SWOT analysis: As Dunelm’s sales keep growing, what are its strengths and weaknesses?

Strengths

Market leader – With sales of more than £1.7bn, Dunelm is the market leader in UK homewares, with a share of 11.5% in 2024 according to Global Data. It also has gained share in the combined homewares and furniture markets, moving up to 7.7% in 2023/24, and is confident in its “clear pathway” to a 10% share in the medium term.

Low-cost operating model – Dunelm’s low-cost operating model underpins the business and has gone some way to protecting margins in the challenging recent conditions in the furniture and home furnishings sector. Chief executive officer Nick Wilkinson has renewed focus on efficiency by leveraging the single Dunelm brand. The retailer has consistently been one of the UK’s most profitable homewares retailers. The gross margin improvement to 51.8% in FY2023/24, up from 50.1% the previous year, was said to have been achieved without hiking up prices.

Clear strategy – Dunelm continues to evolve its tried and tested strategy for long-term growth under its ‘the home of homes’ proposition, driven by three areas of focus: elevating its product offer; connecting more with customers; and harnessing operational capabilities.

In tune with current climate – The group’s market share gains show that the format chimes with its target market. Dunelm’s value-for-money offer has positive consumer perceptions in terms of product design and quality, and is in tune with current economic uncertainty

Cash flow – Although free cash flow was £132m in 2023/24 versus £160m the year before, impacted by “higher tax rate, working capital outflow and increased capex”, Dunelm remains a highly cash-generative business and can fully fund its capital expenditure from operating cash flows.

Weaknesses

Yet to reach full market potential – Dunelm is a strong brand with broad appeal in a large and fragmented market but there is a lot more to play for. While it is the market leader in homewares, its share of the combined homewares and furniture market is just 7.7% according to GlobalData UK, giving it major headroom for growth across all product categories.

Opportunities

Opening programme – As the retailer gets closer to its long-term target of 200 superstores, it is confident that there are still opportunities to further increase its nationwide coverage. Increasing its presence in London and the South East has been a focus. Dunelm sees “a runway” for a rate of five to 10 new openings per year continuing in the medium term, which it expects to be evenly split between larger and smaller sizes.

Innovating with new store formats – Dunelm has been exploring different store sizes, formats and locations, for instance remodelling several larger stores to extend the furniture departments, showcasing more of its home delivery range. It also previously opened a Dunelm Edit tech-driven store to provide insight into the effective use of in-store technology. 

Additional services – There is also scope to further develop Dunelm’s service proposition, such as its made-to-measure service. This was strengthened by the acquisition of blinds and curtains supplier Sunflex in 2022. The group has also opened Pausa coffee shops in around 155 stores. This provides additional reasons for customers to visit stores and increases their time spent there.

Economic outlook – As a value-oriented business, Dunelm’s fundamental strengths stand it in good stead in the tough current environment as consumers consider their purchasing decisions more carefully.

Multichannel development − The retailer has been ramping up investment in multichannel and the launch of its full click-and-collect offer – albeit somewhat belatedly – has been driving robust growth. Same-day click and collect is now available with customers able to pick up “thousands of items” in as little as two hours. Many of the customers who shopped with Dunelm for the first time online during the pandemic are now shopping in-store, or across both channels. The retailer has reported that its multichannel and multicategory customers shop on average five times more often and spend seven times more than customers shopping through single channels and categories.

Varied price points – A wide price architecture means Dunelm also has appeal for customers looking to trade up as inflation eases. It has endeavoured to improve the design and quality of its products recently, which could help it stand out from value and discount retailers, while also maintaining its position as a valid option for consumers considering trading up to the likes of John Lewis and Next.

Threats

Fierce competition – Competition in the homewares market is tough, ranging from pureplay Amazon and the grocers to more traditional rivals such as Ikea. In the squeezed environment, some traditional competitors are retrenching, discounters are continuing to extend their reach, and Dunelm needs to ensure it leans into its strengths while staying ahead of initiatives from the competition. 

Lacks total dominance among value retailers – Dunelm risks losing share to value retailers such as The Range and B&M, which are upping their home and furniture offers. Strong prevalence on nationwide high streets gives value retailers a highly convenient proposition.

Cost-of-living crisis − While Dunelm does stand to benefit from its staunch value approach and low-cost business model, Wilkinson said: “We are gradually seeing improvements to economic indicators, however we are yet to see a meaningful change in consumer spending habits in our markets.” Indeed, the homewares and furniture markets remain soft, impacted by factors including inflationary pressure and disruption to shipping routes.