DFS: Sofa, so good

It takes just 55 minutes for Lord Graham Kirkham to travel from his first seat of power in Doncaster to his second in the House of Lords. The miner’s son turned sofa mogul does the journey two or three times a week in his helicopter - a far cry from when he founded his furniture business in his home town aged just 24 in 1969.

Kirkham enjoys his second life in the corridors of power. “It stimulates the mind. It’s good having two entirely different worlds,” he says. He is a keen supporter of the Tory party, but that does not mean he would warm to all the policies a Conservative government might pursue.

“There’s a very good bet that VAT will be brought in line with Europe [under a Conservative government],” he judges, meaning it would increase to 20%. “That would not be helpful.”

However, he adds: “I would like there to be a Tory government - a change is good. They won’t necessarily be the party for business any more though. But if people are happier and feel they’re doing a bit better, as a retailer you’re a beneficiary of that.”

This optimistic outlook is classic Kirkham. Sitting in on one of DFS’s training sessions - a motivation class for his sales teams - Kirkham looks visibly excited. The trainer - Olympic rower Ben Hunt-Davis - explains that if people think positively they are more likely to get the desired results. This strikes a chord with the entrepreneurial Kirkham. “I’m never looking for failure, I’ve always been optimistic,” he explains later. “I think 2010 will be a year of great opportunity. We’ll be sat here next year and I’ll tell you we’ve had a better year than last.”

That would be no mean feat.

As Retail Week revealed last week, in the year to July 2009 DFS’s EBITDA soared 42.1% to a record £86.7m, in as tough a trading environment for furniture retailers as anyone can remember. Like-for-likes are up double digits in the present financial year to date.

DFS may be sitting comfortably as one of the star performers of the troubled furniture sector, but one big question mark hangs over its future: who will succeed Kirkham? It is a question he seems to have been avoiding in recent years and, uncharacteristically, the 65-year-old admits he is ill-prepared to step down.

“I’ve been so busy doing the job I’ve not thought about a successor. I always thought I’d be here so it never dawned on me that there would ever be such a thing as a succession issue, although it should be beginning to because of the age scenario,” he says matter-of-factly. “But this is genuinely not a job. It’s what I do. I don’t play golf, I don’t shoot. I like this - it’s my turn-on.”

The succession question

Retiring is not something Kirkham likes to contemplate, although he admits succession conversations have been happening internally.

“We’re moving to that stage now. We’ve talked about it over the years but done bugger all about it,” he says.

Jon Massey, Kirkham’s right hand man for 21 years and chief operating officer, “would be great” according to Kirkham, but Massey is also in his 60s.

Middle management within DFS is “very very good”, but Kirkham - who points out that he is “not looking for anybody to take over the reins” just yet - adds: “We might well need an injection of new people who think differently. There are things that younger people can bring to the business.”

One former colleague of Kirkham says there is an “extremely capable” team behind the tycoon that remain hidden. “Graham keeps them quiet because he doesn’t want anyone to poach them,” the source says.

DFS is considering a sale or float, and while any would-be investors may want an answer to the succession question, they can take comfort in Kirkham’s plans to grow DFS. Kirkham believes there is “loads” of growth left. “If DFS can’t do £1bn turnover I’d be staggered,” he maintains. “I can’t see myself being out of this business until I do £1bn.”

With a turnover of £577.8m now, how does Kirkham plan to reach his target?

First, he intends to open more stores. DFS has 78 shops, including one new store in Inverness - the first opening in three years. Kirkham has identified “at least 30” further locations.

Some of those stores might be on the high street. “There must be an opportunity in smaller formats on the high streets of secondary towns like Hereford,” he says, adding that shops of about 6,000 to 7,000 sq ft could work.

Nor would he rule out opening overseas. “We’ve thought about it loads.

If we were to do it we’d maybe open somewhere radical like China,” he says.

Kirkham also wants to “do more business in existing stores” by creating more selling space, widening the product range and increasing the average order value.

In DFS we trust

Kirkham says DFS benefited in the recession, as cash-strapped shoppers sought out brands they could rely on. “The brand thing is massively important. When things got really tough 18 months ago, consumers wanted to deal with people they could trust,” he says.

This trust came, in part, from maintaining awareness of the brand - something very close to Kirkham’s heart.

