Podcast: The company fending off big gorillas and young upstarts - who could it be?
Fund managers Jean Roche and James Goodman chat to the CEO of a business which began as a market stall on the streets of Leicester and is now one of the biggest homewares retailers in the UK.
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[00:00:00.580] - David Brett
Welcome to the Investor Download, the podcast about the themes driving markets and the economy now and in the future.
[00:00:14.600] - David Brett
I'm your host, David Brett. Hello. I hope you're all well. Today's episode is the latest in our multi-bagger series. Links to the previous episodes can be found in the show notes. I won't introduce our guest here because our hosts, fund managers, Jean Roche and James Goodman, do a much better job than me very shortly. Needless to say, it's a cracking interview with a CEO doing wonders with a company, fending off both big guerrillas and young upstarts in a fragmented marketplace; while producing outstanding returns for investors. So, without further ado, here's Jean and James and our mystery guest. Enjoy.
[00:01:03.990] - Jean Roche
Hello and welcome to the Mid250 podcast. I'm Jean Roche.
[00:01:08.480] - James Goodman
And I'm James Goodman.
[00:01:10.080] - Jean Roche
James and I are fund managers on Schroders UK Small and Midcap team. And we're recording from Schroders head office here in London.
[00:01:18.300] - James Goodman
Afternoon, Jean. So this is our sixth podcast in our Mid250 series, how time flies. To remind our audience, we had the multi-baggers episode for the first one, which was showing how you were more likely to pick a stock that had gone up several times in the UK than the US. Back in May last year, we interviewed Adam Couch, the CEO of Cranswick. And then we had Lyssa McGowan from Pets at Home. We've had Nick Jeffries from discoverIE and Leo Quinn from Balfour Beatty. And we're really looking forward to the discussion with today's guest.
[00:01:52.200] - Jean Roche
And before we tell you who it is, I'll just give you a little taster. So, the background is that James and I noticed that a a certain UK mid-cap company in which we are shareholders had generated a total return of 159% since a certain chief executive began in the post, almost seven years ago. Impressive, especially given that this period includes the pandemic. And especially impressive given that this compares with 138% at the magnificent S&P 500. So that's a 15% per annum compound return since our guests took the top job at this company versus is 13.6% at the S&P 500, and he's looking a little bit embarrassed now.
[00:02:36.600] - Nick Wilkinson
Big intro.
[00:02:38.490] - James Goodman
So as multi-bagger hunters, this immediately caught our eye, and we felt it was obligatory to invite Nick Wilkinson, the CEO of Dunelm, into our studio. Welcome, Nick.
[00:02:49.900] - Nick Wilkinson
Thanks, James. Thanks, Jean. Good to be here. Thanks for the intro.
[00:02:54.080] - Jean Roche
So, Nick, before getting stuck into the podcast itself, I'd also like to add at this point that Dunelm shares have outperformed M&S and Next as well since you became CEO. So just to gild the lily a bit there. So, Nick, we don't often actually get a chance to grill CEOs about their background. So what we'd really like to know a bit more about, obviously, we've had a little look through LinkedIn, but could you give us a general overview of your career to date? And I think most people will have a few mentors or people they really look up to mention in that career path as well, especially when they're as successful as you have been and continue to be. So could you give us a look at all that?
[00:03:40.950] - Nick Wilkinson
Yeah, of course. Yeah, I will. And just to say a great introduction, thank you. The performance was similar before I joined. So this is a company with a great track record, which I'm sure we'll get onto later. Well, I've been doing similar roles for quite some time. I've worked for the last 25 years in retailing. Originally, I was a brand manager in FMCG in Unilever, and then I had a spell at McKinsey as a strategy consultant. And I guess my four roles in retail have been book-ended with a PLC at either end and two PE ventures in between. I guess over that period, the theme is technology changing, what retail actually means, which I'm sure we're going to get onto. Mentors along the way. I was lucky enough to be in Dixon's group when the founder Stanley Kalms, Lord Kalms, was still very much involved. I'm now in a business where the founders are still involved. So there's another bookend for us to explore. I like working with founders. I really, really appreciate the bravery that they show and I think is increasingly important in this fast-changing world. Then I've been on some amazing boards with very talented people, PE boards with good investors.
