Retail: Furniture Insights

March 2011

Contents

Home Furniture Summary

Total furniture sales are estimated to have declined by 3% in 2008 and 5% in 2009 to a value of just under 11.1 million. Sales were hit badly by the economic downturn over the last few years and slump in the housing market.

There have been some major casualties in the sector, including MFI, Land of Leather and The Pier, which left a sizable market share for other retailers to pick up. Furniture is an infrequent purchase, with the biggest reasons for buying furniture being to replace worn out items (38%) or following the redecoration of a room (33%). IKEA is the most popular choice for furniture over the last three years (31%), followed by the DIY stores collectively (20%) and Argos (18%). Furniture retailers have big advertising budgets, with 384 million being spent on advertising in 2009 alone, some 26% of it by DFS. Special offers and discounts influence the choice of stores of just over a third of adults (35%) and 28% wait for the sales before buying.
Just under half of adults (49%) say their choice of store is influenced by it having good quality ranges that will last and 38% want knowledgeable and helpful staff.

A considered approach is taken to purchasing, with 38% visiting a number of stores in person before buying and big use of the internet as part of the buying process.

Source: Mintel, Furniture Retailing Report, 2011

Furniture Market Size and Forecast

Mintel predicts the market will continue to grow YoY, however not reaching levels of 2007 in the next 4 years Late 2009 saw a recovery in furniture sales, but confidence remains fragile and the incomes squeeze is likely to have a further impact on furniture spending in late 2010 and 2011, although the VAT increase will mean some growth in value in 2011. UK retail sales of furniture*, 2005-15 Mintel forecast
12,200

12,000
11,800 11,600 m 11,400 11,200 11,000 10,800

10,600
2005 2006 2007 2008 2009 2010 (est) 2011 (fore) 2012 (fore) 2013 (proj) 2014 (proj) 2015 (proj)

* Includes living, dining, bedroom, kitchen, bathroom and home office furniture

Source: Mintel, Furniture Retailing Report, 2011

Home & Garden Furnishing Search Traffic KPIs

Traffic Searches for home & garden generics increased by +37% between 2009 and 2010 Searches for home & garden generic increased by +15% Oct to Dec 2010 v Oct to Dec 2009.

Insights: Sales by DIY retailers in 2010 were 10.9 billion, down 2% on 2009 (Mintel) Over the last five years there has been a fall of 4 percentage points to about 56% of the adult population, that's 2 million fewer people undertaking DIY projects (Mintel)

1. Microsoft Advertising Intelligence Tool

Home & Garden Demographics and Daily Trends

Sunday has been the largest traffic driving day over the last 2 months, followed by Monday (Boxing Day fell on a Monday) Potential incremental targeting opportunities would include up-weighting between Sunday to Wednesday

The 35-49 age brackets are the main age groups for traffic with 32% . 25-34 year olds are slightly higher than the 50-64 age bracket with 24% of Search traffic coming from this age group Gender breakdown slightly favors females (52%), however 2% of searches the gender is unknown.

1.Microsoft Advertising Intelligence Tool December 2010 to Feb 2011 data

Display Advertisement Publisher Location: Reach and Frequency (Retail Home Furnishings)
Microsoft sites delivered the second highest number of unique visitors for Home Furnishing retailers despite having significantly less ad impressions compared to eBay! Microsoft sites delivered 7m+ unique users, more than Glam Media and Facebook combined

Source: ComScore adMetrix Home Furnishing : January 2011

Display Advertisement Publisher Location: Reach and Frequency (Retail Home Furnishings)
Microsoft sites also had a very competitive share of Home Furnishing retailers ad impressions in January Average frequency is less than eBay, Yahoo! and Glam Media.

