Dunelm today said it had come through the Covid-19 lockdown challenge with a relatively limited fall in sales and profits thanks to its customer-first strategy and the work it has done to strength its multichannel capabilities.
Dunelm chairman Andy Harrison said that Covid-19 was “combining a health crisis and an economic crisis with fundamental changes to our social norms”, adding, “Not surprisingly, Dunelm is being tested like never before. The long-standing foundations of Dunelm have held us in good stead, with the strength of our customer proposition, backed by our new digital capacities allowing us to trade whilst our shops were closed. Alongside this, our financial strength continues to provide the resources to weather the storm.”
The retailer said it had been well-placed for the pandemic thanks to the new online platform that it completed in the autumn of 2019, enabling it to introduce click and collect services for the first time. This, it says, was “crucial” for its ability to respond to increased online demand during he Covid-19 crisis. New capabilities have been introduced to the platform every week, including dynamic product ratings and reviews, order tracking, and new digital service features launched in response to Covid-19. Looking ahead, Dunelm now plans to integrate its digital capabilities further into its shops, while also focusing on sustainability
Harrison’s comments came as Dunelm today reported sales of £1.01bn in its latest financial year, the 52 weeks to June 27. That’s down by 3.9% compared to the previous year. Pre-tax profits of £109.1m were 13.3% lower than the £125.9m reported last time. At the same time, digital sales grew to 27% of turnover from 19.6% a year earlier after growing by 105.6% in the fourth quarter of the year along.
In the year to June 27, store revenue of £816.2m fell by 12.7%, while online revenues of £211.1m were up by 50% on last time.
How Dunelm’s business changed during Covid-19
In the eight months to February 2020 – before Covid-19 became a pandemic – Dunelm had already seen total sales grow by 6.8% and online sales for home delivery by more than 30%. But store closures over final four months of the year hit both full-year sales and profits. In the final quarter of the year, the shops were closed and home delivery growth increased, online sales grew by more than 100%. Of this growth, said Dunelm, 40% came from customers who were new to Dunelm, 33% from those who had previously shopped in store, and 27% from its existing online shoppers, now visiting more frequently. Dunelm says its brand awareness rose to 86.8%, a rise of two percentage points, by June 2020, while social engagement rates have risen threefold since March.
Since the end of the year, sales have risen, with total sales up by 59% in July and 24% in August, which Dunelm says reflects both pent-up demand, the timing of its summer sale and a resilient homewares market. Over the same period, online sales have grown by 130% on the previous year, while 31% of sales were online. Since stores reopened, Dunelm says it has seen customers who visit its store more likely to buy and to spend more – as reflected in higher conversion rates and average in-store basket sizes. At the same time, average online orders have fallen in value. This, says Dunelm in today’s statement, comes as “customers have broadened the range of categories that they are willing to shop online for, moving the mix away from higher value furniture items.”
Nick Wilkinson, Dunelm chief executive, said Covid-19 had been a “great test” of its business model and supplier partnerships. He said: “We made good progress before the onset of Covid-19, building our digital capabilities, extending our product choice and value and broadening and deepening our customer base.
“These unprecedented times have confirmed the strength of the Dunelm business model, with our integrated online and out-of-town stores proposition, broad product range, long-term supplier relationships, strong cash generational and operational grip.” Since the year-end, he said, sales had been “significantly ahead of our expectations”. He said: “Our customers have adapted quickly to shopping safely in our mainly out-of-town superstores and we continue to see strong growth in our home delivery offer.”
The retailer has also tested its finances against a hypothetical scenario in which it had to close its stores for a second 10-week lockdown during its peak trading season and says it would still be able to remain within its financial covenants.
How Dunelm has seen shopper behaviour change
Dunelm says shoppers are now looking for the best prices and are now more willing to use digital both to connect with its local shops and local staff. Homewares shoppers want to be able to touch and feel items and visualise how they will look in their homes, but shoppers are also willing to use services to talk digitally to staff. Now consultations for made-to-measure curtains and blinds take place online, while store staff use Facebook groups to share news and support local communities.
Looking ahead, the retailer says it has “never been more confident about the opportunity to harness our fast-growing digital and data capabilities, with our local store and colleague presence in communities across the UK. We believe that a total retail offer integrating friendly and appealing local stores with a compelling and convenient digital offering will enable us to reach more customers and serve them better.” It recently opened a smaller ‘Dunelm edit’ high-street shop which it says is providing insights into how technology can be effectively used in stores and how sales densities can be boosted in core categories. Those learnings will be used in its superstores, while the retailer will also continue to assess the ‘edit’ format. The retailer plans to continue to invest online and will also look to improve post-sales customer service through methods from improving order tracking and communication through to the use of live chat.
As sustainability becomes a strategic focus, Dunelm is to set up local pilots to test how items can be reused and repaired, while raw materials will be sourced more responsibly, with a focus on packaging, cotton and timber.
Dunelm is expanding its home delivery capacity ahead of peak trading 2021, and enabling more items to be ordered for in-store collection later this financial year. It will test the effectiveness of using store stock to fulfil home deliveries.
Dunelm says is remains cautious about possible Brexit-related disruption and is to retain cash as a result.
Dunelm, founded in 1979 as a market stall business, now sells online and via 173 shops, of which most are out of town.
Dunelm is listed as an Elite retailer in RXUK Top500 research.
Dunelm’s head of platform engineering Tom Hayman will be talking through how the retailer’s approach to technology in an InternetRetailing webinar later this month. Out with the old: how Dunelm transformed itself by rethinking its technology, in association with Fastly, is on September 24 at 2pm. Find out more and register for the event here.