Our aim is to lead sofa retailing in the digital age.
We intend to strengthen our market position, lead from the front and embrace the challenges and opportunities of the digital age. Our strategy will transform the Group in the medium-term by focusing on three inter-related pillars - drive the DFS core, build the platforms for growth and unlock new growth.
The strategy reflects the Group’s expertise, scale retail assets and supporting infrastructure and the ability to utilise these enablers to both improve our operating efficiency and unlock the growth potential across the brand portfolio.
We have a strong business model today with inherent advantages relative to competitors.
According to independent market research our Group has over a 34% share in the upholstery sub-sector of the living room furniture market and we are over three times the size of our nearest competitor. This scale provides us with cost advantages through leveraging our buying power with raw material and finished goods suppliers and minimising final mile logistics costs as a result of our customer post code density.
Our DFS brand is celebrating its fiftieth year and from this history we have learned what works (and what doesn’t work) throughout the customer journey and we continually seek to further adapt and improve our offering. To best serve our customers, we focus strongly on our people, emphasising training and fair, performance-driven reward, and have been recognised as a ‘Sunday Times Top 25 Big Company To Work For’.
We have a strong, well invested and growing online capability that we develop and enhance continuously. Our mobile website customer satisfaction score is well ahead of the industry benchmark and last year we were the first UK sofa retailer to launch augmented reality functionality on a mobile website allowing customers to visualise a sofa in any room in their home. Our showroom estate continues to benefit from regular refurbishments and technological enhancements. Furthermore, the efficiency of our channel agnostic distribution network has improved with the use of artificial intelligence assisted scheduling and routing software which has helped to mitigate material labour rate and fuel price increases.
Our business maintains end to end control of our customer journey from design and manufacture through to delivery and post-sale customer service. Through operating across the whole value chain we can optimise manufacturing quality, reduce lead times, deliver efficiently and on time ensuring customer expectations are met whilst driving shareholder value creation.
Our made to order business model, relatively short lead times and supplier credit terms also enable us to operate with negative working capital and strong cash generation.
As a result of the above we have market leading operating margins, strong free cash flows (which we expect to be typically around 75% of underlying profit before tax), historically good rates of return on capital employed have grown our market share organically and through acquisition to create a leading portfolio of complementary brands. We are, however, not complacent and cannot stand still.
Based on customer research and direct insight, we know over 85% of potential customers research their sofa purchase online. Notwithstanding this, the primary reason for selecting a sofa is comfort and over 90% of our customers still visit one of our showrooms to sit, touch and feel the products before ordering. For most of our customers the transaction is a significant investment and they value our local showroom presence, our colleagues’ expertise, advice and recommendations and feel re-assured by our fifteen-year guarantee and in-house repair service.
Our business model is already set up to satisfy all elements of the customer journey in the digital age but we must remain on the front foot to maximise the opportunities available to us, and to compete effectively with new market entrants.
Our aim is to lead sofa retailing in the digital age. We intend to strengthen our position in the sofa segment of the furniture market and embrace the opportunities and challenges of the digital age. To achieve this, we will evolve our strategy around some key principles: focusing on what the customer truly values on the buying journey and prioritising investments based on those that generate the highest returns.
Our strategy is centered on three inter-related pillars across which we see up to £40m of incremental profit opportunity in the medium term:
- Drive the DFS core business
With 118 showrooms in the UK and Ireland and a market leading website, the DFS brand has the sector-leading omnichannel proposition which is supported by nearly 4,000 employees across our showrooms, online team, manufacturing operations, warehousing, delivery and post sales servicing teams and support centre functions.
We have a unique and differentiated sofa offering. In addition to strong promotional and core DFS ranges, we have partnerships with a number of leading lifestyle brands which together allow us to provide all our customers with a tailored range of products. Our innovation team is focused on developing new customer propositions, and we are trialing new ranges through online customer panels before piloting them through physical showroom presence.
Through continued investment in our web platform and digital engagement tools our web business continues to grow. Having established strong national coverage across the UK, we will now focus our investment on increasing the efficiency of our existing estate and in omnichannel technologies.
- Build the platforms for growth
DFS’s market leading operating margins are a result of both sales intensity and operational gearing driven by both scale and expertise.
We have invested significantly in creating our CDC network and worked with our leading artificial intelligence partner to build our scheduling, route planning and optimisation tool ‘Apollo’ that has driven significant efficiency improvements. We believe we operate the best in class two-person sofa delivery and installation service in the industry. With the DFS central distribution centre programme complete we are in the process of developing our systems to enable further Group-wide benefits. We have leveraged DFS’s existing store estate to introduce 35 Dwell showrooms, creating a national presence for the brand without increasing our property costs and leveraging Group platforms. We see further opportunities co-locate our brands to ensure we optimize our existing store estate.
We continue to work with Sofology to build on the synergies already achieved, which have come from a combination of utilising the Group’s enhanced buying power, sharing of best practices and introduction of new products and services.
- Unlock new growth
The development of Sofology to become a national chain is a clear priority for us, building on its strong and distinct customer proposition. We have put in place a new leadership team, made good progress on synergies and, are pleased with the brand’s trading performance.
Given the significant gaps in the Sofology network (we see clear potential to increase the exiting estate of 48 showrooms to between 65 and 70 over the medium term. Some showrooms could be co-located using existing Group retail assets.
Sofology has been on the front foot when it comes to creating an omni-channel customer journey. Through a MySofology account a customer can obtain additional product information, log favorites and build baskets on their phone in store, either independently or with a sales colleague, before then checking out immediately or later at home. The status of an order can also be tracked, payments made and delivery slots booked through a customer’s MySofology account. We see further opportunities to enhance this brand’s innovative proposition.
We are making good progress with the Dwell brand which now has national scale. We see further opportunities to share the Group’s digital and marketing expertise to drive profitable sales growth.
We have been testing and trialing various promotional activity in the Netherlands and have also been refining our product offering to further adapt it for the local market. The trading results are encouraging and we will continue to work on various initiatives to improve the financial performance of this business.