Source: ComScore adMetrix Home Furnishing : January 2011

Top Advertiser by Impressions and Unique Users ComScore AdMetrix

Advertiser classification is based off comScore adMetrix category classification Source: ComScore AdMetrix January 2011

Industry Insights

Furniture Market its piece of the retail puzzle

There has been a decline in the number of people buying new furniture over the last five years, largely due to replacement purchases being delayed. Prices have increased as retailers have moved to protect margins from rising raw material costs, increased shipping costs and the impact of exchange rate fluctuations. There is a lot of volatility in consumer prices throughout the year due to furniture sales. Late 2008 and early 2009 was the worst period for company failures in the sector, with MFI being the biggest casualty in November 2008. Retail sales through furniture retailers fared much worse than overall retail sales, as consumer confidence was hit by the economic downturn and subsequent recession.

Although house prices have recovered considerably, which will help confidence, the number of housing transactions remains a long way short of volumes seen in 2006 and 2007.
The incomes squeeze and threat of higher interest rates to deal with inflation mean the trading environment will remain challenging. Margins remain vulnerable to the rising cost of imports as a result of currency fluctuations. The projected increase in the number of households will help to expand the customer base for furniture retailers to target.

Source: Mintel, Furniture Retailing Report, 2011

Strengths and Weaknesses

Strengths
Need for replacement This assures a certain level of furniture buying. Number of households Growth over the next five years means more demand. Home formation group More 25-34s setting up home should benefit the market.

Weaknesses
Housing market The number of transactions remains low, impacting on furniture sales. Incomes squeeze Inflation exceeding wage rises and austerity measures on the way. Interest rates With inflation above target interest rates may have to rise. Cost of imports Currency fluctuations and rising raw production and shipping costs. Ageing population Over-65s growing in numbers but less likely to buy furniture. Focus on the sales The heavy emphasis on price does not help the image of furniture retailers.

Growing affluence Should help increase spending on big-ticket furniture items.

Fashion and style Interest in improving the look/style of the home helps to drive sales. Home as venue More focus on the home should help stimulate furniture sales. Desire for quality A recognition that finding quality furniture that will last is important.

Infrequency of purchasing Furniture not bought very often, so less scope to build loyalty.

Furniture Channels of Distribution

Large furniture multiples account for a third of the market in 2009 (not shown), but there is also a large share accounted for by smaller chains and independents. DIY stores and supermarkets have both increased sales, while online purchasing has grown in importance. UK retail sales of furniture*, by channel of distribution, 2005-15
Home shopping

(including online)
7% DIY stores 9% Other 6%

Department and variety stores 11% Furniture specialists 61% Argos 6%

* Includes living, dining, bedroom, kitchen, bathroom and home office furniture

Source: Mintel, Furniture Retailing Report, 2011

Sources of Purchasing for Furniture

Outlets used to buy any furniture in the last three years (2007 2010), May 2010
Base: 1,497 adults aged 15+

IKEA DIY chain Argos Small/regional furniture chain/independent Bed specialist DFS Supermarket (for example, Tesco, Asda) Other large furniture chain Other home furnishings store Mail order/internet John Lewis Next Other sofa specialist Kitchen specialist M&S Other department store 0
4 4 4 5 5 6 6 6 8 8 9 11 13 18 20

31

IKEA has retained its position as the most popular choice for furniture. DFS is the next most visited individual specialist retailer. DIY chains and Argos have the biggest presence after IKEA in the overall furniture market. Other non-specialists such as John Lewis, Next, M&S and supermarkets are also important.

10

15 %

20

25

30

35

Source: BMRB-Omnibus, a division of TNS-RI/Mintel

Factors Influencing Choice of Store Price and Product Ranges

Influence of price and product ranges on choice of store, May 2010
Base: 1,497 adults aged 15+

Good quality ranges that will last

49

35

Special offers/discounts
Large range to choose from

32

For half of adults the choice of retailer is influenced by the outlet offering good quality ranges that will last, showing recognition that better quality furniture can be an investment. Special offers and discounts are more important than just finding the cheapest priced furniture, as consumers look for retailers that give them more for their budget.

