New Economic Realities   //   March 14, 2024

A wave of acquisitions is hitting the DTC home category

Mass consolidation is sweeping through the home category.

Just last week, Ashley acquired Nectar and DreamCloud owner Resident Home for a reported $1 billion. Interior design company Havenly announced in February that it was buying home decor startup The Citizenry. Luxury design and furniture company Vesta acquired furniture rental companies Fernish and Feather in November to create a DTC furnishings group.  

The home category has had a tough couple of years after experiencing high demand during the pandemic. Home sales took a 30-year plunge in 2023 as mortgage rates rose, according to The National Association of Realtors. The sales growth in the home category is also expected to lag over the next few years. Data from eMarketer indicates that sales for ​​furniture and home furnishings will grow 3.4% in 2024, 4.1% in 2025 and 3.3% in 2026.

Direct-to-consumer brands, in particular, have been an attractive target for acquisitions. Many of these brands are looking to expand their reach and acquire the digital expertise of these DTC brands, said Suzy Davidkhanian, vp of content for retail and e-commerce at Emarketer. She added that many younger brands struggled to keep up the pace of sales growth after the surge of demand during the pandemic.   

“The ability to scale a digitally-native brand without any wholesale partners is very hard, and it’s hard to scale some of the original DTC brands as well because they’re not selling in droves,” she said. “The digitally-native brands have a really tough time when it comes to keeping up with some of the expectations that consumers have.”

Now larger players are seeking growth by acquiring these smaller brands. Vesta previously told Modern Retail that it is planning to expand Fernish and Feather to other mass market areas to better support customers wherever they move. At the time of the interview, the companies were available in parts of southern California, Seattle and New York City.

“It came down to a build versus buy decision,” Vesta co-founder and CEO Julian Buckner told Modern Retail in November. “Were we going to launch our own, non-Vesta mass market brand and start it from scratch? Or, there are these two companies that have amazing customer service and a lot of brand recognition and were best in class.” 

Launching an entirely new brand or product line can be complicated and risky. But by acquiring an existing DTC brand, legacy furniture brands can benefit from the existing brand recognition and customer data, said Sudip Mazumder, North America retail industry lead for Publicis Sapient. He added that these DTC brands have also developed a reputation for being aspirational brands, which younger consumers gravitate toward.

“The bigger furniture retailers are starting to see that hey, this is a new breed of customer that we need to go after,” said Mazumder. “These aspirational brands are certainly going to help fill out their portfolio.”

Resident’s portfolio of brands appeals to a range of demographics. DreamCloud, for example, positions itself as a luxury mattress company, while Nectar is an affordable alternative to its sister brand. “The idea is to have products that resonate with the consumer across the entire furnishing life cycle of a home,” the company’s co-founder Eric Hutchinson previously told Modern Retail.

Ashley previously told Modern Retail about its desire to attract younger shoppers through remodeled stores and live events. Its transaction with Resident would be mutually beneficial, Ashley said in the acquisition announcement. Resident has deep knowledge of e-commerce and data science. Meanwhile, Ashley has 1,125 physical stores in 67 countries.

Similarly, Havenly acquired The Citizenry “as part of its ongoing efforts to build a collection of home brands and technologies that appeal to the next generation of shoppers,” the company said in a press release. Havenly said it is building a design-led ecosystem that would give shoppers access to design expertise as well as furniture. In addition to The Citizenry, the company also acquired DTC home brands Interior Define last year and The Inside in 2022.

However, growing through acquisition can still be risky. Mazumder said that brands must still ensure that the brand their acquiring still fits their portfolio. 

“A very strategic fit is going to be critical for a lot of these retailers who are going in and trying to acquire these candidates,” he said. “If they’re trying to buy another company just because of the technology fuel, there are other ways to get to that technology as well.”