Seismic Shift To Millennials Driving Dramatic Changes In U.S. Furniture Market

The Presidents’ Day weekend holiday in the U.S., like in most years, coincided with a number of furniture sales. As expected, traditional retailers JCPenney , Ashley Furniture and Raymour & Flanigan and online players Overstock.com and Wayfair all offered up to 70% off this weekend.

But what has changed dramatically in the past few years is who was buying.

The Consumer Buying Trends Survey conducted by Furniture Today shows that millennials have become the largest consumer group in the US furniture and bedding market. In 2014, they represented 37% of the market, a significant increase compared to the 14% they represented in 2012. In fact, from 2012 to 2014, millennials’ share of spending on furniture and bedding more than doubled, from $11.1 billion to $27.0 billion—catapulting the group to the core of many retailers’ growth strategies.

Not surprisingly, millennials approach home ownership and furnishing differently than do older generations. This age group is often characterized as individualistic and wanting to differentiate themselves from their peers. At the same time, millennials are very active social media users, highly adept at using technology, and naturally more trusting of online sources and more comfortable making purchases on their digital devices than older generations are. Because millennials are delaying home ownership, they often look for smaller, multifunctional and affordable furniture that fits into their dynamic and urban lifestyles. They are also more influenced by product offerings that are marketed as ethical, sustainable and environmentally friendly.

While the shift to online is perhaps not surprising, the pace of the shift is. In a furniture market that is growing at a rate of 2.9% annually, e-commerce sales are expected to double, from $15 billion in 2012 to $32 billion by 2018. E-commerce accounted for 21% of total furniture sales in 2014, and it is forecast to grow to 30% by 2018, according to research firm eMarketer. Recent trends support this forecast. For example, in 2014, sales at Overstock.com, Amazon and Wayfair, the three largest online retailers of furniture, grew by 14.8%, 19.5% and 44.0%, respectively.

Conversely, furniture stores now number around 23,000 in the US, down nearly 20% from before the recession.

The furniture boom has also been fueled by the improvement in housing starts since 2009. An estimated 1.1 million housing units were started in 2015, more than double 2009’s 554,000 new units. While millennials have taken longer to establish themselves as homeowners and heads of households, a study done by Home Depot indicates that home ownership is in fact a more important goal for this age group than it is for Gen Xers and baby boomers. Home Depot found that among millennials who are renters, 57% view ownership as an important goal, compared to 38% of Gen Xers and 34% of baby boomers.

The growth of furniture e-commerce means more shipments to consumers, which is a positive for the ready-to-assemble segment of the market. It also means that there is a big opportunity for companies that can improve furniture design and assembly in order to simplify the process of putting furniture together.

Campaign is an e-commerce furniture company offering a line of sofas and chairs that can be assembled in just a few minutes without any tools. Campaign products are easily packed and convenient to move. The company was started by a former Apple engineer, Brad Sewell, and its goal is to offer high-quality furniture at a price point similar to IKEA ’s.Greycork is a startup that creates furniture that is simple, affordable, high quality and good-looking. The company’s products have just nine to 10 components, compared to 50 components for some items from IKEA. Greycork raised over $260,000 on crowdfunding site Indiegogo for its living room set, and shipments are expected to begin in February 2016.MIT’s Self-Assembly Lab partnered with Italian design studio Wood-Skin to develop a self-assembling table that transitions from flat to fully built with a simple pull. The product combines wood and a flexible synthetic fiber that allow it to fold by itself according to a predesigned pattern.

While these startups offer furniture that is easy to assemble, other startups serving the furniture category are appealing to millennials’ tech savviness. For example, Israeli startup Cimagine provides solutions to blend augmented reality into businesses. Furniture retailers make use of the company’s technology to help consumers virtually fit furniture into their homes via a mobile app. In 2014, IKEA introduced a similar augmented-reality app that allows customers to preview products from its catalog in real time and 3D.

Our FBIC Global Retail & Technology team’s in-depth report on the US furniture market covers these companies in more detail, as well as others such as Drawn, Nova LifeStyle, Houzz, Formabilio and Move Loot.

With millennials radically shifting the US furniture landscape, new startups are emerging with innovative products and solutions. Our view is that the large incumbents will rise to the challenge these startups present, but we will not be surprised if one or two of these innovators grow into a major retail force over the next few years.