If home is where the heart is … what happens when it also becomes the office, the school, and the gym?
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Answer: Demand for all-things “home goods” spike.
Normally, high demand is a good thing. For the home furnishing industry, these past few years presented a monumental challenge — higher cost and lower margins.
How can stores within this vertical come out on top despite volatile market changes?
To plot a course to profit, we’ll be immersing ourselves in the …
Data, trends, and strategies shaping the state of ecommerce home furnishings.
Part 1: Market Research
What is the home furnishing industry?
Home furnishings encompass a wide variety of products ranging from commercial (B2B) to consumer (B2C): indoor and outdoor furniture; appliances and entertainment; house-, kitchen-, and cookwares; bedding; floor coverings; toiletries and cleaning products; decorations, upholstery, and fabrics (home textiles).
For the purposes of this report, we’ll focus primarily on direct-to-consumer furniture, housewares, and home decor.
How big is the home furnishing market?
Currently, worldwide online revenue for furniture and appliances is $415B. By 2025, it’s projected to hit $455.4B.
Year-over-year (YoY) expansion has slowed considerably since the pandemic high. In fact, YoY between 2021–2025 looks like a grim countdown: from a 9.7% growth rate down to 4.4%.
China and the United States lead in global market value.
And it’s not by a little. It’s a landslide, both now and into the future.
However, if we look at the growth rate by percentages, an entirely different story appears. Developing countries — like Guyana, Niger, and Egypt — are expected to grow exponentially.
This disparity is likely due to three factors.
First, an emerging middle class. Second, improved logistics and shipping infrastructures. Third, the continued globalization of free-trade agreements.
North America mirrors global totals, though at a smaller scale. Projections are expected to reach $98.3B by 2025. YoY changes show the familiar downward trend.
As for the e-retail economy, home furnishing took a sliver of the cake at only 17.1% in 2022 and it’s expected to slightly decrease to 15.7% by 2025. Currently, the industry nationally is slowly increasing and expected to reach $87 billion by 2025.
Does ‘slow but steady’ domestic ecommerce make for a bleak outlook? No.
The share of online home furnishing purchases continue to rise, inching up into the 30% mark from 2023 on.
Plus, the United States has a consistent demand for home furnishing goods. Why? Three reasons …
Two more bright spots: fragmented competition and low saturation.
At the enterprise level, 11 brands currently command 55% of the market —mostly in retail. In comparison, only two brands control ~40% of the pet industry.
Home good’s fragmentation speaks directly to lack of brand loyalty and, therefore, rich opportunity for disruption.
On the DTC front, it’s essentially inverted: from a cluttered competitive landscape … to wide open (relatively speaking).
Semisupervised’s study of 1,111 DTC brands identified 164 in the home space: 14.8% of the total. It also scored each category’s saturation level by dividing the number of startups by market size (*100).
Below is a sample of the study’s findings, which placed “Home & Garden” firmly in the least-saturated category. Especially when compared to industries like ecommerce beauty and online fashion.
Data via SemisupervisedLikewise, of the 464 companies tracked on 2PM, Inc.’s DTC Power List, 67 are in the housewares or home furnishings category. That’s 14.4% — nearly identical to Semisupervised 14.8%.
The opportunities are profound with no legacy leader and minimal interference from upstarts.
Even better, low barriers of entry and the absence of a major retail monopoly makes this industry perfect for DTC brands.
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Part 2: Market Trends
What furniture and decor styles are trending in 2023?
In efforts to support remote working, home-office upgrades will continue to lead the way: desks, chairs, storage, and professional decor. This comes with an increased desire for goods to fill multi-purpose spaces and separate personal from professional.
Other emerging movements include vibrant wallpaper, indoor plants, bidets, smart lighting, and grandmillennial chic.
Here, we’re discussing the top-three ecommerce trends — home offices, livable luxury, and smart home appliances.
As remote work continues to dominate many sectors, companies in the home furnishing industry, like Article, have experienced a 200% increase in growth.
How are retailers forecasting 2023?
According to Furniture Today, “We forecast demand to remain at 10% to 50% below the past two years and basically more in line with 2019 numbers.”
