Nick Wilkinson

First impressions

Dunelm is a great business which has grown sales in each year of its 39-year history by offering great choice and value for money. Over time we have developed deep knowledge and an unrivalled range of homewares products, supported by committed suppliers. The business is prudently financed, and highly cash generative. Investment in appropriate systems and infrastructure provides a solid platform for growth, and the superstore portfolio combines good locations and attractive rent levels. Our long-established business principles and committed colleagues help ensure a high level of customer satisfaction, which is still growing.

However, we need to continue to change if we are to continue to win. The market is changing, with the increasing penetration of online retail. At the same time, while some of our traditional competitors are retrenching, discounters continue to expand their physical store portfolios. Our rate of market share gain has slowed. We have made some inroads into the furniture market, but our proposition is not yet well developed. The acquisition of Worldstores in FY17 has accelerated the development of our multichannel capabilities, but the process of integrating Worldstores into Dunelm has been substantial and has reduced our focus on some of our operating disciplines.

My conclusion is that I have joined an excellent business which is experiencing some new challenges, both near term and medium term. I am really excited about helping Dunelm to navigate these challenges as we aim to fulfil our purpose of helping everyone create a home they love. We will differentiate ourselves by being famous for product style, value and quality in all market segments, and we are working hard to become the best multichannel retailer for homewares in terms of convenience and customer experience.


Picking an orderDistribution warehouse

Total Revenue Growth



(2017: 8.5%)

Homeware's Market Share



(2017: 8.0%)


The acquisition of Worldstores was a major event in Dunelm's development and trading and integrating the acquired businesses has been a massive focus for the management team.

Although Worldstores was acquired from administration for a nominal sum, our estimate of the total cash outlay we will incur, including goodwill payments to suppliers, integration costs and trading losses amounts to approximately £30m (net of tax relief).

The business model of Worldstores itself was not sustainable and at the time of acquisition it was incurring losses of over £20m per year. We have transferred significant numbers of profitable lines (approximately 15,000 to date) from Worldstores and Kiddicare to our own website, strengthening the offer and contributing to growth. Having transferred the worthwhile sales, we decided to cease trading the Worldstores websites as separate entities and they were fully withdrawn by early September 2018. We also sold the Achica brand which did not fit with Dunelm's business model and, having tested the Kiddicare brand, we concluded that we can more profitably extend our presence in the children's market using the Dunelm brand. We therefore closed the Kiddicare business in July 2018.

The main benefit from the acquisition is the access to technology and digital development capabilities, which are an important ingredient to the infrastructure that is essential to our success in a multichannel world. Importantly, we see the technology platform acquired with Worldstores as a real asset. We are well advanced in a major programme to move the website onto this platform which will allow us to launch Click & Collect and subsequent developments (such as improved delivery options) with much greater agility than has been possible whilst working with a third-party technology partner. We are on track to introduce the new platform during Q3 of our financial year. Linked to the above, we now have not only better technology assets but also a much more advanced capability within the organisation, with a significant increase in the number of digital developers and a digital development centre in London.

With the integration behind us, it is clear that Worldstores has created a new level of energy and focus in the business around digital growth. This will play a key role in driving Dunelm's growth for the foreseeable future.


I see plenty of opportunity for us to drive growth as the leading multichannel specialist,
helping more customers to create a home they love... This is a new and exciting chapter for Dunelm as we fully embrace digital retailing.
Patterned bedspreadHome where our story begins

Immediate challenges and opportunities

We have seen profits fall in our last two financial years and we have identified a number of issues and opportunities to improve performance of the core Dunelm business.

We need to evolve to a market-leading multichannel offer. The actions described above to capitalise on the assets acquired with Worldstores are the critical next phase on this journey.

We also have a clear opportunity to improve our customer offer via renewed focus on our value for money credentials. We will reinvigorate our programme of special buys in the coming months and ensure theseare prominently displayed in stores and online.

We have grown our furniture business over recent years such that furniture (excluding Worldstores) now represents approximately 5% of Dunelm sales, but the proposition is still at an early stage of development. I am excited by the opportunity to develop our furniture offer further across all channels.

Partly as a result of management change and partly due to the distraction of the Worldstores acquisition and integration activity, some of our basic retail disciplines have slipped, for example in the areas of margin management and stock loss. I am determined that we will regain our grip in these areas.

