Furnishings market looks highly sprung as retailers chase growth

The 'home' sector is growing fast but critics believe there will be casualties

It can all be traced back to one announcement in December. The news that Vittorio Radice was to quit his job as Selfridges' chief executive to spearhead Marks & Spencer's drive into the home furnishings market lit the blue touch paper under one of the UK's biggest retail growth opportunities.

Flamboyant, media-friendly and passionate in a way few British managers could ever match, Mr Radice has managed to make the "home" market sound like the new rock 'n' roll. Coming just a month after GUS's announcement that it was to pay £900m for Homebase and attack the softer end of the DIY market, Mr Radice's decision caused the frenzy to reach boiling point.

But is there room for all the players who want to play the home furnishings game? That was the question posed at a retail conference yesterday organised by HSBC investment bank. Called "Is @home the new dot con?", the seminar's title showed that the bank has its reservations over whether the substance will justify the hype.

Indeed, in a 98-page research note on the subject, Mal Patel, HSBC's retail analyst, said: "Home furnishings is a large, fragmented market with perceived growth opportunities for non-specialist operators. In reality it is complex and highly competitive with challenging financial dynamics and only selective opportunities. There are some large ambitions around and some punchy investment plans; not all of these will prove justified."

That the market is growing is beyond doubt. Stripping out DIY and electricals, the home furnishings sector is estimated to be worth £24bn, according to Verdict Research, and is one of the fastest-growing parts of the retail sector.

As the middle chart above shows, driven by low interest rates, low unemployment, a strong housing market and a large capacity for debt, the markets for homewares, DIY and gardening and furniture and floor coverings have achieved far greater growth over the last 10 years than areas such as clothing, electricals and health and beauty.

Add in the growing number of single households and the fashionability of home furnishings helped by television makeover programmes such as Changing Rooms and it is hardly surprising that the home market is being invaded by just about every retailer you can think of. These include Matalan, Next, J Sainsbury, French Connection and Burberry. The market is still relatively fragmented with a large part of the sector still accounted for by independents.

But despite HSBC's scepticism, a bevvy of executives from major retailers turned up at the conference to explain their strategies, led by Mr Radice himself.

The 45-year-old Italian was in typically compelling form, giving a conceptual vision of how the new M&S Lifestore shops will look. There was a bit of extra detail too. For example, M&S has earmarked £60m of capital expenditure on the project this year, including £13m for the first Lifestore to be opened in the MetroCentre complex in Gateshead next spring. Another £7m is for the conversion of existing home furnishings space in other M&S outlets. "The rest is for other opportunities," he said.

As well as the plan for two, possibly three trial stores before the concept is rolled out, Mr Radice said M&S would also look at "single concept stores", on smaller sites. These could include "celebrations stores" that would focus on cards and gifts in outlets which, Mr Radice, said could be located next to its Simply Food convenience stores.

There was even a joke about the life-size house that will be located in the atrium of the Lifestyle stores. The houses will be sponsored by a mortgage provider or housebuilder and available for sale in their entirety, furnishings included. "We have financial services too at Marks & Spencer, so we can even provide a mortgage."

Prices will be lowered across the existing M&S home range, he said. "At the moment our prices are quite high against the average. We have to correct that."

He had other criticisms too. Asked about the M&S store environment, he said: "I think the problem is that in some of the stores I visit, the stores are not what you would expect in 2003. It's more like 1981."

Also the subject of criticism was the whole furniture supply chain, which means it can take 12 weeks to have a new sofa delivered. Ann Gordon, trading director of the department store group House of Fraser, said: "The home industry is not as dynamic as the fashion industry but it is learning. It has to."

For its own part House of Fraser will launch the new Content by Conran range in 16 of its stores in September. It is also pushing its Linea own-label range of furnishings, which was launched in 1999.

MFI, which underlined its intentions with the acquisition of the Sofa Workshop stores last year, said it was aiming at "every room in the house". It wants to add 25 per cent to new ranges each year and invest £20m each year in product design. It said the market was moving from DIY to DFY (Done for You).

Among the major home improvement retailers, Kingfisher, owner of B&Q, also highlighted a change in the traditional DIY market, with a shift towards more "feminine" values of style, fashion and accessories. Jeremy Maxwell, the group's director of strategy, said customers in the home sector were increasingly cash rich and time poor, less skilled in DIY and with women taking more control of purchasing.

Mr Maxwell said: "It is fair to say that B&Q will shift slightly softer, that's the way the market is shifting." But he added that B&Q would not be expanding aggressively into home furnishnings, preferring to add selective softer ranges while remaining loyal to its traditional roots. He commented: "Some of our customers say to us, 'It's B&Q, it can't get too poncey.'"

GUS highlighted the opportunities with Homebase, where it plans to introduce mezzanine floors in up to 200 stores. These will feature traditional DIY materials on the ground floor with areas devoted to kitchens, bathrooms and home furnishings on the upper level.

Alison Richards, chief executive of The Pier, was the only speaker to address head-on the issue of whether the home furnishings market really is the new dot con. She admitted that the UK home sector was at a primitive stage of development and added that she had "lost count of the number of times in the last 25 years that people have come back from the United States and sworn they'll make their homewares offer just like Crate & Barrel. It's never happened."

Explaining why, she said US homeowners had more disposable income to spend on their homes as land costs and therefore housing costs were lower. She added that the lower retail rents in the US meant the economics of home furnishings retailing in the US were very different to those which apply in the UK. "Consumers here are prepared to pay a premium for apparel but less so in homewares," she said.

But she said the rise of home furnishings was different to the dot.com boom in that it had a richer history, with established brands.

Even Mr Radice acknowledged that the jury was out on whether he could make a success of M&S's charge into the home market. Saying he had to deliver value to shareholders, he concluded: "If we can't do it, I'm not sure you'll see me again."