As the furniture industry reels from a dramatic drop in consumer demand, Lovesac overcame market headwinds to report 7.5% growth in revenue in fiscal year 2024, reaching $700 million from $651 million the previous year.
Lovesac’s
LOVE
advance is remarkable, given that furniture retail revenues dropped 5.7% in 2023 to $75.2 billion from an historic high of $80 billion in 2022. And the home furnishings retail sector continued to slide in the first quarter 2024 from previous year, according to CNBC/NRF retail monitor.
Lovesac’s topline performance is even more remarkable when set against its competitive set. RH
RH
just reported annual revenues were down 16% and Haverty’s were off 18%. Williams Sonoma’s Pottery Barn ended the year down 10% and its younger sibling West Elm dropped 19%. Arhaus bucked the trend with revenues advancing 5%, but still fell shy of Lovesac.
No Love From Wall Street
Yet Wall Street wasn’t happy with Lovesac’s results. Its stock price dipped from $24 and change on Tuesday before earnings to close just under $20 on Friday.
Despite a 17% gross profit improvement for the year, operating expenses rose 21% and net income dropped 10% to $24 million and it reported a 7% decline in adjusted EBITDA to $54 million.
In a statement, founder and CEO Shawn Nelson reassured investors that he has the company’s future well in hand:
“Interest in – and passion for – the Lovesac brand, from new and existing customers alike, continues to grow. We will fortify our momentum by doubling-down on what we do best: Strenghtening our unique omni-channel infinity flywheel, reinforcing our designed for life platform, investing in genuine innovation and making the strategic investments necessary to profitably scale our brand and business for years to come.”
But then the instant-gratification investment community isn’t big on big pictures, so I reached out to Nelson to have a big-picture discussion around his new book Let Me Save You 25 Years: Mistakes, Miracles, and Lessons from the Lovesac Story, published by Forbes Books.
And I, for one, believed him when he said, “Lovesac enters fiscal 2025 in a position of strength with a truly massive opportunity ahead.”
Different Kind Of Furniture Company
What confounds the investment community most about Lovesac is how different it is from traditional furniture companies. But that difference makes it such a compelling choice for its prime target customers – what Lovesac calls “young parent want-it-alls,” upper-middle income HENRY (high-earners-not-rich-yet) consumers aged 25 to 45.
From its beginning 25 years ago, Lovesac has been a youth-minded brand with Nelson creating beanbag chairs for his college buddies out of his parent’s basement. They were called beanbags though they were filled with foam not plastic beans.
As Nelson grew up, so did Lovesac. The original Sac beanbag chairs got bigger and softer and spawned ottoman “babies.” Sacs are still offered, although they bring in less than 10% of sales.
“We’re still called Lovesac even though we’ve escaped beanbags,” Nelson shared. “Our name is beautiful thing. If you hear it once, you’re not forgetting it. That’s powerful and it’s a name that can go lots of places”
The company’s current flagship is its Sactional line, a next-generation modular sectional coach with machine washable covers, that launched in 2006. The success of that innovation opened the door for branded showrooms in 2014, an IPO in 2018, and in 2021, Lovesac added surround sound embedded into its Sactionals, calling it StealthTech.
It operates an inventory light model with some 230 small strategically placed showrooms in close proximity to its best customer prospects. This year it will add another 30, as it sees a runway to more than 400 showrooms over the next five years.
Another advantage is Lovesac’s product line is focused, not spread over multiple categories, and it can deliver customized pieces within days, not weeks or months as typical for other furniture companies.
Besides its showrooms and direct-to-consumer online portal, Lovesac has partnered with Best Buy
BBY
and Costco for temporary shop-in-shop presentations. Last year Costco hosted pop-up roadshows in nearly 150 locations and this year it will increase its Costco presence by almost 50%.
The Forever Sofa
What makes Lovesac an authentically disruptive furniture company is its “Designed for Life” philosophy. Rather than designing furniture to suit the season’s color and style trends – to look good – Lovesac designs furniture with a greater purpose.
