Home improvement, decorating and DIY were once all the rage in the US and beyond. The mid-20th century brought with it a craze for wacky wallpaper and do-it-yourself shelf jobs, as American baby-boomers capitalised on new, affordable housing, leaping onto the property ladder without looking down.
Then in the early noughties the home furnishings industry grew yet further, with US retailers witnessing consistent sales growth year after year, according to Euromonitor. But when the financial crisis hit in 2007 the industry was dealt a blow, with consumers cutting back on big purchases and house moves coming to a near halt – meaning fewer people looking to do up their homes. “Home furnishings has been one of the most affected sectors on the back of the housing market and people’s discretionary spend”, says Matthew Walton, home and DIY analyst at UK-based consultancy Verdict Retail.
In the UK some of the biggest names went under – including TJ Hughes, Woolworths, Homeform group and Focus DIY – while in the US the number of retailers in the sector tumbled 21 percent between 2007 and 2012, according to Business Wire. The industry there also shrunk from $315.3bn to $273.5bn in the space of two years, and sales plummeted 15 percent.
Ikea’s success has stemmed from its focus on stores in China, where the home furnishings industry has boomed over recent years on the back of a surge in the number of homeowners
Housing slump
Given the fact the housing market was one of the recession’s biggest victims, it’s little surprise home retailers have found themselves struggling. “People weren’t really moving house, which is such a big stimulus in the market”, says Walton. “Discretionary spend was under pressure so people were prioritising things like clothing, food and so on.”
Now that the housing market is recovering, many predict a revival for the furnishings industry. But the figures suggest a variety of obstacles are still holding it back. In the UK it grew just 0.7 percent in 2013, according to the Home Furnishings 2014 report, despite house purchases being bolstered that year after the UK Government introduced its Help to Buy scheme. In the US sales grew eight percent between 2009 and 2012, according to Euromonitor, but the industry is still struggling to reach its pre-recession highs. In France, meanwhile, sales from the home improvement market fell in the third quarter of 2014 by around three percent, according to Banc de France, with Brico Depot, Castorama and Kingfisher sales all taking a hit.
Keynote projected growth of just 1.9 percent between 2014 and 2018 for the UK, as the market is forecast to continue feeling the strain of economic circumstances, a decline in popularity of certain home goods and, importantly, an increase in the number of people renting. “The number of UK consumers that are renting accommodation remains extremely high, which is not conducive to a healthy home furnishings market”, wrote the research firm.
Indeed the number of renters soared by around 6.2 million in the US between 2007 and 2013, according to Zillow – while the number of homeowners rose by a comparatively measly 208,000, as house prices and unemployment soared. More people renting means lower demand for expensive furniture and decorating products, with clauses usually ruling out overhauling the interior design, as Walton recognises. “There’s a restriction as to how much people renting can actually do”, he says. With so much renting going on, it’s little wonder retailers have been suffering.
Deep-rooted culture shift
It’s not just the surge in renting that’s dealing a blow to home improvement retailers; as widely noted, millennials, nicknamed the ‘boomerang’ crowd, are, on average, living with their parents for longer than previous generations. In the UK last year, one in four 22- to 30-year-olds said they were still living at home, while in the US the figure was even higher at 31 percent (up from 27 percent before the crisis), according to a report by Warren Shoulberg, Editorial Director of Home and Textiles Today.
As with renting, house prices and lack of money are partly behind the trend; according to data by the Federal Reserve Bank, student debt is one of the key reasons millennials aren’t purchasing as many homes, cars and other big products as their predecessors, and Managing Editor of Interest.com Mike Sante agrees: “Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment”, he said in a statement.
Like renting, that limits the need for furniture shopping and DIY jobs – and it’s happening on a huge scale, with 2.3 million fewer new households in the US than there would have been if millennials had followed the buying trends of former generations, according to Shoulberg. Walton agrees it’s having a notable effect: “I think [this trend] is definitely impacting home furnishings because people aren’t looking to buy if they aren’t moving house.”
If this trend were solely a result of economic influences holding Generation Y back from jumping on the property ladder, home furnishings and DIY retailers would likely make a full recovery (in line with that of the housing market). But the figures, at least in the UK, have already suggested that this is not the case. What’s arguably even more powerful than the financial driver, therefore, is an apparent cultural shift – a fundamental change in attitude that’s driving what Jason Dorsey of Generational Kinetics calls “delayed adulthood” – and which might prove harder to overcome. “[Millennials] are entering into many adult decisions later than ever before”, Dorsey told Yahoo! Finance.
Indeed, Generation Y are starting families later than their parents did (for a woman in the UK the average age is 30, up from 26 in the 1970s). That’s little surprise given that more people are going to university and so joining the career ladder at a later date. “There used to be an order in life: finish your education, go find a job, buy a house”, Sandy Thompson of Young and Rubicam advertising agency told Faw. “This generation really mixes it up.” Taking longer to grow up and settle down, means feeling ready to buy a house at a later stage than previous generations. Industries relying on that move are likely to feel the effects for some time.
It’s not just home furnishings being affected; millennial lifestyle changes are dealing an even bigger blow to the DIY industry, according to Walton, who says it’s been the slowest sector to recover from the recession. “As a lot of people are staying at home they’re not getting the skills of being able to put up shelves, redecorate and so on”, he says.
He adds that consumers are therefore shifting towards buying DIY services rather than products, and DIY stores are suffering as a result. First-half profits in 2014 for UK retailer Homebase, for example, were below forecasts, and a quarter of its stores are being closed over the next few years to help turn the retailer’s fortune around. A number of other retailers are considering similar steps in reaction to the decline, including rival B&Q.
Adapting for survival
Not all retailers in the sector are struggling; Ikea posted its highest profits to date in the financial year 2013, at £2.7bn ($4.06bn). By offering contemporary products at a reasonable price, the Swedish flat-pack retailer is catering to a growing hunger in the retail industry for good value, and it seems to be working.
Ikea’s success has stemmed from its focus on stores in China, where the home furnishings industry has boomed over recent years on the back of a surge in the number of homeowners. It seems then that if home retailers are to succeed, they would do well to follow in Ikea’s footsteps, capitalising on opportunities in emerging markets, focusing on value for money, and undergoing a fundamental shift to cater to new consumer tastes, demands and trends.
Shoulberg doesn’t believe the millennial change will be a lasting one and argues that the home industry could make a full recovery if Generation Y behaviour doesn’t line up with predictions: “As a Baby Boomer, I remember all the reports about how my generation was going to be different and not get caught up in conspicuous consumption and not adapting the attributes of our parents”, he says. “We turned out to be the most all-consuming generation in the history of mankind. Let’s see what happens to the millennials.”
But this trend towards “delayed adulthood” seems to be the result of fundamental, deeply rooted lifestyle changes, including an apparent preference for flexibility – hence renting over buying, smaller commitments over lifetime ones – that might not be so easily overcome. That cultural change could deal a more permanent blow to the home, DIY and other related industries than the more temporary, recession-induced austerity. Retailers will have to find new ways of capturing those consumers if they are to protect themselves from the unfortunate fate to which a significant number in the industry have already fallen prey.
