Home spending accelerates: more channels than ever vie for a piece - Annual Industry Report Top 150: Homegoods & Housewares

DSN Retailing Today, July 7, 2003 by Mike Duff

Despite the tough economy, consumers still are spending on their homes, and most of the major retailers that remain in the home goods category have been able to accommodate changing trends in demand toward lower price point items. It's partly for this reason that home retailing continues to enjoy healthy growth, with the overall trend seeming to favor mass-market retailers. One, Linens 'N Things, even managed to launch a solid turnaround despite the economic malaise.

With regional discounters having largely died off and several significant specialists having succumbed, the face of retailing, and just who is chasing the dollars consumers spend on their home, is changing. At the same time, vendors have improved the quality of their merchandise or brought what had been department store goods into the mass market.

Greater thread counts in domestics, better quality in RTA and larger assortments in home decor have been among those trends that have helped boost the home goods business among mass-market retailers.

In the meantime, major specialists adjusted their price structure to make themselves more competitive with discounters. And off-pricers have made inroads, with TJX, for example, adding 30 HomeGoods stores in the past year to bring the overall unit count to 142.

The soft economy has had an effect, with many retailers experiencing a shift from big-ticket items to home textiles and decorative products as consumers look for inexpensive ways to refresh their household space. That being said, the tightening of purse strings has a positive side for retailers in the mass market, particularly in furniture.

From Costco to Cost Plus, mass-market retailers are adding furniture items and continuing to expand into more segments. They have done so by making the furniture an item business rather than a set business, allowing consumers to more readily purchase individual elements one at a time and sparing them the worry of paying off big furniture bills in a skittish economy.

And to further broaden their appeal, mass-market retailers even are employing some furniture store tactics. Recently, for example, Sam's offered three-month interest-free terms on furniture purchases with its credit card.

Among the major initiatives that have been paying off are Costco Home, which the retailer says is exceeding expectations in a one-store test. The company is tentatively looking for a second test location, with Northern California getting scrutiny.

Lehman Bros. analyst Alan Rifkinn said Cost Plus World Market, which added new furniture segments, beat earnings estimates due, in part, to better-than-average sales in home furnishings. Furniture was among the areas providing particular heft.

With space at a premium, retailers have had to look for alternative routes to growth in bulky furniture items, even virtual routes. Wal-Mart, Target and JCPenney, among others, have introduced a tremendous range of upholstered furniture to their online assortments.

Yet, the category is strong enough to demand reconsideration of the sales floor. Wal-Mart has moved its furniture selection off of platform fixtures and onto floor level where consumers can get a feel for them, even as it has added RTA sofas and chairs.

Furniture retailers aren't the only ones that will be challenged in the new home order. Discounters, warehouse clubs and home centers all are in the appliance business, with one result being the recently announced realignment of Sears' appliance department. Lowe's particularly has emphasized its ability to move beyond DIY with a well-regarded RTA program and in an increasingly sophisticated home decorative element. Add growing design-oriented chains, such as The Hope Depot's Expo and Sears' The Great Indoors, to the mix and the expansion of niche specialists, such as Williams-Sonoma's Hold Everything or The Container Store, and the old order in home retailing looks like its facing a revolution.

Of course, not every mass-market retailer has been able to make lemons into lemonade, at least not yet. Kmart is suffering through Martha mayhem. Target seems to be doing well with its recent Swell launch, but didn't get as much out of Todd Oldham and some other home introductions as might have been hoped. Although, in all fairness, Target introduces so many home labels that a couple of misses hardly constitute a major problem. North of the border, one retailer dodged the Martha bullet while another succumbed as the Martha Stewart Everyday line shifted from Zellers--which has replaced MSE with an expanded proprietary brand selection including Waverly and Mossimo Home--to Sears Canada.

Top Volume Leaders

Home Goods & Housewares

CHAIN                  2002     2001   % CHG

Wal-Mart (1)        $23,570  $20,870   12.94%
Target                7,910    7,170   10.32
Kmart                 5,540    6,510  -14.90
Bed, Bath & Beyond    3,670    2,930   25.26
JCPenney (2)          2,920    2,860    2.10

SALES, IN MILLIONS, OF SOFT HOME/DOMESTICS AND HOUSEWARES

( ): Decline or loss

Source: Company reports, analysts' estimates and DSN Retailing Today
research.

(1)Wal-Mart stores division

(2)U.S. department stores

Top Specialists

Home Goods Retailers

CHAIN                    2002    2001  % CHG

Bed Bath & Beyond (1)  $3,665  $2,928  25.17%
Williams-Sonoma (2)     2,361   2,087  13.13
Linens 'N Things        2,184   1,823  19.80
Ikea U.S. (3)           1,836   1,742   5.40
Pier 1 Imports          1,754   1,548  13.31

SALES IN MILLIONS

( ): Decline or loss

Source: Company reports, analysts' estimates and DSN Retailing Today
research.

(1)Figures reflect acquisition of 29 Harmon stores

(2)Includes results from Pottery Barn, Pottery Barn, Kids and Hold
Everything

(3)FY ended 8/02