RH stock soars as homebuyers boost high-end furniture market

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Homebuyers are driving up demand for high-end furniture.

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Upscale home-furnishings merchant RH, formerly Restoration Hardware, reported higher revenue than Wall Street expected on Wednesday, as Americans fleeing to the suburbs from large cities continue to purchase furniture to fill up larger homes.

Homebuyers are driving up demand for high-end furniture. (RH/iStock). 

The company's stock climbed as much as 28 percent amid speculation the trend will continue through next year, as people seek more socially distant spaces. The living trend is driven both by the lack of COVID-19 vaccines and the reluctance of major corporations to reopen big-city offices without one.

“The booming real estate activity in second-home markets, an accelerated shift of families moving to larger suburban homes, and the uptick in homebuilding should drive increased spending in our market for an extended period of time as the cycle for purchasing and furnishing a home is anything but quick,” RH CEO Gary Friedman told analysts Wednesday.

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Indeed, record low mortgage rates dropping below 3% for a 30-year mortgage, coupled with the need for more space with remote work and virtual school in session, are spurring Americans to invest more in their homes. Separate data from The Harris Poll commissioned by real estate listing company Zillow confirmed that searches for new construction homes during the coronavirus pandemic increased 73% compared to last year, with many people interested in designing their own homes.

Other competitors in the luxury furniture space like West Elm and Room & Board offer payment plan options for big-ticket items through point-of-sale loan company Affirm, making it more enticing for consumers' pay over time. However, the uptick in demand has resulted in delivery delays.

New orders placed for furniture industry-wide increased 30% in June compared to the same time period last year and backlogs increased 32 over June 2019 spurred by new demand, according to the latest survey from consultancy Smith Leonard's monthly furniture insight report of residential manufacturers and distributors.

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Fashion designers are also putting their stamp on luxury furniture with a more accessible price point. Jason Wu, Rebecca Minkoff and Christian Siriano teamed up with Lowes this month to design furniture collections from accent chairs and marble coffee tables to lighting and dining tables ranging in prices from $5 for design accents to $1,300 for larger furniture items.

TickerSecurityLastChangeChange %
RHRH396.33+75.48+23.52%
LOWLOWE’S COMPANIES INC.160.92+1.30+0.81%

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And while furniture retailers like Pier 1 Imports and Macy’s shuttered stores before the pandemic became widespread, RH says it will continue to rely on retail.

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“In our industry, even digital-native brands, the one’s who have made it, have all done so by opening retail stores. Retailers who claim they make more money online than they do in their retail stores are most likely not allocating their costs by channel correctly, and to the ones who believe that their website traffic would not be negatively impacted if they closed their stores, well good luck with that strategy,” Friedman said in a letter to shareholders.

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