United Kingdom

Give your portfolio a profitable makeover by adding homewares

The British passion for property is spreading to encompass homewares. People are splashing out record sums on cushions, floor coverings and indoor and outdoor furniture, making over their homes to suit new work and leisure patterns, and to follow the latest interior design trends. 

Listen in to conversations in furnishings stores (as I do, for research you understand) and you will be struck by the determination to upgrade items and the awareness of what's hip and what's not. 

It could be that this trend will be short-lived. After all it was driven by the need for a higher degree of domestic comfort in lockdown and the back garden staycation. 

But it's perhaps more likely that there has been a longer-lasting adjustment in spending priorities that will continue beyond the ending of the stamp duty breaks that have propelled property values. Andy Haldane, the Bank of England chief economist, has described the market as 'on fire'. 

This debate will increase the focus on this month's £1billion flotation of Made, the online furniture retailer, though private investors cannot participate. Made will join a list of companies boosted by the estimated 10 per cent uplift in homeware sales over the past year.

Their fortunes now depend on the intensification of our relationship with interior decor. They include Dunelm, the market leader, but also B&M, DFS, Kingfisher (owner of B&Q), SCS, Topps Tiles, Wickes and Wayfair – the 'category leader' in the US, but big here too. Sainsbury's also seeks a slice, having made the Habitat name its main home and furniture brand. 

This week Russell Galley, managing director of Halifax Bank, suggested that the 10.9 per cent annual rise in the bank's house price survey 'points to a deeper and long-lasting change, as buyer preferences shift in anticipation of new, post-pandemic lifestyles'. So if the dream dwelling is an even more cherished goal, should you sink some cash into homewares? 

Clive Black, of broker Shore Capital, senses that the boom shows that people feel able to splash out again. He says: 'After the financial crisis, households remained cautious because since then we've been through a litany of challenges. Now the economy is growing at the fastest rate since World War Two.

'There are high levels of consumer confidence and employment and a wall of money – about £160billion – in bank accounts. 

'Some of it is going to go on big ticket and other pieces for the home. That's going to continue, especially since we reckon that many people will be working from home one or two days a week.'

Black argues that Sainsbury's could be one beneficiary. Others are more doubtful, which is one of the reasons why the supermarket's shares are among the most shorted. 

By contrast, most observers think Dunelm, which Black calls 'a class act', could advance further. 

Most observers think Dunelm, which Black calls 'a class act', could advance further

Shares in the company, which is 45 per cent-owned by its founding family the Adderleys, are up 30 per cent this year. Sales in the seven weeks to March 28 were 59 per cent above the same period of 2019 and full-year profits are now expected to be £148m, against earlier forecasts of £128-£134million. 

Behind this success lies Dunelm's grand design – providing for the budget-conscious as well as the affluent, for those who want a £7 duvet cover and those who want the £70 Egyptian cotton version. 

John Stevenson, of Peel Hunt, says: 'The retailer competes with B&M and the discounters – and John Lewis. Its stores' low occupancy costs mean that none are loss-making. Dunelm pays an average of £12 per square foot, against about £20 for Kingfisher.' 

The tactile experience of shopping in person is essential for some, but Dunelm's slick website provided a cushion during the closure of non-essential retail. Many shoppers turned to Wayfair, a vast online emporium. 

This is Baillie Gifford's bet on consumers' willingness to acquire a sofa without trying the goods. The shares are held by its US Growth Trust and in its Scottish Mortgage fund – my play on the incursion of tech into more of our lives. 

No-one can predict where this revolution will unfold next. I suspect that we now wish to confront change, whatever shapes it takes, in more comfortable homes. In the short-term, spending may slow a little, as B&M is experiencing. 

But, as we learnt this week, Inditex, the world's largest fashion retailer and skilled at spotting the next big profitable thing in dresses and decor, has created a new Zara Home store concept. 

The paint shade preoccupation may baffle you. But every portfolio requires regular refurbishment. A spread of homewares shares is a flutter on a shift in attitudes and the Roaring Twenties recovery. People are in the mood for a party, which also provides an excuse to buy more things for the home. 

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