DFS is trailing a small-format store as it turns its attention to urban centres, but is there space in the market for a small store?

How willl DFS' small format stores perform?

At just 2,500 sq ft, the upcoming DFS store will be dwarfed by the retailer’s traditional stores, which are 20,000 sq ft on average.

DFS is not the first furniture specialist to trial a city-centre store and is taking a leaf out of IKEA’s book, which is trialling a new small-format store design in Germany.

Independent retail analyst Nick Bubb believes such a move makes more sense for Ikea due to the goliath size of its stores, which can be up to 200,000 sq ft in size.

However, Bubb says that while he would be “surprised” if the small-format DFS stores become a large chain he believes it is a case of “nothing ventured, nothing gained”.

“Consumers are generally looking for more convenient locations and DFS is trading off dominance in terms of size and ranging for convenience,” says Bubb.

A prospectus put out by DFS for its impending IPO reveals it is aware of the challenges it will face by expanding its store portfolio.

“Historically there has been significant competition among retailers for desirable store sites, which may impact the speed with which the group can locate new store sites and increase the rents payable for such new stores,” reads the prospectus.

Managing to secure premium sites will be key with Bubb pointing out the initiative will be pointless if the stores are tucked away from the main drag because “you need to drive a lot of business to justify the rent”.

If flagship sites are successfully secured, Verdict retail analyst Matt Walton believes the smaller-format stores will be integral to targeting the more affluent shoppers it is increasingly targeting.

“For the last few years DFS has definitely been after a more affluent shopper. It has changed the message of advertising campaigns, bought Sofa Workshop and Dwell, so the small-format store will increase awareness of the DFS brand among that type of shopper,” says Walton.

In the crosshairs of John Lewis

On the flip side, Walton believes that as well as attracting a new type of shopper, DFS’ new strategy will also put it “in the crosshairs of John Lewis”.

Walton argues that DFS will struggle to wrestle affluent shoppers from John Lewis, the darling of the English middle classes.

“While DFS does allow customer to choose from a range of colours and feet on its sofas, it does not have the same level of customisation as John Lewis with its ‘Any Shape, Any Fabric’ offer,” says Walton. “This ability to create a more bespoke piece will resonate with the more affluent shopper that DFS is now targeting, making it harder to encourage customers to buy from them.”

The small-format stores will not allow DFS to try and lure in John Lewis shoppers in city centres, but will also help it steal market share from independent retailers that are the preserve of market towns.

DFS’ prospectus reveals the idea behind the roll-out of smaller-format stores between 2,000 and 5,000 sq ft is to “target urban areas and small market towns to capture further share from local independents”.

Walton believes the stores will also provide DFS the opportunity to roll out the personal shopping-style experience it offers in Scotland, nationwide.

Meanwhile, Walton proposes that issues around the limited range that DFS will be able to display in its small stores will be overcome through equipping staff with tablets to enable them to show customers the company’s full range.

DFS’ new small-store format will be watched closely by other big-ticket retailers and the pressure will be on management to show they provide a decent return on investment.

With the float coming up, there will be less margin for error as investors clamour for quick results.