After mixed results from furniture retailers DFS, Eve and ScS, Retail Week looks at how the big-ticket furniture retailers are performing and what their prospects are in uncertain times.

SCS is preparing for a potential IPO

ScS says its recent like-for-like order intake has declined

As retail’s golden quarter gets under way, furniture and big-ticket homeware retailers are preparing for their own high season that kicks in just after Christmas.

Following a difficult few years for many furniture groups, a suite of results over the last few weeks indicates – on the surface at least – that the sector is well-upholstered.

Sofas market leader DFS, for instance, reported a 31.1% increase in pre-tax profits to £50.2m, and earnings at competitor ScS advanced 4.6% to £14.3m.

However, furniture groups are not sitting comfortably. While the financial years recently ended brought improved performances, there are concerns the nicely plumped up cushions may soon start to lose their bounce.

Despite its strong showing, bellwether DFS was cautious about the current financial year, when uncertainties such as Brexit may take a toll on shoppers’ willingness to splash out. And annual house price growth, typically an indicator of the sector’s performance, slowed to its lowest rate in more than six years in September, according to Halifax data.

DFS chief executive Tim Stacey noted in the results: “Recent trading conditions have reflected the increasingly uncertain political and economic backdrop. We have seen reduced levels of footfall across all our brands, which we attribute to lower levels of consumer confidence and housing transactions, the two key drivers of the upholstery market.

“Although we have had some success in driving conversion to mitigate this trend, we note that over the first 12 weeks of the financial year, order intake levels have been subdued.” 

His words were seized upon as a gauge of the wider market. As Peel Hunt analyst Jonathan Pritchard says, when “DFS sneezes the rest of the sector ends up in hospital”.

ScS also warned that it had faced “a more challenging start to” the new financial year. Its like-for-like order intake fell 7.6% between July 28 and September 29 – so have the germs started to spread?

Difficult prospects

The unresolved issue of Brexit, contributing to volatile consumer confidence, is one cloud looming large on the horizon. However, recent tougher trading, it should be pointed out, has been driven by that perennial retail disruptor, the weather.

ScS chief executive David Knight highlights mother nature’s role. “The thing we hate is very bad weather, but even worse is very good weather,” he says.

The new financial year started soundly, but very hot weather falling over the August bank holiday weekend slowed business down.

“I went down to a retail park and getting parked was so easy – I don’t think we lost business to anyone else other than ice-cream sellers,” Knight explains.

“We’ve had a lot of elections and the referendum, and what we’ve seen is that we get an election lull”

John Stevenson, Peel Hunt

Peel Hunt analyst John Stevenson agrees the hot weather affects consumers’ plans to buy big-ticket items.

“There are key trading periods for the upholstery guys and the August bank holiday is one of them – of course, it was a cracking weekend, it was nice hot weather and the last thing anyone wants to do is buy big-ticket,” Stevenson explains.

However, weather acknowledged, the UK’s political upheaval – including the possibility of a general election – and lack of clarity about what Brexit may bring is what is focusing minds.

Carpetright chief executive Wilf Walsh, for instance, says the opportunity to secure more sales won’t arise until “a Brexit deal is finally announced”.

And Topps Tiles blamed its fourth-quarter sales decline on the political uncertainty affecting consumer confidence. Chief executive Matthew Williams expects this to “remain a feature until there is greater clarity”.

Peel Hunt’s Stevenson says: “If you look back over the last few years, we’ve had a lot of elections and the referendum, and what we’ve seen is that we get an election lull.”

“If you look at the last general election, the month before sales were much tighter. The second the election was done there was almost a catch-up,” he adds.

GlobalData analyst Matt Walton says a no-deal Brexit is looking “increasingly likely”, putting more strain on consumer confidence.

“Consumer confidence is very difficult to read at the minute. We had the initial Brexit deadline which has now been pushed back to the end of October and heightened prospects of a no-deal Brexit,” Walton says.

