Want a sofa in time for Christmas? Tough.
We’ve already got one annoying Christmas song with the M&S X Factor crooners, but it won’t be long until DFS kidnap and beat another song (one we might have liked previously) out of all recognition. But it’s not all Christmas cheer for the sofa retailer- in its first full year under new private equity ownership DFS has reported lower sales figures despite average order values going up. The reason? While sofas may be easy to come by, four years’ interest free credit is not…
Despite its catchy slogans, which convert into two-thirds of total sales on a “buy now, pay later” basis, customers wanting to take advantage of the advertised interest-free credit repayments over four years are finding they may be left out in the cold. The problem is that DFS does not provide the finance for the furniture themselves- it has agreements with several third-party finance houses which provide loans to its customers. The finance houses receive a fixed level of commission per sale and, crucially, take on liability for bad debts.
In the past year, home furnishing has been one of the hardest-hit sectors on the high street as cash-strapped consumers defer big purchases, with groups including Habitat and TJ Hughes going into administration, and Carpetright issuing five profit warnings.
Despite the bleak outlook, DFS’s total revenues only dipped 2.2 per cent to a piddling £638m compared with the previous year, despite the opening of one new DFS store in the period, and they attribute this wholly to the crunch on credit. “In truth, the demand is higher than we’re able to fulfil,” Ian Filby, chief executive told The Financial Times “Numbers of customers using interest free credit are holding pretty steady, but inevitably, our finance houses have to make sure the people they bring in to nought per cent deals are people with good financial track records. They have to be confident in terms of a three-to-four year picture.”
It remains to be seen whether results will fall further next year, as most households will not spend hard-earned cash on non-essentials where credit is not available, but one thing we can be sure of is that there will be even more of those adverts on the telly. Ad nauseum.
TOPICS: Credit Cards