Dunelm boss John Browett believes he has bagged his very own “Black Friday deal” with the retailer’s £8.5m acquisition of Worldstores.
The home and furniture firm’s upbeat chief executive tells Retail Week that the deal has been bubbling under for around six months, when Dunelm first entered talks with Worldstores about a potential takeover.
“The valuation was a bit high for us at the time,” Browett explains, “so we said we’d come back to it if the price dropped – and it did.”
What is the WS Group?
The WS Group, which employes around 650 staff, consists of three brands: Worldstores, Kiddicare and Achica.
Twickenham-based Worldstores, which forms the largest part of the group, was launched in 2008 by founders Richard Tucker and Joe Murray.
Offering more than 500,000 products, it claims to be one of the UK’s largest online retailers by SKU-count for the home and garden.
Achica is a members-only etailer offering furniture, homewares and accessories, often at a discount through flash sales.
And the third member of the WS Group stable, Kiddicare, is a multichannel retailer selling nursery supplies. It sold for as much as £70m during its heyday in 2011, but changed hands to Worldstores for just £2m in 2014.
At a total price of £8.5m for the group, Browett says the deal was sweetened by three significant elements.
Firstly, Worldstore’s technology – specifically the way the etailer is able to offer next-day delivery from around 6,000 suppliers without actually holding any stock.
Secondly, he was drawn to the scale of operation that the etailer had reached in a relatively short period – it now generates revenues of around £100m a year.
And thirdly, he says that, for Dunelm, the WS Group is a “great cultural fit”.
Although Browett did not know the Worldstores founders before this year, he says they share similar values and is confident they will work well together.
What will Dunelm do with Worldstores?
Following the acquisition of Worldstores, which was completed following pre-packaged sale of the business and its two subsidiaries, Dunelm will have its work cut out.
In the short-term, Browett says “ensuring the supply terms are right for Worldstores” is top of his to-do list.
“Over the next few weeks or so, we’ll be making sure people understand that we’ve bought 100% of the business, for example, and what our support is for the company,” Browett explains.
“Then we want to switch them on as vendor for us, so Dunelm can access its 6,000 suppliers. After that, we’ll begin to integrate the delivery network.”
But in the longer term, the acquisition is an opportunity for Dunelm to accelerate the growth of its internet operation.
Browett predicts that seizing on Worldstores’ “extensive homewares and furniture offer” will allow Dunelm’s online business to expand to “more than double” its current size.
The deal could potentially generate an additional £10m per year for the retailer over the short to medium term, “largely from the enlarged group’s buying power,” Peel Hunt retail analyst John Stevenson suggests.
Boosting delivery proposition
Arguably the most compelling ingredient for Dunelm, however, is the ability to bolster its multichannel delivery proposition.
According to Stevenson, this is “fundamentally a platform deal” that will boost Dunelm’s two-man delivery capability.
With a £25m investment last year from Goldman Sachs’ merchant banking division, Worldstores built a proprietary technology platform that manages suppliers and enables rapid cross-docking of stock.
It enables customers the choice of next day or named day delivery of products, many of which are bulky items that require two-man delivery.
According to Stevenson, the platform is a “fairly sophisticated” one that “cannot be bought”.
He says: “This acquisition gives Dunelm access to a much stronger logistics and order management process that could not be bought, and also brings scale to Dunelm’s two-man delivery platform, which has been historically loss-making.
“Management believes this would have required over £15m in development costs, plus the time required to make such investment.”
Another big opportunity will be to “plug this into the click-and-collect network,” Browett adds.
The homewares boss has been keen to nurture Dunelm’s click-and-collect capabilities since he took the helm last year, and told Retail Week earlier this month that he was soon hoping to offer click-and-collect from a central location.
This move will allow him to tap into that ambition, and enable customers to access the full-range of Worldstores products via this channel.
Achica and Kiddicare
For Browett, the propositions of all three businesses Dunelm has acquired complement the retailer’s existing offer.
But as he priortises leveraging Worldstores’ capabilities, Achica and Kiddicare will be integrated into the Dunlem business “over time”.
Dunelm has plans to trial Kiddicare implants in Dunelm stores.
However, as Verdict retail analyst Patrick O’Brien points out on Twitter, the once high-value Kiddicare is now little more than a makeweight in Dunelm’s £8.5m deal with Worldstores and Achica.
“I doubt Dunelm has big plans for it,” O’Brien says.
As for the prospect of additional acquisitions in the near future, Browett says: “We’ll stick to just this one for now”.