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When Habitat first opened its doors on London's Fulham Road on 11 May 1964, the term 'lifestyle' had yet to be coined, but that is exactly what the furniture store was selling. By mixing fashionable furniture, art, music and cooking products in an informal self-service retail environment for the first time, founder Terence Conran spread the music and fashion revolution of the mid-60s into the British home.

Habitat rapidly became a household name, expanding throughout the UK.

Its catalogue, launched in 1966, quickly became a coffee-table accessory in its own right, pre-empting the interiors magazine phenomenon of the 90s by giving customers ideas about how to decorate their home, making it fashionable as well as functional. Habitat had invented a new category, offering contemporary design at affordable prices.

Yet today, though the retailer claims that 98% of people in the UK know the Habitat brand, it operates only 39 UK stores, and has just 2% share of the homewares market and 1.2% share of the furniture market, according to Mintel. 'In the late-60s and 70s Habitat was a defining home retailer,' says Steve Gotham, senior retail analyst at Verdict. 'It has punched above its weight and its influence has been greater than its market share, but it has not expanded in line with its potential. Its growth in the 70s should have taken it further.'

In the burgeoning £3bn home furnishings market, which has exploded as styling the home has become as important as styling oneself, UK consumers expect affordable chic on the high street. Retailers such as Marks & Spencer, Next and Laura Ashley are making efforts to increase their share of furniture sales, with Next and Laura Ashley opening larger stores in out-of-town retail parks, and M&S promoting its Lifestore venture, which opened in February in Gateshead's Metro centre.

Years of price-driven promotions have educated UK consumers to shop around for bargains and expect interest-free credit, forcing some retailers to choose between maintaining margins and increasing sales. Given the number of players coming into the market and the prospect of a 10% fall in the number of people in the key 25-34 age group over the next five years, according to the Office of National Statistics, the furniture retailing sector is likely to see even fiercer competition in future. But Gotham believes there will be further growth, which is an attractive prospect for retailers that can get their offerings right.

Shaking off old habits

Habitat could be one of them - but first it will need to recover from its midlife crisis and revert to the style icon it was in its youth. Since its success in the 70s, the company has been leapfrogged by many of its competitors and is now aware that it needs to reassess its position in the market. It is using its 40th anniversary year as a catalyst to revitalise the brand.

'It is a loved brand, but people have forgotten why they should shop at Habitat because the market we operate in is so crowded,' says Jo Mathews, Habitat's head of marketing and PR. 'For our anniversary we want to focus on our heritage and get customers to focus on our brand. We want to bring reinvigoration and credibility to the brand. We want to make the shopping experience at Habitat more aspirational. Some of our stores are a bit less beautiful, but that is changing.'

Having embarked on a three-year programme of store refurbishment and expansion earlier this year, Habitat is also launching a 'dramatic' collection of 22 products in September with its autumn/winter collection. Although Mathews insists this will not be a relaunch of the Habitat brand, she says it will illustrate the company's 'future vision'.

Mathews is keen to point out that Habitat has tried not to be 'overindulgent' with the marketing activity surrounding its anniversary. 'Instead,' she says, 'we've tried to show customers how we can support their lifestyles. Our promotional activity centres mainly on PR, point of sale and the products in-store.'

At the point of sale, Habitat has introduced a history booklet that features many of the revolutionary products it has created. Among these was the duvet, which Habitat began selling in the mid-60s. Before that, sheets and blankets had kept the British public pinned into their beds. With the duvet came the freedom to move and the ability to change the look of the bedroom with a bright new cover - another sales avenue for Habitat and its competitors to explore.

Revolution in the kitchen

Habitat also claims to have revolutionised the nation's kitchens, introducing the wok in 1966, then the chicken brick, which 'made an impact on a whole generation of families' Sunday roasts', according to Mathews. Another seminal Habitat product is the Japanese Boule paper lantern, as found in homes from student digs to family residences.

The retailer still sells all of these products, although most have become such a major part of modern living that consumers no longer associate them with Habitat. Its hope is that by reminding consumers how forward-thinking it was back then, Habitat will re-establish its innovation and design credentials, which many believe have been hijacked - and then developed - by several competitors.

One of Habitat's recent product successes has been the Garland light fitting, which generated waiting lists of more than 400 customers a store when it first went on sale in March 2003. The brand needs more successes such as this if it is to win back its position as a style leader. Mathews explains that Habitat designs and manufactures 90% of its own products, and says that although there are lookalikes on the market, they are not the same products.

