Lately we, and the industry, have been talking a lot about the business climate, the economy and the consumer penchant to pull back on discretionary spending when the consumer price index increases.
August delivered 0.6% CPI, and for the 12-month period, the Bureau of Labor Statistics said the index climbed 3.7%. September numbers are due out this week.
While we hear of companies like United Furniture/Lane, Klaussner Home Furnishings, Mitchell Gold + Bob Williams and more, we don’t always look at the impact a drop in consumer spending has on small business, which is where the majority of retailers in the industry fall on the size scale.
In addition to the CPI, here’s a stat that crossed my inbox this week that causes a bit of pause when considering independent retailers and small businesses in the U.S. and the role that segment plays in our economy and our industry.
The number of small business owners that were unable to pay their September rent in full inched up to 40%, and pertinent to our industry, 47% of retailers — nearly half of those surveyed — couldn’t pay their rent, according to Alignable’s September Rent Report that surveyed more than 4,500 small business owners. That 40% is up a percentage point from August and 10 percentage points from January’s 30% mark. Alignable is an online network consisting of more than 8 million small business members across 35,000 communities.
A good number of retailers in our industry rent their store spaces, and while that 47% number doesn’t consist of all home furnishings or mattress retail stores, it’s a strong indicator of an overall ugly trend that is likely impacting some of our retail connections.
No surprise here that the survey cited four economic issues contributing to the rent delinquency: revenue loss from fewer consumers in the marketplace, climbing interest rates, increased rental rates with more than half of the survey participants indicating that they are being charged more than they were paying six months ago and increased gas prices that continue to pinch consumers’ wallets.
According to the survey, the three states at the top of the small business rent troubles list are New York, New Jersey and Illinois. Illinois did show some improvement with the last survey indicating that its delinquency rate dropped six percentage points from 52% in August to 46% in September.
While I’m not one to spout a lot of doom and gloom, the numbers shared by Alignable are concerning.
Bedding and furniture insiders continue to tell our team that they don’t expect business conditions to start turning until the middle of 2024. Some that we have spoken with say even middle of next year is optimistic as we enter into what is sure to be a raucous — and I’m being kind here — election season. It’s already showing signs of anger and nastiness a year out.
Given that perspective, 2025 seems more likely, and as time lags on and the economic issues cited above remain in place, we are likely to see more retailers fall behind on rent or mortgages.
If that happens, we’ll lose more retail players and face continued consolidation.