Stevenson says DFS is in a solid position to weather the storm, but it will be weaker players who are “under significantly more pressure as the market gets tougher”.

DFS Dwell Oxford

DFS is cautious about the current financial year

A storm is coming

“Peak for upholstery is basically Boxing day to February, and if you’ve got a general election or a Brexit deadline, there is a genuine risk consumers will be distracted,” Stevenson warns.

ScS’ Knight agrees. “The big uncertainty for us has to be a general election and the uncertainty that will bring.”

Knight remains positive, however, that there is light at the end of the tunnel.

“Once it [Brexit] is done, I think the consumer will return. If you look at our performance over the last four years where there have been many conversations around the consumers feeling pretty negative, the reality is why wouldn’t we see a return to positivity?

“We know we’ve got the right people and product, we know we’re working damn hard to ensure the experience is excellent from start to finish.”

Staying relevant

With a wait-and-see situation, there are some things that big-ticket retailers can do to encourage those customers who do want to buy a new sofa.

“To have a differentiated offer is really important, and to have a really clear idea of what your customers want and how you communicate with those customers,” Stevenson says.

“Having the right offer, product and price point, what it is that your customers want and being true to that.

“If you look at the retailers who are struggling, they will say rental inflation, rates and so on and so on, but actually the thing is being relevant to the customer.

“The rest of it are symptoms of not being relevant,” Stevenson explains.

DFS’ Stacey says “there’s only so much you can mitigate against in terms of the political news and the impact on the consumer” and he is focusing on things such as variable costs to alleviate any topline shortfall.

“We must not lose sight of the long term”

Tim Stacey, DFS

“We’re looking at marketing investments to see what’s an appropriate level of marketing investment given the environment and what’s happening with the consumer,” he explains.

“We must not lose sight of the long term. It will be very easy to pull up all the drawbridges on various costs and investments, but that’s not the right thing to do for the long term. Our shareholder base and the board are very supportive of us continuing to invest in our strategy. We have to balance the short-term market pain with the long-term plans that we have.” 

One thing the market leaders such as Dreams and DFS are doing to stay relevant is offering customers a seamless online and offline journey – something that Stevenson says is “absolutely critical” and which Dreams boss Mike Logue seconds.

“It’s vital,” says Logue. “For over 80% of our customers, the journey begins online. However, the journey alters depending if customers are buying a bed for themselves or the spare room or for someone else,” he explains.

“The majority of customers buying for themselves wish to test for comfort in-store before they buy to ensure they have selected the right level of support,” Logue says.

Stevenson agrees and says: “DFS has a very high level of online sales of £160m-plus. Look at Dunelm – it’s been performing really well and has strong levels of trading.”

“If we look at the sector as a whole, store sales have gone down as online has increased. The pot hasn’t increased that much, they’ve just moved online.

“DFS’ active customer growth was 7% or 8% in-store and 27% online, so if you get it right the whole business should work together.”

The country is definitely not together. And the coming months are likely to mean furniture groups must be on top of their game, across all channels, to avoid falling about of bed.

What does the future hold?

Beyond Brexit, further change is likely in the furniture and big-ticket market. Changing homeownership patterns, such as renting accommodation and smaller living quarters, are affecting retailers and giving rise to new models.

Made.com is looking at experimenting with a furniture rental service in response to the “societal shift” in homeownership.

Chief executive Philippe Chainieux says: “People are now renting things, they don’t want to spend as much money if they are not somewhere permanent, but they do aspire to own nice things, so we are working out how to respond to that demand in a sustainable way.”

And Made is not the first furniture retailer to look at this unconventional option. Ikea revealed in March it would be rolling out a rental trial to 30 of its markets.

Clothing rental company Rent the Runway has also ventured into the homeware sector with a West Elm partnership offering its customers home furnishing bundles.

But not all new models work. The market capitalisation of Eve Sleep, for instance, has plunged from £140m to £7m as it has failed to deliver the promised disruption.