Germans Dial Back on Furniture Spending
So, it seems Germany's furniture market is taking a hit. Jan Kurth, the boss of the VDM association, projects a 7 to 9% decrease in furniture sales for this year – that's after accounting for inflation. And it wasn't looking rosy in the first half of the year either. Despite inflation pushing up prices, companies saw a 9% sales plunge compared to the previous year.
The kitchen and upholstered furniture sectors have especially felt the sting. Blame it on Germany's poor economic climate that shows no signs of improvement. In fact, the consumer confidence index seesawed in August, dropping significantly.
Spending on furniture has skyrocketed since 2020. Beds are now 21% costlier, and upholstered furniture hikes by 16%. Kurth forecasts cautionary price increases, but he remains hopeful. The business environment might be giving him reasons to cheer – real wages have been on the rise.
Online shopping likes of Temu and Shein aren't primarily to blame for the decline. The majority of furniture is still bought in brick-and-mortar stores, with half of it imported.
The industry's struggle is no secret. Sales slumped last year, forcing companies to resort to short-time work. Surveyed firms applied for it in August, amounting to a third of them. Renowned companies like HÜLSTA, Opti-Wohnwelt, and Schröder have also gone under.
Christoph Lamsfuß, retail research institute IFH's analyst, pinpoints several causes of the crisis: less furniture investment post-pandemic, shift of private investments towards travel, and increased real wages.
The industry has shrunk again. Now, 417 firms remain compared to 431 last year. The workforce also took a hit, reducing from 75,300 to 71,841.
Germany's struggling economy has shaken consumer confidence in furniture buying leading to a significant drop in sales. Even with a bleak forecast from the VDM association, there are glimmers of hope – like rising real income stubbornly defying economic adversity.
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Insights (Discretionary, 15%):
Germany's furniture market is grappling with several challenges. On one hand, consumer confidence is waning due to dwindling faith in the economy and a sobering drop in the consumer confidence index. On the other, the rise in prices is affecting demand. Furthermore, the housing market is slowing down owing to fewer construction projects and stagnating activity. Despite these issues, the industry is looking for hope in the form of increased real incomes and potential interest rate cuts.
Competitively, the online retail space is not a significant threat to the furniture industry; the majority of purchases still happen in physical stores, and about half of the products often come from abroad.
The industry is fighting back. It is campaigning for housing construction, pushing for tax reductions, and trying to streamline financing and approval processes. Industry associations are advocating for policies that promote growth in this sector, and they are forecasting a modest recovery. The strongest growth areas lie in the export sector, particularly the United States, with kitchen furniture sales performing strongly.
Sources: [1] "Latest Analysis on German Furniture Industry Market Trends, SWOT, and Opportunities." Mordor Intelligence, 2022. [2] "Furniture Industry in Germany – Market Analysis, SWOT, and Forecast." Research and Markets, 2021.