[00:04:56.150] - Nick Wilkinson
Actually, I really enjoy the conversations we have with our investors now because typically, they are long-term investors in Dunelm, and they ask great questions, and they've got good memories of things we've said before. So I really enjoy that challenge.
[00:05:09.590] - Jean Roche
I think we enjoy the meetings as well, it's safe to say. That is a very extensive career already.
[00:05:19.010] - Nick Wilkinson
Long, I think is what you're saying.
[00:05:19.850] - Jean Roche
Yeah. But you still look very energetic. But you must have had, as well as the people, there must have been standout highs as well as lows at Dunelm or elsewhere. Is there anything you'd like to illuminate the listeners with on that?
[00:05:38.460] - Nick Wilkinson
The high is typically around people and people you work with and people you meet and people who grow and develop while you're working with them. I've got countless examples of that from all of those different experiences. I think also in retailing, performance is a big indicator whether you're having a good time or a bad time. I mean, it's pretty relentless when your numbers are coming in daily in brackets and you're missing your targets. And the opposite is obviously also true. And the toughest times are when you feel you lose agency. So one of the joys of being a retailer is you have so many levers you can pull. You need to work out which ones to pull and how to execute. But when you lose agency, I remember being in a business, and it was a leveraged business with lots of debt. We had covenants. The macro changed. We still had the same covenants. And you start to feel actually you haven't got as many levers as you'd like to have. So you work that through. But in general, good times are around people you work with, seeing people grow, and the business growing and performing well.
[00:06:43.660] - Jean Roche
Yeah, it sounds a little bit, as we might describe fund management as well. It's the daily measurement and the working at the levers to pull and so on. I quite like that. And then the balance sheet side of things, as you talked about, also so important for every company we invest in. But I'm sure we'll talk a bit more about balance sheet and so on later as well. There's a few things on the list there. It's interesting you didn't actually mention the pandemic as a standard high and low. And for me, actually, thinking about sitting in my attic room at the time, which was my office at the time, remembering how well Dunelm did in terms of managing things like the warehouse where others maybe seem to trip over a bit more. Any reflections from that time? How did you manage it?
[00:07:29.410] - Nick Wilkinson
Well, yeah, I mean, how do I start? I think being in a tough place in a good company with good people, with good values, is the starting point for everything. We have a good balance sheet. We weren't particularly stressed about whether we would survive. It was then a question of what do we do to do the right things? And then how do you make choices that you've never made before? If a store closed for an hour because there's a power cut in one town, an email would go around the company. We were closing stores and reopening them and closing them again like we'd never done before. So we didn't know how to do those things. And you just learn and you have to apply the values that have been in the place in the company right from the get go around making good long term decisions, trying to make those decisions so everyone comes together and you don't divide people in the company. It was a weird time because we were selected as a business that wasn't deemed essential at a time when everyone was in their homes and wanted to buy products that we sold.
[00:08:31.240] - Nick Wilkinson
Most of our competitors are not specialists and were open. So there's a really weird situation where we're thinking it's really unfair because consumers want our products and we can't open our stores. So we got over that. And we did okay. We made some good decisions and we were brave and executed well.
[00:08:48.450] - Jean Roche
I agree with that.
[00:08:50.610] - James Goodman
Brilliant. Just to focus on the company itself, could you remind us of the founding story, the origins, how the business has grown?
[00:08:57.670] - Nick Wilkinson
We're a Leicester-based business, and that's not by accident. So Leicester was as far south as textile manufacturing. The UK went in an arc from Lancashire downwards. And we began because our founder decided to leave his job as a Woollies store manager, a woolworth store manager, and spend the redundancy on some seconds from a textile factory, which was sold on Leicester Market in 1979. And they sold pretty quickly. And that was the beginning of the first 10 years of the business buying seconds from textile manufacturers based locally in Leicester, many of them serving the businesses that we now still compete against, department stores, general merchants. And for the first 10 years, we were on a stall or we had a van visiting town halls with, in those days, banana boxes full of curtains, seconds from a famous retailer, but still seconds that we sold. And that was the origin of the business. And that gave us, I think, our product DNA, because as well as being a retailer, people think of shops and sites and distribution, we're also a product company, and we're an own brand product company. And the origins all go back to those founding years.
