Analysis: How to survive the big-ticket storm

Following a few years of low consumer confidence, Brexit uncertainty, several general elections and a Christmas dubbed “the worst in a decade” by the BRC, big-ticket retailers have been battered by the retail storm.

Selling non-essential items that only need to be replaced every five to 10 years is tricky in normal circumstances, but adding in the headwinds of recent years means some big-ticket retailers have been struggling to keep their heads above the rising water.

However, nearly a month into 2020, political uncertainty is subsiding, wages are on the rise – the national living wage will rise 6.2% for ages 25 and above in April – and unemployment is low. Does this spell the end for the big-ticket bashing or will only the best survive?

Christmas trading

During the last couple of weeks, Dunelm, DFS, ScS and Dixons Carphone, to name a few, updated the market with their crucial golden-quarter sales figures – with mixed results, from one extreme to the other.

Peel Hunt analyst John Stevenson says: “DFS, ScS, Topps Tiles and John Lewis home sales have been poor. People had money, employment was high, unemployment was low. The stage was set for what should have been an okay level of spending, but people weren’t willing to pull the trigger.”

“Dunelm obviously knocked it out of the park – they’ve done extremely well in furniture with really strong growth, albeit from a lower base” 

John Stevenson, Peel Hunt

The notable exception to this was Dunelm.

“Dunelm obviously knocked it out of the park – they’ve done extremely well in furniture with really strong growth, albeit from a lower base,” Stevenson says.

Dunelm’s like-for-like sales increased 5% during the 13 weeks to December 28. With the benefit of new store openings during the period, total growth increased 6.2%. 

Big-ticket bellwether Dreams registered “strong double-digit growth” during its Black Friday promotion period, according to chief executive Mike Logue.

However, the bed specialist’s Boxing Day Sales were “slightly softer” after some trade was brought forward to Black Friday.

Upmarket sofa retailer Loaf’s chief executive Charlie Marshall says it continued to see growth “without resorting to any more discounting than we would normally do” during the golden quarter.

“As for Black Friday, we just don’t do it – it would be brand-damaging, as well as eroding margins,” Marshall added.

For one electricals retailer, Black Friday was successful – beating its original expectations – although it noticed that some of the usual Boxing Day Sales were cannibalised by its own Black Friday promotions.

Despite the handful that managed to bask in the sunlight, there have been some black clouds looming over the sector. 

The run-up to November is normally a steady period for big-ticket retailers before the Black Friday boost at the end of the month.

However, this year the general election commotion started smack-bang in the middle of it, adding to already low consumer confidence.

Topps Tiles, DFS, ScS and Dixons all registered similar trading patterns throughout the crucial golden quarter.

Sales got a much-needed boost over the Black Friday promotion period.

However, many retailers said a lot of the usual Boxing Day spend was just brought forward, rather than being added to.

As a result, sales slid coming out of Christmas.

Challenges in the sector

Although consumers had money in their pockets and a great excuse to spend – Christmas – the knock-on effect of Brexit uncertainty caused a ‘wait-and-see’ trend that stifled many furniture retailers’ potential. 

GlobalData analyst Matt Walton says: “Consumer confidence and the housing market has a big part to play with how that sector does.

“There was greater uncertainty and housing transactions were pretty weak. So, during the period, there were a lot of people waiting to see what was happening in housing and it put a chokehold on that part of the market.”

Stevenson says this uncertainty was exacerbated, at least in the short term, by December’s general election.

“What Topps, DFS and others said is that an election can impact them by broadly 5% in terms of footfall, and that’s exactly what we saw this year.”

Stevenson added that the effect of a new Brexit deadline being announced in “broadly every quarter” last year made the trading environment feel “very recessionary”. 

Home and lifestyle etailer Amara’s chief executive Andrew Hood says that, against this backdrop, homewares businesses that did not offer a differentiated shopping experience lost out.

”Some retailers are being left behind by the changing desires of customers, who are now often looking for either experiential or frictionless shopping experiences. Invariably, you need to have a compelling proposition to make a customer shop with you, and ultimately become an advocate,” he added.