Its products are not the only area in which Habitat has been copied, then bettered. Anyone taking a glance back at Habitat's formative years could be forgiven for thinking they were looking at a strategy template for IKEA, Habitat's stablemate in the IKANO Group since 1992. Habitat's first stores were filled with products based on pared-down, contemporary design from Scandinavia. Next came the catalogue, with in-store cafes geared to catalogue browsing. Then came international expansion, with the first Habitat store opening in Canada in 1969.

Yet Habitat has not gone on to achieve success on the same scale as IKEA, which has increased its share of the UK furniture and carpet market to 12.1% in 2002, according to Mintel. This can perhaps be put down to the fact that Habitat's parentage has not been quite as committed or supportive.

'Unlike IKEA it has not been loved or managed as closely as it should have been,' says Gotham. 'It has struggled and has had a number of internal operational issues.'

After orchestrating a series of mergers that saw Habitat become part of the £1.5bn Storehouse Group in 1986, founder Conran was forced to resign.

This left Habitat faceless and rudderless until 1998, when IKANO employed furniture designer Tom Dixon as creative director to return Habitat to its former glory, putting design and innovation at the heart of the brand once again.

'In the beginning it was all about French Provencale cooking, the Chesterfield sofa and oil lamps - people were into Victoriana around the time of the Beatles' Sgt Pepper's Lonely Hearts Club Band album,' says Dixon. 'Then the trend went toward black and chrome and a masculine look with products such as the cantilever chair. Then it went toward the practical, with big paper shades representing longevity.'

Now, with nearly six years under his belt at Habitat, Dixon is keen to push the 'life begins at 40' angle. 'In 1964 a concept was created that is only becoming a general interest of the public now,' he says 'Home design, gastronomy and food have only just reached mass appeal. Habitat is an evolutionary brand - it's more like a fashion company than a homewares company.

Place in the crowd

Dixon points out that the company opened four stores across Europe in 2003 and has already opened outlets in Solihull, Monaco and Athens in 2004. Yet many have still to be convinced that it can win back customers in the face of strong competition in the homewares sector, not least from IKEA.

'Although one would have thought the contemporary trends for fashion in the home would have played to Habitat's strengths, it has lost out to the growth of IKEA and many others,' says Gotham. 'IKEA has youthful appeal, but customers want to move on and often don't feel IKEA can do that for them. So there is a gap for a retailer to come into, which is what M&S Lifestore is trying to do. But it has not happened with Habitat.'

Dixon agrees that Habitat is 'kind of surrounded', with competitors such as Heal's coming from above, IKEA from below and specialists such as Zara coming in from the side with textiles offerings. Yet he maintains that Habitat is the only store offering 'mid-market' homewares. 'Even M&S Lifestore is more expensive,' he argues. Dixon is 'surprised' that US mid-market chains such as Pottery Barn and Crate & Barrel have not entered the UK market, but attributes their reluctance to the different sizes of their products to their UK counterparts. 'We are nations divided by a common language,' he says.

Admitting that Habitat has had an 'awkward relationship' with IKEA, Dixon says that whereas IKEA is concerned about being attacked from below and the threat from Asda parent Wal-Mart, Habitat - often viewed as an 'expensive IKEA' - is worried about the luxury and premium market, in which prices are coming down.

Store improvements

'Habitat is more comfortable being inside IKANO than it would be outside it,' says Dixon, pointing out that though Habitat went through a long period in which there was 'a lack of investment', now the idea is that Habitat can balance its own funds to invest in its own shops. 'We have a mixed-store portfolio - a series of unusual buildings and high-street stores,' he adds. 'If you are just selling big boxes out of town, you can build your own stores. We have to go where we can find sites that work commercially for us.'

Habitat's three-year programme of store refits, which will include its flagship Tottenham Court Road store in the Heal's building, is the beginning of this move toward autonomy. As Mathews says: 'We only have a tiny share of the market, but we have a great platform from which to build.' Dixon agrees that there is more room for expansion in the UK, but says a lot of Habitat's development will go on outside this country in mainland Europe, which he says is the next priority for the company. 'In the future we will probably focus on the new entrants to Europe,' he says. 'And we are looking at Ireland.'

The company already runs 24 stores in France, five in Spain and four in Germany. It also has 14 franchised stores across Thailand, Portugal, Greece and Iceland. 'Habitat attracts different perceptions across the eight countries it operates in,' says Dixon. 'In Portugal and Greece it is the most fashionable thing; in France it is an establishment; in England and the UK it is a cosy, friendly brand with almost 100% awareness, which is unusual for a relatively small company.'