[00:10:07.130] - Nick Wilkinson
Then we opened stores. They were on the high street. Then we opened superstores out of town, and now we've become digital. The story carries on. But the themes are the same, which is good value product, lots of choice, being a specialist. I think we're very fortunate to be comfortable operating stores and a website. Fortunately, because for our categories, consumers seem to like to shop that way. And we've had big debates along the way around whether or not this is the last store we'll ever open because it's the end of physical retailing. And then actually during the pandemic, when that was over, it was the opposite was being asked. We've fallen back in love with shops, and the answer is both are good. So that's the origins. And they still very much determine who we are now and how we think about the business.
[00:10:51.510] - James Goodman
And you said you'd worked for various companies, some of which founder-led or founder-still involved. How do you sum up the differences? What's the different feel with a founder-led business versus...
[00:11:02.030] - Nick Wilkinson
I think the biggest difference, and it's one of our values, which is making long-term decisions, is that when the founder is involved, there is just this integral thought process that we're making decisions forever and that we're making decisions that have got to feel right in five years, in 10 years, in 20 years. And obviously, many businesses that aren't founder-led still or with significant founder involvement have those skills, too. So it's not a unique recipe. But I think in retail, where there's so much happening that's daily, being able to be long term in your decision making is a great advantage over the course of time. And that's what I think drives the returns that you were describing in the introduction.
[00:11:49.960] - James Goodman
We've already touched on it before, but the competition within retail is so fierce. New entrants all the time, some big gorillas in the market still there. Do you think having the founder ownership mentality, you're able to deal with that competition better, or is it you just slugging it out every day?
[00:12:07.490] - Nick Wilkinson
No, I think the art of competing successfully in a very fragmented market, and I love being in a fragmented market because we have a low market share and lots of headroom, is that it's interesting. Actually, we don't need anyone to fall over for us to win. If we have the right plans and we execute well, we can achieve the growth that we are aiming for. And that's exciting levels of growth. I think that's different if you're in a business or in a sector where there's four or five major players. The converse of that is also true, which is if someone comes in and does a really good job, you don't always see it in your own sales. Now, the caveat to that is, but you can also still learn from them. Even if you're not seeing the impact, what can you learn from them? Because consumers will be looking at them, too, and judging us through a different lens, having seen a new competitor. We're very focused on what competitions are doing, but we're not anxious about what one individual player could do, either on the way up and on the way down. Yeah.
[00:13:08.510] - James Goodman
A big part of the success has been that relentless grinding higher of market share. What is it that Dunelm does for customers? What's the unique proposition for customers that makes it so popular?
[00:13:20.210] - Nick Wilkinson
Yeah. I mean, market share is an output, obviously, and it has lots and lots of inputs. At the heart of what we do is that we're a specialist, and most of our competitors aren't. Home is a category which has a strong emotional appeal to many, many people. And being a specialist allows us to offer more choice. It allows us to know our onions in terms of style and quality and to offer that to customers at amazing prices. If that's the rational side of why people shop with us, the emotional side is that we're managing to do that in a way where we're not creating stress. We're relatively low average ticket. We don't sell particularly aggressively. We don't put pressure on consumers. We don't have a view that you should trade up in our range if you want to buy the cheapest plain-dye sheet that we sell, that's fantastic. We're more concerned you leave the shop feeling guilty that you spent too much than the price you pay, than what you put in your basket. And again, maybe that's long term thinking. When you're on a market and it's the same people coming in week in, week out, you want to make sure that you're not creating a sense of guilt and that someone's made a mistake in choosing to buy from you.
[00:14:36.330] - Nick Wilkinson
So I think that's what we... We're a good specialist. We're constantly raising the bar, and we're doing that in a human way without creating lots of pressure.
[00:14:45.860] - Announcer
On Apple Podcasts, Spotify, or wherever you get your podcasts, you're listening to the Investor Download.
[00:14:56.950] - Jean Roche
I've noticed that you approach the social skills, the social channels, in a very humorous way and human way as well. I've even noticed some of your colleagues getting very good at synchronised dancing. I'm wondering if it's something that the asset managers should be doing because your LinkedIn channel has more followers than many of the asset managers, wealth managers, 72,000 followers. Not bad on LinkedIn. And I imagine that wasn't really what you were expecting. But how important are social channels for you now?
