In March 2013, investment group Sun European Partners – owner of retailers ScS and Sharps, among many others – acquired the majority of Dreams’ stores, its head office and two UK factories, in a pre-pack administration deal. While few expected the brand to disappear, its survival definitely demanded a fresh approach. Paul Farley visited Dreams’ ‘Bedquarters’ in High Wycombe to meet CEO Mike Logue, the man who is quickly bringing the wayward bed empire back into the black …
After the nightmare of administration and restructuring, it feels like Dreams is starting to wake up. With new stores opened and refitted with growing regularity, buoyed by social media initiatives, TV advertising and product development, Dreams is recovering fast – a loss of £3.6m in 2013 making way for a profit of £6.9m in 2014. According to Mike, the retailer is on track to double this figure in 2015.
Like many of its contemporaries, Dreams’ collapse was partly due to the impact of recession on an overreaching store portfolio. Mike has just returned from a visit to the refurbished Maidstone store, so our conversation commences on the topic of store development …
Your Maidstone store recently received a makeover, and now features Dreams’ new design concept, Comfort By Colour. Are you close to realising your perfect bed shop?
Apart from clarifying our Comfort By Colour concept, we’ve stepped further into linens and fitted sheets. We haven’t resolved our product range completely, but we have all the fixtures set up right. I think we’ve done a better job of explaining our [bedroom furniture] offering upstairs, which has not been all that inspiring in the past.
For the last year, the teams here have been working exceptionally hard on a new supply base. We’ve invested £1m in a quality team based in South China and over here, to really make sure we’ve improved the quality of our bed frames and bedroom furniture.
When I joined the business in August 2013, we had 13% return levels across the board – up to 30% in certain bedroom furniture ranges – and we’ve just dipped below 5% for the first time. In my opinion, you can’t run a retail business profitably with anything over 5%. We’ve still got some work to do, but we are really gunning for the 3.5% mark.
We certainly see a level below 2% in mattresses. We’re not going to see that across big-ticket furniture ranges – you get natural customer dissatisfaction that generates returns regardless – but on the quality returns I think we’re headed in the right direction. It’s made us a lot more profitable.
It really is quite a turnaround …
Much of it is down to that continual quality control, and keeping our costs real – we don’t forget the days that came before. That said, this year we’ve started to see footfall growth, which wasn’t a part of the business in the past – it was all about conversion and improvement.
We’re seeing more customers shop in our stores, and we’re even starting to open new stores, which we haven’t done for quite a long time. We feel we’ve found the right model, the right size, the right range and, potentially, the right fit-out standard and investment to roll out a significant number of them.
How many stores are you operating at the moment?
We’re on 157, which is about 100 fewer than the business once traded at. I certainly see us opening 10 more new stores this year, and I would expect over 30, minimum, next year. There are major parts of the UK that we don’t really trade in – we’ll be opening several stores in the North-east this year, following Stockton, which opened on 3rd July and is already performing exceptionally well.
“We feel we’ve found the right model, the right size, the right range and, potentially, the right fit-out standard and investment to roll out a significant number of them”
We used to be very successful in the North-west in terms of sales, if not profitability – we hope to return there. Our coverage in Scotland is not significant, so we need to regain our position there. And we haven’t forgotten the South-east, where the vast majority of our stores are. There is still opportunity there. We recognise that there are more stores to open, but we’ll be doing it on a profitability basis – not just looking for sales, but looking for profitable sales.
Is your store estate likely to return to its previous size?
I wouldn’t say right back up to that number, but not far off. However, in terms of square footage, it’ll be significantly lower. Towards the collapse, the company was opening huge stores – they had one in Hull at 24,000 sqft – but I think we’re quite happy with 6000 sqft stores throughout the North-east.
Any larger than 8000 sqft and I think you’re paying rent you don’t need to be, as the range becomes too big and just confuses the customer. We’ve got 50 stores that are too big. They’re highly profitable, but they’re still too big.
But you want to stay in those locations?
We want to keep the stores, and we think there’s an opportunity to utilise the space with other retailers, or with more of our own ranges – we’re learning what we have the potential to sell through our Dreams at Home concept in Watford. We have the ability to roll 30 of these out across the country if the trial proves successful.
“Any larger than 8000 sqft and I think you’re paying rent you don’t need to be, as the range becomes too big and just confuses the customer”
We’re also trialling bedroom carpet – we find that some customers are unwilling to buy bedroom furniture before they’d purchased their flooring, and we don’t want to lose those sales.
We’re just dipping our toes in the water of various areas. The core aim of the business is to be really successful at selling mattresses first, then bed frames and bedsteads, and bedroom furniture after that. All of those other things come way down the line. Our 6000/8000 sqft stores will still be all about mattresses, bedsteads and a little bit of bedroom furniture. I see that very much as the future for Dreams.
How ripe is your bed frame offer for expansion?
