Furniture Furnishings Stores UK

Furniture and Furnishings Stores in the United Kingdom

 

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Headlines

·         Sales of furniture and furnishing stores fall 1% to just under £11 billion in 2008

·         Falling confidence makes consumers less likely to spend on expensive household items such as furniture, especially as prices of basics such as food increase

·         IKEA remains leading retailer of furniture and furnishings in UK, further growing its share to 13%

·         Value sales of furniture and furnishing stores expected to decline by annual average of around 1% over forecast period

Overview

·         With consumer confidence declining, sales of furniture and furnishing stores dropped notably in 2008, falling 1% to £10.7 billion. This was despite continual discounting and promotions implemented by retailers, many of whom went ahead with planned outlet openings. Demands on household budgets increased generally, meaning that furniture and furnishings, which are usually big ticket items and often considered luxuries, began to suffer. Volatile summer weather was partly responsible for a drop from 2007, as shoppers became reluctant to make the long trips to retail parks. In the face of this, retailers battled to attract people to stores by keeping prices as low as possible and offering more discounts than ever.

·         2008 was the first year since 2005 to see a drop in value sales in the furniture and furnishings environment. Aggressive discounting can cause temporary spikes, but does not represent a longer-term solution for retailers. 2008’s fall was due to consumer worries regarding inflation and an economic downturn, as well as fears related to job prospects, household finances and debt. Large items bought on credit are not prioritised during periods of economic uncertainty. This category also has strong links to the housing market, as people will buy a range of products to furnish a new home purchase, and the slowing house market towards the end of the review period contributed to the negative performance. Despite the government’s efforts to jump-start the housing market, many analysts believe it will take some time to pick up again, and consequently the furniture and furnishings environment is not expected to see high growth in the short term.

·         2008 saw the closure of 155 UK furniture and furnishing outlets. This was in line with the trend of the rest of the review period, which saw the total number of UK outlets decline every year since 2003. Although values sales generally are down, this is probably also due in part to some consumer switching. Large chains such as MFI and Habitat closed stores, while IKEA – dominant in terms of value sales – opened two outlets. Carpetright closed 14 stores over 2007-8, further supporting the view that demand for large, expensive and permanent fixture furnishings such as carpets, beds and wardrobes declined due to the falling housing market, whereas cheaper and smaller items such as those offered by IKEA managed to see sustained demand.

·         IKEA Ltd retained the lead in terms of value sales in 2008, increasing its share two percentage points to 13% in the UK furniture and furnishings environment – the strongest share gain of the year. This was largely down to the opening of two new large stores in Belfast and Coventry, at a time when many retailers were being forced to close them, bringing the chain’s total number to 17. This may sound slight compared with Carpetright’s 460 outlets, but IKEA’s larger store size means that it still has the highest selling space of any chain in the UK, with a 9% share.

·         MFI Group suffered the greatest loss in UK value share in 2008 falling half a percentage point from its 5% position of 2007. This was despite its implementation of numerous discounts and continuous promotions and voucher schemes, as well as price-matching against its competition. After a serious revenue downturn over 2005-6, the group sold its retail arm to Merchant Equity Partners (MEP) in September 2006, blaming a rapidly changing marketplace. However its business is still struggling – low incentives for staff and an apparently generally de-motivated workforce have also caused problems. The company was rumoured to be entering a more drastic phase of restructuring, as two senior directors of HILCO, the turnaround specialist, joined its board.

·         The furniture and furnishings environment is highly fragmented. In addition to the large chains there are also many smaller private retailers selling second-hand and homemade furniture. These independent operators actually account for by far the largest share: over 90% in terms of outlet numbers and almost 70% in terms of value sales. 2008 saw the number of outlets drop below 20,000 for the first time in the last decade. This is attributable to the rise of IKEA, whose huge stores are reducing demand for smaller independent outlets. A flagging economy and a falling retail environment have made it even more difficult for smaller retailers to maintain sales – as their margins are tighter they are the first to close

·         Undeniably the environment changed over the review period, but it could be said that this was largely brought about by IKEA, which has forced the UK to conform to its foreign methods. The company has preached its philosophy of good products with low price tags worldwide. The UK is IKEA’s third-largest market, behind only Germany and the USA. Globally, the brand’s sales increased consistently over the last decade, often against the trend of other retailers. A combination of convenient, reliable and attractive products at affordable prices has proven a winning formula, as has the strategy of fewer, larger stores than its competitors. The UK economy and the housing market look bleaker than in the rest of Western Europe, which makes it likely that the furniture and furnishings category will perform at a comparatively lower level than other nearby markets in the short to medium term.

·         In the medium term retailers offering a range of more affordable, smaller items are likely to fare better as big ticket items such as beds and sofas stall along with the housing market. Those retailers with a lack of diversity in their catalogues are likely to suffer most. Brands such as Carpetwise, DFS, Land of Leather and Magnet primarily concentrate on single product ranges, whereas MFI and IKEA have far wider ranges. In this environment there tends to be little innovation, which is why some of the major players have found their businesses stagnating in recent times. The forecast period is likely to see a continued slowdown for those retailers who fail to develop their own newer models of business to combat player such as IKEA. Demand is likely to continue to fall – but within the furniture and furnishings environment it may be possible for different product offerings and augmented catalogues to give this category a new burst of life.

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