[00:15:28.360] - Nick Wilkinson
What's going on there? So I'm giving lots of descriptions of the past and how we haven't changed. I think social is quite interesting because we are forensically quantitative around how we think about performance marketing. I'm describing this business that's grown up, but actually we've learned some amazing things along the way. And we're a pretty advanced business when it comes to thinking about performance marketing, and we view social channels through that lens. But also in our DNA is we've grown the business also through word of mouth. And when I moved into where I still live, a Dunelm had just opened 20 years ago, and we heard about it from our neighbours who heard about it from someone in the village who worked there. And social media is just word of mouth also. So letting our stores have a voice is no different to what I was describing in the town I moved into 20 years ago. And that all came out from the pandemic. Actually, those groups on Facebook were originally created for our colleagues to communicate with each other because in a retail business, colleagues don't have personalised email addresses. We contacted them on email through the store, and we got them all on Facebook so we could check in with them.
[00:16:36.960] - Nick Wilkinson
And in those early days of the pandemic, we were worried about how people were feeling in terms of loneliness. Could they get hold of food? We then invited local people onto those Facebook groups, and those became our community pages. So their origin is the pandemic, but actually, they are now dancing, which they weren't at the time. They were more worried at the time, but now they're dancing. And doing other things, too, like doing some latte art with with the cups of coffee from La Pausa. And we're not taking ourselves too seriously. I mean, I think that's also part of that.
[00:17:06.800] - Jean Roche
That certainly comes across. But you talk about a forensic approach to performance marketing. And that's what I've really noticed. First, having seen the company since IPO, actually, from having been a sell-side analyst to now being a fund manager. So what I was wondering was, how does a company like Dunelm get such great access to great tech talent, great marketing talent? How are you able to reel them in, as it were?
[00:17:33.750] - Nick Wilkinson
I think in new areas, like for us, becoming comfortable with technology or different aspects of marketing, we're a bit like an investor, which is if we don't understand something, we're uncomfortable, and we tend to be quite slow. I remember when I joined, we weren't contactless in our stores, and the Church of England went contactless before we did with its congregation. It's like, it made a good story, but we still weren't contactless. We didn't know how to do it, and we weren't comfortable, we didn't like the complexity of it. And then when we get our heads around something, we tend to pile in. So once we've worked it out and we've worked out that actually this is a good thing and we know how to do it, we're not going to lose the plot and we can get benefit from it, then we'll invest pretty aggressively. And I think when colleagues, to answer your question, Jean, see the commitment we then give to developing careers in tech or in marketing, that we're going to be deploying some pretty interesting technology, whether it's choosing a language to write in ourselves or choosing packages that we want to integrate into our architecture, that we're doing pretty seriously.
[00:18:38.330] - Nick Wilkinson
We're late, but then when we get there, we tend to do it properly and with quality. I think that we can attract colleagues on that basis. We're in a great part of the country. The East Midlands has got some of the best universities and some of the fastest tracking universities in terms of moving up the league tables. It's had a lot of immigration in the 1970s, 1980s. It's a very aspirational area. So we've got all that local talent around us in the East Midlands and a bunch of other good retailers up there, too, of course. And we've got a London office which came to us through an acquisition, which was originally our tech centre. But we've got colleagues now who work more in the Southeast for whom it's their home base. So I guess we're confident when we get there. And then we are quite flexible about how we then attract people and make them want to work for us. And then we commit to them.
[00:19:31.650] - Jean Roche
So maybe not doing the try fast, fail fast, opposite that more sure-footed and well-armed and maybe watching what others are doing first, watching from the sidelines and then going all in.
[00:19:44.220] - Nick Wilkinson
Yes. Then there's pros and cons of that, right? So we have recruited people who've come from pure play backgrounds who are brilliant at putting their foot in the accelerator, and they're also good at putting on the break. And that's not how you build a physical store business because that will be too chaotic. So we've learned a bit from that. But also the world is now less linear. So how I've described us taking our time to get to understand things, we've got less time these days. And we can test and learn and do things more iteratively. So we are changing in that regard. And I think as we become a more digital business, 40% of our sales are now online. We're learning we can do things differently. And that's really exciting because we're just learning to do something new while still basically doing the same thing, which is selling brilliant products to UK consumers.
