This article was originally published in Retail Dive by Caroline Jansen.
March 17, 2024 | LINK
Retail’s home sector has yet to find steady ground
Few sectors of retail showed the life-altering impact of the pandemic more than the home category.
The sector saw both highs and lows over the past five years. And while signs of normalization are emerging, home goods retailers — and the industry more broadly — are bracing for new challenges ahead.
While sales in the sector broadly are increasing, several retailers have yet to recover. RapidRatings tracks both long- and short-term indicators into how individual companies are performing through its Financial Health Rating, which measures the likelihood of default over the next 12 months, and its Core Health Score, a financial health measurement that looks at the long-term sustainability and operational efficiency of a company. Both measurements are on a 100-point scale, with 100 being the best score and 0 being the worst.
As of late February, Beyond Inc. — which formed following Overstock’s acquisition of Bed Bath & Beyond out of bankruptcy and now also includes Zulily — had an FHR of 34 and a CHS of 27, both representing high risk of default. The company last month reported fourth-quarter net revenue fell over 20% to $303 million, while full-year revenue fell 10.6% to $1.4 billion. And just last week, amid a flurry of C-suite changes, the company announced Executive Chairman Marcus Lemonis became its principal executive officer after 16-year company veteran Dave Nielsen was terminated.
Wayfair’s current FHR is 23 and its CHS is 30, also making the online home goods retailer a high risk of default. In its most recent quarter, Wayfair reported revenue inched up just 0.2%; for the year, revenue fell 1.3%. The retailer has also initiated several rounds of layoffs in recent years, with the latest announced earlier this month.
And Kirkland’s, which announced last month plans to update or close 6% of its store footprint as part of a turnaround effort, has an FHR of 24 and a CHS of 29. Kirkland’s in June announced it hired a financial adviser to review strategic alternatives for the company. The home goods retailer in the fall inked a deal with Beyond, which involves the return of Bed Bath & Beyond stores in a smaller format, while Kirkland’s received $17 million in debt financing from Beyond.
While Kirkland’s Financial Health Rating and Core Health Score put it at high risk of default, it’s not necessarily a death sentence. But it’s not an encouraging sign either, according to RapidRatings Executive Chairman James Gellert.
“That doesn’t mean that a 24 is going to file for bankruptcy, but it means it certainly is susceptible to all of the things that could make that happen,” Gellert said.
But to put it into perspective, when The Container Store filed for Chapter 11, it had an FHR of 33, LL Flooring had a score of 30 and Big Lots had a score of 27, according to RapidRatings.
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RapidRatings shared FHR data with Retail Dive, revealing ongoing instability in the home goods sector due to macroeconomic pressures. Major players like Beyond Inc., Wayfair, and Kirkland’s are struggling financially, as reflected in their low FHR and Core Health Scores (CHS).
These challenges highlight the widespread ripple effects of economic turbulence—not only for major retailers but also for smaller players, including suppliers, who face even greater financial vulnerability.
Businesses that proactively assess supplier stability amid rising interest rates, escalating costs, and geopolitical tensions will be better positioned to navigate future challenges. Prioritizing strong supplier relationships and financial risk management is key to supply chain resilience, protection from disurptions, and long-term success.
