Furniture giants come unstuck as smaller players thrive

MFI’s sale of its retail arm for 1 to Merchant Equity Partners last week was a telling sign of just how threadbare some furniture specialists have become. Even Swedish flat-pack giant Ikea has taken a pounding, with recently announced pre-tax profits to August 2005 diving to 104m from more than 150m the previous year.

With the recent collapse of major players Courts and Furnitureland fresh in the memory, the whole sector might appear to be unravelling.

Yet there are some success stories. Land of Leather last week announced an operating profit of 3.3m for the 17 weeks to July 30, compared to 2.3m in the same period in 2005. Earlier this year, DFS posted operating profits up 10m to 60m, in the year ending July 30, 2005.

The market itself continues to expand, with a forthcoming report by retail analyst Verdict Research predicting it will have grown by 2.4% to 12.9bn by the end of 2006, compared with a total growth rate of just 1% last year.

According to figures in Verdict’s 2005 furniture market report, MFI remained market leader with a 6.2% share, ahead of Argos on 5.7%, Ikea on 5.4% and DFS on 5.2%. Verdict senior retail analyst Nick Gladding says: "The market remains very difficult, but there are signs of recovery. The housing market is a key influence on the demand for furniture and things are improving slightly."

MFI’s new owner has yet to announce its strategy for the struggling showrooms, or whether the brand will survive. Gladding adds: "It is still the market leader but has performed poorly. MFI is focusing on bedrooms and kitchens now but has huge competition."

Profitable niche production
The same could be said for Ikea. It faces threats from Danish flat-pack rival Ilva, which recently moved to the UK, and supermarket giants including Asda and Tesco which are homing in on the DIY furniture market. Asda, for instance has 72 pieces of furniture in its George range.

Meanwhile, smaller players are carving out their own profitable niche. Stephen Fox, managing partner of destination marketing agency Fox Kalomaski, which works for furniture companies Natuzzi and Ekornes, and the Parker Knoll brand, believes there is a clear split among furniture consumers.

Don’t discount
Fox says: "One set of people see furniture as a transient part of their life and they buy it to last a couple of years, then get rid of it. But there is the mature market that wants quality and value.

Brands serving these [latter] consumers maintain margins through a considered purchase and will survive by the strength of their brand even in difficult times, as long as they don’t discount."

Dreams has also been successful recently, chalking up a 20% leap in turnover to 107.6m last year. Founder and chief executive Mike Clare believes specialisation is key in an overcrowded industry. He says: "Being passionate about a particular niche is important. We’re the bed people and we stick to what we know. The sector is a bit slow and old-fashioned but there are innovations, such as adjustable beds."

Some of the bigger names in the market may be coming apart at every nail but for the specialist players there is still money to be made from people wanting something nice to look at and somewhere comfortable to sit.

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