The upmarket furniture retailer Dwell is working with advisers to explore its options, including a possible sale of the business.
The 24-store chain has hired Argyll Partners to evaluate the best way forward for the retailer, following prolonged tough trading conditions in the home improvement market.
Furniture and DIY retailers have been hit by the sustained downturn in spending on big-ticket items and housing market transactions remaining significantly below historical levels.
It is understood that Argyll has already sounded out potential investors about buying Dwell at a knockdown price.
Even if the retailer is sold, a potential buyer could possibly seek to exit some underperforming stores, sources suggest.
Dwell Retail's pre-tax losses widened to £675,320 from £456,349 over the year to 27 January 2012, according to its latest accounts. Boosted by six new stores, the group's turnover rose by 3 per cent to £34.5m over the period.
Dwell was originally founded as a mail-order furniture business in 2003 by Aamir Ahmad, who stepped down as managing director in November after a refinancing. Rebecca Cotterell, the former chief executive of Adams Childrenswear, replaced him as managing director at the end of last year. The retailer's chairman Neil McCausland also left last year.
The private equity firm Key Capital Partners invested £5m in Dwell in August 2010.
In its annual report, Dwell said it had improved its financial position by exiting an onerous lease on a warehouse, and by refinancing, including a combination of converting loans to shares and fresh equity funding.
It said: "The combination of the steps taken by the company... provide a strong platform for the future growth of the company."
All parties declined to comment yesterday.