Aug. 3, 2023

Las Vegas Summer Market

Mandalay Bay

The Stump team braved the 110 (!) degree heat, and spent 48 hours in the Nevada desert this week. While the Las Vegas Summer Market always has less traffic than it's winter version, there were still plenty of attendees eager to review new products, place orders, and catch up with industry friends. While both attendees and exhibitors remained optimistic about the future, the current state of the industry is a mix of challenges and opportunities.

Key Takeaways

Inventory

A much discussed topic earlier this year, many manufacturers and distributors remain over-inventoried. Discounting has helped move this stock, but at the expense of margins. Numerous executives expect that by the end of this year inventory will be moved through and will lead to a “clean” start for 2024. Luckily, cost inputs have come down, and are in-line with pre-COVID levels. This means that new product introductions should come at a lower cost-basis and healthier margin.

Banking

Given the headwinds that the broader consumer products sector has experienced, plus the SVB banking crisis earlier in the year, it’s not surprising that banks are generally behaving more conservatively. Much of our industry’s banking runs on Asset-Based Loans (ABL), and with the current inventory situation (see above), many lenders feel uncomfortable and are unfortunately looking to cut advance rates and borrowing availability (or looking to exit positions entirely). This comes at the worst time as many great businesses are heavy on inventory and light on cash. This will result in M&A opportunities as business owners seek a sale instead of protracted negotiations with lenders. We are very active and experienced in these situations.

Markets

We repeatedly hear how critical face-to-face interactions are to relationships (and a nice reprieve from back-to-back Zoom calls). We agree. However, many owners are facing challenging decisions on budget allocation for the coming years. With two shows apiece in High Point and Las Vegas, plus the recently relocated Casual Market to Atlanta, many companies now lease space in 3+ venues covering 5+ annual shows. While this face-to-face time is invaluable, the costs to exhibit broadly can also be a challenge. We expect certain exhibitors will exit some and double-down in others. For what it’s worth, our team enjoys all markets and the chance to interact with friends old and new.

Macro Outlook

It is a peculiar time to be in the home furnishings space. On the one hand, flights are full, hotels sold out, and Vegas’ casino floors, restaurants, and bars are overflowing. On the other, walking the floors at market, the general sentiment was that new order volumes were off 10-20-30% from the last few years. Meanwhile, America’s GDP growth is healthy, the stock-market is up, unemployment low, inflation receding, and interest rates stabilizing. The “macro” economy is in decent shape, but the economy consists of many industries, and home furnishings is well off its (record!) performance from 1-2 years ago. This is being increasingly referred to in the trade papers as a “Rolling Recession." However, in the case of home furnishings, it is worth noting that performance is still well north of 2018-2019 pre-COVID levels. Owners are now eyeing 2024 as a time to reset their business and return to growth after what’s been a challenging last 18 months.

Aggression vs. Caution

With all that has happened to the industry over the last 3 and ½ years (both the good and the bad), there has been a tidal shift in how executives now manage their businesses. Many are witnessing softness in new orders and volatility over the last several years, concluding they will move cautiously and simply weather the storm until brighter days. Others see an opportunity to aggressively expand product categories, capabilities, invest in growth (new markets, product introductions, technology, etc.) and try to win more market share during this time. M&A will play a critical role here.

To be sure, our industry is going through its share of challenges and changes but we, and most CEOs we spoke with at market, remain positive about what the future holds. Come 2024-2025, we believe the layout of the industry will look markedly different than the pre-COVID era, and M&A will play a decisive role in this evolution.

Call us, we’re here to help!

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