Soft Home for Market
By David Gill
This month's New York Home Fashions Market will take place in the midst of what Michael Lichtenberg, president of S. Lichtenberg & Co., called a "soft and steady" year for the home-textiles industry.
The industry has picked up some steam, but not a lot, in the first eight months of 2010. "Overall, the business has been pretty good at the vendor level," Lichtenberg said. "At retail it's been erratic. Retailers saw a big surge in both February and March, but then in April the realities set in and the business pulled back."
Bearing out Lichtenberg's assessment, overall U.S. retail sales rose through the first four months of 2010, including a hefty 1.6 percent increase in March. In May and June, however, retail sales declined 1.2 percent and 0.5 percent, respectively, and edged up by just 0.2 percent in July.
Zeroing in on textiles, sales in core products rose by an average of 1.5 percent to 2 percent through the first half of this year, versus the first half of 2009, said Bob Hamilton, director of marketing for Welspun. "Solid-color sheets and towels are up, with bath accessories and decorative coordinates showing big declines," Hamilton said.
Several factors governed the course of sales in the first half. Keith Sorgeloos, president and chief executive officer of Home Source International, said the first quarter brought "a continued push of filling the inventory pipeline with much-needed inventory after the 2009 pullback."
This created "a slightly false sense of demand returning," Sorgeloos said, which coupled with price increases for raw materials--cotton in particular. Those increased prices spurred retailers to look for special buys, opportunistic purchases and deals that brought retail prices to more promotional levels than had been seen in a while. "This did cause an uptick in sales, but we are still not certain if this will last if the economy heads into a possible double-dip recession," Sorgeloos said.
Seconding this assessment, Hamilton identified "promotion, promotion, promotion" as a key driving force in first-half sales of home textiles at retail. "High-low retails with 50 percent off sales and bonus coupons seemed to drive traffic and revenues," he said.
This softening in retail price points brought the question of value to the forefront, according to Rich Roman, president and chief executive officer of Revman International. "The lowering of price points continued and, in my opinion, the lowering of quality continued as well, which I believe will harm our industry in the long term," Roman said. "Obviously, the high price for cotton had an adverse effect for all, but more so on the supplier side, which absorbed much of the increase."
On the macro side, the persistently high unemployment levels and the rollercoaster that has been consumer confidence have had their impact on home-textiles sales. After a January rise and a February fall, the consumer confidence index as kept by The Conference Board rose three consecutive months from March through May. It is now in the midst of a setback covering two consecutive months, June and July (the August figure was unavailable as this issue went to press).
Throughout 2010, unemployment has held at between 9.5 percent and 10 percent--and Lichtenberg said he believes that this figure may be misleading. "It doesn't count the number of people who aren't actively looking for a job," he said. "You factor that in, and unemployment could be as high as 15 percent."
These factors "have made for a very difficult year for planners and merchants," Roman said. "The consumer is just not parting with their money in the same manner she has historically. She spends very carefully. They believe that if their neighbor is unemployed, they could be unemployed."
The fact that housing has also been slow to recover heightens this feeling among consumers. "The wealth effect of high housing values is no longer in the consumer psyche," Roman said. "The consumer feels less wealthy and less confident about the future, which negatively affects how she shops."
These factors will continue to impact the home-textiles business through the rest of 2010, according to the executives. "If there is a continued curtailment of demand like we have seen in the last few months, this could cause negativism and draw the consumer backwards, thus fulfilling a self-fulfilled prophecy of another potential pullback in the economy," Sorgeloos said. "If that happens, I believe we will see a lot of promotional activity in the fourth quarter, thus causing retailers to struggle in the profitability quest in their biggest profit-generating quarter of the year."
Roman said he believes that the balance of this year will bring "more of the same. I don't see the economy making dramatic improvements. I hope I'm wrong and something happens to change the economic direction. Quite frankly, I'm more concerned that we could have a double-dip recession. I think that is less likely, but still a possibility."
Lichtenberg presented a somewhat more positive viewpoint. "There is always a lot of business to be done if you have the right product that's innovative and priced right," he said. "These have always been the determining factors in the business, and going forward they will continue to be."
Sorgeloos added, "If consumer confidence does start to move upwards and sales have a solid increase, even with discounted inventory, then it could bode well going into 2011. Time will tell."