“We’re forecasting a little light now. It’s easy to get goods. It wasn’t easy in 2020-2021.”
On average, the home furnishing industry relies heavily on consumer income, new home purchases, and remodeling efforts. Millennials currently make up the majority of active consumers and won’t change in the near future.
Remote work has given more people than ever the freedom to explore different locations.
A new home doesn’t just include buying a new house. It encompasses remodeling, redesigning, and redecorating to accommodate new lifestyles.
The popularity of home offices ushers in the demand to adequately furnish these spaces.
At the same time, work-from-home has given birth to a crying need to separate personal-from-professional spaces and a far higher usage rate of consumable home goods: staples like toiletries, cleaning supplies, and various paper products.
For instance, where Brandless stumbled as a DTC alternative to discount stores, Grove Collaborations has thrived. How?
By majoring on (1) sustainability, (2) email-centered customer acquisition, and (3) increasing AOV through automatic cart building:
Gone are the days where luxury home items are synonymous with the rich. The look, feel, and even the cost of luxury home furnishings are pivoting.
In the past, precious metals and expensively sourced materials were the go-tos for larger items like beds and dressers. Cozy spaces were more about being “Instagramable” versus actual comfort.
These trends have dramatically shifted to buying smaller items as statement pieces, comfortable spaces that look and feel like luxury, and larger items that are eco-friendly.
Think house plants, responsibly crafted bedroom furniture, ethically sourced rugs.
Likewise, the online shopping experience itself should be comfortable. While we’ll assemble a mansion of examples in Part 3, on this trend, Joybird’s ad-to-Messenger quiz towers as a monument to ease-meets-opulence.
Kitchenware and appliances have not been immune to the radical changes of the past five years. The pandemic brought with it an increased demand for cookware and bakeware that rivaled the 1950s.
Consumers are looking to add more smart appliances and all-in-one cookware to their kitchens to make simple tasks simpler.
Brands like Suvie have tapped into innovation. As a truly all-in-one system, its Kitchen Robot has features that allow multiple cooking tasks to be completed simultaneously.
The best super-techy feature of all is the use of smart recipes where the robot receives cooking instructions by scanning smart recipe cards.
Part 3: Growth Strategy
How do I market my home furnishing business to grow profitably?
Strategies for marketing begin with top of the funnel efforts like media buying and ends with a system for accelerating customer lifetime value.
Home goods purchases are very personal and require a lot of effort to be put into visuals, content, and long-term support. In short, mirroring furniture stores without ever stepping inside.
Sales growth for online retailers depends on understanding and then optimizing the only four levers that truly matter.
Previously, ecommerce options were widely available but limited by customer questions like:
This forces retailers to circle back to the customer’s experience and how that is translated to the internet. Even as the pandemic nears its end, the floodgates of ecommerce have been opened and there’s no going back.
So, what options are available? One formula and four metrics …
It's the cheat code. See it in action …
Consumers want to “feel” the product before they can actually “feel” the product. Although, feel doesn’t necessarily mean touch.
In the cut-throat DTC mattress industry, Purple established itself through a savvy combination of science-meets-humor. Strong branding rooted in that throughline connected it to customers.
For instance, its now classic “Raw Egg Test” not only led the brand’s accounts for years, it also spawned an army of user-generated content and “Goldilocks” continues as a character today:
Still, that kind of high-concept storytelling doesn’t negate direct-response Facebook advertising. Far more dominant in Purple’s current account are ads about the product, the price, and seasonal promotions:
Bringing those sides together — storytelling with direct-response — is where paid social comes alive.
Organize your efforts around a consolidated account structure built to scale. Though ad spend and number of SKUs will require expansion, three cornerstone campaign types should function as a blueprint:
First: For full-funnel campaigns, think through the angles that will shape your creative Facebook ads. What events trigger customers to buy? For home goods, it’s likely one of three moments:
Then, identify the value propositions to highlight during those stages. Using the three moments above, the values could be …
Second: For prospecting, divide your campaigns into customer categories and lean hard on Dynamic Ads for Broad Audiences (DABA).
