An interview with Dreams: Mike Clare
We speak to the King of Beds about his £120m empire
Everyone needs a bed. You're born in one, spend a third of your life in one and, more often than not, die in one.
There are 5,000 companies who sell beds in the UK. In every town there's a bed centre. Half of the £1.2bn market is owned by 20 companies.
Mike Clare is founder and chief executive of the UK's largest bed retailer and has a patter he's delivered a thousand times. The man eats, sleeps and no doubt dreams the things. Dreams recorded an annual sales boost of 22% for 2006, hitting £154.5m, and a 38% increase in net profi t. Late last year, it was named the fastest growing UK retailer and polled 69th fastest growing company in Europe's 500. The prestigious list hailed the organic growth of its turnover and new job creation since 2002.
Creating a winning formula
The business now employs more than 1,200 and has over 150 superstores, plus a major UK manufacturing plant. At the heart of the company's growth is a well-honed roll-out format. More stores means greater reach, more footfall and increased sales. Clare says: “We've got a successful formula now – go to a town, find a store to let, negotiate hard, get salespeople, blue carpet, invite the mayor and have a grand opening with a welcome mat and a cake shaped like a bed.” Simple. He is in the enviable position of having a team dedicated to store openings. But with 25 stores slated for 2007 alone, at a cost of several million, that is a necessity.
In a fragmented market where focused bed retailers such as Dreams and Bensons compete with the likes of IKEA, Furniture Village and Argos, high-street department stores and thousands of small independents, it's hard not to step on toes. But Clare can't let nostalgia rule. “At the end of the day, if we don't open in a town against local independents, someone else will,” he says. The north-west, Scotland and “fill-ins” are the expansion targets this year – 10 new stores in and around Liverpool and Manchester will be served by the company's new depot in Warrington and an opportunistic acquisition north of Hadrian's Wall has opened up the Scottish market.
Eight-store outfit Off to Bed was purchased in November last year for a knock-down “six-figure” sum and when Growing Business first spoke to Clare in December he was understandably upbeat, while recognising the challenge of turning around a business on the verge of insolvency. It was Dreams' first acquisition, incorporating a huge home delivery depot near Glasgow that was capable of serving those stores and planned new ones.
Clare knew the stores would need to be completely refurbished, restocked and rebranded, and that staff would need to be retrained. Additionally, the company planned to open a further 17 outlets in Scotland by the end of 2008.
Seven months on and things haven't quite gone to plan. Clare had anticipated spending time, effort and money diverting attention from the north-west, Dreams' principle target for 2007. Unlike competitors, such as Home Style (which trades through Bensons), Sleep Masters and Bed Shed, Dreams is not an umbrella for other brands. Whatever it acquired, the name, shopfi t, systems, stock, models, IT back-end, systems, admin and policies had to change. And like his consumers, Clare wanted a deal.
“Unless you get a real bargain – like with a car or house – it doesn't feel like there's as much of a point,” he says. By buying a struggling business, however, Dreams also acquired its problems and, as a distress sale, time didn't allow the necessary due diligence beforehand. Clare found he had acquired a company that was no longer advertising its existence and where a cost-cutting approach included switching off in-store heating, which was unlikely to be popular in Scotland. The upside was that the workforce was eager for change. “They think it's Christmas – and it is,” he said in December. “The staff are all over the moon and we're paying them more than they were earning anyway because we have a standard rate for salespeople and managers.” He set targets for the big promotion period of January, knowing one or two stores weren't entirely suitable and that a closure was likely.
In practice, four of the eight will be “phased out” and their staff relocated, and now only five new stores are planned, ignoring vast swathes of north Scotland where there is little opportunity. The experience has made Clare question whether he made the right decision. “We ask, could we have grown organically? We got a warehouse and some staff, but I don't think we'd rush into another [acquisition]. It took up a lot of management time, plus expenditure on advertising, shop-fi tting, recruitment. But it's more than that with the disruption and change and other hidden costs.”
