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  5. > Supply Chain Review of the Furniture Industry Market Report – UK 2014-2018 Analysis

AMA Research are pleased to announce the publication of the 2nd edition of the report ‘Supply Chain Review of the Furniture Industry Market Report – UK 2014-2018 Analysis’. The report includes up to date information on recent trends and issues that continue to impact on the supply of residential furniture through the supply chain into the different retail sectors.
The report contains:

• AN OVERALL REVIEW OF THE SUPPLY STRUCTURE - analysis of major developments and key driving factors.


• REVIEW OF THE MAJOR CHANNELS ACROSS THE SECTOR – assessment of each of the key retail channels.


• REVIEW OF THE OPPORTUNITIES FOR GROWTH AND CHANGE


• FORECASTS FOR MARKET DEVELOPMENTS UP TO 2018.


The report examines the various aspects driving change in the supply chain throughout the industry and assesses the likely future prospects for the sector through to 2018.

The distribution structure for residential furniture has been evolving in recent years and there have been some significant sectoral developments, particularly from ‘newcomers’ to the furniture sector, such as the grocery multiples and online distributors. In addition, builders’ merchants have also gained from significant kitchen furniture sales through Howdens, the trade supplier of fitted kitchens.

Areas of particular interest include:

• Market performance of Retail Multiple sector, positive performance of some key companies versus failure of others.


• Assessment of how the supply chain structure has changed
during the recession.

• The changing role and share of the Internet in the supply of furniture is assessed.


• A high level of imports, particularly from the Far East, continues to put pressure on UK manufacturers and influence certain key sectors of the market.


Leading companies mentioned in the report include:

Asda, A. Share & Sons, Argos, B & Q, Barker & Stonehouse, Bensons for Beds, BHS, C.S. Lounge Suites, Canburg, Cargo, Dean House, Debenhams, DFS Furniture, Dreams, Dwell, Furniture Village, Gower Furniture, Habitat Retail, Hammonds Furniture, Harrods, Harveys, Heal’s, Homebase, House of Fraser, Howden Joinery, IKEA Group, JB Global, John Lewis Partnership, Laura Ashley Holdings, Magnet, March UK, Mark Wilkinson Furniture, Marks & Spencer, Morrisons, Multiyork Furniture, Neville Johnson, Next, Nobia Holdings UK, Otto Versand GmbH, Reid Furniture, Sainsbury’s, Sharps Bedrooms, Shop Direct, Smallbone, Steinhoff UK Holdings, Tesco, Wren Kitchens.

Key areas covered in the report include:

THE STRUCTURE OF THE FURNITURE SUPPLY CHAIN

• Structure of residential Furniture Distribution in the UK, overall market definition, size and current situation 2008-2018, recent industry performance.


• Growth in imports and impact of lower cost imports on the supply chain to 2013.


• Current retail marketing mix, focus on the manufacturing retailers and their role in the industry, comment on store layouts and design.


• Future prospects – market size and forecast trends with prospects and forecasts up to 2018.


• Overall UK furniture industry market size, key drivers and recent trends.


• Key market influences - including levels of construction, housing market, economic trends, impact of global credit crisis, short term prospects etc.


KEY CHANNELS OF DISTRIBUTION IN THE SUPPLY OF FURNITURE

• Furniture multiples – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector ie IKEA, DFS, Steinhoff UK Retail, Furniture Village, Dreams etc.


• Furniture specialists – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector ie Magnet, Wren, Hammonds, Sharps, Neville Johnson etc.


• Mail Order & Catalogue Retailers – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector ie Argos, Shop Direct, Otto Versand etc.


• Furniture Independents – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector.


• Department Stores & Variety Chains – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector ie John Lewis, Debenhams, House of Fraser, Harrods, Marks & Spencer, Next, Laura Ashley etc.


• DIY Multiples & Builders’ Merchants – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector including B&Q, Homebase, Wickes.


• Internet, Direct Sell, Off-the-Page – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector including B&Q, Homebase, Wickes.