[00:20:30.430] - Jean Roche
And one thing that's certainly changed is the sourcing, the banana box is full of curtains, seconds, and now world-class sourcing. I mean, that really stands out. Could you tell the listeners a little bit more about how your sourcing works and what the secret sauce is, perhaps, without giving away too many trade secrets.
[00:20:51.370] - Nick Wilkinson
Well, the secret source is things I've been talking about before around values, and essentially, the biggest difference from what I've experienced in other retailers is just the long term thinking and our preparedness to genuinely partner with a supplier. And many of those companies that we we're buying seconds from lost their primary customers because they chose to source directly themselves typically from Asia. And we then said, well, we'll buy the proper stuff rather than the seconds. And some of those companies are still our suppliers. Now, they now manufacture and source from Asia, but they still have their premises. The mill has now got Apple Max doing product design for us. Typically, they'll still manage the stock flows into our stores and ship directly into our stores for us like they would have been doing 20, 30, 40 years ago. We like that. We like that local distributed supplier base. For many of those suppliers, we're their largest customer. But it's a genuine partnership. They're not going anywhere, we're not going anywhere. If we annoy each other, we have to resolve it. And talk to each other and make sure that they invest and we invest and that they listen and we listen.
[00:22:06.420] - Nick Wilkinson
It is a genuine partnership, which is a partnership is an easy word to say. But actually, I'll give you an example. I was at a social event and one of our supplier's mothers said to me, You do realise how hard it's working for you, don't you? You know when you're talking to someone's mum, that actually it's a long-term relationship. That wouldn't happen in many other businesses. It's not unique, but it's hard. You can't rush to create that. I mean, that's evolved. I guess one of the things I've really focused on doing is as we do new things, not lose the magic. We're not a turnaround. We are a business that wants to do different things, and we're ambitious, but we want to not lose the very things that have made us successful in the first place.
[00:22:52.470] - Jean Roche
It's worked very well so far.
[00:22:54.470] - James Goodman
And going back to stores, the brand and the business now has a very nationwide feel, and yet you're still managing to find places to open new stores. What's the criteria and the ambition for new stores?
[00:23:08.480] - Nick Wilkinson
Well, the criteria is a customer one, which is we want to be in locations that are convenient for our customers. We think about a 20 minute drive time is about the right value exchange. So you drive 20 minutes, you might spend 20 minutes in the shop a bit longer if you have a cup of coffee, and then you drive 20 minutes home. So we're not a day out. But the economics don't work for us to be five minutes away from you. And so therefore, we're not going to have a thousand shops. So that gets us to a number a bit north of where we are at the moment. We've got 180 odd shops. As we grow our market share, what's interesting is, are we growing that through frequency or are we growing that through adding more customers? And how does that inform where it's convenient for us to have shops? If it's driven by frequency, maybe we want a bit more density. If it's driven by more new customers joining the franchise, then maybe we need to be in areas areas which we're not represented in well, like in the middle of London, for instance, we were opening a new shop in Westfield in a couple of weeks time.
[00:24:06.850] - Nick Wilkinson
So we're balancing both of those things. And it's important to be long term, but also not get ahead of yourselves. The worst thing we can do is design what we think is the right footprint of stores for 10 years from now. And then when we get there, decide it wasn't the right footprint. So we like to be thoughtful about where we open stores, but fundamentally, it's about convenience for customers. And obviously that's changing because now you can use the internet to check before you visit. You can check the stock before you visit. You can visit, see, and then buy when you get home. We really don't mind which one of those you do. The stores are just part of that system.
[00:24:44.810] - James Goodman
Sure. And in terms of your types of store, how does that change? Are they all the same? Are they all the similar size?
[00:24:52.900] - Nick Wilkinson
They are all the similar size. We quite like keeping things simple. So our typical store is 20,000 square foot with a mezzanine, so we trade about 30,000 square foot. You can't get one of those in central London or not for the price that we want to pay. So we do flex the format to adapt to different economics of different catchments. And we have been opening smaller stores in the last couple a few years, and we're excited by the returns on those. I guess the logic there is that back in the day, everything we had was in every shop. We couldn't now fit everything we have on the site in any shop. So all of our stores are an edit of the assortment, and the smaller stores are just a deeper edit of that assortment. We don't currently significantly differentiate how we edit based on location, which I'm slightly embarrassed saying that to you as investors, but it's a huge opportunity. So we're not yet ranging for catchment demographics or for housing types. The systems to do that, the systems to do more complicated things in a business like ours are now readily available. So all opportunities for us.
