As DFS issues another profit warning and Wickes reports that demand for pricier purchases has been ’challenging’, how much more penny pinching can big-ticket retailers take?
One of the UK’s biggest furniture retailers isn’t feeling particularly comfortable right now.
Sofas and beds specialist DFS has issued its second profit warning in six months, reporting a sales drop in the first half of 7.2%, while profit before tax on a reported basis dropped from £6.8m to £900,000.
Like many others in the home and furniture market, DFS is feeling the brunt of frangible consumer confidence when it comes to spending big money in one fell swoop.
Consumers’ willingness to make major purchases continues to wallow in the negative. Confidence monitor GfK reported a five-point month-on-month drop in its major purchase index for February, while GlobalData’s Consumer Sentiment Tracker showed 46% of shoppers at the start of the year saying that now is a bad time to make such purchases.
But how much more of this can the market withstand? And how are retailers strategising their way out of the slump?
Thoughtful consumer
“We have seen it in other places in the retail sector – there is just no consumer propensity to spend heavily on pretty much anything at the moment,” says Peel Hunt analyst Jonathan Pritchard.
“We can very much see better days ahead as interest rates start to fall and disposable income increases, but it would be foolish to forecast that happens in the immediate future.”
DFS was not alone in its cautionary message about weaker demand. Although Wickes’ pre-tax profits were above expectations, the home improvement retailer told markets that the consumer environment for bigger purchases continued to be “challenging”.
“What we are seeing is people behaving very much like consumers in a grocery shopping environment,” says Wickes chief executive David Wood.
“The bigger the item, the more customers are looking for reassurance. Some of that comes down to the absolute price you pay but a lot of it comes down to the quality of the expertise that you’re providing”
Nick Collard, Bensons for Beds
”They’re still doing DIY but they’re just being a bit more thoughtful and intentional about how much they spend. So they tend to undertake smaller projects, like freshening up a room, rather than the bolder things that they might have done previously.
“So far this year, our retail business is pretty much flat versus the prior year and I think in the face of some of the broader challenges, particularly the weather, that’s a very solid performance.”
The sentiment is echoed by Bensons for Beds, which posted a return to profit earlier this month.
“There’s definitely been a softening in the marketplace,” says chief executive Nick Collard.
”We were quite encouraged over our peak, which is Boxing Day through to January, but we have seen a softening through February and early March, but we’ve been seeing a few green shoots that are a bit more encouraging over the last week or so.”
Opportunities are out there
According to Wood, offering comprehensive ‘good, better, best’ pricing tiers has been key to navigating shoppers’ nerves around hefty investments.
“We do feel that things are more subdued in our bespoke design installation business through the showroom, but the relaunch of our affordable Lifestyles kitchens proposition has helped us counter that. People still want to change their kitchens but they’re doing it in a much more affordable way.”
“We’re getting phenomenal growth for our good entry-level Lifestyle kitchens now. That was up 24% in the second half of last year.”
For Collard, making sure shoppers have every opportunity to find support for their more expensive purchases has been key.
“The bigger the item, the more customers are looking for reassurance. So if you’re going to buy, you want to make sure that your decision to spend, let’s say £700 pounds, is going to be a wise investment.”
“Two years on from the pandemic, we would have hoped to have seen a bit more of a market recovery”
Nick Collard, Bensons for Beds
“Some of that comes down to the absolute price you pay. But a lot of it, in our experience, comes down to the quality of the expertise that you’re providing. We’ve seen some quite significant increases in the percentage of people that come over our stores’ thresholds that then convert into a sale, and we believe that’s on the back of investment in sales training.”
But the UK’s home and furniture sector will need to hold firm. GlobalData reports that 26.7% of consumers say they intend to spend less on furniture and floorcoverings over the next six months – the lowest of any retail sector. It seems few in the sector will be sitting comfortably for the remainder of this year.
“Two years on from the pandemic, we would have hoped to have seen a bit more of a market recovery,” says Collard.
“It’s still true to say that there are fewer shoppers out there than we would have expected, so we are still experiencing a world of like-for-like footfall decline, you can’t escape that fact. But those people that are out there are purposeful and the reality is, even if there’s 3% or 4% fewer people out there shopping year-on-year, there’s still an awful lot of people out there shopping – so there’s still a real opportunity to get them.”
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