The home furnishings industry has endured a tumultuous period as demand has fallen off COVID-19-induced highs. As the industry seeks to regain its footing and stakeholders plan for 2025, it is crucial to examine the factors that are driving home products categories and their implications for brands, retailers and investors in the space.
The industry today: Market normalizes post-COVID-19, prepared for growth
The home furnishings industry is beginning to normalize, following near-flat sales in 2023 and 2024 year to date (YTD) (see Figure 1). Growth in home expenditure has consistently lagged that of broader consumer spending since late 2021, as the industry has had trouble competing against COVID-19-enhanced sales amid high inflation and headwinds from declining home sales and subsequent lower R&R spend.
Home furnishings retail sales have been particularly challenged, comping consistently negatively throughout the past 18 months (see Figure 2).
While comps remain challenged, there are reasons for cautious optimism in home categories going forward:
- The market has finally reached “normalization” following the COVID-19 period. Pandemic-driven home investment, brought about by a mix of strong macroeconomic conditions, stay-at-home behaviors and stimulus payments, led to home furnishings expenditure well above both pre-COVID-19 levels and broader consumer spending. Home furnishings markets reached parity with broader expenditure in late 2023 and have been relatively consistent in the quarters since, suggesting the market has largely worked through pulled-forward demand (see Figure 3).
- Underlying market factors are expected to continue to recover. Home furnishings categories, which are relatively correlated with home turnover/investment, have faced pressure as these indicators have fallen off and rising inflation has limited consumer buying power. With inflation waning and home turnover/investment gradually recovering in 2025, home furnishings markets are likely to recover in parallel.
However, recovery is not necessarily consistent: Value is once again outperforming
As the market recovers, the landscape of “winning” players appears to be shifting somewhat. Recent recovery has been driven by ecommerce channels and value price points, departing from the outperformance of premium players in 2022-23. Amazon in particular is outperforming the market in home categories (see Figure 4).
Amazon home sales are growing approximately 17% YTD against flat-to-declining performance elsewhere, even as average prices on the site fall (see Figure 5).
There are multiple explanations for this shift:
- While consumer demand for home furnishings remains largely stable, macroeconomic pressures are continuing to limit buying power, even for higher-income consumers. These pressures are driving trade-downs toward value-tier products, especially for higher-ticket items like furniture. These bigger-ticket categories are growing significantly on Amazon, even while lagging in the market overall.
- More broadly, L.E.K. Consulting has observed a long-term trend toward “hourglass” market price points in home categories, with high-end premium and value-tier products both growing at the expense of mid-tier items. Value-tier products — which underperformed somewhat in 2022-23 as inflation rose and limited purchases from less affluent shoppers — are rebounding more quickly as the market normalizes.
An expected return to growth in these categories is supported by improving consumer sentiment, which remains relatively low but has recovered around 40% vs. lows in 2022 and before. However, the recovery is unlikely to be uniform, necessitating that brands, retailers and other stakeholders in the home market carefully examine these dynamics as they prepare strategies for growth.
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