Maturing market makes mark on future of home furnishings

Significant changes in the UK’s population profile will have a major impact on furniture retailers’ prospects over the next five years, according to a new report – Furniture Retailing in the UK – from retail analyst Corporate Intelligence on Retailing. Only those specialist chains that plan accordingly will derive the full benefit from the continuing shift towards an older population, as the proportion of younger consumers falls.

Households comprising those in the 30-to-60 age range will increase sharply as that population segment grows by some 1.4 million, or six per cent, by 2001.

These potential customers in middle-aged households are not only increasing in numbers, they have above average levels of disposable income. Nowadays they demand better quality products and services and also tend to become increasingly discerning as they grow older. At the upper end, those aged 50-plus commonly fall into the “empty nesters” category who, with their families no longer around, rearrange their homes and buy new, more expensive furnishings. Indeed, it has been these categories of consumers driving the recent robust gains in both the furniture and carpet markets.

However, Corporate Intelligence forecasts that while this will continue to be the case for the next few years, it is likely to be at reduced rates of growth. The new Government’s rapidly executed interest rate rise, and the prospect of more to come later in the year to offset possible inflationary pressures, coupled with weaker sales growth than last year, already mean lower increases for 1997.

Indeed, any further tightening of monetary policy including tax rises will inevitably have a negative impact on spending – especially for larger ticket items such as furniture and carpets, not least if current low- or no-interest terms begin to evaporate.

The spending fall-out from building society flotations and the like should, nevertheless, assist a reasonable increase in furniture and carpet sales this year, but thereafter it is expected that growth will decline and may even go into reverse early in the next century.

Against this background two diverging trends have already started to emerge. At the top end, the department stores and more upmarket but “populist” specialists, notably DFS, have outperformed the market. Courts has also accorded above average growth and is cannily nudging its offer upwards to capture more of these consumers.

Marks & Spencer has found a readily expanding and enthusiastic market for its home furnishings offer. Last week it announced 1996/97 sales growth running at 29 per cent in this category, taking the total to 258m (including VAT).

Meanwhile, mass-market retailers continue to experience inconsistent buying patterns, which – apart from anything else – is making it difficult for them to plan and control stocks. This is why a number of retailers, including market leader MFI, have continued to market aggressively and largely on price, while looking to evolve their offers in the medium term (in MFI’s case the Homeworks format is now being rolled out apace).

The new look and projected higher footfall is intended to allow MFI to change and improve deeply entrenched customer perceptions. So long as it remained a mass-market retailer, MFI was a classic example of an operation more vulnerable to the vagaries of the housing market than most, according to Corporate Intelligence. Although the company was already adapting its existing product range to be less reliant on this single factor.

Furniture and carpet retailing in the UK remains the most fragmented sector in non-food retailing. For example, the top five specialist multiple chains account for just a quarter of specialist furniture and carpet sales. There remain as many as 70 multiples with turnovers of 3m or above. In the DIY sector, by contrast, the top five control about 70 per cent of the market.

However, as a newer breed of market majors like DFS and Carpetright, plus aspirants such as UNO, MFI, Courts and the newly-merged H&C Furnishings, develop their networks, the sector will continue to become less fragmented and the balance will change, not least as more independents go out of business.

Of the carpet specialists, Corporate Intelligence expects Allied Carpets to gain market share in beds as well as carpets, as it pursues physical expansion. Similarly, the rapidly growing Carpetright has widened its opportunities by developing on more than one front, adding Carpet Depot and its Premier Carpets concessions, as it sets about raising its market share towards 30 per cent, from the current 12 per cent.

Of the furniture retailers, Courts is about to accelerate its opening programme, DFS has become one of the most successful UK retailers in any sector, though it is still far from nationally represented. While H&C Furnishings – the merged Cantors and Harveys operations – is aiming to have no less than 450 outlets within a few years. Interestingly, the latter appears to be the one major chain looking to remain in the middle and lower end of the market, while the others all intend to move more upmarket, according to Corporate Intelligence.

The net result is that the leading group of multiples is already adding rapidly to its combined market share. Corporate Intelligence calculates that the top 14 chains took 44.3 per cent of the furniture and carpet specialist sector sales in 1996, over three full percentage points more than the year before (their share of total furniture and carpet sales was 32.1 per cent, compared with 29.7 per cent in 1995).

Productivity gains, greater operating efficiencies and better controls, as well as marketing clout, will increasingly become prerequisites to success, in turn demanding greater investment than before – especially in technology. While independent operators will concentrate on a diminishing number of manufacturer brands, the multiples will focus increasingly on exclusive or own-brand products, the leaders thereby creating a stronger retail brand image, with a clearer, consistent and focused message.