Essentially, DABAs are a new-customer version of Dynamic Product Ads (DPA). They allow you to target a prospecting audience to reach people who have expressed an interest in the particular product … even if they’ve never visited your website.
The best way to do this is to categorizing your products by customer profile as it relates to usage:
For ad creative, identify your most popular SKUs by:
Third: Leverage at least two types of Facebook retargeting campaigns. (1) Special offers or creative strategies based on your most successful full-funnel value propositions; (2) evergreen DPAs driven by Commerce Manager’s direct connection to your store’s products.
To catch consumers who may researching, Purple dominates ecommerce Google Ads — as well as Google Shopping — for keywords like “purple” and anything “mattress” related:
Unlike social, search’s divide isn’t prospecting versus remarketing. It’s branded versus categorical.
Branded search (just like it sounds) means bidding on brand-name terms or owned-product keywords:
Categorical search aims at terms related to your products. For a pet-centric home decor brand like West & Willow (shown above) this would include search phrases like:
Here your account structure should be built around budget ranges that our Paid Search team likes to call the …
Brand Search: <10%
Limit to less than 10-15% of total account spend; brand search campaigns should have the highest ROAS in your account.
Google Shopping: >60%
Target more than 60% of total account spend. Clean, well-optimized data feeds and consistent product approvals in Google Merchant are the secret to success.
Non-Brand Search: 18%
Use Dynamic Search Ads (DSA) targeting combined with Smart Bidding; search ads often have a lower return than Shopping due to higher CPCs. Aim for less than 20%.
Video (YouTube): 8%
Begin by remarketing on YouTube then turn toward prospecting; mix the two approaches at around 8% of your budget.
Smart Display and Discovery: 5%
Create multiple retargeting touch points within 24-72 hours after someone visits, views products, adds to cart, etc. Display Network should hang around 3% and Discovery at 2%.
On average, home furnishings stores makes up about 84% of purchases in the United States. Shopping is a personal experience, requiring three of the five senses, simultaneously — sight, touch, and, in some cases, smell.
Increasing conversion rates centers on a variety of tactics that aim to replicate physical elements through onsite merchandising.
Perhaps the most-promising bridge between the real and digital worlds — between offline retail and online ecommerce — is augmented reality.
You will get efficient and thoughtful service from EISHO.
Apps like IKEA Place allows customers to virtually place true-to-scale 3D models in their home to visualize future purchases. Sadly, standalone apps can be cost prohibitive, especially for growing companies.
Thankfully, Shopify has developed its own native augmented reality solution. Not surprisingly, many of the early adopters have been from the home goods industry:
Instant Pot, Horne, and PupLoungeEven less spendy — and a lighter technical lift — is adding interactive elements to product pages or taking advantage of mobile shoppers’ phones to “augment” still images:
Unlike retail, where consumers have been conditioned to stroll through multi-floor warehouses (mega department stores like IKEA or Costco), too many online options can be a conversion killer.
How does anyone shop from brands like Wayfair? 14K results for outdoor dining sets?! I’ll be dead by the time I find one I like.
— Mandi Moshay (@MandiMoshay) May 2, 2021
To solve this issue, onsite search and intuitive navigation can help. According to a study by Econsultancy, 15% of consumers who use onsite search account for 45% of ecommerce revenue.
Article, for example, places its search bar front and center. It mimics other search engines with autocomplete, autocorrect, suggested terms, and even minimal merchandising as you type:
Bloomscape, on the other hand, kicks off its search engine with preloaded suggestions and features a dramatically simplified, four-part navigation in its header.
Why these differences?
Furniture shoppers come with intent. You know what type, color, or room you’re trying to fill. For plant shoppers, assuming that kind of knowledge could be a problem.
Newbies usually don’t know where to start. That same problem is also why, as an added value to customers, the site is packed with plant care guides to help enthusiasts at all levels.
Next, product page design is critical for increasing conversion rates. The more information that is readily available prior to and at the time of purchase, the better.
