Direct Online Services, the UK’s largest online retailer of kitchen worktops, enjoyed a record 2019 in terms of sales and profits, as well as revealing a £5m internal investment plan.
The Gloucester-based, family-founded business saw a 150% increase in profits in the last 12 months, plus a 14% increase in UK sales.
New buildings, new machinery, and new software are in the pipeline for 2020.
Business Leader learns more from DOS’s Managing Director Jon Shepherd – a former Premiership rugby professional – and Edwin Davies of BGF, whose £3m minority investment in 2016 helped lay the foundations for the DOS success story.
Could you please tell us a bit about yourself and the career path which has led you to DOS?
Shepherd: “I started my career at PriceWaterhouseCoopers and qualified as a chartered accountant which has proved a very solid base to my career in retail.
“I was then extremely fortunate to play professional rugby for Rotherham for a couple of years whilw we were in the Premiership, which was an amazing experience playing against some of the best players in the world in great stadiums.
“Subsequent to this, the majority of my retail career was spent at Cotswold Outdoor latterly as Chief Operating Officer. My 10 years at Cotswold Outdoor was a very exciting time, as the business grew from £35m turnover to £120m in that time, ending up with over 70 stores. Over this period, we saw the emergence of eCommerce as a sales channel and I had the opportunity to lead and develop our capabilities in this area, which was incredibly rewarding.”
What was the brief given to you when you moved into the role at DOS – was rapid growth and international expansion already planned, or has it been driven by you?
Shepherd: “Arriving at DOS, I joined an already very successful business which Martyn and Will Rees (our shareholders) had built and developed over the last 10 years. Over this period, the business has enjoyed substantial double-digit growth every year, and its international ambitions already existed as the business in Germany had launched in 2015.
“My brief on joining, in essence, was to support and lead the business through its next phase of growth, building on and retaining the best parts of the business that already existed, but then blending these with new initiatives and ways of working that I was able to bring from my own experiences.
“One of my first pieces of work was to set a three-year strategic plan to see us through to the end of 2020 and then go about implementing this.”
Can you please give us an overview of DOS today?
Shepherd: “DOS, with its primary brand Worktop Express is the leading online retailer of kitchen worktops in the UK. We offer an unrivalled range of worktops across wood, laminate, compact laminate and acrylic, at a great price to the end consumer. There is also a very strong focus on delivering a high level of service to give our customers the very best shopping experience.
“As well as selling standard worktops, we have an in-house fabrication team which produces bespoke worktops – customers can enter the dimensions and features of their worktop on our online tool, and these are then delivered by our own in-house nationwide two-man delivery team in as little as five days.
“In addition to this, on standard worktops we offer a next day delivery service on all items in stock. If customers are not quite initially sure about their worktop purchase, we offer a sample service so that our customers can touch and feel the quality of our products prior to buying.
“The brand is complemented by our Solid Wood Kitchen Cabinets, Kitchen Surplus, The Chippy Shop and Trade brands which serve different parts of the market.
“Overall we now have a workforce of around 300 employees distributed across our head office, warehouse and manufacturing facilities, but also in our seven depot and showrooms that are spread across the country.”
DOS has a history of brave investment, launching during a recession and now growing when other companies were hedging their bets amid Brexit uncertainty. Is this a deliberate strategy – and why?
Shepherd: “The business has always had the ethos of reinvesting back into the business to drive growth. We feel we have the leading proposition in our sector, but firmly believe that operating in a competitive environment, we need to continue to evolve and improve across the entire business to maintain our competitive advantages. We can not afford to stand still.
“And yes there is still some uncertainty around Brexit, but with a considered and commercial approach to our investments, we are very confident that we will continue to see clear positive returns.
“In the last 12 months we have invested in new products, bolstered the management team with new hires in key areas, invested in buildings that will support the business for the foreseeable future and importantly launched our own bespoke ERP system, all of which are already delivering returns across the business”
You enjoyed an enormously fruitful 2019 – what is that success down to?