We’re 40% up this year on sales of bed frames because we’ve got the quality and the prices back. We stopped selling a lot of ranges last year because the quality wasn’t up to scratch. Our core philosophy is to be the most recommended and profitable bed company in the country, and you don’t achieve that when you sell product that’s going to be returned.
We’re seeing fantastic sales growth this year, we’ve got the ranges right. Around 20% of our business is bed frames, and I still see double-digit growth in the next couple of years, just by fixing things. Now we’ve got a quality team based in Asia, I’m more comfortable about what comes off the ship – but we are looking to source more product from Eastern Europe.
The great thing about selling bed frames is that it really helps you sell mattresses, and we are fundamentally a mattress specialist in that we make them, we sell them and we deliver them – it’s all within our control. The bed frames, because they’re a more frequent, fashionable purchase, remind people to replace their mattresses, which is clearly something we would like to encourage as a business.
What do you estimate the average mattress replacement rate to be?
I think the average would still be over 10 years, and I think we’d like to see people changing their mattress every seven or eight years, based on the condition of the product. After that time, it might be fine for a spare room but won’t offer the comfort and support required for a great night’s sleep. You certainly don’t see hotels keeping their mattresses for eight years or more.
I think the industry has a job to do in explaining this issue in a suitable way. Some people spend more on their car seats than the bed on which they spend a third of their lives. And you spend that third of your life in bed to help you to be healthy for the other two thirds. Customers seem more comfortable spending money on things that will be seen than on what may be beneficial to their health.
“Customers seem more comfortable spending money on things that will be seen than on what may be beneficial to their health”
Sleep is a big conversation piece in this country. People are sleeping less, and with harder and longer work hours, the sleep that we do get is even more important. The Sleep Council are doing great work in highlighting the importance of sleeping on a healthy mattress – that will definitely be something we focus on in our training at the sleep centres and sleep academies we’ve just launched. In fact, we’ve invested £500,000 on in-store sleep training.
Where will this training take place?
We have eight Sleep Academies around the country – stores that have been given dispensation for training. There are 24 smaller, more local sleep centres that teams can go to for top-up training.
The business had some really successful training schemes for the store teams a few years ago, but obviously, with the changes it has been through, there have been other priorities. The priority now is to invest in the store team around our product.
On the subject of product, how likely are you looking to approach your own-brand offer?
I come from outside of the bed industry, and I find it incredible how unbranded it is compared to other sectors. We relaunched our TheraPur brand last November, and it now represents a significant, double-digit part of our business.
It’s unusual in a retail environment that you can launch an unknown private brand and it becomes a significant part of your business when it’s competing against other brands. Tempur is a significant brand, and they invest heavily – outside of that there’s very little investment in above-the-line marketing on brands other than the retail brands.
We see that as an opportunity. In this business we spend £20m a year on marketing – it’s very important for us to remind customers to buy a new mattress or bed. Why wouldn’t we spend some of that money on our own brand, that’s exclusive to us?
We make some great products, and we have a terrific factory in the West Midlands. We’ve been making a lot of changes there to ensure that it’s efficient, that the quality is there, and that we’ve got the right management in place. I see an opportunity for us to grow our business by developing and manufacturing brands that, one day, somebody else might wish to sell.
Do you think that those brands that you do stock will have to up their game?
I think they already are. Look at Tempur – they’ve done a terrific job of marketing in the UK. Outside of that, there is an opportunity in this industry for newcomers to come in and spend serious money on a brand, and I think they could very quickly take a leading position – and we have the funds to do that.
What is holding back those other companies from branding?
In the not-so-distant future of any company, where the focus is on being profitable and healthy, spending money on marketing can be a gamble. You have to be bold, and very confident in your product. You can’t forget the recent history of the industry, but you have to look outside it at what’s taking place in other areas – automotive, electrical or whatever, new brands are going to appear and leave others behind.
“I see an opportunity for us to grow our business by developing and manufacturing brands that, one day, somebody else might wish to sell”
They won’t necessarily be profit-making for the first few years, but there are gaps in this industry. The success of TheraPur has shown us that customers have an appetite for something new and different. We’re going to continue to innovate. I came into this business and found that there were products that had been on the floor for four or five years. We’ll be making sure our financial structure will allow us to refresh our ranges twice a year, making sure we have new, innovative products.
You believe that customers really need such rapid turnaround on product?
I think that what’s important is making sure that the product looks fantastic in store. Clearly, we have customers who are only shopping with us once every 10 years – when they do come in, it has to look perfect. I think new products and brands also put interest into the marketplace.
Does new product help reinvigorate your managers and sales staff also?
I certainly think it helps – we’ve certainly seen that with TheraPur. I think the industry needs it too. There are some great products out there. I see lots of manufacturers investing heavily in innovation – different springs, foam and latex mixes, and natural materials – but nothing gets into the press. It goes into the showrooms, but I don’t see any adverts about these innovations.
