The homewares and furniture sector has faced trying times, and difficult trading conditions have hit retailers unprepared for change. Anna Richardson Taylor speaks to those who see opportunities for innovation and growth.

A perfect storm of downward pressures has buffeted home specialists relentlessly over the past few years, undermining or destroying growth and throwing up future challenges.

Homewares, for example, experienced 8.6% growth in the four years before the recession, while during the main recessionary period of 2008 to 2011 the market shrank by 6.2%. By 2015, growth is set to resume, but will be much more moderate at 3.3%, according to research by Conlumino, commissioned by Webloyalty.

The recession and resulting slump in the housing market, combined with the proliferation of digital retail channels and resulting change in consumer behaviour, has been particularly unkind to the sector. According to Conlumino, the market can expect nearly 4,000 specialist home shops to close over the next four years, with a loss of 14 million sq ft of selling space.

On a broader level, the nature of buying products for the home is changing. Before the recession, 69% of consumers agreed that they tended to decorate a whole room in one go, while this year that figure has fallen to just under 38%. Greater financial constraints have meant that many consumers are taking a more piecemeal approach to decorating, according to Conlumino managing director Neil Saunders.

It is a trend that retailers have been noticing. Dwell managing director Aamir Ahmad says: “Consumers are reluctant to purchase so you have to work harder than ever. As the housing market has collapsed, there’s less urgency for people to make a purchase today, so to try to get them over the line you have to work harder.”

The proliferation of shopping channels has also had a marked effect. Ten years ago, when making a major purchase for the home, the majority of consumers used just one or two channels, today almost half use three or more. This multichannel behaviour has in turn lengthened the purchase process. According to the research, compared with 10 years ago the process of buying a big-ticket home product now takes more than five days longer and consumers spend 64% more time on purchasing.

“Changing environments and economic conditions have undoubtedly made consumers more demanding,” says Furniture Village buying and development director Malcolm Walker. “They are seeking out better value, better service and better quality. They will go wherever they can to find these qualities.”

Natural selection

Some argue, however, that the losers over the past years would have fallen by the wayside in any scenario. “It has historically been an old-fashioned sector,” says Ahmad. “The recession has in some ways accelerated a natural process. If you look at the overall market decline, a lot of that has been from businesses that have had an old-fashioned model. If you don’t design or develop your own products, don’t trade well on the internet and don’t have a slick service operation, you’re not going to do well.”

At the other end of the scale, that triumvirate of priorities – good product range, a seamless multichannel model and strong service – has allowed many home retailers to innovate and grow.

John Lewis buying director Paula Nickolds says: “In many respects, tough times sort the men from the boys and it’s an opportunity to experiment and innovate, even though times are tough.”

John Lewis has been proactive in building on its heritage in the home category with a comprehensive multichannel strategy, while continuing to invest in new formats, such as At Home stores – the latest of which is due to open in Ipswich in a few weeks.

A reputation for service – and services – has underpinned John Lewis’ success, Nickolds says. “Service and services – whether home design, click-and-collect or gift list compilation – remain important in the sector. Providing easy ways of shopping and services you can trust has always been part of our DNA, but is perhaps even more important today,” she believes.

Dunelm Mill chief executive Nick Wharton also highlights the importance of service. He says that it marks out the specialists from the generalists. The retailer’s latest financial figures underline his point – Dunelm’s pre-tax profit in its last financial year surged 15.1% to £96.2m, while first-quarter like-for-likes increased 3%, it reported this month. “There is a role for specialists in most markets,” says Wharton. “The key is to justify that specialism and deliver it, and that has to be through services and service level and expertise.”

That needs to be underpinned by range and choice, Wharton maintains – one of Dunelm’s key draws. “Dunelm’s advantage is in the universality of the brand in that we have a very wide choice of product – in the departments we serve, and in the range of price points.”

DFS chief executive Ian Filby also highlights the importance of range, citing its recent launch of Country Living and House Beautiful collections in conjunction with publishing company Hearst Magazines.

Nickolds says John Lewis has been working on product development. “You have to provide customers with things that are particularly stimulating, and appeal to wants as well as needs,” she says. “We have to make sure our assortment is irresistible.”

Browse in store, buy online

As in many other sectors, it is the clever use of all available retail channels that provides the most significant opportunities for retailers. And by the nature of big-ticket purchases in the home sector, multichannel is arguably even more important, because customers frequently combine channels so that they can leisurely research online and get in-store inspiration and expertise.

“We are very multichannel,” says Feather & Black managing director Adam Black. “I don’t mind if the customer wants to browse in store and shop online, research online or shop in store, or wants to phone the order in – we offer the same for each customer.”

