Furniture – the bellwether of the retail sector

We had a series of poor results from the furniture industry and one shining exception. Added together they are a clear pointer of difficult times to come for the retail sector.

The retail sales data for furniture retailers has been weak.

  • At ScS order numbers fell 5% in its second half (6 months to end July 2017)

  • At DFS revenues were down 4% for the same period

  • There were good results for Oak Furnitureland, but it is a company which is still expanding fast and the latest figures only cover 2016

  • In addition, DFS has agreed to buy Sofology.

In Mintel’s recent report on Furniture retailing - UK, July 2017 we were cautious about the prospects for the sector and these latest results reinforce that caution.

The industry data

The latest retail sales data makes grim reading for the furniture retailers. The decline in the rate of growth over the last couple of years is immediately apparent. Note that the figures reflect actual sales and cash received and not orders taken. There is usually around an 8 week gap between taking orders and delivering the goods, so the order figures quoted by ScS are an indicator for the second half of the year rather than data that can be compared directly with these ONS figures. It would be wrong to compare either DFS or SCS with the average decline of 1% so far this year. Both are probably performing in line with the sector.

The upturn in June needs to be treated with caution. Inflation has been rising for furniture as in most sectors and consumers seem to have been prepared to absorb the extra cost, at least in the short term.

Figure 1: Furniture retailers year on year sales growth 2015-17
[graphic: image 1]
Source: Office for national statistics/Mintel

Why are sales declining?

Furniture is one of the most discretionary of all retail sectors. Furniture purchases mostly fall into two categories

  • 1. Replacing old or worn furniture. Such purchases can almost always be deferred when incomes come under pressure.

  • 2. Furnishing a new house, or replacing furniture on moving house. Such purchases are less discretionary, but relate strongly to housing transactions and they have been weak.

In both cases the indicators are moving against the furniture sector.

So we wonder if this was a good time for DFS to be making acquisitions. If, as we think is likely, furniture sales weaken further in the second half, then DFS may well have been able to pick up competitors more cheaply if it had been prepared to wait.

Consumer confidence weakening

Mintel carries out consumer confidence surveys. We ask internet users how they feel about their finances and how their finances compare with the same time last year. Both measures are clearly declining.

This decline should come as no surprise as real incomes have been falling through all of 2017 as we show in the Retail Sales section of this report.

Figure 2: Mintel’s consumer confidence tracker, 2009-17
Base: 2,000 internet users aged 16+
[graphic: image 2]
Source: Lightspeed/Mintel

The housing data is similar, but again actual completions reflect offers made several months ago and so are a lagging indicator of the state of the market. Even so, the seasonally adjusted data shows a decline since March.

Note that in the following chart we start the record in April 2016, a weak month after a huge spike in completions ahead of the increase in stamp duty.

Figure 3: Housing completions, April 2016-June 2017
[graphic: image 3]
Source: HM Revenue and Customers/Mintel

What about the rest of the retail sector?

The headline figures for the rest of the retail sector look better. Of course, falling retail incomes and declining consumer confidence are bad news, but spending has held up reasonably well in the first half of the year, finishing on a high note because of the warm weather in June.

But one of the reasons for the relatively strong data is that people have been prepared to spend more on food as food inflation has risen.

What it means

We come back to the title of this article – furniture is a bellwether for the retail sector. All the negative factors that we can see at the moment have been felt first in furniture. People are reluctant to cut back on their lifestyles and the easiest cuts to make are on planned expenditure which isn’t essential. That’s what is happening at the moment and we think that the weak performance of furniture is an indicator of what is likely to happen in the second half of 2017 and the run up to Christmas.

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