The ubiquity of Carpetright’s cavernous sheds, with their industrial rolls of carpet and abundance of ‘Price crash!’ signage, is a big factor behind its travails © Bloomberg
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Drive into a drab British retail park next to a suburban ring road, and chances are you will find a branch of Carpetright. The group is still the biggest in UK floor coverings, yet its market value has shrunk by almost 90 per cent in the past decade. What was once a proud Axminster is looking threadbare.
The decline is down not so much to a single cataclysm, but a long line of setbacks, strategic mis-steps and profit warnings which the market has rewarded in its customary way. On Tuesday came another; the group said profits for the full year would be towards the bottom end of expectations as economic conditions become more challenging. The shares fell another 7 per cent.
The ubiquity of Carpetright’s cavernous sheds, with their industrial rolls of carpet and abundance of “Price crash!” signage, is a big factor behind its travails. In the go-go early noughties, founder Lord Harris expanded across the UK and overseas. The result has been increasingly poor sales density, even though sales of floor coverings have historically been correlated with rising house prices.
Lord Harris has sold his stake and is now busy with educational philanthropy, while his son has started a rival carpet retailer. Meanwhile, Carpetright’s current management is busy rationalising the property empire. Store numbers, which peaked at more than 500, have fallen by a fifth since 2011 and could go as low as 300. Existing outlets are converting into showrooms, with positive effects on sales. A historic antipathy to laminate has been ditched. Beds fill surplus space and constitute 8 per cent of sales.
Carpetright’s waning fortunes contrast vividly with those of Dunelm, another quoted homewares group heavily influenced by its founding family. Dunelm’s UK sales are double those of Carpetright from a store estate less than half the size — and at far higher operating margins. Its market value is 10 times greater.
Carpetright’s relative dominance of a fragmented market gives it a decent base on which to build. But it will be a while before its heavy capital spend is rewarded with the kind of valuation multiple that Dunelm enjoys.
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