DFS unveils data-driven growth strategy as profits dip

Furniture retailer DFS has outlined a unified technology and data strategy for all arms of its business, with which it plans to drive marketing efficiency and improve market insight.

The business, which also owns the Sofology and Dwell furniture brands, is investing in its ‘Integrated Retail Intelligence System’ (IRIS), which integrates over 35 data sources. The cloud-based solution uses AI to “gain insights across every element of the customer purchase cycle thereby driving additional performance and growth in the business, at a sustainable increased efficiency”.

DFS says creating a common technology infrastructure and source of data for all of its brands will also help the business better serve its customers and help improve its investment decisions.

The move forms part of the retailer’s ‘Pillars and Platforms’ strategy, through which it hopes to uncover new categories for growth and hit its revenue target of £1.4bn by 2026.

The three pillars the business plans to focus on include DFS, Sofology and the expansion of its home market, which includes beds and mattresses. In each of these areas, the group will be making “disciplined investment for future growth”.

On DFS, the group says the focus will be finding new growth opportunities from its ongoing showroom transformation programme, investing in new ranges and brands, as well as its retail execution, people and marketing.

For Sofology, the focus will be developing a strong product roadmap and rolling out more showrooms, as well as integrating with the existing group platforms.

The group will expand further into the home market, which includes living room accessories as well as beds and mattresses, and aims to gain a 4% share of the £4.9bn market by 2026.

As well as focusing on technology and data, DFS says it will achieve these three pillars by focusing on sourcing and manufacturing, people and culture and improving its logistics platforms.

A ‘tougher’ market ahead

DFS outlined the new strategy as it posted its interim results for the 26 weeks to 26 December 2021, the first half of its 2022 financial year.

DFS experienced record profits during the pandemic, as consumers under lockdown rushed to make improvements to their home. However, profit before tax has since tumbled to £22.1m for the first six months of the year, down from £76.5m in the same period the year prior.

Revenues also took a knock, down 2% from £572.6m to £561.1m.

However, speaking on a webcast for investors, group CFO Mike Schmidt said that while the “exceptional” profit of the year prior was “very welcome”, “it really isn’t a very good comparator”.

Lower revenues were attributed to challenges in the supply chain, as well as employee absences due to Covid and price inflation. DFS remains upbeat about its revenue, which remains 15% higher than the pre-pandemic period.

The furniture market is set to become much tougher as the higher cost of food, utilities, fuel and national insurance contributions all start to clamp down on shopper spending power.

Matt Walton, GlobalData

“Our ability to offset these cost increases illustrates the strength of our group as the market leader,” said Tim Stacey, CEO of the DFS Group.

“We’ve seen double-digit increases in both value and volume across both DFS and Sofology brands post-Christmas, underpinning our belief that our integrated retail model is the right model for the upholstery market.”

DFS did not change its outlook for the year, forecasting full-year revenue of between £1.17m and £1.21m in 2022.

While the DFS Group is upbeat about future growth, the furniture market will become increasingly tough, said Matt Walton, senior retail analyst at GlobalData

“From Q2 2022, the furniture market is set to become much tougher as the higher cost of food, utilities, fuel and national insurance contributions all start to clamp down on shopper spending power and make big-ticket purchases more considered,” Walton said.

“A greater proportion of spend returning to leisure, clothing and foreign holidays will also siphon off home purchases.”

DFS has a history of successful retail partnerships with third-party brands. Last month it entered into a partnership with mattress retailer and “sleep wellness brand” Eve Sleep.

“DFS’s historical focus on appealing to affluent shoppers through partnerships with aspirational third parties will help insulate it to an extent, but it should also showcase its So Simple and Boxit entry level ranges online to appeal to constrained shoppers,” said Walton.

He added that extending its home furniture range was a good move for the retailer, but that it needed to work on customer awareness, as GlobalData’s ‘Q4 2021 Quarterly Home Tracker’ survey indicates that DFS was the 21st “most considerable” retailer for bedroom furniture.

However, the brand can leverage its “sizable advertising spend” to rise up the rankings, he said.