Homeware and furniture retailer Dunelm’s total sales are 43% higher than they were pre-pandemic in the first half of 2020. So what is it doing to deliver growth when its rivals have struggled?

Home and DIY has been on a rollercoaster. Retailers in the sector have had to balance rocketing demand while people rushed to update their homes during lockdowns, but when the fresh coat dried and the world opened up again, the boom slowed.

Now, during a cost-of-living crisis, shoppers looking to spend thousands on home improvements and expensive furnishings are becoming harder to find than tartan paint. 

It is this volatility that resulted in retailers following straight-line economics, such as Made.com, being struck out of the market. But Dunelm has managed to secure serious sales growth and increased its number of active customers by 5.7%.

While Dunelm’s profits have taken a hit due to the multiple headwinds facing the category and retail more widely, there are three areas where its focus is paying off.

1. Prices

With such strong margins, Dunelm has made the decision to hold its prices and shield shoppers from some of the inflationary pressures that are bearing down elsewhere.

This strategic decision has been crucial, as the economic climate has changed the way people view how they are spending on their homes. 

“As consumers cut back on spending after an expensive Christmas, value for money will be key to consumers,” says GlobalData senior retail analyst Emily Salter. 

”Particularly as consumers may wish to buy lower-ticket items impulsively if cutting back on more expensive items.” 

Dunelm SS23 Artisan Homewares

Dunelm’s range includes lower-priced homewares for consumers avoiding big-ticket spending

According to Retail Week Prospect lead analyst Wendy Massey, Dunelm nailing its colours to the mast with its pricing and offering a ’good, better, best’ model has been a masterstroke. 

She says: ”Dunelm was really strong online during the pandemic and won a lot of new customers at that point, and it would appear those customers are still shopping with them.

”Having three levels of product gives consumers scope to refresh their homes at a very minimal cost, compared to if they were buying it from a department store.”

Having a keen eye on prices for the types of products that will save shoppers money elsewhere, like warm blankets and heated clothes airers, has also paid off.

”The company’s product assortment has proven to be a winning formula as customers navigate through the cost-of-living crisis and the chilly weather,” says Edison Group director of consumer Russell Pointon.

“But Dunelm needs to maintain a keen focus on catering to budget-conscious shoppers while also providing good value to prevent them from gravitating towards other budget homeware retailers.”

2. Furniture 

Dunelm’s move into furniture only occurred in the last few years but it has addressed a weak spot in the business where it was vulnerable to the might of a global retailer like Ikea.

Though it has acknowledged that its market share growth rate has slowed, Dunelm has less than 2% of the market share in furniture at the moment, presenting a huge opportunity for growth in an area that is a natural step on from homeware. 

Dunelm SS23 Aldridge Chair

Dunelm has room for growth in the furniture category with its value-led offering

Of the 10,000 new product lines it has added to its site, a high proportion of the additions are in furniture, which will allow it to react to initiatives from the competition. 

It is not just online where it is moving towards furniture, as selected stores follow suit.

“Dunelm has renovated a number of their stores to put in bigger furniture departments so customers can preview the whole range,” says Massey.

”Given the pressure on spending right now, value-led furniture has got to be a decent area to be in.”

3. Digital 

Investing in its digital capabilities has cost Dunelm £17m but the payoff is that it has allowed it to trial a range of digital services like bookable consultations and live chats. 

”This investment isn’t just an online thing,” says Massey.

”It’s the whole digital ecosystem. It’s technology that combines the advantages of physical stores with the convenience of online and it includes investment in the stores to make them more service-oriented and integrated with digital.” 

It has brought its expanded furniture offering to life for online shoppers, as video calls allow staff to show them around the products on display. 

As it is now increasing its offering of big-ticket items such as sofas, it has also used the investment to look at new payment options, which include instalments with PayPal and a trial of a long-term credit offer is en route to facilitate purchases even if times remain tight.  

Although the profit drop this week may have caused people to gasp, Massey says as long as Dunelm sticks to its value principles, it has no cause for concern.

She says: “Dunelm’s profits are still really elevated. Pre-tax-profits went down 16.6% but that still gives it a margin of over 14%, which is really, really good for the sector.

”They struggled in the first quarter because that was a period last year when stores were reopening and customers were returning, so it was against very strong comparatives. I’d say that’s positive. Dunelm is a really solid business and it will do well.”

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