Big names muscle in as small furniture shops feel the heat

Independent furniture retailers will become a thing of the past, according to a report just published as consolidation becomes a common theme across retail.

In under a week, two big retailers have been eyed up for takeover by investment companies. Supermarket chain J Sainsbury – despite its protestations – and US department store Macy’s both look set to become statistics in the thriving acquisitions market. Furniture retailers could be next on the agenda.

As yet the European furniture market is dominated by small independent specialists. However, Verdict Consulting’s report on the €120bn (£80bn) furniture market concludes that consolidation is set to sweep the industry, with potentially devastating consequences for small enterprises. According to the report – European Furniture Retailing 2007 – truly independent furniture specialists ‘will become a thing of the past’.

The report’s author, Daniel Lutz, says, ‘Smaller-scale mid-market operators will be the most likely takeover targets for value and discount operators like Ikea and Lutz.’ He adds, ‘The concentration process is also in full swing among buying groups. This will lead to the exit of many smaller independents from the market.’

Pressure is also coming from discount stores and DIY chains such as B&Q, which are cashing in on an upsurge in consumer interest in everything to do with the home.

B&Q first entered the furniture market in 2002 and now offers kitchens, bathroom and bedroom furniture. Sarah Wade, account manager for B&Q at design consultancy Elmwood, says, ‘B&Q and Homebase are tapping into the consumer interest in home decoration. The quality of design of cheap flat-pack furniture has risen over the past decade, led by Ikea. The cynical view is that big companies taking over the market will result in a reduction in choice and product quality, but retailers are good at understanding that their customers won’t put up with poor-quality merchandise. As long as DIY retailers can get the design side right, then they will do very well.’

Earlier this year retail consultancy The Chambers contributed to a report for the London Development Agency on the independent furniture retailing sector in London, and reached different conclusions to Verdict. The Chambers partner Susan Williamson agrees that the rise of big players in the homewares industry will continue, but claims that smaller designers and retailers are not under threat.

‘The independent specialists will not die out,’ she says. ‘While the top and bottom ends of the market are served well, there is not much choice in the mid-market. There is a huge opportunity for designers to create products for people who want something different but cannot afford to pay a premium for it.’

According to the LDA report, independent retailers will need support from regional development agencies. ‘Where there are particular areas which are known for furniture shops, cluster marketing would help,’ says Williamson. ‘Also, delivery is often a problem for smaller shops, so authorities need to look at infrastructure.’

Verdict’s report advises independent furniture specialists to exploit current consumer trends such as ecological awareness.

There is also one further tip for those hoping to survive changes in the market. A third report on retail shopping habits – Retail Therapy or Retail Hell – is published this month, by the Ripple Group. This claims that 68 per cent of couples are most likely to argue when shopping at the weekend, often in DIY stores.

Ripple managing director David Wolfenden says, ‘Shops need to be smarter about making the best use of space, without customers feeling bombarded by products and information. By ensuring that you do everything you can to create a relaxed environment, retailers will not only accelerate sales, but will generate repeat business.’


KEY POINTS FROM VERDIC’S REPORT
• Consolidation is due to sweep the furniture industry
• Value and discount operators such as Ikea, Conforama and Lutz will continue to expand and capture share from smaller retailers
• Smaller independent furniture specialists are the most likely takeover targets
• There is a growing threat to specialists from clothing retailers such as Zara Home and Next
• Price wars and discounting will squeeze margins
• Many small independents will exit the market
• The furniture industry grew by 2.1% in 2006, heralding the start of recovery after several years of minimal growth