Although Dixon does not believe Habitat's varied international perception is a hindrance, last year it made two appointments that are expected to bring a closer alignment of visual retail and marketing communication strategy for the Habitat Group across Europe. Mark Hislop was appointed country manager UK and Anne-Marie Schwabb was named group head of marketing and visual retail.

In addition, 2002 saw the company unveil its 'Love Your Home' symbol - a simple heart inside a house - to unify its image across the nations in which it operates. The symbol represents Habitat's core quest: to inspire consumers to love their homes by adorning them with its 'stylish design at affordable prices'. As the property market continues to boom in the UK, and the trend for stylish interiors carries on at full pelt, it seems an easy feat for Habitat to persuade consumers to love their homes. The question for the retailer now is whether it can inspire consumers to love Habitat.

KEY PRODUCTS

Duvet: It was goodnight to sheets, blankets and hospital corners as Habitat introduced the British public to the duvet in the mid-60s. Last year Habitat sold 10,000 duvets. From £12.50.

Japanese Boule paper lantern: From student flats to family homes, this design classic remains a Habitat bestseller, priced at two for £5.

Wok: Habitat's major influence on the nation's cooking began with the wok in 1966, heralding the Great British stir-fry. From £10.

Chicken Brick: This terracotta wonder pot made a lasting impact on a generation of 70s families and their Sunday roasts. Having revived the product, Habitat sold out of Chicken Bricks when it opened its Solihull store at the end of April. From £18.

The Garland: A simple idea, this has generated so much interest that consumers have had to join waiting lists to get their hands on one. Launched in 2003, designed by Tord Boontje and priced at £15.

MARKET SHARE FURNITURE AND CARPET

Retailer 2002 2000 1998 % point UK

change stores

98-02 2003

IKEA 12@1 9@4 6@5 5@6 12

MFI 10@5 9@8 11@3 -0@8 217

DFS 6@2 5@7 4@5 1@7 63

Homestyle 5@0 n/a n/a n/a 522

Carpetright 4@8 4@8 4@3 0@5 347

Magnet 4@0 4@1 3@4 0@6 227

Allied Carpets 3@8 4@2 4@2 -0@4 225

Courts 3@2 3@3 2@7 0@5 97

Harveys n/a 3@3 2@9 n/a 227

Moben 2@2 2@3 2@0 0@2 336

Bensons for Beds n/a 1@5 1@2 n/a 228

Habitat 1@2 1@4 1@3 -0@1 39

Furniture Village 1@2 1@3 1@1 0@1 34

Furnitureland 0@9 0@9 0@8 0@1 21

Source: Mintel

MARKET SHARE CHINA AND EARTHENWARE

2002 2002 1997 1997 Chng %

pounds m % pounds m % 97-02

Department stores* 164 34 155 36 5@8

Grocery multiples 100 21 86 20 16@3

Variety/hardware/ 92 19 77 18 19@5

housewares/

discount stores**

Specialist china shops 53 11 52 12 1@9

Catalogue showrooms 29 6 26 6 11@5

Mail order/direct sales 14 3 13 3 7@7

Other *** 28 6 21 5 33@3

Total 480 100 430 100 11@6

Source: Mintel

*including china concessions

** includes IKEA, Habitat, Bhs, M&S, Woolworths, Robert Dyas,

Wilkinsons, Matalan, Laura Ashley, Next

*** includes factory outlets.

TIMELINE HABITAT

1964: On 11 May, Terence Conran opens the first Habitat store on London's Fulham Road to seduce 'young moderns with lively taste'.

1966: Launches catalogue. Today, 1.35m copies are printed annually in 13 versions and seven languages.

1969: Operating nine stores in the UK and one in Canada. Launches mail-order service.

1973: Opens first French store in Montparnasse, Paris.

1982: A year after London Stock Exchange float, Habitat merges with Mothercare to form Habitat/Mothercare Group. Acquires Heal's.

1986: Merges with Bhs to form Storehouse Group.

1992: Bought by IKANO Group. Returns to a stronger market position.

1996: Launches 'Art Club'. In 1997, it commissions limited-edition prints from artists including Tracey Emin.

1998: Takes on furniture designer Tom Dixon as head of design.

2002: Introduces 'Love Your Home' logo, a simple heart inside a house.

2003: Opens stores in Lille, Bastille, Milton Keynes and Madrid. Launches 'Art On Demand' online art gallery.

2004: Operating 72 stores globally, including 39 in the UK. Celebrates 40th birthday on 12 May.