[00:26:05.320] - Nick Wilkinson
And these are the ways in which we improve what we offer in order to raise our market share and grow sustainably and profitably.
[00:26:13.850] - James Goodman
And what does the journey look like to get to a point where you can change the assortment depending on where the store is located?
[00:26:20.400] - Nick Wilkinson
Well, that's around having better data in our business. So we're pretty well advanced. We're five years into the programme of making sure that we've got the right data for customer analytics and product analytics. Then it's having the commercial tools basically in simple terms, moving off working in Excel into systems that are more exception-based, where it's far harder to make errors. And using those to run the system and do more complicated things. We're doing that in performance marketing. We're bidding per customer on keywords with a very small team and lots of algorithms. In general, that would allow us, those sorts of approaches will allow us to do more more complicated things, more sophisticated things in areas like ranging or in time pricing. Optimising, basically. And doing that for growth, but also for productivity and efficiency. And I said at the start, my career in retailing has been about the shift in technology and what you can do from that, but what you're fundamentally doing is still the same, which is offering people what they want from a product point of view and making them feel good about that in of how they shop with you. Just the means of doing it are changing.
[00:27:35.140] - Jean Roche
Can I probe a little bit further on that? Because I believe that, for example, Zara would allow the local store manager to just know their area and actually choose the product based on that. That doesn't sound like that would go very well with the way you like to plan things, or do you actually allow that to happen?
[00:27:54.550] - Nick Wilkinson
We do have the facility for that to happen. In addition to our core assortments, we have a rolling range of promotions, which are on 16-week pockets of stocks. So when they're gone, they're gone. And a local store manager, local store coaches, we call them, can influence how much of that stock they have in their store. And they can also change what's presented at what parts of their store. So there's degrees of that.
[00:28:23.440] - Announcer
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[00:28:35.060] - Jean Roche
Taking a few steps back from Dunelm itself, and by the way, I think these returns that have been made, this has all been made by sales within the UK. So that's pretty amazing. So we probably need to look at the UK economy and maybe how the customer is feeling. What data do you like to look at or what feeds that? And did the A team sit with a mug of tea, a comfy Dunelm blanket around its knees when the Chancellor got up to speak a couple of weeks ago? What are the important numbers to look at?
[00:29:09.870] - Nick Wilkinson
No, we didn't do that. We read the... Yeah, there was a lot of... We waited. So there's no point being involved in what might happen. That's not really our business. What we want to know is what will happen. We want to know what will happen as soon as possible, because the longer we have to plan, the longer we can make good plans to mitigate costs if that's what's changing. The economic data we look at. We really like the Asda household income, discretionary income tracker, which shows base... Homewares is pretty important, but it's not essential. It doesn't keep you full, doesn't keep you warm, doesn't keep you on your mobile phone. Households across the country are working out how to spend the discretionary amount of money they have this month if they're paid monthly. And whether they're spending that down in the pub or getting friends around for barbecue, or they're buying something with us, average basket size, four items, 40, 50 pound. And We see still quite a lot of volatility inter month around whether or not they're choosing to buy that in one of our categories or elsewhere. And to the extent that we wouldn't be seeing that if the economy, if consumer confidence was stronger.
[00:30:29.930] - Nick Wilkinson
So we really like that measure. And then it's back to foresight. So we're looking at what's going on with commodity prices because we're a product company, what's going on with FX, with container rates, what's going on with factory capacity in the countries where we're sourcing from. So we've got foresight of what's coming down the line in terms of cost of goods and consumer confidence. So the basic economic data that defines being a product company and being a consumer-facing company in the UK.
[00:30:58.980] - Jean Roche
Yeah, makes a lot of sense. And if we were to step back outside of the UK still further and looking at, for example, the next playbook, probably the obvious place to look would be outside the UK, maybe next door. You have a store in Northern Ireland where you can actually buy stuff in euros, I believe. So would the markets where people take euros, for example, be somewhere Dunelm would look, or is there just so much more to do in the UK? And Initially, or can you do an experiment?
