Why furniture brands look a bit threadbare

Squeezed by the price-cutting of the big retail chains, Silentnight is seeking to sell off or close down famous names such as Parker Knoll. Caroline Parry gauges the prospects of branded furniture

The combined influence of home makeover shows and the arrival in the UK of Ikea has been credited with changing the way people furnish their homes.

But despite a 25 per cent increase in furniture sales in the past five years – owing to a buoyant house market and this increased interest in design and style – there is a distinct lack of brands driving the sector. In fact, one major player, Silentnight Group, announced last week that it will close down its furniture brands division, which includes names such as Parker Knoll, Ducal, Nathan and Stag, unless a buyer can be found for the business (MW last week). The group is retaining its bed division, which includes Silentnight and Sealy.

Announcing the furniture brands’ closure, Silentnight chief executive Nino Allenza admitted that if the furniture brands were to be retained, the group’s bed division would be likely to suffer.

Silentnight says it is in talks with “a number of interested parties” over the sale of the brands, which it maintains still have significant heritage in the UK market. But some industry observers are sceptical. One says that brands such as Stag and Nathan have suffered from a lack of investment, in particular during the period before 2000, when Silentnight bought them for &£23m.

The fact that the &£10.9bn furniture market has so few manufacturer brands is perhaps the biggest challenge any potential buyer faces. The market is dominated by multiple retailers, such as MFI and Courts, which are able to keep prices low by sourcing products from overseas. Silentnight only moved production to the Far East this year.

Over the years, the likes of Laura Ashley, Next, Marks & Spencer, Homebase and Argos have moved into furniture, and the arrival of new retailers such as Ethan Allen has further fragmented the market. A limited amount of consolidation, such as MFI’s takeover of The Sofa Workshop in 2002, has in turn led to increased control over pricing by multiple retailers.

These developments have further eroded the branded furniture market. Silentnight spokesman Simon Simpson says: “In a price competitive market, retailers have protected and increased their margins by sourcing from overseas. This has put a significant squeeze on the margins of many branded manufacturers – which are almost exclusively UK-based – and in turn deprived brands of the investment required to develop them.”

At the same time, much of the advertising from the major furniture retailers has focused on price. DFS is the market’s top advertiser spending &£67.8m last year. Courts is in second place, spending &£21m, while third-placed MFI spent &£18.8m (Nielsen Media Research). This compares with a spend of &£1m for the entire Silentnight Group.

This has made furniture a market where consumers demand value, are willing regularly to update their interiors to keep up with the latest trends and are ambivalent about brands. Matthew Jenkins, an interim marketing director who worked for Silentnight until August (MW August 26), says: “The retailers still list manufacturer brands to try to drive categories, but their sales staff on the shopfloor are always going to push a deal on their own products.”

However, the industry insider mentioned earlier believes that there will always be room for brands at the upper end of the market. There is evidence of this in the &£2.2bn living and dining room category, a key part of the market. Premium brand Ercol Furniture continues to compete successfully against retailers. It had a 0.7 per cent market share by value in 2002, with sales up 75.9 per cent between 2000 and 2002, to &£17m. This is also a market where Ducal, Parker Knoll, Nathan and Stag have seen some success, increasing Silentnight’s share by value from 2.7 per cent in 2000 to 4.4 per cent in 2002.

Jenkins agrees: “There is always room at the top of the market. The fact that all the multiple retailers are price-driven at the moment means retailers or brands that don’t lead on price can offer quality.”

Consumers’ appetite for style also means that innovative, design-led new products, an area where retailers have few credentials, is somewhere manufacturer brands could carve out a new market. The Christie-Tyler Furniture Group, which makes a range of products including Pendragon leather sofas, is trying to do this with its Content by Conran range, a tie-up with designer Terence Conran.

But even in this segment of the market, brands will find themselves battling against Ikea, which offers design and value and is the UK’s leading furniture retailer. And not all consumers are ready for cutting-edge design, as Marks & Spencer found with its Lifestore experiment.

With speculation over a possible bid for MFI, and a profits warning from Courts last week, any potential buyers for the Silentnight brands should be wary of tough and competitive times ahead. Although the brands do have clout in the UK furniture market, it will take deep pockets to carve out a strong and healthy niche in a market that is dominated by multiple retailers.

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