the housing cycle before investing in the sector, especially after periods of strong performance in housing, or else they risk taking a hit in the next cyclical downturn for the industry.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and Williams-Sonoma. The Motley Fool owns shares of Tempur Sealy International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers