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This earnings season reflects a major challenge facing retailers: Shoppers are reluctant to make large purchases.
To some extent, this decline is to be expected as interest rates remain high, the housing market stagnates, and consumers are drawn to services rather than goods.
But retailers reporting results over the past several weeks have shown that it’s hard to ignore the effects on results today, despite anticipated changes in consumer habits.
Billy Bastek of The Home Depot (HD) said, “After three years of unprecedented demand in the home improvement market, we’re seeing softer engagement in big-ticket discretionary categories like patios and appliances, which likely reflects both these single item purchases and deferrals.” it shows.” ) EVP of merchandising said during the company’s second-quarter earnings call.
The home improvement retailer said large transactions over $1,000 were down 5.5% year over year.
For low-income shoppers, inflation has played a major role in prohibiting expensive items.
“Our core low-income customer is under tremendous pressure and has limited capacity for high-ticket discretionary purchases,” Big Lots (BIG) CEO Bruce Thorne said during the company’s second-quarter earnings call on Tuesday.
“Customer [are] “Concerns about the economy continue to hold back on high-ticket outdoor furniture,” Thorne said.
A clothes dryer is displayed in the appliance section of a Home Depot store in New York City, US, on May 31, 2016. (Brendan McDermid/Reuters)
Friday’s data from the Institute for Supply Management showed manufacturing activity in August showed signs of contraction for the 10th straight month. Furniture and related products, along with equipment and components, were two of the 13 industries that saw activity decline during the period.
Prices are also reflecting the slowdown in demand.
The latest CPI report from the Bureau of Labor Statistics shows that the cost of furniture and supplies declined 0.4% in July from the previous month, while major appliance prices declined 0.6% during the same period.
Best Buy (BBY) CFO Matt Bilunas told analysts earlier this week, “Broadly speaking, we’re seeing an increase in seller-funded promotions across all of our categories, and I think appliances will be part of that. ” The electronics retailer’s appliance sales declined 16.1% compared to the previous quarter.
‘Furniture is more exposed’
As consumers are spending in a big way, the impact on furniture and appliance makers is not being felt equally.
Shanton Wilcox, US manufacturing lead at PA Consulting, told Yahoo Finance that the cost associated with manufacturing furniture versus appliances enables sellers to lower prices more easily on the latter than on the latter.
Appliances are usually manufactured overseas, where costs are lower, while furniture such as sofas or dining room sets are often made in the US for logistical reasons.
Wilcox told Yahoo Finance that the “furniture is more exposed” to this change in spending. “They have a higher cost structure. So if they lower prices as you’re seeing with appliance manufacturers, they’ll be at a loss very, very quickly.”
Furniture on display at a newly renovated Walmart store on June 7, 2023 in Teterboro, New Jersey. (Siddharth Cavale/Reuters)
And its impact has been felt on some privately owned companies as well.
Taylorsville, NC-based Mitchell Gold + Bob Williams closed its doors last weekend, citing weak sales and trouble securing financing. Asheboro, NC-based Klausner Furniture Industries closed in August after 60 years in business after the company’s lender stopped providing capital. And late last year United Furniture, a major supplier of big lots, laid off 2,700 of its workers and later filed for bankruptcy protection, citing more than $100 million in debt.
“As companies have added additional capacity and labor to meet demand [during the pandemic], Now they have to cut it. And if they can’t cut it, they’re actually shutting down plants and bankrupting entire companies,” Wilcox said.
Consumers ‘on the edge’
The slowdown in demand for durable goods has not had a major impact on manufacturing jobs so far.
The latest US employment report showed that employment within the sector remained unchanged, although overtime decreased from 0.1 hours to 3.0 hours. However, part of the muted response may be to forces in other areas of manufacturing.
Wilcox said, “There’s a shift underway in manufacturing. Auto is still holding the fort – attracting consumer spending, if you will.”
However, economists see continued pressure on the consumer as households draw down their savings accumulated during the pandemic amid a “prolonged high” interest rate environment.
“Consumers are thinking there could be a recession,” Dana Peterson, chief economist at The Conference Board, told Yahoo Finance on Friday after the August jobs report was released.
“The last piece of the puzzle is the consumer. We think the power of the consumer is about to run out,” he said.
“When you look at credit card users, there are still a lot of consumers who really can’t afford what they’re spending. And how many vacations are you going on in a year? All of that is going to end up We believe in momentum.”
Ines Ferre is a senior business reporter at Yahoo Finance. follow him on twitter @ines_ferre,
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