Consumers have decided to wait until the spring before seriously considering the purchase of furniture and other big-ticket goods.
That, at least, is the inference to be drawn from the latest consumer confidence survey by GfK NOP, whose overall index edged lower by one point in February. The decline was due to a five-point fall in the measure of intentions to make major purchases. But consumers are more positive overall than at the end of last year, and are more optimistic about the general economic situation.
Nonetheless, new evidence of activity in the housing market – a key factor in the level of demand for domestic furniture – casts doubt on the strength of the recovery seen at the turn of the year. Nationwide Building Society reports a small fall in house prices in February for the first time in eight months. And the number of mortgage approvals fell back in January, according to the British Bankers Association.
In the high street, sales volumes fell again in February compared with a year earlier, according to a CBI survey, dashing expectations that demand would stabilise. Some of the largest falls were recorded for furniture and DIY outlets. A balance of 63% of furniture and carpet retailers reported lower sales, compared with 57% in January. However, the three-month average improved slightly to -62%, due to November’s low of -73% having dropped out of the figures.
The latest official data suggest that the volume of retail furniture and lighting sales in January was down by 4% on the year, while in value terms demand fell by 2%. Sales of furniture in the whole of 2005 are estimated to have been 4% lower in value than in 2004, but exclude the effect of price changes and the fall was 6%.
Looking to the future, the value of consumer spending on furniture in 2006 is projected by Oxford Economic Forecasting to rise by just 0.8%, before jumping by 3.4% and 4% in the two following years. In volume terms a fall of 2.7% is expected this year, before a rebound to growth of 3.8% and 4.4% in 2007 and 2008 respectively.
Separately, a forecast by Market & Business Development indicates that the UK market for fitted kitchen furniture will grow by 5% in real terms between 2006-2010. Demand for self-assembly products is expected to rise by 6%, and its share of the market is expected to increase slightly from 61% to 62%, at the expense of assembled kitchen furniture.
Import penetration within the total UK kitchen furniture market is also forecast to rise marginally, from 10% now to 11% by 2010. Meanwhile government figures on the value of furniture imports into the UK reveal a fall of 1% in 2005 compared with the previous year, although exports from the UK grew by 3%.
British Furniture Manufacturers continue to experience mixed demand. Output of shop and office furniture in the fourth quarter of 2005 dropped by 7% year-on-year and fell by nearly 12% between 2005 as a whole and the previous year. Production of chairs rose by 1% over the year to the fourth quarter, but fell 4% between last year and 2004. Kitchen furniture output was 2% lower in the final quarter than a year earlier, but grew by 5% in the whole of 2005 compared with 2004. Fourth quarter output of other furniture was 1% lower year-on-year, but rose by nearly 6% between 2004-2005.
Official figures show that furniture manufacturers’ raw material and fuel costs rose by 3% in the year to January. Factory gate prices remained under pressure, with kitchen, bedroom and living room furniture prices down by around 2%, although prices of wooden office furniture rose by 2%. In the high street, prices of furniture plummeted by 11% in January, but the yearly rate was up 1%.
The effect of such price pressures, and of the intense competition among retailers to persuade consumers to open their wallets, is reflected in part in last month’s decision by MFI to close stores, cut back its UK manufacturing, and reduce its product range. And these are issues which other furniture manufacturers and retailers alike will be increasingly forced to confront in the coming months if they are to navigate their businesses safely through to the next upturn in consumer spending.