Let’s look at each of those ingredients …Caraway’s navigation bar expands to highlight reviews and ratings; product pages showcase in-action videos and animations Floyd makes use of two product recommendations: (1) “Grows with you” for built-in add-ons and (2) “You’ll like these too” for cross-selling Article’s bundles are presented like magazine spreads and also feature “Goes Well With” recommendations plus “Others also bought” within the cart Ruggable’s product descriptions focus on functionality and durability while The Citizenry leans into storytelling and its social causes
Increasing conversion rates can also be done in conjunction with increasing average order value (AOV).
No one does this with more elegant sophistication than Grove.
Grove’s digital marketing plan centers on collecting email addresses and prebuilt bundles. Once an account has been created, the site automatically builds custom carts … even for single-item selections.
Many of the product pages shown above contain bundles as well as recommended products.
Bloomscape, however, layers three approaches into one:
During its holiday campaign last year, Brooklinen took these tactics to an entirely new level.
First, it led with a free gift at $150. Second, it integrated a percent-off discount tier — 10%, 15%, and 20% — into its cart.
Then, the brand prompted shoppers with exact dollar-amounts and suggested products to hit the next savings threshold.
One pressing issue is that most consumers are still apprehensive about making big ticket purchases via mobile, so they’ll use their cell phones for research and move to a desktop to make the final purchase.
To alleviate sticker shock, offer quick and easy payment plans like Klarna, Affirm, or Afterpay.
Alternatively, in place of high AOV products, consider low-price-point funnels to win new customers. Chasing Paper’s Sample Packs shine on this front but don’t assume larger SKUs can’t be modified as well.
Both Parachute and Purple have adapted this idea. The former sells $3 fabric swatches with free shipping and the latter, a $3 Squishy with this amazing copy to accompany it:
“The best part? You decide its purpose. Use it as a resting place for your phone. A doll bed. A stress reliever. The Squishy’s potential is only limited by your imagination.”
Big furniture purchases aren’t made often and that poses a huge lifetime value issue for retailers. How can you maintain profitability if a couch or bed is only purchased once or twice in a lifetime?
Smaller home items can increase LTV by allowing customers to consistently purchase lower priced items that they love. In many cases, categories like cleaning, decor, and plants are ready-made for this approach.
Standalone items, like candles, are equally ripe. For example, ForvrMood offers subscriptions that ship new candles to customers quarterly.
Getting creative and cost-efficient, Art Crate ships personalized art pieces to customers on a monthly basis for only $29 — a far lower price point than normal online artwork, sustained by repeat purchases.
As Time Magazine’s “Best Invention” of 2020, Gardyn has capitalized on numerous trends at once — mixing grow-at-home DTC gardens with an app subscription that (at scale) is pure margin:
Lastly, subscription doesn’t necessarily mean products.
Uncommon Goods’ paid-membership program unlocks numerous benefits, makes customers want to come back, and is promoted to new shoppers through email — which is where we’ll turn next.
Finally, leveraging email marketing and direct messaging — texts or DMs via social platforms — will always be go-tos for increasing LTV.
What does a powerful retention program look like? As a guide to ecommerce email marketing, there are at least 13 automation types (flows) you should prioritize:
Let’s examine a few examples from the highest priority automations …
Kick off by delivering the sign-up incentive immediately. Did you tell them they’d get a percentage-off coupon? Send it. Was it free shipping? Ship it. How about a free introductory sample or a giveaway? Make sure it hits their inbox.
Only after living up to the expectations you established should you move on to showcase products or categories. Show off your brand voice and ethos — vibrant visuals, causes you support, and copywriting that breathes personality.
Finally, round it out with custom content either through segmentation or with dynamic blocks separating purchasers from non-purchasers.
Though often used synonymously, there are key differences between cart abandonment versus checkout.
When someone leaves a cart, it’s difficult to know why. Did they need to do more research? Was it the price? Maybe shipping times? Or, quite possibly, they just got distracted?
Your emails have to play the spread … addressing as many of those issues as possible, getting as personal as possible, and delaying discounts for as long as possible.
For checkout abandonment, it’s predominantly the price.
We know this because the final step in nearly all checkouts is entering payment information and clicking confirm. Here it’s fine to go straight to discounting.
However you decide to address these two flows, keep it simple! Focus directly and only on the exact products your would-be customer left behind.
