Heatwaves wilt Dunelm sales as new boss plots turnaround
The new boss of Dunelm has warned that record summer temperatures have posed an early hurdle to her attempts to turn around the furniture and homeware seller.
Clo Moriarty, who joined the group from Sainsbury’s in October last year, said progress towards her new strategy has so far been delayed by the repeated heatwaves which have driven shoppers away from the high street in recent months.
She told investors on Tuesday: “As a result of the extended period of unusually hot weather, we saw significantly softer trading in the first six weeks of [this financial year].”
Moriarty said she has “taken a deep and honest look” at the performance of the FTSE-250 group, and on Tuesday delivered its new ‘winning hearts and homes’ strategy to shareholders.
The retailer has a “compelling case” to commit to an urgent turnaround, she said, because its sales growth and market share gains have slowed in recent years.
“Competition has intensified and the external environment has become more challenging. Inflation and interest rates remain elevated, global uncertainty persists and consumers are understandably more cautious in their spending,” Moriarty said.
But investors failed to warm to Dunelm’s new strategy, as its shares plumetted by as much as 10 per cent to 802p in early trading. “The problem for Dunelm is that while sales are growing, stubborn profits refuse to budge,” said Freetrade analyst Duncan Ferris.
The homeware seller’s posted a pre-tax profit of £211m in the year to June, flat on the year before, while revenue edged up by 3.1 per cent to £1.8bn.
The former Sainsbury’s tech boss will oversee a rapid expansion of Dunelm’s store estate, targeting about 10 openings each year for the next three years, supported by £125m of new capital spend.
Dunelm faces ‘challenging’ environment
The group will aim to increase the loyalty and spend volume of its existing customers by ramping up its reputation for affordability and simplifying its product range.
Dunelm is the biggest player in the UK’s £25bn homeware and furniture market but said that only 15 per cent of the population shop frequently at its stores.
Even its most loyal customers continue to direct 80 per cent of their homeware spend away from Dunelm, its research has found.
“We want to reach new customers and deepen our connection with existing ones, earning more loyalty and becoming the specialist they turn to for every mission in the home, whether they are refreshing a room, solving a practical problem, or creating a space they love,” Moriarty said.
Dunelm’s boss also said that the group will make better use of artificial intelligence to automate its supply chain, using a smaller group of providers.
The group is targeting £100m of cost-cutting across the next three years. Wage inflation has been a major “headwind” for the firm’s balance sheet, it said, with employee costs rising by £85m in the last four years.
Moriarty said her turnaround plan will also face friction from the “challenging” retail environment facing the UK’s high street businesses.
“Geopolitical uncertainty, elevated interest rates and inflation, and a changing UK political landscape continued to weigh on consumer confidence,” she said.
Brits are shopping ”more selectively,” especially in discretionary categories like homeware, and are turning more often to promotional deals.