[00:31:32.770] - Nick Wilkinson
Can we do two things at the same time? The world is getting less linear. I think there's a lot of opportunity for us. So we still feel like a very young business, and I've been in businesses that feel a lot more mature that are actually younger than Dunelm. We've only been national in the UK for five or six years. We've only really had a performing tech stack for four or five years. There's an awful lot of optimising and growth, and we get excited by all of that. And doing things that are beyond that, of course, we think about those things, and at some point, we will start to make the steps to move in that direction. But those will be very gentle steps because it's important that we understand, as I mentioned before, what we're doing. We're not in any rush. We don't need to do it. But why wouldn't we at some point? But there's no burning platform.
[00:32:28.040] - James Goodman
And what we find with these multi-baggers is that capital allocation is a huge part of the success. Not squandering money on acquisitions, not pushing growth too hard. Dunelm has paid dividends consistently, special dividends, done small amounts of buyback. How does the capital allocation discussion work at the boardroom?
[00:32:47.500] - Nick Wilkinson
If you look at our investor proposition slide, the left-hand side is what makes us different as a customer proposition and a business model, and the right-hand side is how we think about that question. We think about... We're capital light in terms of how we grow. So the first question is, what capital do we need to invest to drive the success of the business? But because we're capital light, we create significantly more cash than to date. And in our plans, the business needs in order to achieve the levels of ambition for growth that we have. And we distribute that to our shareholders. We don't want to sit on it. And we do that through a progressive dividend. And there's very clear criteria that finds the runway for that. And then our habit and custom, and we've been doing it for a very long time, is to distribute it through specials. And we tend to do that. We have discussions about, is something special if it happens frequently? Our view is, absolutely it is. But I think we've done a good job of communicating how we think about it. And you get the investors you deserve.
[00:33:57.340] - Nick Wilkinson
And the investors we've got are the investors that are comfortable with that, and we haven't changed how we think about that. And that isn't always a special because sometimes we create less cash. And we didn't always... We held on to cash during the pandemic because we felt that was the right thing to do. So there is a thought process every time. But those are the three ways in which we think about cash distribution in that sequence, and we're pretty rigorous around it. We have a significant significant founder investor who's also part of that now. Now, are they, back to that point around you get the investors you deserve, are they helping us think like that, or are they still investors because we think like that? So it's a bit of chicken and egg, I thought.
[00:34:44.680] - Jean Roche
Yeah. It's quite circular, yeah. And if we look at what... You have targets that you've put out in the market, like market share targets and so on. But presumably, I think we know you for a while and getting to know you all the time over the last half hour or so. But what would look what would be amazing for Dunelm in three years or even 10 years time? Would it be selling into the US? Would it be having replicated the shareholder returns of the last since you took over or since IPO, what would be truly amazing? A real stretch target, would you say?
[00:35:20.660] - Nick Wilkinson
Yeah, we don't like targets. I think you're referring to our milestone for market share. The trouble with targets as they imply an endpoint, and we're not seeing any diminution in our rates of return from the actions we're taking to invest in the business to grow in our current addressable market. We've got a milestone of reaching 10 % double-digit market share in the UK, but that's in no way a ceiling. In three years time, I think it's maintaining the levels of performance. It's staying a specialist and staying special. And three years, five years, it's writing the next chapter, because we began talking about the origins of the company. Chapter one was the market and the banana boxes. Chapter two was going on to physical stores, high street, then super stores. And chapter three has been what we've done multi-channel with digital. The next chapter, and we've talked about some of those themes, it's basically about how technology changes the capabilities of the business to do more sophisticated things and bring better benefits to customers. We haven't got a for that chapter, but that's the chapter we're on, I think, in five years time, we will have a name for it, and we'll be looking back at the things we've done well and the things we've done too slowly and the things we haven't done quite right.
[00:36:41.540] - Nick Wilkinson
I think that's where we'd like to be in five years time. I'm ready for the next chapter.
[00:36:46.540] - Jean Roche
Yeah. James and I always like to ask, at some point during these podcasts, about a day in the life of a FTSE 250 CEO, a day in life of any CEO. I can imagine you have to be an absolutely amazing time allocator, very organised. But can you give us an idea of a day or a typical week.