A couch’s essential function is to be the central piece of furniture in a room where people gather and relax. In other words, people can live their full and often messy lives with kids, pets and pizza parties on their Lovesac.
“Lovesac Sactionals stand up to life better than our competitor’s couches do. If you are going to invest so much in a couch, then Lovesac is a much more practical purchase,” Nelson observed.
Sactionals are designed to last a lifetime and evolve as the customer’s needs change, which they always will. Sactionals can be added to, subtracted from and reconfigured. The covers can be washed and replaced repeatedly.
Sactionals aren’t cheap – a loveseat for two starts around $3,000 – but the price is easily justified by its design flexibility. It won’t end up in a landfill and an added value is that all fabric used in its Sactional and traditional Sac products are made from 100% repurposed plastic bottles.
Sactionals bring in nearly 90% of company sales and generate significant repeat and add-on purchases. Lovesac acquired 155,000 new customers this year, adding to the 134,000 new customers the previous year. And they can be expected to come back and buy more. Repeat customers accounted for 43% of the company’s transactions during the recent fiscal year.
For example, last year the company introduced an angled arm and back component, a step up from its original flat back and side design. That enhancement brought customers back for a comfort upgrade.
And this year the company will enhance the embedded surround sound Stealthtech offering. Customers that choose StealthTech generate nearly three- times the average Sactional order value.
Even Bigger Long-Term Vision
Nelson sees great things in Lovesac’s future, as it has barely scratched the surface of its potential, holding only about 1% share of the total $41.7 billion couch, seating and chair addressable market. And its StealthTech Sactional gives it inroads into the rapidly growing $46.2 billion home audio market.
He plans to take the “Design for Life” philosophy into new categories shifting from a DTC business model to what he describes as a “Circle to Consumer” (CTC). Its fulcrum is designing other modular products that can evolve with customers’ lifestyles and that are built to last a lifetime.
The CTC model will be truly sustainable by eliminating waste at the manufacturing and consumer end of the product lifecycle. And it will help Lovesac continue to build long-term, ongoing relationships with its customers.
“We had the chicken before we had the egg. The chicken is the Sactionals; the egg is ‘Designed for Life.’ Now we will continue to invent ‘Design for Life’ products forever,” he boasted. And the company holds some 74 patents, proving it has the engineering competence to keep product innovations coming.
Influences
Besides serving as the company’s CEO and on its board, Nelson is Lovesac’s chief philosophy officer. He holds a Master’s degree in strategic design and management from NYC’s Parson, New School for Design and gives back as a graduate-level instructor there.
Nelson is inspired by the late Steve Jobs as a visionary entrepreneur and Apple as a design firm. And he has been mentored by Richard Branson.
After winning a $1 million prize on Branson’s The Rebel Billionaire show in 2005 – money he pumped back into Lovesac – he spent three months working at Virgin Atlantic and brought back what he learned there to Lovesac.
Designing A Different Kind Of Business
In his Let Me Save You Twenty-Five Years book, Nelson is very candid about the mistakes he made along the way, but as they say, you learn from from your failures than your successes.
“We probably could have gotten where we are ten years earlier, if I had known then what I know now,” he revealed.
“People get into business for a lot of different reasons. It’s all about how you’re wired and your motivation. Businesses can and should generate wealth, but for me, it has to transcend that: to become a force for good in the world beyond just being a money machine. It requires soul,” he continued.
His core idea is “to inspire humankind to buy better stuff so they’ll buy less stuff,” and he admits, “That’s a weird thing to hear from the CEO of a public company.”
“My calling is to use this corporate instrument to deliver products that are better because they were designed that way. And they may not be the cheapest, but even people on a budget will choose to afford them because they’re loaded with value.”
Nelson intends to do that with firm disciple – “We’re not international yet” – and to keep focused on creating the best. “There are companies a fraction of our size that have expanded in a million different categories. That’s not us.”
“We’re trying to build a brand that’s associated with the best stuff and if we do that, the natural outcome is sustainability,” he shared, as he envisions another twenty-five years or more ahead to realize his personal and company’s mission.
