Industry Description
The furniture stores industry retails household, outdoor and office furniture, excluding goods combined with office supplies and equipment (NAICS 442100). Predominantly retailed are living room, dining room and bedroom furniture, upholstered and otherwise. Also included are desks and home office goods, lamps, recliners, rugs and outdoor furniture.
The following are some basic characteristics of the furniture stores industry:
- Furniture stores industry has a combined revenue of $68.6 billion, with a growth rate of 0.8% in 2016-2021
- There are approximately 28,000 businesses as of 2021
- The furniture stores industry employs approximately 467,000
Industry Trends
The industry is highly fragmented and has low levels of market share concentration, with the top four industry players comprising less than 30% of revenue in 2021. The largest operators typically have stores in multiple states while small players are independently owned and operated in one or two states. Some key factors influencing the external furniture industry are (i) e-commerce, (ii) eco-friendliness, and (iii) flexible furniture. Each of these is discussed in further detail below.
Since the COVID-19 pandemic, there has been a growing trend in online sales. Many industry players have set up an online presence either from an in-house base or through a third-party platform. Consumers are shifting the industry to a more e-commerce focused one because of its convenience, even though there is no feeling of the product ahead of access. Due to this shift industry players are seeking an online presence through popular sites such as Amazon and Overstock. The industry can expect sales to be fastest growing in the e-commerce segment.
Climate change and its advocacy drives the industry to create eco-friendly products due to consumers developing a preference for eco-friendly products which are focused on sustainability. With impact on the environment being a mainstay, the industry focuses on creating products using recycled materials and more sustainable wood products, such as bamboo. Well-known furniture brands have already committed to embracing sustainability. They do this by using reclaimed wood from furniture products which is in line with recommendations from regulatory bodies. Green products from the furniture industries are continually gaining roots in line with recommendations that advocate for climate protection and sustainability of the industry’s products.
The industry is changing significantly due to the need for flexible products. Office environments are now more collaborative as office employees work more in small groups or workstations. Remote work influences such arrangements, and this results in those who do go into the office working collaboratively with each other. The industry now offers mobile desks and other mobile furniture products of the like to accommodate the shifting market demands. Such products are to answer for the shift from individual to more of a collaborative experience when using furniture products.
The industry is growing due to factors like e-commerce, eco-friendliness, and flexible furniture. E-commerce is expected to be the growing segment of the industry. Eco-friendliness and a focus on sustainability is becoming the preferred product type. The industry needs to integrate flexible products, especially in the design of office furniture with the shift in working dynamic. Industry players who adapt to these factors ensure they meet market demands.
Key Performance Metrics
In evaluating furniture stores, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:
- Revenue per customer
- Average sale
- Fill rate
- Backorder rate
- Inventory turnover rate
- Client satisfaction and retention
Industry Organizations & Publications
The following organizations publish useful information:
- North American Home Furnishings Association
- American Home Furnishings Alliance
- Association of Woodworking & Furnishings Suppliers
- Business and Institutional Furniture Manufacturers Association
Guideline Information: Private Purchase Transactions
Most furniture stores are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held furniture stores is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of furniture stores:
- Revenue multiple between 0.21 and 0.95 times
- Gross profit multiples between 0.44 and 2.16 times
- EBITDA multiples between 1.5 and 3.8 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most furniture stores are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest publicly traded US furniture stores are:
- Williams-Sonoma, Inc. (WSM) – $7.9 billion market capitalization
- RH (RH) – $5.5 billion market capitalization
- MillerKnoll, Inc. (MLKN) – $1.5 billion market capitalization
- La-Z-Boy Incorporated (LZB) – $1.2 billion market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 7.0 times and 22.5 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Furniture stores are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.