Retail roundup: Despite challenges, dealers remain hopeful

November 13, 2017

November 6/13, 2017: Volume 32, Issue 11

By Reginald Tucker

 

Screen Shot 2017-11-13 at 9.28.15 AMAt Enhance Floors & More in Marietta, Ga., hard surface sales—especially wood—are driving the business, noted Elisabeth Stubbs, owner. A little farther south at Taylor Carpet One in Fort Myers, Fla., residents’ seasonal migration patterns are expected to boost business. “Our northern winter residents returning should continue to keep the momentum going for a strong end to the year,” said John Taylor, owner.

In the Midwest, dealers like Sam Presnell, owner of The Rug Gallery in Cincinnati, feel 2017 will end up better than projected—“just a gut feeling,” he said. Crossing over into the Plain States, at Grigsby’s Carpet, Tile & Rug Gallery, Tulsa, Okla.—an NFA dealer—sales are currently running about 5.5% ahead of last year. “We are hoping to pull that up later in the quarter to hit 7%,” said Penny Carnino, director of operations.

Anecdotes such as these are echoing across the floor covering and home furnishings landscape as retailers continue to express optimism that the year will end on a high note. This is due, in large measure, to rising consumer confidence, a generally bullish stock market and economic patterns that support purchases of big-ticket items.

“Traffic has been up, and better quality sales have led the way,” Presnell told FCNews. “I am very pleased at this point and see a bright future for us going into next year.” Stubbs echoed that sentiment, adding: “My outlook is optimistic. We are selling and installing a lot of bathroom makeovers.”

The good vibes many floor covering dealers and home furnishings retailers feel are reflected in the numbers. According to a newly released report from the U.S. Census Bureau, sales at furniture and home furnishings stores in July, August and September were up over the corresponding periods last year. (Through the first nine months of 2017, sales in this sector grew 3.8% over the corresponding period in 2016). For many observers, this signals a willingness of consumers to spend more of their discretionary income on home improvement/remodeling projects—which also bodes well for the floor covering sector.

Other general economic reports may confirm consumers are loosening the purse strings. According to a newly released Kiplinger’s forecast, sales of building materials—along with automobiles—are gaining in the fourth quarter. Some of that activity, analysts say, can be attributed to post-hurricane spending. Kiplinger’s research shows sales rose 1.6% in September as many sought to replace flood-ravaged cars in Texas and repair damaged homes. Likewise, restaurant business picked up, and a spike in gasoline prices from damage to refineries also contributed to spending. Excluding gasoline, 2017’s sales will likely end up 3.8%—the same as 2016’s pace. Kiplinger analysts expect building materials should rise 8%, up from last year’s 5.7%, when all is said and done.

The positive movement in retail sales is not limited to brick-and-mortar operations. Kiplinger analysts expect e-commerce sales will grow 15% this year, which is in line with 2016. E-commerce has shown remarkably solid growth over the past seven years, and will account for 9% of retail sales (13% of all goods sales) by the end of this year.

Screen Shot 2017-11-13 at 9.29.22 AMAnalysts at Deloitte expect a more robust contribution from this category. The firm forecasts an 18%-21% increase in e-commerce sales in 2017 compared with 2016. E-commerce sales are expected to reach $111 to $114 billion during the 2017 holiday season.

“The projected uptick in holiday sales ties to four primary factors affecting consumer spending, starting with anticipated strong personal income growth,” said Daniel Bachman, Deloitte’s senior U.S. economist. “Last year, disposable personal income grew 2% over the year to the holiday period, and we may see that rise to a range of 3.8% to 4.2% this season. Consumer confidence remains elevated, the labor market is strong and the personal savings rate should remain stable at its current low level.”

Sure, that may certainly apply to more portable items such as electronics and clothing, but what about big-ticket items like flooring? If you put faith in the trends online operators like Wayfair are reporting, then this indeed might be a broad-based rebound. For 2016, the company reported direct retail net revenue consisting of sales generated primarily through Wayfair’s five sites increased $273.4 million to $959 million. Economists expect the retailer’s 2017 numbers will be equally impressive.

Mitigating factors
While fundamentals remain positive, Deloitte’s economists also cited potential uncertainties that could affect income growth and bring the forecast in at the lower end of the range, such as an increase in the savings rate that would cause spending to expand more slowly. The threat of a government debt ceiling crisis—which has loomed over prior holiday seasons—could also cut employment and income growth. The impact of the unusually active hurricane season remains too early to project, as it could depress spending or increase it, particularly in the home improvement sector, due to rebuilding activity.

“Sentiment and spending indicators are firing on all cylinders, but the question is: How will retailers respond given the profound disruption across the industry?” said Rod Sides, vice chairman, Deloitte LLP and U.S. retail and distribution sector leader. “The good news is retail is thriving, and it is the proliferation of new, niche retailers that is resulting in share constantly changing hands.”

Floor covering retailers don’t appear to be too concerned. “I think the last quarter of 2017 will be much stronger compared to last year,” Denise Fike, owner of Fike Brothers Carpet One, Selinsgrove, Pa., told FCNews. “We are past the election, which was on everyone’s mind last year, and our economy is stable. We anticipate an 18% increase over last year and I feel 2018 will be a little stronger.”

Back at Grigsby’s Carpet, Tile & Rug Gallery, the outlook is also positive. “Retail traffic has been pretty good leading into the holiday season, and it should continue as long as the weather holds in our area,” Carnino explained. “Comparing the end of the year  to last year, traffic is better, people have more confidence in the economy right now—and that seems to be reflected in our increased sales.”

 

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