Argos holds on to furniture sales top spot

Catalogue firm Argos has retained its place as the UK’s biggest furniture retailer in 2007, according to research today.

Despite the tougher economic climate, furniture and floor covering firms have enjoyed increased sales in the past year, analysts from Verdict Research added.

Argos remained at the top of the tree for the second year in a row with a 6.3% share of the UK market, after building additional stores and improving its online and catalogue business over the past year.

Home Retail Group, comprising Argos and its stablemate Homebase, held a 7.7% share, ahead of second-place Ikea with 5.7%.

DFS and former market leader MFI took third and fourth positions, with 5.5% and 4.8% respectively, and Homestyle – which includes Harveys and Beds Division - came in fifth with 3.4%.

But researchers found that much of the apparent growth in the industry over the past 12 months had been fuelled by inflation, and that year-on-year volume growth for 2007 was set to be lower once that is taken into account.

Market growth has increased to 2.6% from 2.2% in 2006, reflecting a higher rate of underlying price inflation driven by increased manufacturing costs, Verdict said.

Stripped of inflation, the volume growth of the market for 2007 is set to be just 0.9%, lower than in 2006.

Researchers predicted that inflation in the sector is likely to peak at 1.7% in 2007, fuelled by higher factory gate prices and the increased cost of raw materials.

Verdict head analyst Nick Gladding said that the long-lasting nature of furniture and flooring, and the gradual effect of Bank of England interest rate increases, were likely to lead to difficult conditions over the next 12 months.

“The high proportion of homeowners on fixed-rate mortgages is a key reason why furniture retailers have not yet experienced a softening in demand,” he said.

“However, as the discount period on mortgages arranged two to three years ago expires and as the housing market weakens, trading conditions will become much tougher.

“The non-essential replacement and big ticket nature of furniture and floor coverings products means that consumers are more likely to defer a purchase than most areas of retail.”

Verdict suggested that building customer loyalty and creating clever marketing campaigns may help sustain growth over the next year.