The Zacks Retail-Home Furnishings industry is facing significant challenges due to economic uncertainty given high interest rates, inflation, and a slowing housing market. Rising borrowing costs have reduced home sales and renovations, directly impacting demand for furniture and decor. Additionally, consumer confidence has declined, leading to more cautious spending.

Nonetheless, to navigate these headwinds, companies are focusing on strengthening digital platforms, optimizing supply chains, and investing in product innovation. Strategies such as designer collaborations, digital marketing, store remodeling, and loyalty programs are being implemented to maintain market share and adapt to shifting consumer preferences. Companies like Williams-Sonoma, Inc. WSM and Ethan Allen Interiors Inc. ETD have been leveraging product reinvention, efficient cost management, exclusive collaborations, and innovative marketing strategies to stand out as winners, as they capture market share while enhancing the customer experience. While concerns about consumer confidence and stiff competition persist, the industry's adaptability and focus on customer-centric strategies position it for success.

Industry Description

The Zacks Retail-Home Furnishings industry comprises retailers offering home furnishing products under various categories. The merchandise assortment includes furniture, garden accessories, framed art, lighting, mirrors, candles, tableware, lamps, picture frames, bathware, accent rugs, artificial floral products, and child and teen furnishing. The industry players also develop, manufacture, market and distribute bedding products. The companies provide home and security products for residential home repair, remodeling, new construction and security applications. They are involved in manufacturing, assembling and selling faucets, accessories, kitchen sinks and waste disposal.

4 Trends Shaping the Future of the Retail-Home Furnishings Industry

Economic Uncertainties: The Federal Reserve (Fed) has lowered its U.S. economic growth forecast amid uncertainty while raising its inflation projection surrounding President Trump's tariff policies in the latest March 2025 meeting.

The Fed now expects GDP growth of 1.7% in 2024, down from its previous estimate of 2.1%, and inflation to rise to 2.7%, partly due to tariffs. Interest rates remain unchanged at 4.25%-4.5%, but policymakers signal potential rate cuts later this year. Fed Chair Jerome Powell highlighted "remarkably high" uncertainty, while Trump urged the Fed to cut rates further. Economists warn tariffs could push prices higher, despite Trump's claims that they will benefit the U.S. economy.

Consumer confidence took a sharp hit in February, with The Conference Board’s Consumer Confidence Index plunging to 98.3—a steep 7-point drop. This marked the lowest reading since June 2024 and the worst monthly decline since August 2021. Growing fears over a weakening economy and escalating inflation fueled a deepening sense of pessimism among consumers. The outlook for business conditions soured, concerns over the labor market intensified, and optimism about future income prospects faded further, painting a bleak picture of economic sentiment.

Higher Interest Rates and Housing Market Slowdown: One of the primary headwinds for the home furnishings industry is the elevated interest rate environment. The Fed’s monetary tightening over the past two years has led to higher mortgage rates, cooling the housing market significantly. Fewer new home purchases and slower home sales mean fewer consumers are furnishing new properties. Additionally, many shoppers are postponing renovations or large furniture purchases due to the increased cost of financing and borrowing.

Stiff Competition: The home furnishing industry is highly competitive, with interior design trade and specialty stores, antique dealers, national and regional home furnishing retailers as well as department stores giving a hard time.

Online retailers focused on home furnishing also pose a threat. Traditional furniture retailers are losing ground as e-commerce giants like Wayfair and Amazon dominate the market. Direct-to-consumer brands are further intensifying the pressure with trendy designs and rapid delivery. Struggling to compete, brick-and-mortar stores are investing heavily in omnichannel strategies, but rising consumer expectations and aggressive online competition threaten their survival.

Strong Digital Platform, Product Reinvention & Marketing Moves: The optimization of the supply chain and an improvement in e-commerce channels are expected to drive the top line. E-commerce will continue to play a major role as people find it more comfortable and safer to shop online. Product innovation plays a pivotal role in market share gain in this industry. Companies aim to come up with products and collaborate with celebrated brands and designers to maintain exclusivity. Also, customer experience is being enhanced by innovative marketing techniques, with an emphasis on digital marketing, better merchandising, store remodeling and loyalty programs.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Retail-Home Furnishings industry is a 10-stock group within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #171, which places it in the bottom 31% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since January 2025, the industry’s earnings estimates for 2025 have decreased to $11.24 per share from $11.59.

Despite market uncertainty, we’ll highlight a few stocks worth considering. First, let’s review the industry’s shareholder returns and valuation.

Industry Lags the Sector & S&P 500

The Zacks Retail-Home Furnishings industry has underperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 Composite over the past year.

The industry has lost 11.7% against the broader sector’s 12% growth. The Zacks S&P 500 Composite has gained 8.9% over this period.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio, which is commonly used for valuing retail home furnishing stocks, the industry is currently trading at 20.69 compared with the S&P 500’s 20.82 and the sector’s 22.61.

Over the last five years, the industry has traded as high as 24.96X and as low as 14.07X, with the median being 19.99X, as the chart below shows.

Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500

2 Retail-Home Furnishings Stocks to Watch

We have highlighted two stocks from the industry that are capitalizing on fundamental strengths and have solid growth prospects.

Ethan Allen: Based in Danbury, CT, this company specializes in interior design and operates as a manufacturer and retailer of home furnishings both in the United States and internationally. Ethan Allen has been navigating the challenging macro backdrop with a combination of strategic promotions and increased marketing investments. During the fiscal second quarter, Retail segment orders grew 15.8%, and wholesale segment orders increased 14.3%, aided by special financing programs and a favorable shift in consumer spending toward home furnishings. The company’s vertically integrated business model, with 75% of furniture made in North America, provided cost efficiencies and supply chain stability. Additionally, a strong focus on product innovation and refreshed retail locations has been contributing to the company’s ability to attract new customers and sustain demand.

The ETD stock — currently carrying a Zacks Rank #2 (Buy) — has dropped 16.3% over the past year. Meanwhile, this company surpassed earnings estimates in two of the trailing four quarters, met in one and missed on another occasion, the average being 0.2%. ETD has seen an upward estimate revision for fiscal 2025 earnings to $2.32 per share from $2.30 over the past 30 days, depicting analysts’ optimism over the company’s prospects. The estimated figure for fiscal 2025 indicates a 6.8% year-over-year decline. It has a ROE of 12.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: ETD

Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from its focus on digital initiatives, higher e-commerce penetration and product introductions. Williams-Sonoma is capitalizing on its strategic emphasis on broadening its product range and establishing a sustainable operational framework. By adopting a digital-first approach without exclusively relying on digital-only channels, the company has gained a competitive edge. Its strong e-commerce platform and successful Business-to-Business segment position it for substantial expansion, overcoming ongoing consumer spending challenges. The company’s portfolio of brands serving a range of categories, aesthetics and life stages are tailwinds.

The WSM stock — currently carrying a Zacks Rank #3 (Hold) — has gained 5.6% over the past year. This company surpassed earnings estimates in all the trailing four quarters, the average being 19.1%. WSM has seen an upward estimate revision for fiscal 2025 earnings to $8.53 per share from $8.50 over the past 30 days. The estimated figure for fiscal 2025 indicates a 3% year-over-year decline. It has a ROE of 54.1%.

Price and Consensus: WSM

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This article originally published on Zacks Investment Research (zacks.com).

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