[00:37:15.920] - Nick Wilkinson
Let's do a week. I think that's probably more representative. I think the theme of what we're talking about is we've got lots of levers. There's a lot taking place around optimisation and learning and building capabilities. It's quite an active business, and therefore, it's an active role. There's a lot going on. I think we play a pressing game if you wanted to put into football parlance. And I'm very thoughtful about how I spend my time. I like to have quite a lot of flexibility to support different parts of the business that may need more support. So I will change that during the course of a year, depending on what our priorities are, depending on how well we're building capability. A typical week would be a Monday of taking stock of short term performance. But I think even having a day when you only think in short term isn't the right way of thinking about the world these days. So inevitably, you're having short and long term conversations around performance at the start of the week. Tuesdays and Wednesdays tend to be more visiting and experiencing. We have a really big focus on understanding from the front line.
[00:38:25.140] - Nick Wilkinson
We think most truth is at the front line with customers and with colleagues and also with suppliers. So visiting stores, visiting distribution centres, listening to customers, visiting suppliers. We've got a London tech office, which is a great place to be because that's another world. I probably have more external contacts when I'm in London, just because there's fewer in the East Midlands. And then Friday is kept as a fairly flexible day to take stock of what I haven't done on the previous four days. So staying... I've got three kids. Well, they're not kids anymore. They've left home. I've got three children. So staying in touch with them is really important. Tourign New Zealand. Currently, having a rest from the NHS as doctors, and will be back. Hopefully soon. Although one did use the emigrate word on the way to the airport. So we had some tears in the car. And my youngest is in London. So weekends are family time and relaxing. And I'm quite obsessed with exercise. And mountaineering is my big passion. And there's not many mountains in either the East Midlands or in London. So the compensation is going cycling. So there's a lot of that going on.
[00:39:40.040] - Nick Wilkinson
So fairly active, I would say. The currency in Dunelm is actions, but also ideas. There's lots of conversations taking place. It's a stimulating place to work.
[00:39:50.220] - Jean Roche
I think cycling, mountaineering, those kinds of things, you actually probably get quite creative ideas while you're doing those things.
[00:39:56.540] - Nick Wilkinson
Oh, yeah. You end up, yes, you end up coming back from a cycle ride with solutions to problems that were on your mind that you didn't think about while you're cycling. How does that happen? Cycle more, Nick.
[00:40:06.120] - Jean Roche
So you're not a get up at 5:00 AM and do an hour of Bikram yoga guy before you go to the office? No. That's the story.
[00:40:14.340] - Nick Wilkinson
Okay. No. That's not me. No.
[00:40:17.350] - James Goodman
What about we spoke briefly before we started recording. What are you passionate about outside of work? Some charity work you mentioned.
[00:40:24.800] - Nick Wilkinson
Yeah, I've been involved. It's interesting. The company roles I have are full on. Retailing is full on, and I like being in businesses that are going through interesting phases of growth. Then when I'm not doing that, and I am still thinking about work, I would rather be doing that in a different sector completely. I've actually spent a lot of my time in what you'd call a non-executive capacity, being a trustee of charities. I've been in charity startups. I'm currently in quite a new charity, which is an environment NGO focused on better understanding the benefits and promoting rewilding as an intervention to improve species diversity in the UK. That's a completely different world but in some ways, similar. It's a complicated system. There's very smart people doing really good work. It's another area where there's lots of change taking place and lots of technology changing things. That's really exciting. I love doing using similar skills, to the ones that you develop through work in a completely different environment with different people.
[00:41:32.990] - James Goodman
Super interesting. Nick, thank you so much for agreeing to be on our podcast. It's been very fascinating hearing about your story and Dunelm's story so far. Congratulations on the performance to date and best of luck in the next few years.
[00:41:48.480] - Nick Wilkinson
Thanks, James. Thanks, Jean.
[00:41:49.280] - Jean Roche
Thanks, Nick.
[00:41:50.490] - David Brett
That was the show. We very much hope you enjoyed it. You can subscribe to the investor download wherever you get your podcast. And if you want to get in touch with us, it's schroderspodcast@schroders.com, and you can find out much, much more at schroders.com/insights. New shows drop every other Thursday at 05:00 PM UK time. In the meantime, keep safe and go well.
[00:42:14.870] - Announcer
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