Home Furnishing Retailers Expand Amid a Mixed Outlook

Home furnishings retailers operate in a business that is difficult to replicate online, but the companies that are best equipped to remain competitive are already investing in e-commerce .

Home furnishings retailers are drawing keen interest from both consumers and investors alike lately. TJX Cos. is preparing to launch a new concept that features much more furniture than its other brands. Wayfair continues to be adept at using e-commerce to boost top line growth and Rent-A-Center has attracted two acquisition offers, even though it reportedly turned away both, prompting demands for a sale from shareholders.

Taken together with strong housing sector fundamentals, it would be tempting to conclude that furniture retailers are on more solid ground than other retail sectors. Investors will have to navigate that sector carefully, however, since e-commerce is still a factor that could siphon off market share from even the best-run companies.

Analysts with Chicago-based Morningstar believe opportunities and challenges in the home furnishings sector vary, according to a research note. Home furnishings retailers operate in a business that is difficult to replicate online, but the companies that are best equipped to remain competitive are already investing in e-commerce as a means to keep pace with the competition, Morningstar wrote.

Although Morningstar sees a mixed picture in the home furnishing sector, some data does offer reason for optimism. Americans are forming more households and construction companies are ramping up production in response. The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly found that the number of housing permits issued in June rose 7.4 percent over May, and 5.1 percent over June 2016.

More home construction coincides with plans from TJX Co. to roll out its HomeSense concept. The newest member of the family of off-price chains will open at Shoppers World in Framingham on August 17, according to the company. The store will feature a large assortment of furniture, including leather furniture, home-office essentials and oversized upholstery. The new concept will also feature entertaining options, such as bar and game room furniture. The company did not disclose how many stores it anticipates operating under the brand.

Restoration Hardware, meanwhile, is more certain about its expansion plans. The company believes that it can open 60 to 70 of its Gallery concept stores, and Morningstar expects it to open three to five units per year in the foreseeable future.

Rent-A-Center, based in Plano, Texas, has a much larger footprint than other companies in the sector. The rent-to-own concept serves a customer base in a lower demographic—it looks for store sites in trade areas where median household incomes are $50,000 or less. Humble as its profile might be, the credit tenant Rent-A-Center has been attracting steady buyout interest from outside parties.

It reportedly declined an $800 million offer from Vintage Capital, according to a Reuters report, after it had already reportedly declined offers from HIG Capital and Lone Star Funds.

Choosing not to entertain buyout offers from the two previous suitors did not please activist shareholders Engaged Capital and Marcato Capital Management. Representatives from Marcato reportedly sent letter to Rent-A-Center demanding that it consider a buyout offer, and Engaged Capital expressed outrage that the company had been approached with buyout offers, but concealed the development from shareholders.

For now, Rent-A-Center continues to pursue a strategic plan that includes selling more aspirational products in its stores. Part of that plan appears to be reaping rewards for the company. In its second quarter results reported on Wednesday, core U.S. same-store sales improved sequentially by 2.3 percent, according to a statement from the company. In the previous quarter, core U.S. sales had increased sequentially by 1.4 percent.

“We continued to make progress executing our strategic plan during the second quarter,” said Mark Speese, CEO of Rent-A-Center. “We are confident in our ability to fully realize the value creation opportunities of our strategic plan and we will continue to take actions that we believe are in the best interests of our stockholders.”

“We believe the businesses that stand to win will be those that adapt to evolving consumer preferences,” the Morningstar report read. Home furnishings retailers that integrate e-commerce into their business plans, rather than resisting it as a competitive threat, will foster more loyalty among customers and be able to mitigate the effects of changes afoot in the industry.

TAGS: News
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.