“The uncertainty around Brexit has clearly made people more nervous about buying big-ticket items. But that’s an opportunity and a challenge for retailers to up their game”

Charlie Marshall, Loaf

However, Loaf’s boss tried to turn the uncertainty into opportunity.

“The uncertainty around Brexit has clearly made people, in general, more nervous about buying big-ticket items. But that’s an opportunity and a challenge for retailers to up their game,” he explains.

Marshall says that Loaf felt pressure from the change in exchange rates, but took advantage of the fact most of its products are made in the UK – giving it an advantage over other retailers that source materials from overseas.

Dixons Carphone chief executive Alex Baldock had the same outlook.

“When you’ve got headwinds of any kind in business you’ve got the choice: you can feel sorry for yourself or make the most of the qualities you’ve got,” he says.

How to win

But, as some of the market leaders managed to report growth even during difficult trading times and the pressure eases off this year, there are some driving factors for big-ticket bosses to learn from.

For Baldock, staff expertise, price and technological innovation are the fronts on which he feels Dixons Carphone can win trade from rivals.

“Our customers value help. Not just in choosing the right tech, but affording it and enjoying it.

“Which is why we are placing an emphasis this year on not just retail strength, but also helping the customer chose tech, either online or in store – helping them afford it through credit and enjoy it by getting the most out of their tech services.

“Being on the money on price is also very helpful, and range, better delivery and better availability are helpful, but we’ve also made some improvements to the website.

“We’ve deployed AI, improved search and recommendation, for example, and moved to a single checkout to make it easier for customers to buy stuff. Online the site speed is 30% faster and we’ve launched an app.”

“We are placing an emphasis this year on not just retail strength, but also helping the customer chose tech, either online or in store – helping them afford it through credit and enjoy it”

Alex Baldock, Dixons Carphone

Ecommerce investment was also a factor that buoyed Dunelm’s Christmas performance.

During the quarter, the business transitioned to its new digital platform and registered “significantly more customers” on its site during the peak Christmas trading period – more than its previous system would have permitted.

Dunelm chief executive Nick Wilkinson says: “The successful launch of our new digital platform during the quarter marked an exciting milestone for Dunelm.

“The transition to a modern, flexible, cloud-native platform has already improved our customer experience and will allow us to step-change our retail innovation capabilities going forward.

“Our customers have responded well to the new website during Christmas and winter Sale trading.

“Our ambitious growth plans are centred on extending and enhancing our customer proposition, helping more customers than ever create a home that they love. We are excited by the significant opportunities ahead of us.”

Although customers still lean towards purchasing in store for their big-ticket items, more often than not they will look online for inspiration first. Visualisation tools, colour variations, augmented reality and a speedy user-friendly site are all worthy investments.

And Stevenson says the retailers who don’t embrace that shift to having a great multichannel proposition will struggle. Dunelm has invested heavily in its online proposition and the proof is in the pudding.

Stevenson also says staying relevant is key to driving sales growth – something that John Lewis is losing grasp of.

He says the department store’s ‘Never knowingly undersold’ promise is less relevant now as “it’s not a price promise online, although most people’s journey starts online”.

And with Dixons Carphone now offering a price match online as well as in-store, it’s clear to see why the John Lewis home department continues to struggle.

Baldock says: “We’re in a good position to stand by our promise to our customers that they won’t find it cheaper anywhere else.

“Those competitors who tried to take us on backed away again when they realised we’re serious about keeping the promise.”

However, Logue says it’s much simpler than that. “It always comes down to doing what you say you’re going to do,” he says. “It’s about offering really good products at the right price, with the right service, and customers will reward you by spending their money.”

A spokesperson for one electricals retailer agrees that value, availability and understanding what customers want are all crucial to success.

“If you have empty shelves, customers might forgive you once, but they aren’t loyal to one brand any more because of the choice out there.

“You have to get it right with every purchase,” he says.

Hood mirrors Logue’s suggestions for winning customers over and enticing them to spend the money that’s been sitting in their pockets for so long.

“Ensure a unique offering to exceed their needs, and provide exceptional personalised service at every touchpoint,” he adds.

As January draws to a close and the unpredictable weather continues, home and furniture retailers will be hoping the figurative storms stay firmly where they belong – outside and not battering growth opportunity.