We have invested heavily in our store portfolio over recent years. With a small number of exceptions, the performance of new stores has been positive and continues to give good payback on investment. Refit investments have shown a mixed return. I continue to believe in the opportunity for rolling out new stores, and for targeted refits, although I will ensure that we are highly selective with these investments going forward. I anticipate that the rate of new store openings will be lower, approximately three to five per year, as we move towards our target of 200 stores for full national coverage; and that our investment in refits will settle at £5-10m per year over the medium term.

Evolution of strategy

The core of Dunelm's business strategy is sound, but needs to adapt to reflect fully the issues described above and the challenges of a multichannel environment.

Our customer purpose is to help everyone create a home they love. We intend to reflect this in the way we think about the business, the way we organise, and the way we express our strategy.

Customer first – The leading multichannel specialist

We are now organising ourselves in line with a clear "Customer First" mind-set. In this retail environment, we must be agile and able to work at pace in an ever-evolving competitive landscape. Our combined store and online business enables us to offer a leading multichannel customer proposition which neither the discounters nor the pure-play operators can match.

By listening to our customers and serving them better we have a significant opportunity to sell more. Shopping frequency and average basket size have considerable headroom for growth as we develop our customer proposition. We under-participate in certain key homewares customer segments, such as "confident nest builders" and "necessity buyers", and have the potential to grow substantially within these groups. Furthermore, awareness of the Dunelm brand is approximately 80%, which remains low for a market leader.

In the coming years our customer proposition will evolve significantly. Product choice will be extended considerably, in both current and adjacent categories, as we help our customers by sourcing great products. Our stores will become more service and experience orientated, supported by market-leading services which offer inspiration and advice to help customers create a home they love. At the same time, we will work hard to improve the value we offer customers, and to make it even easier for them to shop with us.

In addition to our four existing business goals which help us shape and prioritise our activities to support growth, we have now added a fifth, reflecting the opportunity to grow customer awareness and improve our capabilities with regards to customer acquisition.

Meet the Meknis

1 Reaching new customers with our brand

We have increased the number of unique customers shopping in our stores by 5% and online by 18% during the last year. Continuing to grow our customer base is now a key focus.

Historically customers have "found" Dunelm as we have opened new stores near their homes. In recent years, with the growth of online performance marketing, we have also attracted new customers directly to our website, which in turn supports our store sales.

In the current financial year, we are launching a new integrated brand building campaign which will begin in September 2018, comprising TV sponsorship and advertising, supported by PR, social media activity, email communications and instore activities. We will test and learn from this approach, and will endeavour to have an "always on" flow of customer communications to ensure the Dunelm brand is "front of mind" amongst our target customer segments. Our investment in this campaign over the coming financial year will be partly funded by redirecting existing brand spend. We will measure success in terms of customer acquisition and visit numbers.

We plan to accelerate investment in online performance marketing on in line with our growth expectation for this channel.

We will also continue to develop the use of our own content via our own website, emails to customers, and on social media channels where we are targeting increased followers and likes. We are learning how best to leverage the capabilities of our new CRM system, and generating interaction through #mydunelm and user-generated content and imagery. We will further step up our product PR activity and influencer programmes to gain critical mass.

We are excited about the potential for medium term growth across all our channels which will come from this heightened focus on customer acquisition.

2 Create new reasons for customers to shop with Dunelm

We must continually improve our proposition by offering the best product choice, quality, value and style to our customers. We must broaden our product appeal to suit all customer tastes, and reinforce our product advantage compared to our competitors. Driving broader category awareness will help us drive visit frequency and basket size.

During the last year we have had some notable successes in improving our product ranges in areas such as lighting and rugs where sales grew significantly both online and in stores.

We have recently launched online a new Made to Measure blinds offer, which will be followed in due course by Made to Measure curtains, which we expect to appeal to customers seeking convenience. In furniture, we are building differentiation into our offer to improve the ranges available for customers and drive consideration in areas such as mattresses with new Dorma and Fogarty branded products.

We want our customers to see new products each time they visit our stores and website. We will achieve this by reinvigorating our approach to special buys and trading to bring a wide variety of styles and great value products to our customers.

