In previous recessions, spending on big-ticket items, such as sofas, furniture and large electrical goods, has fallen off a cliff as people squeeze their budgets (Ashley Armstrong writes). However, the pandemic, which has forced people to stay indoors, has provoked a very different response.
People who have spent their days staring at four walls have noticed the cracks that need repairing, the cushions that could do with replacing and the kitchens that are crying out for a revamp — and as they aren’t spending as much money in restaurants, bars or on holiday as they did pre-virus, they are using their spare cash to make their homes and gardens, where they have spent most of the past five months, a bit smarter or, at least a bit more bearable.
Spending data from Barclaycard shows that in March, April, May and June home improvement and DIY has continued to hold up in comparison with every other sector. Last month spending on non-essential items — that’s everything other than food and fuel — fell by 4.7 per cent, but spending on furniture rose by 46.4 per cent, while DIY spending continued to be 27.1 per cent higher.
The trend for people wanting to improve their homes has made DFS a post-lockdown winner. Britain’s biggest sofa retailer has taken orders worth £70 million in the past six weeks. Tim Stacey, 49, its chief executive, reckons that while there was pent-up demand when its stores were closed, the strong trading is also the result of people wanting to spend money on making their time at home more comfortable, using the cash they would have spent otherwise on holidays, presumably abroad. Kingfisher, the DIY group, also rapidly boosted its online business to handle the jump in demand.
In addition, sofas are quicker to show wear and tear if they’ve been in more use than normal. DFS will announce a loss for this year, but analysts at Peel Hunt are adding £45 million to their profit estimates for next year, meaning that they expect the group to make adjusted profits of £80 million next year on close to £1 billion of sales. Shares in DFS are 42 per cent lower than they were at the start of the year and, given that it is a market leader and benefiting from the collapse of weaker, independent shops, there’s plenty more reason for the shares to rise as the trend continues.
SCS, its smaller listed rival, offers another option to invest in the “big-ticket” recovery. In its most recent update, the sofa retailer unveiled 94 per cent sales growth since the end of May. Its shares are a quarter down this year.
Dunelm is expected to be a big beneficiary in the trend for sprucing up homes. The company, which has 172 shops, is due to update the City next month and the last time that investors heard about its trading was four weeks after stores had reopened. In April it suffered a slump of 80 per cent in sales, but they rebounded to be a fifth higher in June.
Meanwhile Kingfisher, the owner of B&Q, Screwfix, Castorama and Brico Dépôt in France, found that as soon as its stores reopened, it had queues of people buying compost, decking and plants for their gardens. That has changed, with as much demand for paint, filler and timber, suggesting that people are employing tradesmen for renovation jobs again.
There is understandable nervousness about what will happen to the economy and to consumer sentiment when furlough schemes end and unemployment — as many expect — rises, but these home improvement retailers have been sold off based on how consumers behaved in previous recessions. This time around, they are in the sweet spot of spending.
ADVICE Buy
WHY There are risks ahead in an environment that is hard to predict but these home improvement chains have been oversold
Domino’s Pizza Group
As the impact of Covid-19 continues to be felt in most parts of the economy, food delivery is perhaps one of the few industries where demand has surged (Callum Jones writes). The nationwide lockdown boosted the appetite for takeaways, yet business at Domino’s Pizza Group has not boomed as you might have assumed.
Its UK sales were up by 5.1 per cent between March 23, when restrictions were imposed, and June 14 — more than offset by the cost of halting customer collections and buying masks and contact-free delivery boxes. Total orders fell slightly during the first half as it made 2.9 million more deliveries but lost 4.6 million collections. Pre-tax profits from continuing operations rose by 13.6 per cent to £45.8 million.
There is no denying that the national lockdown provided a shot in the arm, though, with online sales growth rising from the mid-single-digits in the first quarter to 22 per cent in the second.
The key question now is whether Domino’s Pizza, which holds the American chain’s master franchise agreements in countries including Britain and Ireland, can maintain this momentum. “While trading in the first few weeks of the second half has been encouraging, it is too early to conclude on how consumer behaviour will evolve,” Dominic Paul, its chief executive, told investors this month. The cautious tone is understandable, as ministers spend hundreds of millions of pounds on taxpayer-funded discounts designed to lure consumers off their sofas and into restaurants.
Citigroup advised clients to take profits the other day, suggesting that support from staycations, a VAT cut on hot food and the return of live sport was unsustainable. A protracted dispute with British franchises also persists. However, while the sudden surge in demand for takeaways in the early days of coronavirus has peaked, the prospect of a prolonged boost feels very real as the outbreak remains a central feature of daily life.
Shares in Domino’s Pizza are only a fraction higher than where they started the year. With collections largely reinstated, now does not feel like the time to sell.
ADVICE Hold
WHY Stands to benefit from medium-term impact of Covid-19 on consumer habits
