MFI posts pounds 26m half-year loss

Investment: Furniture retailer hopes a radical restructure will lift its prospects
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MFI, the struggling furniture retailer, yesterday cut its dividend and announced that the costs of a radical re-structuring programme had pushed the group into a pounds 26m loss at the half year stage.

The losses were higher than most expectations due to the inclusion of a pounds 12m property provision on a warehouse that is now surplus to requirements. Total exceptional charges were pounds 35m.

MFI's chief executive John Randall said the shake-up would be "substantially complete" by the time the stores start their winter sale on Boxing Day and would lead to annual cost savings of pounds 25m a year.

The re-structure, announced in July, has included 1,500 job cuts and the stripping out of 7,000 product lines such as textiles and household products to concentrate exclusively on kitchens and bedrooms.

It has also closed its in-store warehouses and will service customers via home delivery from 12 regional depots instead.

However, analysts have criticised the strategy saying the attempt to re-invent MFI risked alienating existing customers. The stores could lose shoppers who wish to take home items on the day of purchase. The City is also concerned that by stripping out so many product lines, MFI will suffer reduced footfall.

"There is some business we must be prepared to lose," Mr Randall said. "But our message will be clear. Customers will know exactly what we are selling and how it is available."

MFI recognises the weakness of its brand name but plans to invest more marketing power behind its kitchen names such as Hygena and Schreiber. "I'm not denying there are people for whom the MFI name is a turn-off, but there is no quick fix for that," Mr Randall said.

One of MFI's problems is that consumer spending has been weakening rapidly in its core kitchen and bedroom sectors, leading to a 10.6 per cent fall in UK sales.

Although its market share is constant at 27 per cent, the whole market is down by 9-10 per cent over the year. The second problem is that powerful competitors are increasing their focus on kitchens. Ikea is expanding its presence as is B&Q, particularly with its larger Warehouse format.

A third issue is that as part of its strategy of expanding its exposure to kitchens and bedrooms, MFI is trying to capture a larger share of more upmarket, added-value purchases. This will take the company into competition with smaller, niche operators that are likely to offer higher levels of service.

"MFI's brand positioning is seen as mass market and it is going to be very difficult to change that. Maybe they should stick to what they are good at," one analyst said.

However, other sector specialists said that radical action was essential: "If you strip out the profits of the manufacturing business and take account of the property benefit from freehold stores, the retailing operations are losing a packet," one said.

MFI shares, which stood at more than 200p in 1996, rose 4p to 30p yesterday, just above their all-time low. Mr Randall said there had been no expression of interest about a possible bid and analysts said a bid was unlikely.

"The manufacturing business would put off a lot of buyers so the share price is likely to stay where it is," said another analyst. "If anything it will go lower. The management's track record is not that good - they have kept changing their minds."