Shepherd: “The business has always enjoyed substantial year-on-year growth and this has continued in 2019 with another year of us taking market share and delivering double-digit growth on 2018.
“But a major change in the last 18 months, which was a key element within the strategic plan that we embarked upon in 2018 was a clear focus on profitability – driving the bottom line rather than just chasing top line sales. This has really paid off in 2019, with improvements in margin and operating costs, where we have significantly reduced the cost of failure and are seeing economies of scale particularly across our internal delivery fleet.
“Coupled with us now seeing real return and value from the fixed cost investments made in 2017 and 2018, this is all contributing to a transformation in the structure of our P&L that is driving significant growth in bottom line profitability and cash flow.”
What growth do you expect over the next four years, following this latest investment?
Shepherd: “2019 was a great year, but we firmly feel that this is just the beginning and a huge amount of potential exists for future growth. We will continue to invest with further expansion of our product range, as well as in our eCommerce capabilities, and are very confident that both of these will continue to deliver substantial sales growth.
“As well as growing sales, we will also continue our focus on profitability by continually improving our efficiency across the business. We will increasingly benefit from economies of scale, but a major enabler of efficiency will be our new bespoke ERP platform, which was implemented in May 2019.
“This has already delivered cost benefits in its first few months, and building on this solid base will allow us to grow in a very scalable way over the next few years.”
You invest a lot in skills and technology – is this something you feel gives you an advantage over competitors?
Shepherd: “100%. Staying ahead of the competition is fundamental to the success of any business, as we feel that technology is an important part of us being able to deliver our own success. Our decision to develop bespoke core technology, complemented by carefully selected, best-of-breed third party applications further strengthens the business in this area. It allows the business to be supported and driven by technology, rather than being restricted by off-the-shelf platforms, and gives us a speed to market that maintains our competitive advantage.
What are your long-term ambitions for DOS?
Shepherd: “Primarily to realise the potential that exists for this business, which is huge. We want to be the number one online retailer in our sectors across Europe, and do this profitably in a scalable way. We want to achieve this providing the very best for our customers and our people. For our customers by giving them a great end-to-end shopping experience through a market-leading combination of range, service, expertise and price. And for our people by keeping things simple, in an engaging and friendly environment.”
BGF must get many companies approaching you for funding – what made DOS stand out as a credible option?
Davies: “We get approached by thousands of ambitious businesses every year, from all regions and sectors of the economy. Direct Online Services stood out for us as an innovative business with a strong management team that had identified a lucrative gap in the market selling goods directly to consumers online. We could see it was ahead of the curve, even against long-established national brands, and had carved itself a successful, profitable niche.
“As a long-term, minority investor, getting to know a management team is key. The founders and wider management team at DOS are exceptionally capable. By the time we invested in 2016, the team had successfully grown the brand into a leading retailer of high-quality wood worktops and had launched a number of products which provided a clear opportunity to accelerate the growth of the business. Our role was then to work closely with them to help accelerate that growth even further and take advantage of new opportunities.”
What do you look for in a potential investment opportunity?
Davies: “First and foremost, we have to get to know the management team. We need to know we’re going to work well together, and also understand their long-term vision for the business – it’s us buying into their vision rather than the other way around, so it’s key that everyone is on board.
“Beyond that, those that often stand out are those with an acute understanding of the market and their differentiators within it, and that are ready to go for growth.”
How far do you believe DOS can grow?
Davies: “As a long-term investment partner we always look far down the line for businesses we’re investing in at the point we come on board. From the beginning, DOS has shown it can become a market leader, successfully identifying and taking advantage of opportunities in a growing and thriving market.
“As a member of the board we are also constantly looking collectively at enhancements, improvements and efficiencies in the business, as well as any pressure points. Everyone is committed to making the business the best it can be, future-proofed and growth-minded.”