Home Furnishings: Investing Essentials
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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.
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.
The article Home Furnishings: Investing Essentials originally appeared on Fool.com.
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 .
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