Problems pile up at furniture company Made

Ahead of its flotation last year, Made.com’s executives talked about a “huge opportunity” to win a bigger share of Europe’s fragmented furniture market and quadruple its sales to £1.2bn by the end of 2025.

That target remains in place. But 14 months and three profit warnings later, the £100mn raised in the initial public offering has largely been spent, the chief executive and finance director have both left and investors potentially face either a hugely dilutive cash call or a cut-price trade sale.

“It has been a perfect storm of problems,” said Investec analyst Ben Hunt, citing soaring freight costs and falling demand. “It was always going to be difficult sustaining the [sales] momentum established during the pandemic.”

Made is not the only casualty of post-pandemic changes in spending patterns. Shares in Frankfurt-listed Westwing and Home24, along with US furniture marketplace Wayfair, are all down 80 per cent over the past year. But none matches Made’s 95 per cent plunge from an IPO value of £775mn to a capitalisation of just £33mn at the end of this week.

The most recent problem facing Made is demand, which boomed as people spent more time at home during the pandemic but retreated first as spending switched back to going out and holidays, and then started to contract ahead of a vicious squeeze on household incomes.

Back in March, the company expected sales for the current year to grow 35 per cent. Just four months later, a 9 per cent decline was the best likely outcome and a fall of almost a quarter was the worst, a much bigger reduction in guidance than sofa retailer DFS or DIY group Wickes.

Like so many other businesses, Made has also run into problems in its supply chain. It has historically had a capital-light model, with inventories rarely exceeding 10 per cent of annual sales.

But as customers faced ever longer waits for sideboards and sofas stuck in congested ports, Made was forced to hold more stock close to home.

“They have confused the market a bit by pursuing a stock-free model and then buying a tonne of stock,” said one shareholder.

At its IPO, Made said it would spend £20mn on additional stock to cut lead times. It ended the year with £41mn more, taking inventories to 16 per cent of sales — just as demand started to ebb away. Selling that excess stock at a discount means underlying losses could peak at up to £70mn this year, against a loss of £14mn last year.

That could all but exhaust Made’s cash balances, which is worrying for a company that has no formal lines of bank finance after it opted not to renew a revolving credit facility at the start of the year.

There has also been boardroom upheaval. Chief executive Philippe Chainieux quit in February, citing family reasons, although he has since resurfaced as executive chair of French marketplace Groupe La Centrale. He was replaced by Nicola Thompson, Made’s then chief operating officer.

Finance director Adrian Evans was the next to leave, replaced by former John Lewis chief financial officer Patrick Lewis. Senior independent director Gwyn Burr stepped down earlier this month to give “more focus to her other professional commitments”, the company said.

Some believe these setbacks, while material, are temporary and that the company still has significant long-term strengths.

“They’ve got more than a million customers, people that love the product and the design, and they’re not saddled with a load of real estate,” the shareholder said. “The issue isn’t ecommerce. People will buy online.”

But others think the business model’s limitations are being exposed. “Selling products that customers want to see and touch was always going to be a challenge for them,” said a senior industry executive. “Even when we make an online sale we can be fairly sure the customer has done some research in-store first.”

Although Made does have some stores, it depends on digital channels to attract customers. “Their gross margin is low but not terrible,” the executive added, suggesting that customer acquisition costs were a bigger problem.

In 2021, these rose to £60 per customer in Europe and £38 in the UK, after consistently falling for several years.

Made’s average order value last year was £246 — so even at the low-teens profit margin targeted for 2025, it would need every new customer to order more than once to recoup their recruitment cost. About half of UK sales at present come from existing customers.

The company said in July that it aimed to cut £15mn a year in costs. It has also expanded its product range and acquired homewares and fashion marketplace Trouva to make it less dependent on infrequent big-ticket purchases.

But those initiatives will take time to bear fruit. Investec’s Hunt thinks it will be 2025 before the retailer ekes out even a modest underlying profit and that it probably needs “£50mn or more” in funding “assuming a fairly good recovery”.

Who will provide that cash, and on what terms, is the company’s next big challenge.