Bed sales are not a dream

One of the UK’s most unusual luxury hotels recently opened its doors for the first time to welcome adventurous sea-loving guests. 

Concrete fortress turns hotel.

The hotel has been carved out of Spitbank Fort – one of three concrete fortress structures built in the late 1800s a good 15 minutes out to sea off the shore at Portsmouth to protect the harbour from invaders.
Creating this high-end eight-bedroom hotel has taken an investment equivalent to £375,000 per room, which is a lot of money for sure but it is still a mere drop in the ocean for its owner Mike Clare. He is the retailing entrepreneur who built-up bed retailer Dreams before selling it to private equity firm Exponent in 2008 for around £220 million.
Located well away from any potentially noisy neighbours and with a nightly room rate of £800 it is assumed that any lucky people staying the Fort will enjoy a comfortable night’s sleep – especially as the beds must surely be of a superior quality.

These beds better be comfortable.
Unfortunately the same cannot be said for Exponent that has found selling beds to be a recipe for sleepless nights since it signed on the dotted line. While rapidly expanding the portfolio of stores from 170 in 2008 to a current 270 units the company has been hit badly by the downturn.

At its last set of accounts Dreams recorded a 7% growth in turnover to £300 million but EBITDA dropped more than 50% from £25.1 million to £11.2 million and this has led to myriad knock-on effects.

At the back-end of last year the company reorganised its finances with Exponent investing another £20 million into the business as well as booting out of its chairman John Clare (formerly the boss of Dixons).

Around this time Dreams’ credit insurer Euler Hermes withdrew cover for five of its suppliers, which has in the past fuelled the demise a number of retailers. Against this backdrop, Dreams has sought to ease its cash flow by convincing landlords to switch from quarterly to monthly rental payments.
To date this has proved successful on a number of stores but despite this, the Royal Bank of Scotland, the principal lender to Dreams, has been minded to open talks with private equity firms about making investments in the business and to sit alongside Exponent.  

While the tough retail market has affected all high ticket merchants it seems beds have been affected more than most. This has certainly been the case with Carpetright that recently issued disappointing results for the 11 weeks trading to April 14, which showed sales across Europe fell by 4% for stores open more than one year.

There’s no hiding from those uncomfortable bed sales.
This prompted full-year pre-tax profits estimates to be cut from £4 million to £3 million for the group. And the cause of this downgrade seemed to be partly the decision by management to go into beds. It launched a new range earlier this year but they have performed little better than the previous lot and this has done little to help the company offset the falling sales it has been experiencing in carpets and other floor coverings.

Quite the contrary, although they only account for 6% of total group turnover the disappointing sales of beds are having a correspondingly negative impact on profits. This has given investors in the City little appetite for buying Carpetright shares and likewise, there has been little news about any new investors injecting money into Dreams.

It therefore seems unlikely that the rumours Clare is plotting a takeover of Dreams have any grain of truth in them. Instead, he seems to be more enamoured with his venture into ultimate sea-view hotels as shown by the fact he last month bought the other two Portsmouth Harbour fortresses – Horse Sand and No Man’s Land.   

The name of the latter structure seems a rather apt description of the state of the beds market because at the moment it is a bit of no-go zone for both customers and investors – including Clare, unless all that sea air has affected his thinking.
This column was originally published in Kbbreview.