“Those retailers that truly embrace omnichannel are ensuring that clear information is available through a raft of applications used by customers,” says Bathstore chief executive Gary Favell. He says that at present the retailer is working through a complete brand review and the customer journey to develop its multichannel model.

Dwell, meanwhile, has a head start on many in the multichannel field, having realised its importance more than eight years ago. The retailer is “all about being as innovative as we can in terms of design and being as up to date in terms of online – we have to make the multichannel shopping experience totally seamless”, Ahmad explains. Around three quarters of Dwell customers use at least three channels to shop, he points out, mainly using a combination of email, in store and telephone.

Dwell now offers multichannel services including click-and-collect, and an integrated software system means that the retailer can access saved online baskets in store, or in-store staff can augment online purchases.

DFS also views multichannel as “a fantastic opportunity”, says Filby, and the retailer is investing in its multichannel strategy. “It is a really important driver of our business,” he says. “The web is our live catalogue which we can change in real time, and nearly three quarters of our in-store customers have been online first before they come in store.”

Filby says that the DFS website attracts 1 million visitors a month, and nearly half of all upholstery customers browsing online in the UK visit the site.

The retailer has also just launched an iPad app with a room planner function that allows customers to picture a new sofa in their own rooms, and it has been deploying iPads in store to allow sales staff to help customers plan their purchases. “It’s really important that we’re investing in multichannel significantly,” Filby says.

Evolution of stores

But with the inevitable integration of different sales channels, the store will have to evolve too. Conlumino forecasts that online will take a larger share of the market over the next five years, and there is a stark contrast in the growth figures of the two channels. In the furniture sector, for example, online sales are predicted to grow by 45% by 2015, while sales at stores will shrink by 9.7%. Saunders believes that shops are likely to become places of exploration and inspiration, to stimulate the consumers into buying.

Ahmad says that retailers “don’t need to have as many stores, and you can have them geographically spread”. But a multichannel approach also allows for more flexible formats. Dwell’s store in Bluewater, for example, is 3,500 sq ft. “Most wouldn’t be able to afford that space,” Ahmad says, because they would not be able to achieve high enough sales densities with a relatively small range. But the ability to sell the whole online range through such formats, adopting a connected product view, makes sense, and can leverage the high footfall and visibility of such locations.

Wharton has no doubt that multichannel will affect Dunelm’s property requirements in the future. “It impacts the size of the catchment of the store and therefore the number of stores that one requires,” he explains. “The benefit that we have is that we’re still growing so we can factor that into our thinking.” The retailer opened 14 shops last year and is likely to open 12 next year. “Our last market scan indicated that we will need, in a multichannel world, 200 stores to cover the UK as we would wish to,” he adds.

Lakeland marketing director Tony Preedy, however, doesn’t subscribe to the prevailing wisdom that the number of stores will necessarily shrink. Presently trading from 60 locations, Lakeland expects further expansion. Neither does Preedy believe that shops will become pure showrooms, and he stresses the increasing importance of stores in the future. “There is certainly an argument that stores have an important role to play in creating the brand and creating an image in the mind of consumers,” he says.

Lakeland is experimenting with new store layouts to bring product displays to life. Having opened the first new-look store in Brighton this year, it is too early to gauge its impact, says Preedy, but the experiments certainly chime with sentiments across the home market.

“What we’re not seeing is the migration of all purchasing online,” observes Saunders. “The customer needs trust as well, and a physical presence helps with that. Stores really matter.”

Measuring the market

  • The recession has not been kind to the home retail market and many categories have suffered. Homewares shrank by 6.2% during the main recessionary period of 2008 to 2011.
  • Before the recession, 69% of consumers agreed that they tended to decorate a whole room in one go. In 2012 that has fallen to just under 38%.
  • Almost half of customers making a major purchase for the home use three or more channels.
  • The process of buying a big-ticket home product takes just over five days longer than 10 years ago, and consumers spend 64% more time on purchasing.
  • By 2015, about 4,000 specialist home shops are predicted to close.
  • Online furniture purchases are forecast to increase by 45% between 2011 and 2015, while sales from physical stores are forecast to decrease by 9.7%. For electrical goods, online sales are predicted to increase by 11.2% and physical sales to decline by 19.3%.
  • Despite the decline in sales, nearly 80% of consumers still make some of their home product purchases in store. That is especially true of big-ticket items, because consumers like to see what they are buying before committing to expensive purchases.
  • Stores are likely to become places of exploration and inspiration.
  • Home retailers need to create a seamless multichannel experience without inconsistencies.

Source: Conlumino research, commissioned by Webloyalty