Sofas giant with designs on expansion

Joan Giles’ hands are moving so quickly it almost makes one’s vision blur. The 59-year-old is sewing together the fabric that will make the covering for a DFS sofa, and she is doing it at lightning speed. Joan has worked in the Nottingham factory for 27 years and is renowned as the quickest sewer, according to DFS chief executive Ian Filby.

However, she’s not the only fast-fingered one. The room is dominated by the sound of busy sewing machines in a rare display of British retail manufacturing.

Everyone knows DFS as a retailing powerhouse, but it is also one of the leading manufacturers in the UK. In fact, it is the most prolific sofa maker in the country, let alone the biggest sofa seller. Last week it revealed rising full-year profits despite the challenging trading conditions.

Walking into the DFS factory is a bit like stepping back in time, not because the conditions are poor but because it is such a rare sight to see manufacturing on such an industrial scale after years of retailers sourcing from China.

The bustling scene is a lot to take in. Behind the largely female workforce is another huge room full of men banging nails and stapling fabric to frames in a well-oiled production line that makes 180 sofas every day.

Everything is being done at break-neck speed to get the orders out to schedule. There is another reason too – the workers’ pay is based on their output so the more they get done, the more pay they get.

From beginning to end, in 50 minutes, a sofa is transformed from a barely recognisable wooden frame to a suite heading for – in this case – the New Malden store.

The manufacturing sets DFS apart from most of its rivals. Will it make more of its UK manufacturing business, which creates jobs in the UK and contributes to the economy?

“Customers would see it as  a positive,” says Filby. “It’s an asset of the company, a hidden gem.” He says that for a long time manufacturing in Britain was not popular. “But now it’s become an opportunity,” he maintains.

“I wouldn’t be surprised if we leverage it in the next few months.”

Product pride

A third of DFS products sold are made by the retailer, up from a quarter a couple of years ago. Manufacturing sofas means DFS does not have to pay suppliers for a large chunk of its products.

And while the cost of manufacturing is higher in the UK than in the Far East, from where many retailers source, DFS does not have to pay expensive shipping rates on those products. Filby says that, as a result, manufacturing in the UK “adds a tiny bit to profitability”.

DFS’s vertically integrated business gives it another advantage, says Filby. “It’s a really important ingredient in the company structure as it gives us end-to-end control,” he says.

And that’s control over the design, sourcing of materials, working conditions, building of the sofas and distribution.

DFS does not operate a warehouse facility. All sofas are made to order in the factory, then loaded onto a van to be delivered to the correct store. Sofas are then taken to homes by DFS delivery drivers.

The decision to buy the main factory – DFS operates three – in Nottingham came about by chance. The original owner had gone bust, and 2,700 jobs were at risk – as well as DFS sofas. It was a large supplier to the retailer, and was in such a bad state that there were chalk markings on the floor saying “leak” which meant sofas could not be stocked there over night, according to factory manager Harvey Ellis.

DFS swooped in and rescued the factory, and it proved a decisive moment. The retailer transformed the factory that formerly churned out 225 customer orders  per week under its previous management in 1999.

Within a short space of time, DFS had upped that number to 800, with the same workforce.

The factory now features the latest robotic cutting machines and design packages that result in minimal waste. DFS has a team of designers that come up with new ideas on a weekly basis, resulting in a newness that is hard for rivals to copy.

Up to 300 prototypes are sent from the design team in Nottingham back to head office in Doncaster where Filby and the merchandising team choose which ones will make it onto the shop floor.

About 10% of the design team’s prototypes are sent to production and can end up on the shop floor in two to three weeks. Filby says the process “costs a lot of money” but is worthwhile. “Huge amounts are invested in product development. We’re expanding the marketplace,” says Filby.

Historic change

After years of steady ownership under Lord Kirkham, DFS is going through probably the biggest change in its history. It is under new control after being acquired by Advent International last year and it also has a new boss in Filby, who joined from Boots UK. How have the staff, some of whom have been there for decades, taken to the new management?