• Grocery Multiples – structure of the sector, how this has changed in the last 6 years, product shares 2007 and 2013, key organisations in the sector including Tesco, Asda etc.


ASSESSMENT OF THE USE OF THE INTERNET IN THE SUPPLY OF FURNITURE

• Changes in access to the Internet – changing nature of Internet access, growth of mobile access etc. Internet as a research tool buying in-store yet still using Internet research to improve price, or enhance product knowledge.


• Purchaser profiles of online buyers and the use of social networking, advantages and disadvantages of trading online etc.

The UK domestic furniture market is highly fragmented and complex and was valued at an estimated £9.8bn at Retail Prices in 2013. The market has moved in a volatile pattern since 2007, but in overall terms has declined by around 7% in that period, adversely affected by the slowdown in the housing market, the financial crisis and falling levels of business and consumer confidence. The market reached its peak in 2007, following a sustained period of buoyant growth in the economy, low interest rates and a growing housing market.

Towards the end of 2007, the onset of the housing crisis, the impact of the global credit crisis and the world recession reduced levels of consumer and business confidence which combined to drive the market down, before modest growth in 2010. However, there was a further slight fall in 2011, with the housing market continuing to impact adversely on the furniture sector, before further modest growth in 2012 and 2013. The construction industry was particularly badly affected during the recession, which in turn impacted adversely on related markets, such as furniture, sanitaryware and floorcoverings and contributed to growing uncertainty amongst consumers.

Other pressures within the domestic furniture market have included the rapid penetration of low cost imports from the Far East and Eastern Europe, which has driven down prices and margins. Total furniture imports account for around 35% of the furniture market, although the rates of import penetration differ significantly for different product groups.

The upholstered furniture and beds sector still continues to dominate the overall furniture market, with an estimated market share of 46%, followed by the kitchen furniture and dining and living room furniture sectors.

Furniture multiples account for 49% of the upholstered furniture sector and 46% of the beds sector, with specialist upholstery outlets and beds specialists dominating their respective categories. Furniture multiples also dominate the dining and living room sector, as well as the bedroom furniture sector, although fitted bedroom furniture specialists are significant in that sector.

The kitchen furniture market differs from other sectors of the furniture industry in terms of the important distribution channels, with the main difference being the 36% share held by builders’ merchants, together with trade-only suppliers. Home office furniture currently accounts for only around 4% of the domestic furniture market, with bathroom furniture also taking a relatively minor share. DIY multiples and builders’ and plumbers’ merchants dominate the bathroom furniture sector.

Growing competition in a market, which had been declining in relative terms, is also reflected in the increasing number of business failures in the sector, both at manufacturer and retail level. However, historically the retail furnishings sector has generally had a high failure rate, with a number of high profile companies going into administration/liquidation over the last decade.

Although the Internet is playing an increasingly important part in the sales process in the furniture sector, the majority of consumers undertake research online and then purchase in store. Whilst there are a growing number of companies operating solely through e-commerce transactional websites, the bulk of furniture sales via the Internet is directed through established furnishings retailers, using a multi-channel approach to marketing, together with catalogue/mail order retailers. The Internet also provides an opening for new entrants and niche players, allowing smaller companies to succeed in a way that they could not have done if they had to develop a retail network.

In general, it is clear that the improving prospects for the UK economy in the next 5 years are likely to prove beneficial for the furniture industry, with forecasts showing increasing growth in the domestic furniture market in the period to 2018. Total sales of domestic furniture are expected to show steady growth of around 3.0% per annum in 2014 and 2015, with growth of 3.2-3.4% in the following 3 years. Sales are forecast to reach £11,425m by 2018 representing a rise of 13% in RSP value terms compared with 2013 sales.

Growth in the furniture market in the longer term looks more assured with forecasts showing a steady increase in the UK population and households, together with a general awareness of the urgent need to increase housebuilding construction, not just to meet this future need, but also to address the current housing shortage. Although the total number of outlets selling domestic furniture is likely to fall in the next few years, particularly in the independent sector, as conditions in the industry remain highly competitive, companies not normally associated with selling furniture, continue to increase their investment and presence in this sector.

