I recently came across a very interesting interview by HFA with Todd Wanek, the President and CEO of Ashley Furniture Industries, which was held back in May. He shared some incredibly valuable insights into the future of the home furnishings industry, touching upon current challenges, economic trends, and legislative factors. It was fascinating to hear his perspective on how furniture retailers can stay competitive and truly thrive in our ever-evolving market.

Here's a summary of his key insights:

Industry Resilience and Core Values: Wanek highlighted the resilient nature of the home furnishings industry, describing it as being made up of "scrappy entrepreneurs" with significant "grit" who are constantly reinventing themselves and developing competitive advantages. He noted that the industry is deeply personal, often comprising family-owned businesses, fostering a strong connection to operations, employees, and communities. This personal investment is a key driver of its resilience.

Legislative Factors and Tariffs

• Tariff Outlook: Wanek believes tariffs are here to stay, likely ranging from 10% to 25% for most countries. He referenced former President Trump's goal of $750 billion in tariffs, which implies an average tariff rate of about 17% across all U.S. imports.

• Supply Chain Diversification: Ashley Furniture proactively decided to cease all business with mainland China as of April 1st due to high risk, emphasizing the critical need for a diversified supply chain and viewing the U.S. as a massive diversification option.

• New Tariffs on the Horizon: He specifically mentioned Section 301, which could impose a $1 million tax on Chinese-built container ships entering U.S. ports, potentially adding up to $800 per container. Additionally, Section 232 tariffs on steel and wood could introduce a 25% duty based on the weight of these components in furniture, with possible announcements in October.

• Impact on Pricing: Wanek suggests the industry can absorb tariff rates in the 10-25% range, as furniture is currently sold at "super cheap" prices. He believes a 10-15% tariff would result in manageable inflation, not making products unaffordable.

• "De Minimis" Rule Changes: Anticipated changes to "de minimis" rules (which allowed duty-free shipment of packages under $800, mainly from China) are expected to disrupt direct-to-consumer (D2C) companies, potentially redirecting more customers to traditional brick-and-mortar furniture stores.

Economic Trends and Consumer Behavior

• Economic Outlook: Wanek foresees a recession with 0 to -2% growth for one or two quarters, but not a severe one like 2008-2009. He expects the economy to be relatively flat this year, with potential stimulus from tax cuts and tariffs in 2026.

• Consumer Demand: While bedroom furniture demand is soft, upholstery, especially sectionals, configurable items, and products with washable fabrics, has seen significant growth, now accounting for over 60% of Ashley's total volume. Consumers are more frugal, making strong, long-term financing options (24-60 months) crucial for driving average ticket sizes and attracting customers.

• Emotional vs. Utilitarian Purchases: He notes that the industry has largely shifted from "needs" to "wants" (around 70% want-based). Therefore, creating an emotional connection and an "aspirational" and "inspirational" experience in-store is vital, moving beyond purely utilitarian purchases.

Supply Chain Disruptions and Agility

• Container Crisis: The biggest current supply chain problem is container availability and repositioning, exacerbated by the cancellation of $30 billion worth of business from mainland China due to tariffs. Container companies are using "blank sailings" to rebalance inventory and prevent price collapses, causing significant disruptions.

• Inventory Strategy: Retailers and manufacturers need to build buffered inventory or safety stock to mitigate these unpredictable disruptions. Ashley currently holds almost a month more inventory than usual.

• Reshoring: For manufacturing to return to the U.S. sustainably, it must be heavily automated and leverage technology, rather than attempting to replicate overseas labor-intensive processes. Highly finished products like veneered dining and bedroom sets are particularly challenging to reshore due to production complexities.

• Sourcing Alternatives: While Vietnam, Cambodia, and Malaysia remain optimal for dining and bedroom furniture, upholstery and some bedroom furniture types have numerous domestic sourcing options.

Strategies for Retailer Competitiveness

• Focus on Control: Retailers should concentrate on what they can control within their organizations, such as operational excellence, rather than being overwhelmed by external "noise".

• Customer Experience: Connecting with consumers socially and providing a "world-class" in-store experience (relevant, updated, clean, with properly trained sales staff, and excellent service through to delivery) are paramount.

• Brand Storytelling: Smaller retailers have a significant advantage in telling their unique stories, emphasizing values, community connections, and local relevance. Employees can act as "social ambassadors".

• Financial Health: Prioritizing cash flow through efficient inventory management (aiming for 12-15 turns annually) and lean operations is critical. He strongly advises against cutting advertising budgets, instead focusing on efficiency through A/B testing.

• Innovation and Emotion: Focusing on innovative products and storytelling within the store creates an "aspirational" and "inspirational" experience.

• Embracing Technology (AI & VR): Leaders must develop a clear viewpoint on how to integrate technology. AI can automate redundant tasks like accounts payable, forecasting, and production scheduling, freeing up human talent for more creative roles. Although virtual reality (VR) is not yet "game time" for widespread consumer adoption, retailers should proactively build digital assets (CGI for all furniture) to be ready when the technology matures.

• Social Commerce: Acknowledge the rapid growth of social commerce platforms like TikTok Shop, which are outpacing e-commerce, and begin to build frameworks to adapt to these new shopping journeys, as China is "light years ahead" in this area.

Leveraging AI for Visualization (Palazzo.ai)

This is where platforms like Palazzo.ai come in, directly addressing many of Wanek's points on technology and customer experience. Palazzo.ai is an AI-powered visualization platform designed for furniture retailers, manufacturers, and designers.

• It allows end customers to instantly visualize furniture in their real rooms using AI, offering personalized shopping experiences through AI chat or widgets. This directly supports the goal of creating engaging, world-class in-store and online experiences, as well as preparing for future visualization technologies.

• Retailers and manufacturers can use Palazzo to increase conversion rates, reduce product return rates due to better purchase confidence, and shorten the sales cycle by providing clear visual context. These benefits align with Wanek's emphasis on operational excellence and improving customer confidence.

• The platform can showcase large catalogs without needing costly photoshoots, an efficiency gain that aligns with Wanek's advice for lean operations.

Future Outlook

Wanek expresses excitement about the adoption of technology as a massive competitive advantage. He sees a positive future for the industry, driven by strong demographic tailwinds as a large younger population begins to form and buy homes. He hopes to see improvement in the housing market starting in 2025 or even later this year, potentially fueled by interest rate drops and new home buyer incentives, possibly even from the administration. He is optimistic about the next generation of retail leaders, noting their intelligence, curiosity, and tech savviness, and emphasizes that adaptation to change is crucial for survival.