This is somewhat of a departure from what I have written about in the past, but the recent trouble in the equity and fixed income markets make it difficult not to comment on. After 2009, we all hope that 2010 will be better for our industry, and the days with 1 or 2%+ swings in the equity market, or when the Dow Jones average plunged 1000points intra-day a few weeks ago, are worrisome.
I believe that we, and the clients we work for, are very lucky to work in the small, high-end, luxury home furnishings world. It is by no means an easy business, but the perks include working with very talented people and creating absolutely beautiful furnishings. Another perk is an end-clientele who are more or less well insulated from the market and economic gyrations we experienced in the years up to 2008.
The end of 2008 was a very scary time because people were not sure how bad things could get. The subprime crisis hit the banks very hard and the insulation of our business quickly evaporated. To help put it in perspective, the new “State of the Industry” report from HFN, estimates the overall “Furniture, Lighting & Home Décor” business shrank 15% between 2008 and 2009. Within that category, Decorators and Designers piece of the pie shank 34% in the same time period. 34% less of a 15% smaller pie. Let that sink in a moment.
Now, whether or not those numbers are completely accurate (and I doubt they are), they do, I believe, accurately reflect the general tone of what we have felt happening over the last few years. Namely, there are fewer jobs “out there” and more people chasing them, and once a job is landed, lead-times are greater as those clients are more cautious when it comes to spending.
People are now worried about Greece and the balance sheets not of banks, but of countries. Tensions on the Korean peninsula do not help. I have no idea if things will get worse or not, but the S&P500 is down about 4% year to date and, despite the fiscal state of the USA, US bonds continue to see strong demand. What all this means is people are getting scared again, scared of risk.
How will this affect our industry? I don’t know. In my gut, I believe that, as these concerns stand now, they will not be as severe as late 2008. This is simply because so many of our clients are bankers and, while things may get worse, we are not currently talking about any of their employers going away.
In fact, the Architectural Billings Index put together by the AIA has increased each of the last 4 months and “New Work Inquiries” portion of the index is improving as well. And to be sure, the early signs of improvement in the US economy, especially job growth, is an underlying positive. But with the concerns I cited above, and the total lack of pricing power, any improvement in our business will be tempered.
In my opinion, while there have been some improvements this year, it will continue to be uneven and difficult. We will continue to see our own “flight to quality” – as more clients feel comfortable spending again, they only want to do so on what they think are the best services and products. Full disclosure: there may be a conflict of interest given what sort of work we do (if you share my opinion of our work that is!). But, basically clients will continue to insist on getting top-value for each of their dollars spent.