Filby says there has been minimal disruption after DFS’s figurehead Kirkham stood down. “One of the things I wanted to achieve was to settle everyone down in the organisation,” says Filby. “The only person we lost is the finance director and that’s because he retired.” He insists: “I’m a DFS employee, not an Advent employee.”

With a change of leadership often comes a change in strategy, and Filby has embarked on an expansion plan for the first time in almost a decade.

Under Kirkham, DFS opened few stores in recent years, but with a private equity firm looking for an exit in a few years, growing the top line is vital, and Filby has drawn up plans to increase store numbers by 25 in the next three years.

Five have opened in recent weeks in Huddersfield, High Wycombe, Hereford, Colne and Old Kent Road in London, taking the store count to 80. Filby says calculating where to open DFS stores is easy – he has the address details of anyone who has ever purchased from DFS. “It’s not difficult to map the radius of customers from current stores,”  he says.

There is good coverage of the UK for DFS, so Filby says the expansion plan is more about infilling. He adds: “It’s easier to do these expansion deals with landlords when you’re one of the few people doing well.”

DFS revealed full-year EBITDA growth of 11.4% to £80m in a “very challenging” big-ticket environment, Filby notes. Sales, however, slipped 2.2% to £638.4m, but the retailer still outperformed a struggling furniture sector. Filby says DFS has prospered because of the trust in “tried-and-tested brands that offer good value”.

Bucking the profit trend

But just how was DFS able to grow profits so significantly as rivals suffer shrinking earnings and sales?

Filby says a close inspection of the cost base was crucial. “We were able to exploit efficiencies in big spend areas, particularly marketing, which has been an important factor this year,” he says.

DFS is famous for the scale of its marketing. The retailer is always in the top rankings of companies that spend on advertising, so its brand recognition is huge, but Filby believes that he can get more bang for his buck. “We’re a massive spender,” acknowledges Filby. “But we weren’t looking at whether we were buying as efficiently as we could.”

DFS put its lucrative marketing account up for tender this year.

Filby says a competitive process followed, leading the retailer to choose MediaCom.

“We’re getting to the same number of eyes and ears, but for less money,” says Filby, who says DFS has made “significant savings” as a result of the tender.  “People think we’re cutting back on advertising – I don’t think so. We’re on TV exactly the same amount and it’s still an important part of the model.”

It is not just the spend on advertising that has changed under Filby, but the tone of the ads too. He says they are more feminine than they used to be, with a softer female voiceover rather than the older in-your-face style.

Filby says these ads are aimed squarely at the decision maker in the house – while men, as much as women, make the transaction, it is primarily women that decide on which sofa to buy, according to Filby.

He says DFS also wants to communicate another message. Research revealed that customers “don’t really know” DFS. Filby says: “They understand low prices and interest-free, but they don’t understand our heritage, our designers and UK manufacturing. I’d like for them to have more affection for the DFS brand. We’re not a fly-by-night operation.”

DFS will still be promoting its seemingly never-ending Sales through the ads. Kilby rejects the claim that DFS is always on Sale. “We’re not always on Sale. We have two Sales a year, but they are long Sales and they last a couple of months,” he insists. He says longer promotions are good to drive revenues.

“Consumers like to believe they have got a bargain. As long as you offer value for money as a retailer, you can look yourself in the eye,” says Filby. DFS has been working on “evolving customer service in these tougher times”.

“We pride ourselves in being much less pushy [than rivals],” says Filby. DFS customers can even borrow suites while waiting for a sofa to be delivered. “Nobody else does that,” he claims.

The retailer is focusing on older people. “We’ve not looked after them enough,” says Filby. So DFS has introduced a range of upright armchairs that are easier to get up from. It is testing deliveries on Saturdays as well as working on a service allowing customers to monitor orders over an 11-week period.

While Filby is working hard at evolving an already impressive retailer, he is also focusing on maintaining the DFS spirit, as exemplified in the busy Nottingham factory.

• Click here to view the full company profile of DFS