Sofa retailer DFS has issued a warning to the market, stating that the current economic climate has been “significantly worse than expected,” impacting the demand for big-ticket items.
The company attributes this downturn to the cost of living crisis, which has led to a decline in sales volumes across the market by 15% to 20%. DFS, however, reports that it is outperforming the market, with gross sales down 4% from 2022 but up 15% compared to pre-pandemic levels.
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The company’s market share has increased to 38%.
Cost-cutting strategies in challenging conditions
DFS has implemented cost-cutting strategies to alleviate the impact of the challenging market conditions on its profits. The company expects its profits for the year to slightly surpass £30 million.
In March 2023, DFS downgraded its profit expectations to between £30 million and £35 million, a significant decline from the £60.3 million underlying profits reported in the previous financial year.
The company’s prudent planning, effective cost control and a return of freight costs to pre-Covid levels are expected to contribute to a slight profit increase in the financial year 2023-24.
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By GlobalDataMarket outlook tied to housing market health
DFS anticipates a mid-single-digit decline in market volumes in 2023. Sales of home furnishings are closely linked to the state of the housing market, where the rise in interest rates has resulted in a decrease in asking prices for property.
Despite the current challenges, DFS CEO Tim Stacey remains optimistic about the company’s position, stating that it is in its strongest market share position ever as a group.
Stacey believes that when the market eventually recovers, DFS will be well-positioned to execute its growth strategy and increase its earnings and cashflows in line with its long-term plan.
Consumer behaviour and discretionary spending
DFS’s latest trading statement contrasts with its post-lockdown period, during which sales of sofas experienced a surge as people refreshed their furniture after being confined to their homes for an extended period.
However, a consumer survey conducted in April 2023 revealed that 41% of people with savings have not made any big-ticket purchases this year, and 34% have no plans to do so for the remainder of 2023.
More than half of UK consumers have reduced their discretionary spending since the beginning of the year.
