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Admissions of shortcomings in the bedroom department are rare, but last week MFI conceded that its 'outdated' bedroom ranges had failed to create much excitement over the festive period, despite an extended post-Boxing Day sale.

The furniture retailer re-ported a like-for-like drop in first-quarter UK retail sales, a rather different story from last year's bullish talk of double-digit growth.

Although there were improvements in kitchen and bathroom sales and a 3% increase overall in group-wide sales (including its French operations and Howden Joinery) to £512m, bedroom sales fell by double digits, according to chief executive John Hancock. MFI's UK sales were estimated to have fallen by 6% to 7% last month alone.

Analysts say one of MFI's problems has been the shift away from its value heritage. In March 2003, MFI launched a branding campaign created by Publicis, focusing for the first time on products rather than prices. A host of celebrities appeared in the 'All the big names' ads, including Ruby Wax, Vinnie Jones and Martine McCutcheon, which targeted brand-conscious women with families.

It was undoubtedly a radical stance for MFI, but by removing the emphasis on cheaper ranges, it has risked alienating parts of the market. And the aspirational brand campaign has put the retailer directly up against heavyweight advertisers such as B&Q, Argos, Homebase and IKEA.

Part of the blame for poor figures was apportioned to the £90m refurbishment of the 160-store chain, due to be completed at the end of this year. But when work finishes and lines are introduced, along with 'under £500' extensions to existing ranges planned for April, the company is optimistic that new life will be breathed into its sales, especially in the bedroom ranges.

We asked Verdict Research senior retail analyst Steve Gotham and St Luke's joint managing director Phil Teer, involved in IKEA's 'Chuck Out Your Chintz' ads, what they think MFI needs to do.

DIAGNOSIS

- Steve Gotham

I was surprised by MFI's results because it was very confident last year, talking up UK sales targets and predicting double-digit annual growth.

The company has certainly done a good job transforming its business.

MFI has reinvented itself through new product development and inspirational store interiors, but it seems to have taken the brand to the mid-market too quickly, forgetting its heritage. As a result, it has opened itself up to be undercut by Argos, B&Q and IKEA.

MFI was right to raise awareness of its extension into selling bathrooms and living rooms. But while this worked as a communications exercise, MFI has failed to talk enough about price. This is dangerous in a high-ticket environment such as furniture retail. It could do with a more balanced approach to communicating its value proposition - rather than focusing too much on aspirational qualities.

MFI needs to stretch its customer appeal, rather than simply relocate it. And it must accept that this widening of appeal is an evolutionary process and one that cannot be rushed. The latest results are a set-back, but I expect MFI to bounce back.

- Phil Teer

MFI was once the UK's IKEA.

It became a household name during the house-building boom of the 70s when a generation of baby-boomers started to have kids.

By offering furniture to a generation moving into new council homes, MFI was a marketing revolution. Before MFI, furniture for working-class people was usually handed down and rarely purchased. MFI allowed our parents to furnish their whole house in one shopping trip.

Then IKEA came along and became the flagship brand for a new generation of young BC couples and families. Subsequently, Argos started selling flat-pack furniture on the high street extremely cheaply and C2Ds happily queued up to get their bargains. MFI lost two audiences, not just one.

While our homes have become our single most important expression of identity, MFI has become a byword for naffness. It needs to establish basic product quality, as Gucci did with designer Tom Ford and Tesco did with its Dudley Moore ad campaign.

It must then be part of a cultural change. Those original baby-boomers' children are now in their 30s. MFI should be flying a banner for them.

TREATMENT

- Highlight and strengthen coverage of entry price-points.

- Add greater clarity to communication of price.

- Show prices of the total room package with promotional deals included.

- Improve the communication of the installation service. This is a latent strength.

- Bolster product and service quality customer guarantees.

- Don't tell the customer you are all about interesting design - show it; don't claim to be individualistic - demonstrate it.

- Stop seeing distinctions between brand and product ads and make every piece of communication build the brand and sell products.

- Respect the intelligence of your audience - stop shouting at them.

- Make 30-somethings the core audience.

VITAL SIGNS
Furniture          Market share (%)  Last-quarter sales
retailers          2003        2002     change 2002-
                                           2003 (%)
MFI                 8.2         7.9            -3.0
Argos*              5.9         5.6            10.0
DFS                 5.0         4.8             n/a
IKEA                4.8         4.6             n/a
Homestyle!          3.2         3.3             1.0
Source: Verdict Research
*includes Homebase !includes Harveys, Bensons Beds, Bed Sheds and
Sleepmasters