How is the furniture sector doing in the post Covid-19 world? Has the digital explosion been taken into account by furniture producers? State of play.
Has it understood its consumers’ new expectations? Has its development model taken account of upcoming trends and did it anticipate the supply chain disruptions and shortages?
Lectra provides its responses to all these questions, and shares its vision.
The state of furniture in 2022
The Furniture industry proved to be one of the most resilient industries during the Covid-19 crisis, and upholstered furniture is expected to surpass its 2019 level in 2022 (+ 2%).
The pandemic had a positive impact on furniture demand. During the lockdowns, home was the center of everything, and households took advantage of their available savings to invest in office furniture, and upgrade the comfort of their home by replacing their sofa. Now that working from home has anchored in the daily habits, the demand for work-friendly and modular furniture should keep stimulating residential furniture market, and has already pushed manufacturers and retailers to review their product range.
China still dominates by far the upholstered furniture production sector, accounting for 45% of global production, followed by the USA (16%). The rest is split between the other countries respectively (Poland, Vietnam, Italy, Mexico, see table below).
While the furniture market proved to be quite resilient during the pandemic, it still has to navigate through supply and demand unpredictability. The war in Ukraine, recent shutdowns in China, booming inflation, doubled delivery lead times and unprecedented increase in cost of commodities, logistics and transportation (+41% in cotton prices in 2021, a ten-fold increase in transportation costs), are all weakening the furniture supply chain.
While the furniture market proved to be quite resilient during the pandemic, it still has to navigate through supply and demand unpredictability. The war in Ukraine, recent shutdowns in China, booming inflation, doubled delivery lead times and unprecedented increase in cost of commodities, logistics and transportation (+41% in cotton prices in 2021, a ten-fold increase in transportation costs), are all weakening the furniture supply chain.
The wider spread working from home has uncovered the opportunity for office furniture sellers, like SteelCase in the USA, to penetrate the direct-to-customer retail market. However, the opportunity came with the challenge to review the entire business model to address their more granular and specific end-customer market. The business extension requires manufacturers to show a good deal of agility, and implement new production processes.
Targeting the end customer could represent a promising opportunity as the adoption of remote working has led to a reduction in office attendance (60% of the companies said that they plan to have less than one chair per employee).
Nevertheless, the office furniture market still has room for growth, as 85% of companies are seeking solutions to reorganize their workspaces, by investing in more flexible and user-friendly furniture.
People are taking advantage of the higher degree of remote working to change their location or travel the world. To work, all the new “digital nomad” needs is a computer and an internet connection.
As a result, in the United States, the number of digital nomads, i.e. workers with no fixed address, working from several locations, has increased by 140% in 2021.
The implementation of cloud and collaborative working technologies has accelerated the phenomenon, and changed the expectations of this new cohort: living spaces have to echo new nomadic lifestyles, and offer greater flexibility and modularity.
Changes in lifestyles could delay the setting up of young adults, as the number of digital nomads has doubled in the USA since 2020 and other young actives, known as the “boomerang generation”, were forced to move back into their parents, due to difficulties faced during the Covid-19 crisis.
These two phenomena threaten to slow down consumer base renewal and global demand in the long term.
E-commerce has increased by 29% in the global furniture industry in 2020. The health context and store closures have largely stimulated its adoption during the last two years, but multiple barriers are still holding back the furniture industry’s on-line development.
Consequently, e-commerce accounts for only 15% of revenues for the upholstered category, which is still above the global average for the furniture industry (around 10%).
The first reason is that the market is product and category-oriented, and therefore, largely unbranded (dominated by marketplaces and omni-channel retailers). For instance, in the US, the top 10 retailers are controlling around 50% of the sales, while 38% of furniture specialists were not using e-commerce in 2020. Specialists and brands are now willing to seize the e-commerce opportunity (almost 80% of companies currently not using e-commerce declared intentions to do so within 2022).
Nevertheless, their lack of digital maturity and expertise is still representing a major roadblock.
Particularly for the upholstered furniture, the missing ‘test and try’ in store, a crucial aspect of the purchasing process, together with the higher average price of this category, could also be a barrier for buying on-line.
The unstable macroeconomic context, translated into increased pressure on production costs and margins for every industry, has shaken the globalized and interdependent supply chains.
Moreover, the reinforcement of China’s local-for-local strategy, supported by the latest five-year plan and the entry into force of RCEP will leave no choice for companies but to rethink their sourcing options in search of a more agile, resilient and profitable supply chain strategy.
For the upholstered furniture industry, which is heavily dependent on Chinese and Asian sourcing (respectively representing 48% and 61% of its exports in 2020) and highly exposed to raw material inflation and shortages, current operational challenges are leading firms to “go local”, consolidating around key close-by suppliers. For example, 75% of Ethan Allen products are now coming from North America factories, while 50% of Alinea’s sofas are already made in France.
The furniture industry, already consolidated around 200 major suppliers, must find the means to ensure its resilience, in an increasingly challenging economic context for businesses.
Further extending re-localization and nearshoring initiatives could be a strategy to reduce risk and logistic costs, and build flexibility. However, its viability will depend on access to raw materials, production agility, and logistical capacity.
In addition, furniture players will have to prioritize investments in marketing, retail and automation solutions to be more demand-reactive and break down the barriers of the customer omni-channel journey.
Lastly, a better awareness of trends, such as connected furniture or eco-responsible materials, as well as the capacity to anticipate their impact on production processes and product profitability, will also be key to stay ahead and seize early market opportunities.
During the last two years, the furniture industry measured the extent of its yet untapped revenue potential. The main market indicators were encouraging (household savings, strong demand, online channel boom), but industry players only proved to by resilient, but not performant.
Stepping into 2022, demand volatility is still holding back investments that are necessary to improve agility, and ensure cost optimization and efficiency.
Paradoxically, while examples like the drop in US furniture new orders in 2022 due to the increasing costs and labor shortages are proving investors right, only the investment in factory automation can improve productivity and workflows, leaving the industry more resilient and less dependent on human labor.
To build a stronger business model, furniture companies have to prioritize their financial health and return on investment. Nevertheless, they need to think strategically and evaluate the risk of being static in this constantly changing market and competitive environment.
