Analysis: As DFS and ProCook warn on profits, has the homewares sector lost its spring?

DFS and ProCook both issued profit warnings this week, blaming the cost-of-living crisis for a drop-off in consumer demand for big-ticket items.

The two retailers are not the only ones in the homewares sector to flag a decline in sales over the first half of this year.

Made issued a profit warning last month, citing a “highly challenging” market, while DIY retailers Kingfisher and Wickes both recorded a decline in sales compared with the lockdown boom.

Mattress specialist Eve has raised a ‘for sale’ sign over the business as it battles mounting losses.

Has the cost-of-living crisis knocked the stuffing out of the homewares sector or is there a way to cushion the fall?

Confidence is key

As consumer confidence has declined, so too has spending on big-ticket items such as sofas and mattresses.

DFS echoed Made this week, saying that the overall market is in decline compared with both pandemic and pre-pandemic periods.

“While we have increased our weekly production and delivered revenues progressively over the second half to record levels in the fourth quarter, the ongoing Covid-linked supply-chain disruption, combined with lower order intake since April, has led to lower levels of production and deliveries relative to our previous expectations,” DFS said.

Data from Barclaycard shows a 2.1% decline in transactions in homewares in April compared with pre-pandemic levels.

Kantar data also indicated a decline in average purchase values for homewares and appliances in the first quarter of this year, while overall spend in the sector has dropped 28% in the past four weeks.

“There was a little bump around Christmas and the January Sales, and then we’ve seen it moving into quite hefty declines,” says Kantar retail expert Simon Quirk.

“We’re seeing the homewares category declining 28% over the past four weeks, which is intriguing – it’s still up compared to two years ago, but we’re definitely seeing a dropping back for the category. 

“That really strong surge of growth is being curtailed. We’re seeing increasingly more consumers having pressure on their wallets”

Simon Quirk, Kantar

“That really strong surge of growth is being curtailed. There’s obviously a lot of competition for consumer spending now and we’re seeing increasingly more consumers having pressure on their wallets, and that will obviously rise.”

According to Kantar, 20% of consumers have indicated they are currently concerned about their finances.

“While we are still seeing lots of new customers discovering the ProCook brand and buying our products, it is clear that many are tightening their belts,” says ProCook boss and founder Daniel O’Neill.

“This creates a difficult short-term trading environment, but does not distract us from our strategic priorities as we work towards our mission of becoming the first choice for kitchenware.”

One ecommerce homewares retailer describes it as a “perfect storm” where supply and demand have become unexpectedly “mismatched”.

“Because of the nature of the market, you have to be forecasting quite a long way out because you’ve long lead times, so you’re always making a measure on six or nine months down the line. So, when a market changes rapidly, you end up with a supply and demand mismatch, and that’s what’s happened really over the first quarter, particularly in the UK,” she says.

The supply chain issues that dominated 2021 saw many homewares retailers fill up warehouses with excess stock in a bid to combat price inflation. However, as consumer confidence nose-dived this spring, many retailers have been left with an overflow of excess stock.

To compensate, many have used Sales to shift excess stock, squeezing margins in the process, while costs elsewhere have also risen.

“Homewares are a high-ticket discretionary item, so when things are going well people love to spend on it; when confidence drops, it’s an easy place to delay”

Ecommerce homewares retailer

“It’s just all kind of pinched at once,” the ecommerce retailer explains. “I think homewares generally are a high-ticket discretionary item, so when things are going well people love to spend on it; when confidence drops, it’s an easy place to delay. 

“If your TV’s broken or your fridge is broken, or your car, you need to replace it, but it’s pretty rare that your sofa or mattress or wardrobe is so broken you have to replace it, so it’s quite an easy spend to defer.”

A focus on “distressed purchases” has allowed the likes of Marks Electrical to buck the downward trend in big-ticket spending and report an increase in sales and profits in the first half of the year.

“Eighty per cent of what we sell is a distressed purchase,” Marks Electrical chief executive Mark Smithson says. “So if your washing machine breaks now, you can go on our website and get it delivered free tomorrow, and that’s a real key differentiator.”

The pureplay homewares retailer describes the sector as a “concertina market” currently, while Kantar’s Quirk likens it to “the ebbing and flowing of the tide of the sea”. Both agree the pandemic peak for homewares has passed and the sector has entered a trough.

Diversification

Quirk says the key to survival for retailers in this challenging market is a diverse offering for customers.

“If you imagine on a day-to-day basis, smaller homewares – it might be scented candles, it might be plant pots – those sorts of pieces seem to be the ones that are ticking along as people are still interested in keeping the home feeling fresh and keeping it well maintained,” he explains.

“It’s the bigger furniture pieces, garden and outdoor stuff. Bigger projects in the garden that are always heavily linked to consumer confidence and will start to drop away.”

Retailers such as Joules flagged “subdued” demand for home and garden categories in May, particularly for its newly acquired Garden Trading business. 

Retailers with a strong mix including smaller home furnishings can therefore drive sales elsewhere.

Quirk suggests fashion retailers and grocers will be the winners in this space as consumers continue to pick up low-cost impulse purchases alongside other categories.

Specialist retailers who focus on niche areas – for example, mattresses or sofas like Eve or Snug – may find themselves with “the potential for the rug to be pulled out from under them”.

Ecommerce versus bricks and mortar also comes into play. With shoppers cutting down on spend, homewares purchases are more likely to be impulse ones made in store, meaning online retailers could lose out.

Newer entrants to the market may be able to pivot their business to drive consumers to spend in less high-cost areas.

“We’ve just assumed that better convenience is what people are asking for, but they are going to be focusing very hard on the value equation of the product: is it great quality and do I trust the brand?”

Ecommerce homewares retailer

The pureplay homewares retailer has shifted its marketing to help people improve their sleep without buying a new mattress or bed, focusing instead on less expensive items such as mattress toppers or cleaning products.

Beyond that, she says it’s about “riding out the storm” and focusing on what the consumer really wants.

“I think there has been an endless chase for ever better customer experience at all costs,” she says. “Retailers really need to listen to customers now – do you want to pay more to have it delivered in 15 minutes? Or would you rather pay less to have it in two days?

“I think we’ve just assumed that better convenience is what people are asking for, but people are going to be focusing very hard on the value equation of the product: is it great quality and do I trust the brand?”

The homewares sector may have lost its spring this year as consumers defer spending on big-ticket items, but there is still room for a bounceback in 2023.