As Dreams posts sales and profit growth for the fifth year in a row, Retail Week talks exclusively to boss Mike Logue about how the beds specialist continues to avoid the nightmare that so many other retailers are facing.
Dreams posted sales of £309m – up 2.9% – as like-for-likes rose 1.9% for the year to December 24, 2018. Profit before tax rose 11.7% to £32.7m during the same period and the group remained debt-free at the year-end.
Rewind five years and Dreams was bought out by Sun European after the retailer collapsed into administration with debts of £106m. The private equity firm quickly parachuted in Mike Logue to turn around its flagging fortunes.
As chief executive, Mike Logue has overseen growth since taking the helm in 2014, bringing new technology, store openings, recycling services and innovative products with him.
“Innovation is becoming a thing. Whether that’s mattresses that can be 100% recycled or technology that measures how you sleep, we’re just trying to invest capital in all of those areas, to invest in innovation and every year we find something new to gives us a lift,” he tells Retail Week.
One such innovation the retailer has added to its stores in recent months is its Sleep Match Machine, which determines the best bed for shoppers by taking their measurements (with the shopper lying on a specially designed mattress) and more than 1,000 calculations.
Logue says the retailer has been monitoring the technology for four years in America before introducing it across all of its stores last year.
Logue has also been looking to the US for inspiration on adjustable motion bases that allow shoppers to change the position of their mattress with the touch of a button.
As many people like to read and watch TV in bed, Logue says, “propping yourself up with pillows doesn’t always work”. The adjustable motion bases allow shoppers to sleep in what the Dreams boss describes as “zero gravity” with your feet and head elevated.
“You sleep in a cocoon position that’s good for blood flow and lots of health benefits,” Logue says, adding that adjustable motion bases are now available for purchase at Dreams and represent a third of bed sales in the US at present.
But innovations aside some things at Dreams have stayed very much the same, and Logue attributes the retailer’s success in part to continuing to do “what’s been there for five years”.
“We keep focused on customer stats that we monitor very carefully – how well we’re making and delivering products and what the customer thinks about us through Pillow Talk, our online survey,” he says.
Logue meets with every member of staff at least three times a year and last year Dreams launched an app called The Hub, which staff can use to share career successes and even wish colleagues a happy birthday. The app has struck a chord and been downloaded by 87% of staff.
Whether Logue is bringing in new concepts to enhance staff morale and customer experience or continuing with proven tactics, looking after those customers and colleagues is what he believes has spearheaded Dream’s success in recent years.
Keeping his staff and customers happy all the while staying humble is “what delivers results”.
“Arrogance can be a huge issue in business, in particular in retail, and I’ve been in retail a few years now,” he says.
“You’ve got to keep that focus that you’re only as good as the last order and last delivery.”
Since Logue took over every store has been refurbished at least once and every van and truck on the road has been replaced.
“We have invested heavily to make sure this business is a good experience for our colleagues and customers,” Logue explains.
Even when he was brought in by owner Sun European to turn the struggling business around, Logue quickly realised marketing spend and investment is an area in which retailers should not cut corners.
“When I turned up at the business it was losing £5m a year [so] the first thing I tried to do was turn off the marketing money. I thought – heroic status – I’ll switch the marketing to half and we will make some money.
“Nobody came. Literally nobody came. It was tumbleweeds. Nobody was turning up in the store. The following month – April 2014 – I doubled the marketing spend, and we had double-digit growth and we remained double-digit growth for two and half years,” he says.
“Unfortunately, it’s just a requirement in this sector. Even with great product and great recommendation and great service you have to remind people that you’re here,” he adds.
The 34-year-old company still spends £30m a year – around 10% of its turnover – on its marketing efforts “explaining its brand”, which Logue believes is other bed retailers’ downfall.
Logue says other retailers who tell investors they can cut the marketing budget while still making money is “nonsense”.
“They spend less marketing money, guess what? They’ll sell less product.”
Kicking Eve out of bed
Dreams ended its short-lived partnership with mattress-in-a-box retailer Eve Sleep in January after less than a year.
Today, Dreams is focused on marketing its own mattress-in-a-box brand Hyde & Sleep, and Logue says the difference between Dreams and other bed-in-a-box companies is that the bedware specialist produces its own products.
“We’ve been selling rolled up mattresses for 20 years. I think that what’s happened in that space is – I wouldn’t even say clever marketing companies – but marketing brands that are trying to get in the space but they don’t make any products, they just badge it.”
Logue says the retailer sells “£10m worth” of its Hyde & Sleep mattresses, which it produces in its own factory.
“They are now in every one of our stores so we don’t lose millions of pounds building a separate brand with Google because we realised that just makes other people rich,” he says.
With an established store portfolio and website to sell Hyde & Sleep on, Dreams has “quadrupled sales” of the brand since the end of 2017.
“We make them ourselves, deliver it ourselves and we make money out of it.”
And Logue pumps that money back in to that business by reinvesting in vehicles, stores, colleagues and new technology.
But innovation hasn’t always worked for Logue.
“Everyone’s trying to find a new answer to improve things and we’ve made mistakes in test and trials we’ve done over the years.
“We tried to sell carpet – that wasn’t very successful. And furniture is a difficult thing to sell and actually make any money out of it because things go wrong.
“But we are very, very good at making mattresses, selling them and delivering them. We’re very good at it,” Logue maintains.
As the retailer has delivered continued like-for-like and EBITDA growth over the last five years, Logue’s original strategy of “improving the business and focusing on getting the foundations solid” can be laid to rest while it pivots its attention to these further growth opportunities.
“We’ve focused five years on improving the business and getting the foundations solid. The opportunity now for me is we’ve still got some shops to open. We still need another 15 to 20 stores to complement our digital channels,” says Logue.
Dreams currently has a 198-strong store network with an end goal of 215 to 220 stores for “full national coverage”.
Logue says he intends to keep leases “very tight” and stores ”lean” at around 5,000 to 6,000 sq ft.
“We still have customers who go online who want to test and try out a mattress themselves. Every time we open a shop the website in that area goes ballistic which is a lesson learned for us, so we continue to invest in stores and we’ve changed our strategy,” Logue says.
“The first five years was the rebuild and our message was to be the most recognised and most profitable bed company.
“We’re now the most recommended although we have to keep an eye on that every day and every order.
“The goal now is sleep and better sleep for all and we truly believe in three to four years’ time the message you can sleep better with Dreams will be there.”
But will Logue still be around to see his dream come true?
Logue admits earlier on in his career it was all “move, move, move” but insists he is “signed up for many years to come” with Dreams.
“I really care about this business and I’ve become very fond of it. I would say to you it isn’t work for me any more, it’s what I do. I care that the brand improves.
“If that day comes where the employees believe that I’m not adding value and driving it forward and pushing the agenda and innovation then someone will tell me it’s time for change.
“At this moment in time I’m signed up for many years ahead and I think the business has much more opportunity. The brand can be even stronger and I’m having fun. I’m enjoying it,” Logue says.
After a challenging January, Logue says Dreams has “trade[d] brilliantly” and registered double-digit like-for-like growth in May and so far in June, bolstered by double-digit growth online.
As Dreams becomes healthier every year could a float be on the horizon?
Logue can’t speak for Dreams’ owner but admits “they don’t hold businesses forever”, although he says at present Sun European continues to “invest heavily”.
Whatever the future holds, Sun European can sleep soundly as Dreams is one business that won’t be keeping them awake at night.