Cheap/low prices

28

Something a little more unusual Can buy other home furnishings there 0

12

10

20

30 %

40

50

60

Source: BMRB-Omnibus, a division of TNS-RI/Mintel

Factors Influencing Choice of Store Service and Other Factors

Influence of service and other factors on choice of store, May 2010
Base: 1,497 adults aged 15+

Knowledgeable and helpful staff Available immediately Have bought goods there before Not too far to travel Company won't go bust before delivery Delivered ready assembled Interest-free credit Available flat packed 0 5 10 6 10 15 20 % 25 30 35 16 20 23 26

38

Customer service is important to furniture shoppers, with the choice of retailer of nearly four in ten adults being influenced by the store having knowledgeable and helpful staff.

16

Items being available immediately and having bought there before are other important factors influencing choice of store.

40

Source: BMRB-Omnibus, a division of TNS-RI/Mintel

Shopping Behaviour When Buying Furniture

Agreement with statements on buying behaviour when purchasing furniture, May 2010
Base: 1,497 adults aged 15+

Visit a number of furniture outlets in person before buying Use the internet to compare prices and then buy in a store

38

36

In common with most big-ticket purchase items, shoppers for furniture carry out a lot of research before making their final purchase decision. Four in ten adults visit a number of furniture outlets in person before buying, emphasising the continued importance of showrooms as part of multichannel retailing offer. The internet is a key part of the buying process, mostly for comparing products and prices, but catalogues still also have their place for getting ideas of what to buy.

Go back to a store I have used before

28

Look through catalogues before visiting shops Compare products and prices online and then buy online 21

20

Look around the shops and then buy online

13

Be prepared to travel some distance to get what I want

0 5 10

12

15

20 %

25

30

35

40

Source: BMRB-Omnibus, a division of TNS-RI/Mintel

Importance of Price, Advice and Ideas When Buying Furniture

Agreement with statements relating to price, advice and ideas when buying furniture, May 2010
Base: 1,497 adults aged 15+

Look for value for money rather than cheapest price Wait for the sales before buying Talk to sales staff about the products before buying Like to see room sets to give me ideas Pay more for furniture for certain rooms than others Like advice from style advisors for a complete room look Like a home assembly service for selfassembly furniture 3 28

37

19

The search for value for money rather than cheapest price is central to the process of browsing and comparing various items of furniture. Although shoppers have already been shown to want knowledgeable and helpful staff available, only one in five are likely to discuss products with sales staff before buying.

17

12

10

15

20
%

25

30

35

40

Source: BMRB-Omnibus, a division of TNS-RI/Mintel

Reasons for Buying Furniture

Reasons for buying furniture in the last three years, May 2010
Base: 1,051 adults aged 15+ who bought furniture in the last three months Old furniture was soiled/damaged/broken Wanted new furniture for a redecorated room Wanted a new look/style Needed more furniture for storage Moved to different size/style of home Saw a good sale/special offer Changing family needs (for example, new baby) Just saw something I liked in store Bought home for the first time Built extension (including conservatory)

38 33 30 18

Furniture is largely a replacement purchase, with the biggest reason for buying being to replace worn out items. Redecorating a room is also a major trigger for buying. The desire for a new look or style is also important, emphasising how changing fashions in home furnishings can act as a big driver of sales. Practical considerations also come into play, including the need for more storage, changing family needs or a move to a different size or style of home.

16 15 15

14 8 5 0 5 10 15 20 % 25 30 35 40

Source: BMRB-Omnibus, a division of TNS-RI/Mintel

Identifying Targets
Target buying groups for furniture, May 2010
Base: 1,497 adults aged 15+

Online Focused 21% Sales Shoppers 31%

Furniture Enthusiasts Highly engaged in the furniture buying process and very interested in the product, including visiting a lot of shops, looking through catalogues and talking to sales staff about products. Sales Shoppers Significantly more likely than average to wait for the sales before buying and more likely than average to visit a number of stores, but do not have much interest in furniture. Online Focused The overwhelming majority use the internet to compare prices and then buy in a store. They are also the most likely to browse and buy online, and look around the shops and then buy online.
Furniture Enthusiasts 18%

Apasthetic 30%

Apathetic Very little interest in furniture buying and show a lower than average response to every statement.

Source: BMRB-Omnibus, a division of TNS-RI/Mintel