It is difficult to imagine import penetration increasing any further, given the current 35% share and the dominance of UK manufacturers in specific sectors of the industry. Imports from low cost producers in the Far East and East Europe seem to have levelled out and, as the market improves, design innovation should provide some opportunities for product differentiation and margin protection for UK manufacturers.

In the longer term, technology is likely to drive any fundamental changes in the way domestic furniture is purchased in the UK. The number of UK households with Internet access will continue to grow to near saturation, with a large proportion of these households having a broadband or mobile Internet connection. Use of mobile Internet technology is likely to grow significantly, although as far as furniture is concerned mobile phones are more likely to be used to browse options, to find the best deals and discounts, rather than purchasing products, particularly bulkier items, such as upholstery and beds or products, where installation is required, such as kitchen furniture, fitted bedroom furniture and so on. Nevertheless, it is inevitable that the incidence of online purchasing will increase in the future, particularly as the younger generation become householders.

Table Of Contents

Supply Chain Review of the Furniture Industry Market Report - UK 2014-2018 Analysis
1. INTRODUCTION 7
1.1 BACKGROUND 7
1.2 SOURCES OF INFORMATION 7
2. SUMMARY and FUTURE PROSPECTS 9
2.1 SUMMARY 9
2.2 FUTURE PROSPECTS 11
3. ECONOMIC ENVIRONMENT 15
3.1 GDP 15
3.2 INFLATION and INTEREST RATES 16
3.3 UNEMPLOYMENT 17
3.4 HOUSEHOLD CONSUMPTION 18
3.5 HOUSING and CONSTRUCTION 18
3.6 STERLING 20
3.7 POPULATION PROFILE 20
3.8 CONCLUSIONS 21
4. THE OVERALL UK FURNITURE MARKET and HOUSING INFLUENCES 22
4.1 OVERALL FURNITURE MARKET SIZE AND TRENDS 22
4.2 CONSUMER CHARACTERISTICS AND TRENDS 24
4.3 HOUSING TRENDS AND DEMOGRAPHICS 25
4.3.1 New Housebuilding 25
4.3.2 House Moving 28
4.3.3 Household Size 29
5. DISTRIBUTION SUPPLY CHAIN REVIEW 30
5.1 STRUCTURE 30
5.2 RECENT CHANGES IN CHANNEL SHARE 32
5.3 DEVELOPMENTS IN THE SUPPLY CHAIN 32
5.3.1 The Current Marketing Mix 32
5.3.2 The Manufacturing Retailers 35
5.3.3 The Effects of Import Penetration 35
5.3.4 Store Layout and Design 36
6. MAJOR FURNITURE DISTRIBUTION CHANNELS 38
6.1 MAJOR ORGANISATIONS 38
6.2 FURNITURE MULTIPLES 40
6.2.1 Structure of Sector 40
6.2.2 Key Organisations in the Sector 41
6.3 FITTED FURNITURE SPECIALISTS 44
6.3.1 Structure of the Sector 44
6.3.2 Key Organisations in the Sector 45
6.4 MAIL ORDER AND CATALOGUE RETAILERS 47
6.4.1 Structure of the Sector 47
6.4.2 Key Organisations in the Sector 48
6.5 FURNITURE INDEPENDENTS 48
6.5.1 Structure of the Sector 48
6.5.2 Key Organisations in the Sector 49
6.6 DEPARTMENT STORES AND VARIETY CHAINS 50
6.6.1 Department Stores 50
6.6.2 Variety Chains 51
6.7 DIY MULTIPLES 52
6.7.1 Structure of the Sector 52
6.7.2 Key Organisations in the Sector 53
6.8 OTHERS 54
6.8.1 Internet and Direct / Off-the-Page 54
6.8.2 Grocery Multiples 56
6.8.3 Builders' Merchants 57
7. THE GROWTH OF THE INTERNET 59
7.1 BACKGROUND 59
7.2 INTERNET ACCESS 60
7.3 THE INTERNET AND THE FURNITURE INDUSTRY 62
7.4 ONLINE RESEARCH 65
7.5 PURCHASER PROFILE 66
7.6 SOCIAL NETWORKING, USER REVIEWS AND BLOGS 66