Target subscribers who haven’t opened or clicked within a recent time frame (90-180 days) to attempt reactivation.
Entice them to return by combining three elements:
Lastly, ongoing campaigns for special events and newsletters that provide a healthy mix of products and content are critical to keeping your list engaged.
In the case of events, naturally you should lean into traditional shopping holidays. But don’t let a two-peaks calendar — Black Friday, Cyber Monday plus one additional holiday — limit you.
Instead, carve out an ecommerce marketing calendar with at least four peaks:
As for your newsletters, above everything, provide value to your subscribers by educating, entertaining, and (only after those two parts have set the foundation) selling:
Variable costs are expenses tied directly to order volume: COGS, platform and payment processors, pick-and-pack fees, fulfillment, shipping, etc. Fixed costs, in contrast, operate independent of sales volume: rent, utilities, payroll, etc.
How do you measure and optimize variable costs?
There are plenty of ways, but we strongly recommend you follow a four-quarter accounting matrix. Each represents a portion of your revenue that signals the health of that component as well as areas of opportunity:
Ideally, aim at 25% of revenue going to each of these categories.
One of the biggest issues that online furniture retailers face is shipping costs. With China being the world’s top furniture manufacturer, shipping can dramatically increase the price of goods. Even domestic fulfillment is pricey and can make online shopping a hassle.
This eats away at your margins at both ends: first, getting it to you; second, getting it to your customers.
One solution is to include shipping costs in the price. Most consumers are prepared to pay for shipping but absorbing it in the price makes for better optics.
Another is to create free or discounted shipping thresholds. Mainstream furniture retailers, like WayFair, offer shipping on all orders that exceed $35. Adjust your own as needed.
The DIY assembly route can also help retailers save. Companies like Elephant in a Box use high-quality ingenuity in its design to ship products quickly and cheaply.
Next, for customer acquisition costs, anchor your approach to growth in a clear understanding of your business’ unit economics: What does it take to get one click (V), acquire a single customer (CR), retain that customer (LTV), and deliver one product (VC)?
A line-item breakdown of everything that goes into getting what you sell into the hands of your customers should be your starting point. With that, you can then set profitable spend, budget, and ad costs.
Finally, frame your overall strategy as a three-layered revenue “cake” with your most stable sources as the base.
Volatility and variability mount as you move up the cake. That means revenue becomes more unpredictable. The goal is to focus on factors you can control — not only for healthy economics, but also for ecommerce demand forecasting.
The coming years show slow and steady growth for the home furnishing industry. But growth isn’t the focal point — profit is.
Where can you find more customers? Why would they convert on your site instead of a rival (whether online or off)? What products will they value the most? How can you make them stay?
These are all questions that every retailer should be asking. Not to mention keeping a pulse on new distribution channels, supply chain advancements, and other company profiles.
Evolving in such a way that bridges the gap between ecommerce and in-store retail without forfeiting the customer experience is by far the most effective way to claim your stake.
For future references, it seems to be the only way.
While the supply chain recovered, inflation and rising interest rates contributed to slowing demand throughout 2022 and 2023 as the industry contracted 5.2%. As shipments were delivered, retailers found themselves with excessive inventory. The surplus led to significant gross margin contractions as retailers discounted heavily to move products throughout 2022 and 2023. The chart below highlights the volatility the industry has experienced as reflected by the Monthly Sales for Retail and Food Services Report, published by U.S. Census Bureau over the last three years.
Source: (1) U.S. Census Bureau. It includes establishments primarily engaged in retailing new furniture, home furnishings and related home products.
Despite the significant volatility in performance, the home furnishings industry remains a $132 billion retail market in the United States. There will always be market share takers in this extremely large segment due to superior models, products or services. Based on discussions with dozens of companies in the sector, Lincoln International believes 2024 will be pivotal, given this is the first year where inventory levels are back to normalized levels with a backdrop of moderating inflation and anticipated interest rate reductions.