In the last year, we have continued to grow our sales of seasonal products across key winter and summer trading periods (on top of strong growth in FY17). We believe there is more potential for growth here and are planning further improvements in seasonal ranging over the next year.

3 Easy and inspiring multichannel shopping for our customers

Our customers tell us that shopping convenience is high on their priority list. In addition, customers seek help, advice and inspiration to help create a home they love.

Our 169 superstores provide a fantastic opportunity for us to showcase our product ranges and inspire customers as they browse. As we expand our store estate to around 200 stores, we will bring this opportunity within reach of even more customers, enabling them to access our great ranges and 'take home today' convenience.

Our website provides a different type of convenience for customers shopping at home or on the go. We are working hard to create a seamless multichannel proposition, and are aiming to be the leading multichannel brand in homewares for customer experience. In reality, we are still in catch-up mode for online capability, and we know our customers will appreciate the Click & Collect service which we will introduce in tandem with our new web platform early in 2019, as well as improved payment and delivery options.

We know that our stores are an integral part of our future success in a multichannel world, and delivering an inspirational and easy to shop store remains important. We have rolled out tablet-based selling in-store during the last 12 months, providing customers with the opportunity to access the full Dunelm range from every store. We have introduced customer hosts in our stores who will support customers' shopping needs, offering friendly advice and expertise, and helping them navigate the wide variety of ranges available to them.

Last year we continued to evolve our format in stores by completing six major refits, as well as a number of smaller modular refits around furniture, lighting and Made to Measure. We will continue to trial and develop new concepts in stores and currently plan to complete a small number of further major refits in the next financial year.

Made to measure

4 Simple and low cost - good housekeepers

Our low-cost operating model and dedication to keeping things simple has historically been a source of significant cost advantage. However, cost growth has exceeded sales growth for a number of years now as we have addressed the changing retail market and transitioned to our multichannel model.

Our approach going forward is to drive efficiency by leaving behind the Worldstores and Kiddicare brands, and leveraging a single brand, web platform and integrated supply chain. As our channel mix shifts, we will attack costs and work to keep all our channel operations low cost and efficient. We calculate that the marginal contribution from 1-man home delivery sales is currently around 15% below in-store sales.

Over the last year we have made conscious decisions to invest in areas such as digital marketing and technology, and these investments will continue. We have partially offset these investments through productivity initiatives, both in stores and in our supply chain operations, including elimination of some of the Worldstores operating costs. However, we have also suffered increased operating costs due to weaker grip on basics such as stock loss, sourcing and procurement. We are now refocused on improving controls in these areas.

5 A great place to work for colleagues

Making Dunelm an even better place to work for all our colleagues is a continual focus for our leadership team and something that we are passionate about. We know that highly engaged colleagues provide better service to our customers.

Our business principles are really important to us, and as we embrace a digital future, we are working hard to retain the culture which has enabled us to get to where we are.

We are encouraged by the progress made this year in creating better, more rewarding jobs for colleagues in stores and in support functions. We have again promoted more colleagues to management level roles, and we continue our efforts to identify and develop talent to enable individuals to reach their full potential.

We continually listen to our customers and colleagues using our "always-on" feedback and engagement tools. Significant actions taken in response to feedback from our colleagues include restructuring our Technology teams to become more agile and product focused, and combining our Buying and Merchandising functions into an integrated team.

Colleagues value our commitment to activities which have a benefit for the environment. During the year, we reduced CO2 emissions by 7.4%, supported by the completion of 25 LED refits in the year, taking the total number of our sites with LED lighting up to 164 out of 184. Our focus on recycling and landfill diversion has enabled us to reduce our costs of waste management year-on-year, generate significant revenues from recycling, and improve our landfill diversion by three percentage points to 95%.


In the near term, we have a number of self-help opportunities to improve profitability and cash generation after a difficult and disappointing FY18. I am determined that we grasp these opportunities quickly so as to return to profit growth.

Over the medium term I see plenty of opportunity for us to drive growth as the leading multichannel specialist, helping more customers to create a home they love. This is a new and exciting chapter for Dunelm as we fully embrace digital retailing.

The UK retail environment remains challenging, but against this difficult background we have traded in line with expectations during the current financial year to date.

Nick Wilkinson Chief Executive Officer

12 September 2018