7.7 ADVANTAGES AND DISADVANTAGES OF TRADING ONLINE 67
8. DISTRIBUTION STRUCTURE BY PRODUCT GROUP 69
8.1 STRUCTURE 69
8.1.1 Distribution Structure Definition 69
8.1.2 Product Definition 70
8.2 UPHOLSTERED FURNITURE AND BEDS 71
8.3 KITCHEN FURNITURE 73
8.4 DINING AND LIVING ROOM FURNITURE 75
8.5 BEDROOM FURNITURE 76
8.6 HOME OFFICE FURNITURE 77
8.7 BATHROOM FURNITURE 78
Table 1 The UK Market For Domestic Furniture 2008-2018 (£m RSP) 9
Table 2 GDP Data - 2011-2014 - Key Constituent Elements 15
Chart 3 Interest Rates and Inflation (CPI) from 1994-2018 17
Chart 4 PDI and Savings Ratio at Current Prices 1995-2018 18
Table 5 Exchange Rate Fluctuations 2009-2015 - Sterling To The Dollar, And The Euro, Spot Rates 20
Chart 6 The UK Market For Domestic Furniture 2008-2018 (£bn RSP) 22
Chart 7 UK Market Mix of Furniture 2000, 2005 and 2013 24
Table 8 House Building Completions 2009-2018 - Great Britain (000's Dwellings) 26
Chart 9 House Building Completions (England) 2001-2014 By Type of Dwelling - % 27
Chart 10 Number of Residential Property Transactions - GB - 2009-2018 28
Table 11 Average Household Size For Great Britain 1991-2016 29
Chart 12 Distribution Structure - Residential Furniture Market Value 2013 RSP £m 31
Table 13 Distribution of Residential Furniture 2007 and 2013 32
Chart 14 Distribution of Residential Furniture 2007 and 2013 By Furniture Multiples - Specialists and Generalists 40
Chart 15 Distribution of Residential Furniture 2007 and 2013 - Fitted Furniture Specialists 44
Chart 16 Distribution of Residential Furniture 2007 and 2013 - Mail Order and Catalogue Retailers 47
Chart 17 Distribution of Residential Furniture 2007 and 2013 - Furniture Independents 49
Chart 18 Distribution of Residential Furniture 2007 and 2013 - Department Stores and Variety Chains 50
Chart 19 Distribution of Residential Furniture 2007 and 2013 - DIY Multiples 53
Chart 20 Distribution of Residential Furniture 2007 and 2013 - Internet and Off-the-Page 54
Chart 21 Distribution of Residential Furniture 2007 and 2013 -Grocery Multiples 56
Chart 22 Distribution of Residential Furniture 2007 and 2013 - Builders' Merchants 57
Chart 23 UK E-retail Market - % Share of Total Retail Sales 2007 - 2013 60
Chart 24 UK Households with Internet Access, Broadband and Mobile 2007 - 2013 61
Chart 25 Online Researcher Profile by Age Category 2013 65
Chart 26 Internet Purchasers of Household Goods by Age and Gender 2013 66
Table 27 Advantages and Disadvantages of Trading Online 67
Table 28 Distribution of Upholstered Furniture and Beds 2007-2013 (% of Value) Furniture Multiples, Independents, Mail Order, etc 71
Table 29 Distribution of Kitchen Furniture 2007-2013 Share by Value (%) Furniture Multiples, Independents, Mail Order, etc 73
Table 30 Distribution Of Dining and Living Room Furniture - 2007-2013 by Value Share - Furniture Multiples, Independents, Mail Order, etc 75
Table 31 Distribution Of Bedroom Furniture - 2007-2013 by Value Share - Furniture Multiples, Independents, Mail Order, etc 76
Chart 32 Distribution Structure for Home Office Furniture 2007-2013 by Value - Furniture Multiples, Independents, Office Superstores, etc 78
Table 33 UK Bathroom Furniture - % Channel Share 2007-2013 - DIY Multiples, Merchants, Specialists, etc 79

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