Unfortunately for retailers in the home sector, 2026 will likely look an awful lot like 2025.
The category experienced a surge in demand at the onset of the pandemic as consumers sought ways to make their homes more conducive to their changing routines. While it offered a temporary financial boost, broad economic uncertainty caused many consumers to pull back on discretionary spending, leading to a decline in the high-ticket purchases that much of the home sector is known for.
The category has consistently seen year-over-year sales declines, according to the U.S. Department of Commerce’s monthly retail sales reports. While the release schedule is still delayed due to the government shutdown, the most recent report on January’s retail sales shows the home sector was the only category to see declines from the year-ago period of the sectors tracked by Retail Dive.
After a pandemic-induced surge in demand, the home sector has faced declining sales
The success of home retailers is largely tied to the housing market, which has been sluggish at best in recent years. Paired with weakened consumer confidence and ever-changing tariff policies, retailers in the space are trying to figure out how to best market to consumers.
“Consumers are holding on to their money right now,” Michael Brown, partner and Americas retail leader at Kearney, said. “We're at a plateau — we're kind of stuck at that plateau — and it's going to take some big movement in the economy to get things going again.”
A housing market ‘stuck in neutral’
As was the case over the past few years, the weak housing market — driven by a lack of inventory and elevated interest rates — poses one of the biggest threats to the home sector this year.
“The housing market is just stuck in neutral,” Zak Stambor, principal analyst at Emarketer, said. “By and large, just few people are moving, and the lack of housing turnover means there's a smaller-than-normal market for home goods.”
“It's the uncertainty that's really driving the hesitation on the consumer side — where they should go, when they should buy, what they should buy in this market."
Michael Brown
Partner and Americas Retail Leader, Kearney
Existing-home sales in January fell 4.4% year over year and 8.4% from the previous month, according to a February report from the National Association of Realtors.
Low housing turnover is also causing homeowners to delay some projects they might have otherwise undertaken to prepare a home to sell.
“It's the uncertainty that's really driving the hesitation on the consumer side — where they should go, when they should buy, what they should buy in this market,” Brown said.
The Trump administration’s sweeping tariff policies have added to that uncertainty and roiled furniture supply chains that already faced challenges during the pandemic.
The sector-specific levies were implemented under Section 232 of the Trade Expansion Act of 1962 and fell outside of tariffs the Supreme Court ruled against last month. Section 232 allows presidents to use their authority to impose tariffs on imports deemed a threat to national security.
In October, the U.S. implemented new tariffs targeting the home and furniture sector. Softwood timber and lumber imports incurred a 10% tariff rate, while upholstered wooden products like couches and chairs incurred a 25% rate, and kitchen cabinets and vanities also incurred a 25% rate. The Trump administration plans to increase the rates to 50% for cabinets and vanities, and 30% for upholstered furniture.
Companies across the industry have been working over the past year to diversify their supply chains and shift production to countries less impacted by trade policies.
“A lot of these companies fall into some real target zones for the administration,” James Gellert, executive chair of RapidRatings, said. “A lot of the furniture companies, a lot of the home goods retailers are importing from China, and China, of course, is one of the administration's principal targets for trade action.”
The constantly changing trade policies have followed “a haphazard pattern,” according to Stambor, making “it really hard to make systemic changes if you don't know what is in place today will be in place tomorrow.”
“It's difficult to make sizable adjustments to the way that your business operates. These are big shifts in the way that these companies operate, if you need to shift your suppliers, if you need to adjust your sourcing, if you need to overhaul your overall supply chain,” he said. “These aren't things that you can just change on a dime.”
Consumers shift spending
While consumers feel the pressure right now, they haven’t stopped spending entirely.
Ikea’s customers are forgoing larger projects like kitchen or bathroom remodels and are focused on smaller projects, particularly around home organization like wardrobes and custom closets, according to Casandra Dominguez, head of consumer insights at Ikea U.S.
Homeowners are “looking to make improvements that they can afford — so maybe a lower-ticket item — that is going to make them feel more comfortable at home,” she said. “We're seeing less people moving so they're having to invest in their current home to make it fit more with their current life.”
For many consumers, their “discretionary income is not what it was,” causing many to focus on buying what’s essential, according to Joe Derochowski, home industry adviser at Circana. That’s why the sector is seeing a lift right now from products that were bought during the pandemic hitting the replacement phase, he said.
“In strong business cycles, mid-tier retailers can ride category growth. In weak cycles, retailers without a clear value proposition or differentiation get exposed."
Zak Stambor
Principal analyst, Emarketer
For Ikea, the retailer is focused on making products more affordable to customers, particularly when there’s economic uncertainty, Dominguez said.
“This is actually why Ikea tends to grow during recessionary periods … when consumers are seeking value,” she said.
It’s also one of the reasons the retailer sees opportunity in its Buyback & Resell program. In addition to supporting its sustainability efforts, the program can also make its products more accessible to consumers.
“We are definitely seeing within the category that thinner wallets are getting priced out, given the current economic situation, which is part of the reason why we're focused on programs like Buyback & Resell to ensure that the many can still afford to buy at Ikea,” Dominguez said.
When consumers start to feel pressure on their wallets, it’s even more important for retailers to lean into those qualities that make them stand out, Stambor added.
“In strong business cycles, mid-tier retailers can ride category growth. In weak cycles, retailers without a clear value proposition or differentiation get exposed, and those shortcomings can make them very vulnerable to swings in the market,” he said. “If you're not the cheapest, you're going to lose on value. If you're not the most distinctive, you're going to lose to those with premium positioning or more distinctive positioning. If you don't have the broadest selection, you're going to lose to a marketplace that has a wide range of offerings. It's challenging to operate in the middle.”
Restructurings ahead
The sector has experienced some bright spots in recent months.
Bob’s Discount Furniture filed for an initial public offering at the start of the year, with plans to more than double its footprint by 2035. Ikea is continuing to expand its store fleet throughout the U.S. And Wayfair recently posted its first annual revenue gain since the pandemic.
But it also follows a year where other retailers within the home sector filed for bankruptcy, including At Home and American Signature Inc., which runs its namesake banner and Value City Furniture.
And more restructurings are likely ahead for 2026.
“I would expect to see some more bankruptcies this year overall,” RapidRating’s Gellert said. “We will see a higher bankruptcy rate this year than we did last year, and last year was pretty high.”
RapidRatings assesses a company’s near- and medium-term financial health. A Financial Health Rating below a 40 is considered at least a “high risk,” while a Core Health Score below a 40 is considered to be at least in “poor health.”
Home retailers' risk of default
Wayfair, which has seen an uptick in sales and touts the benefit of its marketplace model in the face of tariffs, is still vulnerable. As of late February, the online home retailer is still within the “high risk” category. And, Sleep Number remains a “very high risk.”
Comparatively, Williams-Sonoma has a very low risk and Ethan Allen has a relatively low risk of default.
Home retailers' medium-term health score
“The market will re-sort, and I think it's largely just due to this challenging, volatile macroenvironment,” Emarketer’s Stambor said. “I think the strong will get stronger. I think the weak will get weaker. Some will likely end up restructuring, and some will undoubtedly disappear.”
