What do you do when the value of the goods on a container is less than the shipping cost of the container?
This is a question that many companies have struggled with following the massive increase in container costs; over 500% since 2020 for those of you who matter at home. For a growing number of furniture manufacturers, the answer seems to be to move upmarket.
If you’re a regular reader of Furniture Today, you’ve seen the words ‘step-up’, ‘mid-tier’ and ‘upper-mid’ appear with increasing frequency lately as descriptions of new collections. Expect to see plenty more at next month’s High Point Market.
The middle is about to become a very crowded and hard-to-differentiate place.
Rising costs, especially of shipping containers, have made it increasingly difficult to support long-standing promotional pricing. There’s only so long you can raise the prices of the same products before the value proposition becomes untenable. As a result, an increasing number of companies are choosing to introduce new brands, new sub-brands and new major collections that reach the traditional lower and mid-range price points.
It will soon become necessary to find more descriptors to differentiate “the middle”, because low-medium, medium and high-medium do not seem sufficient. Whatever the name, the so-called “middle” is establishing itself as a hotbed of competition this year.
This shift raises a host of questions, not the least of which is what defines market shape, consumer demand or product availability? In recent years, the furniture industry has polarized, with activity moving to the upper and lower tiers respectively.
The traditional medium seemed to be shrinking, with younger consumers and their economically disadvantaged elders choosing to make price the driving force behind their buying decision. This then spurred product development and the positioning of retail assortments.
At the same time, increasing wealth made the luxury segment attractive both visually and economically (by the way, it still is). This shift has been driven by consumer behavior and economic developments, with the market reflecting the underlying reality of consumer demand.
However, the distribution of wealth that led to this change has not changed. Consumer purchasing power has not increased, despite everything you read about rising wages. Inflation is outpacing income gains, and there doesn’t appear to be an underlying economic driver to suggest that the traditional middle-market consumer base is growing.
Instead, the bet appears to be that the consumer demand that drove growth at the start of the pandemic will continue and, simultaneously, demonstrate significant price elasticity. There is a large population of buyers at the opening price who will soon have fewer options available at their expected purchase price. Will they choose to increase the growing number of mid- and upper-priced options or will they postpone their purchases and withdraw from the market?
I don’t know the answer to this question. But we’re all about to find out because “the middle” is about to become a busy place.