Premium Brands Showing Promise of Growth
While many brands and retailers are facing challenges, several differentiated ones continue to take market share within their sectors. In the public markets, stocks of premium brands, including Arhaus, Williams-Sonoma and RH stocks have rebounded off 2023 lows with companies outperforming analyst expectations (see chart below for enterprise value to LTM EBITDA multiples). Even though stock prices and valuation multiples have increased meaningfully, it’s not all positive as the actual results have shown the stress of the industry on performance with modest or negative revenue growth and contracted margins. Stabilization and expected continued recovery in the premium sector is resulting in investors rewarding these premium brands.
Notes: (1) CapIQ; Data as of March 20, 2024
(2) Arhaus IPO’don 11/8/2021 and the respective line begins on 2/11/2022 once trading normalized
(3) Lovesac IPO’d on 6/27/2018 and the respective line begins on 9/9/2021 once trading normalized
We expect this trend will carry over into the private markets as premium brands and retailers frequently mirror the performance of their public counterparts, given these companies are typically more project-driven than transactional. With the moderation of interest rates and increased wealth, home remodeling trends are improving, generating a positive outlook for the premium segment. In our long-term analysis of the premium segment, the wealth effect, as measured by the performance of the S&P 500 index, is a strong predictor of sales in the premium segment, with the S&P 500 increasing 23% since October 2023. The chart below highlights the relationship between LTM sales of the premium segments and the S&P 500 over the last 20 years.
Stabilization of the Value and Promotional Segment
The value and promotional segment is another area showing signs of improvement. In discussions with a leading manufacturer in this segment, the company continues to experience strong growth on top of 13% growth last year. By focusing on the largest retailers in the value and promotional segment of the market, the company offers retailers a more compelling mixture of products and services to its retailers driving its growth. Additionally, Big Lots recently reported that its furniture sales held up relatively well sequentially versus other categories in Q4 2023 versus Q3 2023. However, according to the Monthly Sales for Retail and Food Services Report, furniture retail stores saw a 10.1% decrease year-over-year in February 2024 to $10.6 billion. In spite of this drop, monthly sales are still ahead of where monthly sales were pre-pandemic.
Despite the conflicting data across the sector, the valuation and outlook for several businesses are more positive than they have been in the last two years. Retailers are calling for a better 2024 and predict an accelerated demand for home furnishings.
2024 M&A Outlook
In our discussions with both financial and strategic buyers, we are sensing a greater interest in mergers and acquisitions (M&A) opportunities. During 2023, financial acquirers and lenders exhibited increased discernment and rigor in their investment and financing strategies, particularly regarding large-ticket, discretionary durable companies. This led to a significant impact on home furnishings M&A processes as financial investors shied away from companies battling margin compression, elevated inventories and uncertain growth outlook. 2023 saw very little activity with much of the headlines in the industry driven by distressed sales or unexpected liquidation of some prominent companies. As Lincoln’s Private Market Proprietary Data indicates, private equity groups are marking portfolio company valuations at higher levels but still meaningfully lower than two years ago.
Source: Lincoln International Private Market Proprietary Data as of March 6, 2024
While most companies are sitting on the sidelines and waiting for either improved company financial performance or financial investor interest in the category to pick back up, we are noticing continued cautiousness. With the compression in M&A valuation multiples and the opening of the lending markets (albeit at higher pricing and lower leverage levels), we are seeing greater interest from financial buyers in differentiated opportunities in the sector. In our discussions with private equity groups, we are seeing investors look for good opportunities at attractive values as platform opportunities or add-ons to existing portfolio companies.
Similar to Tempur-Pedic’s acquisition of Mattress Firm in 2023 (scheduled to close in mid-2024), 2024 has started with a large strategic buyer transaction as Ashley Furniture is acquiring Resident Home – marrying one of the largest home furnishings retailers with one of the largest, and most profitable, direct-to-consumer mattress brands.
Lincoln is in active discussions with clients and strategic buyers as companies are looking towards growth again after focusing much of their recent time on stabilizing their businesses.
After a relatively quiet M&A market over the last two years, we expect 2024 to be more active as both financial and strategic buyers have demonstrated greater interest in the category.
If you are interested in learning more about what we are seeing in the market, please contact a home furnishing professional below.
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