Sofas, closet organizers, stylish lighting, throw cushions, etc.—all things home goods—may be the next retail category to ride a consumer wave. Evidence is mounting that frustrated homeowners blocked from selling or buying by stubbornly high prices and mortgage rates appear to be shelving plans to move and, instead, investing in sprucing up the space they have.
Overstock, an e-commerce home goods merchant now known as Beyond Inc., reported a 22% rise in revenue for the second quarter, but its sales are down by 29% year-over-year, and revenue has been shrinking for the past four years.
TJX and Wayfair are direct competitors with one very big difference. TJX has been a bricks-and-mortar retailer where customers can see and touch merchandise and discover items they didn’t know they wanted or needed. (TJX tried operating an e-commerce channel but recently closed it down.)
Wayfair, on the other hand, has been exclusively an e-commerce merchant that only recently opened its first physical store, in Chicago. CEO Niraj Shah told analysts that the Chicago store has flourished and new stores are planned in Atlanta, New York and Denver.
Clearly both companies see a bright future in home goods, and small wonder. The real estate market is dismal. According to U.S. Census Bureau data, the number of existing home sales in the U.S. is about the same today as it was at the bottom of the Great Recession in 2010, and almost exactly the same as it was 30 years ago, when the population of the country was 20% smaller.
Meanwhile, mortgage rates are well above the so-called 6% “sweet spot” that experts say would begin to thaw the market. But that benchmark may not mean much when you consider how overpriced homes are when adjusted for inflation.
According to Federal Reserve data, the median price of a single-family home in 2009 was $221,000 which, adjusted for inflation, would be $333,000 today. Instead, the median price today is $411,000, a premium of 23% over inflation. A correction of that magnitude in prices would wipe out trillions in household net worth—a calamity.
It would be hard to construct a scenario where the home availability and affordability crisis resolves itself anytime soon, especially in the context of the economic uncertainty that has befogged ordinary economic forecasting.
We know that Americans are spending less on travel and entertainment than they were the past two years. That leaves open the tantalizing prospect that redecorating and nest-freshening will become a trend and possibly inspire a revival in the long-lost art of home entertaining.
Subscription required.