In 2009 DFS was the biggest retail spender on advertising, splashing out £87.8m across the year, according to data company Billetts Media Monitoring. DFS is known for its ubiquitous TV ads, but Kirkham insists: “We don’t do as much as people think we do. And they may all look the same to you but we try like hell to be innovative.”

DFS may have enjoyed success in the past 18 months when others have floundered, but Kirkham has not found things easy. He recalls with regret how the retailer made redundancies for the first time in its 40-year history in 2008.

But it was not just self-help that sealed the retailer’s success. The springs broke at Ilva, Land of Leather, MFI and The Pier, which have all disappeared from the retail landscape, while others including Sofa Workshop, ScS and Lombok wobbled and were bought out of pre-pack administration.

Kirkham says competitors’ withdrawal from the market helped. “It made our suppliers and employees realise that there was no depth to some of those companies, whereas ours is strong,” he says.

He believes non-specialist retailers that sell sofas are not a serious threat. Tesco is a phenomenal organisation but how can they possibly be as good at selling upholstery as us?” he asks. “And even with argos“>Argos - who I rate tremendously - it is just a small part of their business. A lot of them have yet to discover they’re not desperately good at it.”

But Kirkham - a miner’s son from Yorkshire - is modest when it comes to his own prowess, insisting his success is down to “nothing clever”.

He says: “I’m about furniture, inside out. I know the absolute basics - buy at one price, sell at a much higher price and keep costs down in between. It’s dead straightforward.”

He even thinks other individuals could have made a better stab at DFS than him given the chance - namely Home Retail Group chief executive Terry Duddy and Debenhams chief executive Rob Templeman. He also cites frozen food retailer Iceland’s chief executive Malcolm Walker. “He knows nothing about selling furniture, but he would’ve come here and run this company better than I have,” he says.

Hard work and determination

Kirkham has hardly made a bad job of it though. He says self-belief and being “massively determined” helps, as does his famous “leading from the front management style”. He admits that when he first set up the retailer he was a “control freak” but he has learned to adapt. “As the business got bigger I was forced to delegate and I welcome doing it with capable people,” he says.

The former colleague describes Kirkham as “the most inspirational character” he had ever worked with, adding: “He cares about every single person and every single penny to do with that business. He’s massively self-deprecating, and is able to switch personalities to suit occasions.”

It seems he was able to do that in the Square Mile, when DFS was a listed company from 1993 until 2004. Despite an acrimonious spat with shareholders when he took it private, Kirkham recalls the time he spent as the boss of a public company fondly. “I was constantly being challenged,” he says. “I liked that period, it was really good for me. We’d float again if it suits us.”

DFS is synonymous with sofa selling, but would Kirkham ever consider diversifying into other areas of furniture? No, because he values his relationships with his peers. “It’s a hell of a lot easier to make beds, and there’s a massive opportunity there, but I wouldn’t do it because I like Dreams,” he says. “I wouldn’t do it in carpets either; I like the people,” says Kirkham, referring to Lord Harris, founder of Carpetright. The two are old friends. “Would I really, for £10m, want to upset my friends?” he says.

DFS has three UK factories where it makes its sofas, and Kirkham claims DFS makes more upholstery than anyone else in the UK. “We ask: ‘What do customers want?’ We’ll develop the skills and learn how to make it. That’s quite radical compared to some people, who make products their warehouse will allow.”

It seems to be a model that is working, although Kirkham - who jokes he has only just learned what the abbreviation IT stands for - admits that DFS could be doing more to harness the power of the web, and plans to launch a transactional website at some point in the future.

Kirkham may not be a technological whizz kid but he is young at heart in other ways, and is full of energy, ideas and enthusiasm that many people half his age would be proud of. It is hard to imagine him stepping down any time soon, but isn’t a small part of him looking forward to retiring and putting his feet up?

“I can put my feet up here,” says the bookworm, looking around his office, which is full to the brim of novels, business books and magazines, as well as a painting of a bull fight on the wall. He says “a lot of reading needs to be done” to stay ahead of the competition.

Kirkham rarely takes his mind off the job, and no doubt that is one of the secrets of his success. Whenever it begins, the search for a successor who is as dedicated to DFS as Kirkham will keep everyone in retail on the edge of their sofas.