With mounting evidence that buyers are in retreat from the housing market, the outlook for furniture sales, which are traditionally linked to the purchase of new homes, remains bearish.
April failed to deliver the usual spring upturn in house buying and the general election has taken some blame for the 10th consecutive month’s fall in prices identified by property researcher Hometrack. But some cheer is given to prospects for furniture sales by estate agent Knight Frank’s forecast of a 5% rise in prices this year.
Official estimates indicate that the value of consumer demand for furniture in 2004 was 5% higher than in 2003, and was up by 2.9% in seasonally-adjusted volume terms. But without the effect of higher retail prices and with seasonal adjustment applied, volumes in the fourth quarter of 2004 were 0.4% lower than in the same period last year. This followed a year-on-year rise of 6.7% in the third quarter. Sales measured by value slowed to an annual rise of 2.8% in the fourth quarter, down from 7.4% in the previous one.
Consumer spending
In the first three months of 2005 consumer spending as a whole continued to lose impetus. Retail sales volumes unexpectedly fell in March by 0.1%, although they were up 2.7% from a year earlier – albeit by the smallest increase since August 2003.
Confidence among consumers fell marginally between March and April as worries about the outlook for the economy increased. Pollster GfK Martin Hamblin found that the climate for making major purchases was unchanged in April but the underlying trend continued downward.
The latest CBI survey of furniture retailers shows that in April sales volumes were lower than a year earlier for a net 58% of stores. This follows year-on-year volume decline for 72% of outlets in January, and contrasts with a balance of 54% achieving higher annual sales in April last year. Over the three-month period February to April volumes were down year-on-year for an average of 41% of furniture retailers. In the three-month period to March an average of 27% reported lower annual sales, and in the quarter to February an average of 11% achieved year-on-year growth.
Sales volumes fell over the year to April 2005 for a net 14% of retailers overall, says the CBI, following a downturn for 9% in the year to March. Retailers expect sales growth to be flat in the year to May, but at levels sharply below normal for the time of year.
The recent seesawing of furniture prices can do little to encourage consumer purchases. The retail price index reveals year-on-year increases of 6.3% and 1.8% in December and January respectively, followed by a fall of 0.4% in February and a jump back to 5.6% in March.
The latest snapshot of the furniture industry finds manufacturers in slightly less pessimistic mood than three months ago. Some 32% of those polled by the CBI are more pessimistic about the outlook for the industry than they were three months ago, while 61% expect conditions to remain flat and 6% expect an upturn. In the previous survey made in January, a balance of 51% of firms was more pessimistic than a quarter earlier.
A balance of 67% of firms now says order books are below normal for the time of year, compared with 43% in the previous poll; and 55% are working below capacity (compared with 67% last time). Further, 52% expect new order volumes to fall over the next three months and 45% expect output volumes to drop. Although 12% predict that domestic orders will be booked at higher prices, 42% expect production costs will rise.
Forecasts
On future prospects, Oxford Economic Forecasting predicts that consumer demand for furniture will rise in real terms by an average of 1.3% both this year and in 2006, and increase by 1.5% in 2007. This suggests increases at current prices of 3.4% this year, and 3.5% next year and in 2007.
Separately, a forecast by Market & Business Development points to an 8% increase in demand for fitted kitchen furniture between 2004 and 2009 at constant 2004 prices. Much of the growth is expected to be driven by new construction activity.
But for the immediate future, furniture suppliers must be prepared for tough times ahead as they remain exposed to the uncertainties of the housing market.
