Dreams’ well-documented turnaround story is indeed the stuff of dreams – an inspirational tale of a retailer transformed from rags to riches.
The beds specialist was rescued from the brink of administration by private equity owner Sun European Partners in 2013, after four torrid years of decline.
It drafted in former Mothercare and Asda executive Mike Logue, who implemented a three-year improvement plan to turn around its fortunes. And as Logue reveals Dreams’ latest stellar results with Retail Week, he declares: “This is not a retailer in transformation mode anymore.”
Dreams full-year results, 2016
- Sales up 20% to £280m (FY15: £234m)
- Pre-tax profit up 136% to £32m (FY15: £13.5m)
- EBITDA margin of 14.4% (FY15: 9.3%)
- Like-for-likes advanced 14.1% (FY15: 19.4%)
- Initial £53m capital investment from Sun European Partners now repaid in full
But how has he done it?
Making Dreams reality
The big driver of profitability in 2016 was an increased focus on UK manufacturing and improved efficiency in Dreams’s factory.
“Operational efficiency has doubled at the factory, and it’s profitable now, which it hasn’t been historically”
The business invested £2m in machinery and technology as well as improving general conditions in the factory, such as catering, layout and the car park.
“The car park seemed like a bizarre thing to fix, but that’s what employees asked for,” Logue says. “They just wanted better conditions to work in.”
Since the investment, the business has now upped the amount of product it manufactures on home soil to 40%. That includes 60% of all Dreams mattresses.
“Operational efficiency has doubled at the factory, and it’s profitable now, which it hasn’t been historically,” Logue says. “I’d say that’s the biggest leap forward in 2016.”
He adds that Dreams’ distribution network has also “stepped up and stepped on”, going so far as to say: “It’s extremely robust now.”
Passionate about winning
Staff training also made a significant contribution last year, says Logue.
He introduced a programme – Passionate About Winning – to encourage the business’s 1,000 store staff to identify their own strengths and weaknesses and support each other.
“Passionate About Winning is helping our people go from good to fantastic”
Every employee is given a score based on their customer satisfaction – or Pillow Talk as it’s termed – rating, which is displayed ’backstage’ at every store.
Logue says “the response from the team has been brilliant”.
“It enables people to identify their weaknesses and empowers them to help each other so they ultimately have more chance of progressing through the company,” he says.
“I’m a great believer that if people have got the right attitude and bit of passion, particularly in retail, they can go all the way to running an organisation.
“Passionate About Winning is helping our people go from good to fantastic.
“We’ve seen conversion levels rapidly moving from one in five customers to one in four.
”It has engaged people in a way I didn’t know was possible.”
And while Dreams’ store estate had been radically improved before the start of 2016, ten store refurbishments over the year have bolstered like-for-likes.
“We target a minimum of 5% like-for-like increase when we’ve refurbed a store, and if it doesn’t perform we get feedback and try to understand why.”
“We’re reinventing what the stores look like all the time. There’s always room for improvement”
And although he says every single store is now making a positive contribution to profit, work on the store estate is ongoing.
“We’re reinventing what the stores look like all the time. There’s always room for improvement,” he says.
Indeed, Dreams introduced a new-format store in Warrington at the tail end of last year, with an “enhanced look and feel” and colour coding to simplify the “increasingly scientific” bed-buying process.
Logue plans to roll out 20 more of these in 2017, as well as refurbishing 30 existing stores, “to ensure they stay fresh and up to date”.
The next chapter
It’s quite apparent that, despite the business’s unprecedented transformation, Logue is not settling in for a nap just yet.
“We’re passionate about winning, but we’ll never win, because if you ever think you’ve won, you’ve lost. There’s always someone coming up faster on the inside lane.”
In fact, Logue is nestling into another three-year plan.
Part of his new strategy is making improvements to the initiatives he’s already put in place.
“We’ve done the easy stuff, but maintaining it is hard work,” he says, sounding like the wise retail lifer he is.
Expansion is also on the cards and Logue is planning up to 50 more Dreams stores, which he says will give it “proper national coverage”.