There’s some amazing work taking place, and some very skilled British workers – many at our factory in Oldbury, and the quality they produce is outstanding – but we all need to be selling these brands above the line and encouraging the public not to wait until their mattress has expired before they buy another.
“We’ll be making sure our financial structure will allow us to refresh our ranges twice a year, making sure we have new, innovative products”
I think we could really make more of the UK-made product. Most of our customers do not know that ours are British made, which I find quite startling. We’ve made a big push in our stores to explain that we’re proud to make our product in the UK, but I think that we – and the wider industry – could do a better job of it.
Do you really think you stand a chance of achieving your mission of ‘A Dreams bed in every home’?
When we make them, buy them, sell them and deliver them, why not? I think we make a great product, and have terrific salespeople. I know at the moment that we haven’t got enough locations, although our website is up 100% on two years ago, so we’re doing a good job of reaching parts of the country where we don’t have any shops.
But your focus is still on driving store footfall rather than online conversions?
Yeah, I’m a great believer that, for the main bed purchase – perhaps not for the spare room – that a showroom is required, and will be for many years to come. It’s important if you’re spending a lot of your hard-earned money, on something that’s so important for your health and for wellbeing, that you get that comfort choice right.
What’s the best way to test a new bed?
It’s important to give people lots of time. We offer tea and coffee and encourage them to take their time to feel the initial comfort of getting on a bed, and lie down with a pillow they’re comfortable with.
We do offer a 40-night guarantee, which is an important part of our business that gives customers peace of mind – in the same way you wear in a pair of shoes, beds take a little time to settle. As long as you keep the bed protected and clean, we’re more than happy to replace it. We take those beds that have been tested, fully clean them, inspect them and sell them through a clearance outlet.
We find that the customers who take their time in the store don’t need to use that service, but I think that when you haven’t bought a bed in over 10 years and you’re spending a lot of money, you need that guarantee.
Do you extend this approach to your staff, to help them better understand the product they’re selling?
When I joined here, people were only allowed to purchase one bed every five years. Now, just under 80% of our employees have purchased a product from us. The reason for this is that the staff discount is something like four times what it was a year ago, and we pretty much allow staff to buy as much as they want. I also genuinely think they’ve got far more confidence in the product that we are making.
I acknowledge that if we want more beds being slept on around the UK, we’ve got to start with our own employees – and I’m happy to say I sleep on a TheraPur Vitality mattress myself. If I can’t sleep on a Dreams bed, that says something! I refurbished my house last year, and used my staff discount to buy beds for my daughters, too, so every one of our beds is now a Dreams bed. We’ve just got a few million more to sell to get one in every home …
What challenge to the industry keeps you awake at night?
Nothing keeps me awake at night because I sleep on a Vitality! Seriously, though, what motivates me is getting more customers to our brand, and growing the market for beds, mattresses and bedroom furniture, and trying to explain in our marketing material that you’re better off sleeping on a bed that’s new than one that’s 12-14 years old.
I spend a lot of time thinking about how we can do that creatively, without being seen as a commercial beast. It’s about being educational – like through our Sleep Matters Club website.
At the end of the day, people only have so much disposable income. We need to work on getting the message across that a better bed makes a better you.
Another thing that drives me is a constant desire to improve. I think it’s a healthy paranoia. The job is never done – and the day you think it is, is the day you shouldn’t come into work.
Your commitment to spending time with your staff at various levels and trying to understand their needs has been well publicised …
We’ve got 1507 people employed in this business today, and I take their jobs very seriously. I would love to generate more jobs – and I would love to pay more – but being profitable is key first and foremost.
This time next year, I believe that a healthy business in the sector should be circa 10-12% profitability turnover. I will be striving for 10% in 2016, and I certainly hope we get somewhere close to 7% in 2015.
Do you believe that the general economic outlook is positive?
Yeah, although I think we’ve bizarrely seen a bit of softening since the election. Consumer confidence has slipped a little month on month, based on the threat of dramatic cost cuts. I think that has unnerved some people in terms of big-ticket purchases.
Overall, though, I don’t foresee any big changes. Interest rate changes would have an impact – anything that’s going to change the disposable income of people around the country and reduce their monthly outgoings based on mortgage change would seriously harm big-ticket purchases.
“We’ve made a big push in our stores to explain that we’re proud to make our product in the UK, but I think that we – and the wider industry – could do a better job of it”
We’ve just got to make sure we’re as fit and as lean as we can be when it occurs – it almost seems inevitable that we’ll come away from these low interest rates at some point, but hopefully we’ll see some wage inflation to counterbalance it.
Are we winning? I think we’re winning versus other markets in Europe. Have we won? No, long way off it. Could we slip back again? We could if we don’t keep it real. It’s like running any business – you’ve got to keep the balance sheet sensible, keep your costs tight. Equally, you’ve got to keep everyone motivated, and keep the country motivated as well. It’s a very fine balance.
This article was published in the Bed Show Preview Supplement, which accompanied the September issue of Furniture News magazine and the 2015 NBF Bed Show.