Jane Westgarth, senior retail analyst at market intelligence agency, Mintel discusses how consumer confidence is influencing spend on furniture and homewares.

Consumers appear to be uncertain about spending on their homes. In August 2016 16% of households had spent on their homes in the last three months, 3 percentage points lower than in the same month in 2015. Intention to spend on the home was also lower in August 2016 at 20%, down from 22% in August 2015.

People’s intentions are always more optimistic than realistic. Our consumer confidence tracker indicates that people consistently over estimate what they might spend on their homes in the next three months. This gap indicates that, in some cases, people probably intend to refurbish a room or buy furniture but actually use their money for other things instead. These are deferrable purchases in many cases and it is easy to feel enthusiastic about the idea of spending on the home, but not to follow this through.

Cooler Mood

People’s intentions to spend got off to a strong start in January 2015, but by 2016, in the run up to Brexit, as well as the two months that followed the vote, sentiment is cooler than in the previous year. Those planning to spend on their homes dropped to 21% of respondents in January 2016, a big dip compared with the 28% who planned to spend at the beginning of 2015.

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May 2016 was the most optimistic month of the year, although spending and intentions were each one percentage point lower than in 2015. The uncertainty that followed the vote to leave the Economic Union saw July’s index drop to its lowest point of the year, a knee-jerk reaction to the outcome of the vote. But sentiment made a recovery in August, as people realised that the status quo was not likely to change rapidly.

This survey, conducted in August 2016 and based on 2,000 internet users aged 16+, shows a reasonably stable landscape, but one where uncertainty has created a cautious mood about spending on the home in 2016.

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Room for optimism about financial situation

People need to be feeling optimistic about their finances before committing to big ticket purchases including building an extension, moving house, revamping a kitchen or buying big ticket items. Although July’s confidence index fell sharply, the August data shows a return to normality, with financial confidence 0.8 percentage points ahead of the same month in 2015. This upward trend gives a little more scope for optimism about spending on the home in 2016.

The effects of house moves on spending

According to Mintel consumer research, one of the key factors which influences spending on the home is moving house. This is particularly true of homeowners, but is also true of renters. People want to put their own stamp on their homes and this can influence spend on a wide range of home goods from small ticket accessories to major refits.

In 2016 there was a distortion in demand for buying homes created by the imposition of higher stamp duties on buy-to-let properties, which came into effect in April. This brought forward a lot of purchasing into March and has contributed to the subsequent lull. We believe that Brexit has also played a part in slowing the housing market in mid-2016 compared with the previous year.

If the housing market cools, we expect there to be fewer properties on the market, creating a scarceness of supply, which in turn could mean that house prices hold up fairly well, especially in areas where there is short supply. In particular a shortage of properties for first time buyers helps to maintain house prices. The pent-up demand from private renters who cannot afford to get onto the housing ladder will mean a continued demand for private rented properties.

What it means

  • In 2016 consumers appear cautious about spending on the home, and this is most likely to have an impact on big ticket spend such as refitting a kitchen or building an extension.At the same time there are signs that sentiment about household finances have improved, even after the Brexit vote. This gives a sense of optimism about financial stability - highly important in helping shore up demand for homewares, furniture and refurbishment projects.
  • One of the key drivers for spending on the home is moving house, so any slowdown in the housing market in 2016 could create a slower market for spend on furniture and refits.
  • It is important for retailers to recognise that people’s spending intentions show enthusiasm for spending on the home. Consequently encouragement to convert intentions into action could build demand in this market. This highlights the importance of appropriate marketing activity including brochures, websites and above the line advertising.

In summary demand for big ticket home spending will probably be slower than in 2015, but small ticket items for the home are likely to continue to see steady demand.

Jane Westgarth’s career in retail and consumer markets has included roles as a senior retail analyst and a marketing and retail consultant to a variety of large and small organisations. For the last 25 years, she has applied her expertise and knowledge of retailing, branding and marketing communications to create analysis and insight for Mintel reports.

Mintel publishes more than 800 consumer market reports every year, each written by a dedicated analyst, offering in-depth market insights and consumer trend observations.