Predictably the people element was as big a challenge as any. “Dreams, like any company, has a culture and style of its own. It has ways of trading and systems – doing things differently takes more time. There was some passive resistance – we were naive to think it would be easy. Off to Bed did made-to-order whereas we like to hold a lot of stock. They weren't into so many promotions and the staff didn't want to open late-nights and Sundays even though we weren't asking them to work more hours. There was also the issue that we're an English company coming here. We've learned a lot and might have done things differently with hindsight.”
Scottish consumers didn't know the brand either. While Dreams had sponsored ITV programme Heartbeat and increased its ad spend from 8.5% to 14% for six months following deal completion, Clare soon realised breaking the territory would take time.
Leaving the coalface
Striking a balance over the use of Clare's time is something that was brought to the fore with the Scottish experience and is an area he continues to work on. His pride that he's one of only three people to have visited every one of the chain's stores is evident. “There's not a lot of people who can say that in the retail trade when you reach a certain size,” he says. He also carries out an induction question-andanswer session with all new joiners, not something many entrepreneurs running far smaller businesses manage. And when it came to a £1m purchase of a new showroom in Stirling, Scotland, he wanted to “see it, touch it, photograph it and make sure it's right”.
However, delegation is fi guring more and more prominently. He steers clear of the IT, property and fi nance departments and focuses his energies on growth and marketing. “I used to ring the best fi ve branches every Monday morning to say ‘well done' and also the worst five to find out what we could do to improve things,” he says. “It's important to show you are aware, that you care and to give praise where it's due. I've tried to relinquish that, though, and get other directors doing it.” He's also delegated responsibility for writing the company newsletter.
This allows him to spend a third of his time elsewhere. He's a non-executive director of the British Retail Consortium, president of the Furnishing Trades Benevolent Association, an ambassador for Buckinghamshire and a Freeman of the City of London, as well as a patron of The Outward Bound Trust. He also supports the Conservative Party's manifesto for business. Some of you may also have seen him speak at the Growth StrategiesConference or Growing Business Live. However, it's all for a wider purpose. He cites the example of Lord Karan Bilimoria, who spends huge quantities of time on other interests. “You always see him sitting with two bottles of Cobra, though. How much PR is that? He's not running the business when he's doing that, but he's promoting the Cobra brand.”
If you're passionate it inspires people, Clare says. “The role of the entrepreneur changes the more success you have. You start off having to be hands-on – quite good at finance, computers, sales and marketing, management. Then you have to change like a chameleon, which is difficult, and be the face of the business.”
Keeping people happy
Inspiring others is something he takes seriously. Among his vast array of acronyms for people management is a scheme called MFI – Money For Ideas; “a little dig at one of our competitors”, he admits. It may be just a simple suggestion-box but it gets results. For each idea employees tick a box saying whether they think it's worth £20, £50, £100 or £1,000. “It surprises me. You'd think they'd all tick the £1,000 box, but they tick the £20 box because they think there's a chance of getting it. We value it ourselves anyway, but it's interesting.”
Potential new stores and modifications to salespeople's uniforms have figured as a result. There was another MFI for a while – Mike Favours Information – “because if you felt you didn't like your boss or were being bullied or someone was stealing something they could confidentially tell me”. Problem was “we didn't get many as there was a fear of grassing up your mates”. But the principle, was right. “You've got to have a pipeline going from the top down; sometimes you've got to bypass the layers and see what's going on. If something has gone wrong a layer of management will have filtered it out; ‘Don't let Mike know about that and we'll try to sort it out before he finds out.'”
When things did go wrong and Dreams ended up on BBC's Watchdog, Clare's approach saved face. “Some argue, but it's best to apologise. We committed to saying that anyone who had complained to Watchdog would get their bed and their money back and we would say sorry. There were not that many. We wanted to do something better than anything you'd seen on Watchdog.”
When the film crew arrived, Clare sent out trays of coffee for them, helping to turn an awkward situation into a PR triumph. “A lot of people saw us on Watchdog. It made us seem really good.”
His approach to the customer is a smorgasbord of best practice in retail. “It doesn't have to be in the same business, just a retailer. I'll take ideas from marketing, point of sale, display, ambient music. We beam satellite music into stores. After every third song there's an advert.”
