24 Sep 2020
Posted in Retail
DFS starts strong but future conditions mean it cannot sit comfortably just yet
Following today’s release of DFS FY figures for 2019/20, Matthew Walton, Senior Retail Analyst at GlobalData, a leading data and analytics company, comments:
“The stop-start nature of the furniture sector in 2020 has been highlighted by DFS, which went from trading broadly in-line with last year prior to April to revenues falling by 27.3% to £724.5m for the year, as lockdown prevented it from completing deliveries. This weaker top-line performance filtered through to its pre-tax profits which, despite lowering costs through negotiating rent reductions and redistributing marketing spend, swung from a £48.7m profit to a £58.3m loss. However, since re-opening DFS has experienced a surge in orders as pent-up demand was released, with store orders up 69% for the six weeks to 12 July.
“This momentum continued throughout August and September and for the first 12 weeks of its FY2020/21, orders worth £126m in revenue were made as shoppers emerged from lockdown in a more cash-rich position. Money which had also previously been earmarked for foreign holidays was also transferred to home improvements such as new sofas. There is also evidence that customers are trading up when buying, with the average order value up 7.6% for the first 12 weeks. DFS’ investment in online, to improve speed and functionality and launch the second iteration of its augmented reality offer, has also supported growth with online penetration up 3ppts to 22% over the last six months.
“Coupled with a further £100m in revenue being recognised during its FY2020/21 from orders made but not delivered in FY2019/20, DFS has had an exceptionally positive start to its current financial year. These early gains are likely to feed in to a market share increase as it capitalises on retailers which struggled during lockdown, such as Harveys and Oak Furniture Land, as the latter closed 27 stores since being acquired in a pre-pack deal.
“However, trading conditions from October onwards are likely to deteriorate and dent the demand for big ticket purchases. With no current indication that the government furlough scheme will be extended beyond October, shoppers may start to reconsider making larger purchases. Fears over job security, with unemployment forecast to increase dramatically, and the uncertainty surrounding the end of the EU transition period will also dampen consumer confidence. While we are not expecting another shutdown of non-essential stores, increased restrictions and fear of COVID-19 will mean shoppers are more likely to be hesitant about going to stores and short circuit the current customer journey for upholstery. With healthy cash reserves, DFS is in a strong position, but the next three months are set to remain challenging.”