From Eve to Simba, there has been a throng of new entrants into the growing mattress-in-a-box sector. However, determined not to get left behind, Logue invested last year in its own rival – Hyde & Sleep.
This month it moved the manufacturing of Hyde & Sleep mattresses into its own factory.
“I don’t see how the competitors in this market can be making any money when they are reliant on third-party manufacturers and distribution,” he says.
But Logue believes that moving Hyde & Sleep in-house will make this branch of the business, for which there is a niche but sizeable market, profitable over the next few years.
“By year three, with significant marketing investment, it could become a really nice part of the business,” he says.
“I still don’t see it becoming a huge part of the industry,” he adds, “but it has its place and I’d rather be in it.”
But Logue says the “real investment” over 2017 is the introduction of a “truly omnichannel operation”.
“We’re not totally connected at this point in time. We need to take a leap,” he says.
Following the trend of customers researching online before visiting stores, Logue plans to launch a new platform that unifies the company’s in-store and online operations.
By the end of this year, point-of-sale systems in stores will be scrapped. “People talk about omnichannel; our whole business is going to work from one system.”
When customers come into store, staff will be able to find the contents of their online basket, for example, and take the transaction from there.
“There are only a handful of retailers globally who are doing this,” he says excitedly. “It’s a major step forward for this year.”
What keeps Logue up at night?
Despite his grand plans, Logue is not blind to the issues impacting retail right now.
The retailer may manufacture a large portion of its own products in the UK, however, continued currency headwinds could impact some parts of the business going forward.
He therefore has his finger on the pulse.
“Retailers do not like uncertainty, and because the press are driving the Brexit debate, uncertainty is definitely out there.”
“We’re testing and trailing how we would bring even more of the manufacturing in-house now. There are still efficiencies to be had too.”
But 2017 has brought another headache for big-ticket retailers in the form of volatile consumer confidence, or “uncertainty”.
Logue feels this has resulted in “softer than hoped” sales in February.
“I’m very confident in how Dreams will perform, but retailers could be in for a challenging year,” he warns.
“Retailers do not like uncertainty, and because the press is driving the Brexit debate, uncertainty is definitely out there.
“And uncertainty in retail is one thing, but uncertainty in big-ticket retail is another step up again.”
For this reason, the level-headed boss is not expecting surging sales this year.
“Anything greater than 5% like-for-likes would be a fantastic achievement given a) what we’re up against in terms of how we’ve grown and b) uncertainty,” he says.
But Logue retains his infectious optimism, confident that Dreams will still achieve double-digit growth given its continued improvements and new initiatives.
Speaking both about Dreams and the industry as a whole, Logue says: “After a bit of uncertainty, we can prosper.”
A degree of uncertainty exists, however, not only on the retail landscape, but within the business itself, as Dreams’ owner is currently considering its options, including a potential sale.
But Logue maintains that a change in ownership won’t steer him off course.
“I’ve always said, if the team want me to be around, and I’m enjoying it, then I’ll stick around”
“Sun has been an exceptional partner to us and, yes, they are considering their options.
“But they considered their options two years ago as well. It wouldn’t surprise me if in three years’ time, I’m still talking to you about Sun European Partners ownership.”
Logue says he expects to know more about what path the Dreams owner will take in the next three months, and asserts that he’d be “happy on either route” and would not jump ship.
“I’ve always said, if the team want me to be around, and I’m enjoying it, then I’ll stick around.”
And his enjoyment is tangible.
“It’s all exciting!” he laughs. “2017 is going to be fun! You know, retail is always changing, and that’s actually what I love about it.
“Ever since I joined M&S at 17 years of age as a young commercial management trainee, I’ve always been fascinated by how retail rejuvenates and refreshes itself.
“If something doesn’t work, you try something else. And I just love that – the test and trial and constant improving.”
Bringing Dreams back from the cliff edge would have been deemed a nightmare job for many, but Logue’s enthusiasm for improvement is insatiable.
“If I can’t improve, I might as well stay at home,” he says, placing down his tea cup.
And that’s what Dreams is made of.