Opening times in retail parks were extended into the evenings for after-work shoppers, he introduced ‘recommend us to a friend' discounts, and the company constantly tests its own service levels by “walking in its customers' shoes”.
Green – fingered approach
A trend he's recognised recently is the demand for a greener outlook. And like many business leaders he's seen the PR benefits – but they come at a price. He considered solar panels on the head office roof and found payback was around eight years. Business-wise, he says, it wasn't great. “The problem with panels is you can't see them.” The solution? More visible wind turbines. “If you can have a bit of an angle it's even better and the ROI is quite similar.”
You could be cynical, but Clare believes that if it's worth doing it's worth shouting about. He's also sanctioned the build of a recycling plant for old beds and sofas. “We deliver 7,000 beds a week and will probably shred 2,000.” It's no simple contraption, either, largely due to the need to cut through tightly coiled mattress springs. So Clare has gone heavy duty. “It's got massive teeth and cuts it all up. It would be a great way to dispose of a dead body,” he jokes.
Imported from Germany and the only one of its kind in the UK, the machine cost a princely £500,000, plus £100,000 for its power feed. “The cable is thicker than your arm,” Clare says, “so you can't jjust put it on the ground.” Indeed, its foundations are deeper than those of a house, so that the intense shuddering doesn't embed the unit into the ground. Factor in the health and safety system costs and the spend on staff to operate it, plus a new building for the raw materials extracted, and the cost totals £750,000.
The business angle? Beds and mattresses will be picked up and placed in massive green bags largelarge enough for all curtain-twitchers to see.Customersarecharged£20-40. Customers are charged £440 for saving them the jjourney to a tip. There are no extra costs because vans have space after delivery and return to the main depot anyway. Financed out of profits, the machinery will be paid for over five years with capital allowance benefits tied in.
“The environment benefits and the government thinks we're great,” Clare says. “It's also a fantastic PR story because it's not that interesting for us to say that we have opened a new store every few weeks. While you obviously want other businesses to take the environment seriously, I sort of feel that I don't want all our competitors doing it.”
It's that kind of thinking which has ensured Dreams' longevity and the company recently won Retail Recycler of the Year. He's played a similar game with head office, where 150 people are housed at a cost of £10m a year when heating, air conditioning, local rates, the lease and salaries are factored in.
“We've got a training centre, reception and boardroom but it doesn't produce revenue or profit on its own, so we have to look at it and ask what else it can do to generate more,” he says. It's a challenge his ‘Dream Team' has risen to. Solutions include the creation of a B2B arm, selling to hotels, schools, caravan producers, the army, nursing homes and youth hostels among others. Delivery drivers can now assemble bunkbeds and bedsteads for a small fee and deliveries can be booked for evenings and weekends.
He has also turned the 80,000ft2 manufacturing plant that makes 10% of the company's products into an arena to inform buying decisions from suppliers around the world. “If the cost of materials goes up or down, we'll know whether we're being told the right prices.” And the company is looking into international wholesaling, something he picked up while networking.
Clare explains: “If you're already shipping products, you can internationally wholesale. We're looking at Australia and Canada where they have similar tastes. We ship a whole container and they don't have to source or negotiate prices. The retailer I spoke to who does it already says international wholesaling pays for the company's Hong Kong office, so it's quite a cute move.” Franchising has also allowed Dreams to access local markets such as Northern Ireland, where it has six stores, and the Isle of Wight. The Isle of Man, Guernsey and Jersey will most likely be next, all locations where fulfilment and tax differences might otherwise be an issue.
Talk further to Clare and hisenthusiasmhis enthusiasmenthusiasm for new directions does not abate. By 2017 he sees an international business that operates in Canada, Australia and South Africa, which share similar tastes in beds to the UK, as well as some of continental Europe.
Will he be there to see it? Almost definitely. For a man who considers Dreams his fifth child, it'll take something spectacular to give it all up – and he doesn't play golf.
Founder: Mike Clare
Proposition: Bed retailer and manufacturer
Founded: 1985 as Sofa Bed Centre, rebranded as Dreams in 1987