Nov. 20, 2020

Reflections on 2020 and a look forward to 2021

Bo Stump
by
Bo Stump

Originally published in Home News Now

Stump & Co.’s Bo Stump is optimistic about the year ahead, projecting sustainable high demand and a supply chain gradually regaining balance

When 2020 began our country was dealing with a presidential impeachment process, a roaring economy, a record setting stock market, and hopes of sustaining a 10+ year business cycle.

On February 24th we attended Billy Joel’s monthly concert in NYC’s Madison Square Garden and never considered that COVID could become an issue here, despite it beginning to circle the globe. By mid-March the US was shut down, the stock market was plummeting, and unemployment was skyrocketing.

Today, we see a much different picture with the election over, COVID raging (but a vaccine perhaps on the near horizon), the stock market back to big numbers, and the residential furniture industry soaring with demand at all time highs. With Americans sequestered at home for work and leisure, the industry is firing on all cylinders to produce goods, get them into stores, and out to customers. The e-comm channel has benefitted from this surge in demand and allowed customers to shop on-line to avoid the in-store experience. Our furniture cousins serving the office and hospitality sectors are not enjoying this strong consumer demand, and those sectors are quickly trying to adapt to an acronym world (WFH = work from home; DTC = direct to consumer).

For 2021, we are optimistic and see several major trends to keep an eye on:

Is this a bubble or sustainable demand for home furnishings? We believe the demand stays high for 2021 and into 2022, as new fiscal stimulus will help provide liquidity to the system. We also believe this new trend is truly an overdue investment into home furnishings by consumers.

Interest rates are at historic lows. There is no reason to anticipate rates ticking up much in the short-term given America’s still-high unemployment, persistently low inflation, and the Fed’s desire to boost demand. This means homeowners can buy more or bigger houses and/or buy on cheap credit – all drive residential furniture demand. And resort homes and COVID escape homes remain in play for much of 2021, or until the next pandemic.

Strong business are on the move. We see many strong manufacturers well-prepared for 2021, armed with cash balances, low debt, clear strategic vision, and IT systems built for the new economy. Likewise, retailers have upped their game with better marketing and online purchasing options. We expect both sectors to thrive through the year.

More cash for furniture. With significantly less travel and dining out, the consumer now has more discretionary money to spend on furniture, a boon to retailers. Wholesalers also have fewer physical markets (at least for now) and are finding creative low-cost ways of reaching their customers. These factors should continue to encourage spending on the home, a boost to retail and wholesale alike. At lease for our team, we cannot wait to get back to lively in-person markets in High Point, Las Vegas, and the rest.

Supply chains are regaining balance. 2020 has been a tough year for flowing goods, due to the early shut down of Asia, then reduced ships and containers, then rising raw material prices and shortage of labor due to the CARES Act influence. This has led to longer lead times for manufacturers and delays in getting product to retail. We anticipate this supply chain imbalance returning to equilibrium by the end of Q1, which will hopefully return lead times to normal and accelerate revenues.

All these factors lead us to be very upbeat for our industry in 2021, and our Merger & Acquisition business should parallel these trends. Strong companies will make opportunistic acquisitions. West Coast companies will come east. Case goods companies will enter upholstery. Asian producers will acquire US manufacturers. Hospitality players that can survive the 12-18-month downturn in bookings will re-emerge with strong demand and want to expand. Indoor furniture producers will seek to add outdoor living furniture. Office companies will continue to tilt into the home furnishings world. And e-commerce will continue to gain market share across the board, as retailers continue to adapt to this changing business environment.

Enjoy the upcoming holidays. Get some rest. 2021 will take a lot of energy.

Bo Stump is a partner in Charlotte, N.C.-based Stump & Co., a mergers and acquisition specialist for the home furnishings industry.

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