Furniture Retailers Are the New Retail Favorite
Low home sales have fueled sales growth for discount furniture retailers, creating new demand for big box retail product.
“It’s no secret that Southern California can be a tough market for young professionals and families to find an affordable place to live in,” Dan Hunker, retail research analyst at CBRE, tells GlobeSt.com. “The average price for a house in the SoCal region is $540,000, and this can vary wildly depending on the neighborhood. Now more than ever, residents are looking to find ways of saving money, often by renting a smaller and more affordable space. Smaller living accommodations generally mean far less space to furnish, which in turn fuels demand for smaller, modular, and cheaper furniture.”
According to CBRE’s report, furniture sales can serve as an economic “barometer,” because they are so heavily influenced by consumer behavior and confidence in the economy. “Furniture, particularly on the higher end, is often considered to be a luxury and commonly ends up low on consumers’ priority lists when economies slow and groceries, rent, and other bills come due,” explains Hunker. “When consumers are on a tighter budget, spending a lot on furniture can seem frivolous. Hence many furniture retailers tend to fall by the wayside when people start to tighten their belts. As our economy has recovered from the recession, consumer spending on luxury items increased year by year, including furniture. One key difference from the last cycle is that comparatively more residents are renting instead of buying homes, one of the major reasons why we are seeing more demand for furniture retailers on the low-cost end of the spectrum that cater to consumers in smaller, often rented living quarters.”
This growth of furniture sales is not only a good sign of economic health and consumer spending, it has also been a driver of retail leasing activity, particularly for big box assets. “There has been a tangible increase in activity from furniture retailers since the end of the last recession,” says Hunker. “One of the biggest players has been Bob’s Discount Furniture, which has opened its first two locations in Orange County—in Brea and Huntington Beach—and two in the Inland Empire—in Redlands and Palm Desert. Furniture retailers have been one of many tenants to backfill recently vacated big-box space, as the large footprints cater well to the showroom-style format, while landlords don’t have to resort to splitting the space to accommodate smaller tenants. Leasing rates can vary considerably depending on size. Furniture retailers occupying big box space tend to pay similar rates, while smaller-format stores offering high-quality or high-cost goods often pay higher rents.”
Not only has the growth positively impacted retail leasing, but industrial leasing as well. Furniture retailers need warehouse storage space close to brick-and-mortar locations. While the industrial market doesn’t need another user—it has one in furniture retailers. “Industrial warehouses are the workhorses for furniture retailers and handle storing inventory and shipping the product to consumers’ homes,” says Hunker. “While e-commerce entities are by and large the most active user of industrial space in the region, furniture retailers have been increasingly leasing up warehouse space to keep the supply chain moving effectively. For instance, Ashley Furniture signed a lease for a 1 million sq. ft. industrial space in Redlands in 2016 and just signed another 500,000 sq. ft. space in the same city this year. It is likely that as time goes on, we will see industrial space morph into a combination of retail storefront and warehouse, like IKEA, which will help alleviate supply-chain constraints.”
This activity is expected to continue through the end of the year. As Toys R Us vacates its big box spaces, these retailers could serve has a good option to backfill those spaces. “Things look promising for the rest of 2018. With Toys R Us gone, there is now a good amount of vacant retail big box space in quality locations that needs to be backfilled, and it’s likely some of it will be taken by furniture tenants,” says Hunker. “Consumer confidence is higher than it’s ever been, but people are more acutely aware of how much they can spend and keener on hunting down the best bargain possible. I think, as long as things remain stable, furniture retailers, regardless of what end of the cost spectrum they are on, will have a great positive impact on the retail sector for some time to come.”