Five ways Carpetright is dodging the big ticket blues

When sofa specialist DFS issued a profit warning earlier this month – lamenting the combined impact of a late Easter, economic uncertainty and unfavourably warm weather – retail watchers predicted other home and furniture businesses would follow suit.

But not Carpetright.

In the face of increased competition, currency headwinds and post-Brexit uncertainty, Carpetright has defied its doubters, with boss Wilf Walsh hailing the return of “positive trading momentum” in the second half of its financial year in today’s preliminary results. 

Although pre-tax profits in its year to April 29 tumbled, the carpet specialist has enjoyed like-for-like sales growth of 2% since the start of its current financial year as heavy investment in its strategy reaps rewards.

Speaking to Retail Week after unveiling today’s results, Walsh says: “We’re feeling relatively positive about life, given the headwinds we’ve had this year.”

He puts the retailer’s revived fortunes down to “self-help”, focusing on the basics and refusing to be diverted from its plans. 

But what specific strategies has the retailer deployed to leave Walsh feeling so confident at a time when others are feeling the heat?

1. Store revamps

Without doubt, Walsh’s decision to kick-start a much-needed overhaul of Carpetright’s tired UK store estate a year ago was a shrewd one.

As, store-by-store, the work began to pay off, Carpetright accelerated its refurbishment programme, and eventually committed to revamping every one of its 426 UK stores “in some shape or form” by the end of 2018.

Having rebranded and refreshed 199 stores, Walsh says the results so far are “extremely encouraging”, with like-for-like sales up 6.8% on average at the spruced-up sites.

Walsh previously told Retail Week that the modernised shops not only improved the consumer perception, but gave colleagues a greater sense of pride and confidence in the brand.

He says the process has also better equipped Carpetright to take on the competition, including its new rival carpet retailer Tapi.

2. Refurbishing the international arm

Carpetright’s store makeover process has not been limited to its core British business. 

Following the success of its UK modernisation programme and a trial in its European arm, Carpetright has now extended its refurbishment plans abroad to include a further nine shops.

New concept stores in the Netherlands, Walsh says, are enjoying an “encouraging” like-for-like uplift of 20%.

“We’re going to invest more here, particularly as consumer spending is relatively robust in that part of the world,” he says.

3. Brand reappraisal

Another key part of Carpetright’s strategy has been to alter consumers’ perception of the brand and bolster its previously damaged reputation.

“Our reputation wasn’t great a few years ago,” Walsh says, “and we’re rebuilding that over a period of time.

“Buying a carpet is a laborious exercise, which involves a number of moving parts, so we need to make it really easy for customers.”

“After prioritising the likes of its ‘Do We Measure Up?’ scheme, Carpetright has seen its customer metrics grow”

As a result, Carpetright has invested a large amount of time and money into its service, training and development, and getting the customer experience right.

And so far, after prioritising the likes of its ‘Do We Measure Up?’ scheme, Carpetright has seen its customer metrics grow.

For example, its net promoter score has risen from 71% to 75% in the last 12 months.

“There’s still work to do but we’re heading in the right direction,” says Walsh.

4. Portfolio review

Carpetright has been bold, yet considered, with its approach to exiting under-performing stores.

It shuttered 17 loss-making sites during the 12 months to April 29 and plans to close 20 more in its current financial year, with a view to having fewer than 400 sites by this time next year. 

The retailer admits it has “too many stores on too many unsustainable long leases” that severely impact its profitability.

“Within the next five years, 48% of Carpetright’s leases in the UK are up for renewal, providing further scope to reduce store operating costs”

But it has taken “a robust view at lease renewal”, providing it with the opportunity to secure lower rents going forward.

Within the next five years, 48% of Carpetright’s leases in the UK are up for renewal, providing further scope to reduce store operating costs or exit underperforming sites completely, without incurring financial penalties.

“At the moment what we can do is close stores, particularly where we have an overlap, lose the rent and rate costs, redeploy the people and take the sales transfer benefit,” Walsh says. 

“We’re confident we’ve got a robust model for closing stores down and we’ve got a grip on this legacy portfolio.” 

5. Striking the Brexit balance 

Walsh admits that, since the value of the pound has slumped and sourcing costs have risen, Carpetright, like its competitors, has had to push up prices.

However, the retailer has been cautious in its methodology and, despite sourcing 65% of its product from the Eurozone, is relatively well-positioned on this front. 

“We can probably afford to suck air longer than our competitors when it comes to holding pricing”

Wilf Walsh, Carpetright

“The difference with Carpetright is that, with our combination of interest-free credit, our critical mass in terms of buying and our ability to run really strong promotions, we can probably afford to suck air longer than our competitors when it comes to holding pricing,” Walsh says.

“And we’ve also got a price-match guarantee, which is a rock-solid promise that we will match any quote a customer can get, so in terms of value, we can’t be beaten,” he adds. 

The key, he says, is being assiduous about what proportion of the cost increases you pass onto consumers and how much you absorb yourself, because “there’s always a tipping point on price”.

“The positive like-for-likes indicates we’ve got the balance right,” he concludes.

If Carpetright can continue to do that, the business will be in good shape to defy the big ticket blues.