Author: Claire di Noia, 24 November 2017

I have to admit that I missed the announcement this August that DFS were looking to acquire Sofology in a £25m deal. Hence the CMA announcement this week that they had effectively approved the deal, paving the way for a completed takeover by the end of November was hot off the press for me.

Furniture retail in the UK remains a highly fragmented market compared to many retail sectors, with Ikea and DFS ranking first and second. Sofology, with its c40 stores, does not even featuring in the top 10 furniture retailers, so approval is not really a surprise in hindsight.  DFS is well established nationally, with over 100 stores and sales of £991m last year. Adding Sofology sales of c£150m to this will comfortably take sales well over £1.1bn per year for the first time which is a great achievement, although they are still a way short of Ikea’s sales levels of course.

The great news is that the Sofology acquisition will immediately extend DFS coverage into a number of new catchments. Top of this is the excellent Fife Retail Park just outside Kirkcaldy, whilst Solihull Gate Retail Park will vastly improve coverage of the West Midlands conurbation. Southport, Crewe, Wallsend / Newcastle and Blackburn are also strong additions to the DFS network.

Two more units stand out; Giltbrook, just outside Nottingham and Thurrock Lakeside, both of which will allow the nations number 2 furniture retailer to take on IKEA, the nation’s number one.  In total, FSP data identifies 10 stores that are greater than 8 miles from each other which will offer true incremental sales gain.

However, today the question on the lips for many will be the likely impact of the merger on store numbers, with DFS looking to maximise its gain whilst minimising its rent roll. FSP data lists 16 locations where the two brands are effectively on the same retail park – these include Milton Keynes, Coventry, Enfield and Dundee, whilst on a further 8 parks just a short walk separates the two brands

Dundee DFS and Sofology

So the real business challenges will be faced in these locations; will we see the two brands continue to trade against each other as distinct brands or will we see a gradual closure of stores, with the cost and lease commitment of both units weighed up.

Personally I suspect the latter. Currys took this approach when they brought together Currys and PC World into their mega store format, whilst the likes of Argos, Homebase and B&Q have all looked to rationalise their portfolio over the years based upon store proximity and lease lengths

Enfield DFS and Sofology

This sort of portfolio review requires detailed spatial and financial analysis, considering the performance of both brands plus the proximity of their competitors. Further insights are required, including considering likely sales transfers and the value of marketing in a catchment to retain and generate sales around the time of a closure or conversion to a new format, whilst a thorough understanding of the local property market is also essential. For example, one unit could offer potential for redevelopment that outweigh the other catchment factors.

The great news is that FSP is ideally placed to advise on such complicated network analysis.  Established for over 40 years and offering a team with retail side experience of just these problems we can provide insight and understanding of just this sort of portfolio challenge,  helping you to maximise your profit and reduce your risk.

Contact me for more information

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