Shermag sets three-way growth plan
By Michael J. Knell -- Furniture Today, March 17, 2002
SHERBROOKE, Quebec — Shermag has a three-pronged strategy for growth in the post-Serge Racine era, said Jeff Casselman, president and chief executive officer of the case goods and upholstery producer.
Racine has retired from the company he founded 25 years ago after guiding Shermag to its current position as Quebec's largest producer of assembled household furniture and the second-largest in Canada, with annual sales in the C$165 million range.
"We think Shermag can be a half-billion-dollar company," said Casselman, who Racine brought aboard as his successor some two years ago. "We'll be using three growth engines to get there."
The first involves cultivating new channels of distribution, particularly independent retailers in the United States. "This is something we do very well in Canada but not so well in the United States," he said.
In Canada, Shermag's largest retail partners are Sears Canada and The Bay, but it also has long-established relationships with independents such as Stoney Creek Furniture of Stoney Creek, Ontario, and Coulter's of Windsor, Ontario. Last year, it launched a collection targeted at U.S. independents.
"We're already seeing good results (in the United States). We've replaced our largest customer and gained market share," Casselman said. Until it went bankrupt early in 2001, HomeLife was Shermag's largest U.S. customer, accounting for about $13 million in annual sales.
When it first entered the U.S. market, Shermag focused on selling casual contemporary case goods collections to department stores. It adopted a selective distribution strategy, guaranteeing dealers territorial exclusivity.
"We're continuing our concept of exclusive distribution," Casselman said. "Our goal is to find strong retail partners in every market."
Shermag does expect commitments from its retailers. "We don't open an account unless we feel we can do $250,000 a year in sales with them," Casselman said.
The manufacturer has expanded its department store business by introducing upholstery, first the chic contemporary Sofas International, then the more mainstream but still modern-oriented Shermag Leather divisions.
Bring in the traditional
The second element in Shermag's growth strategy is product development. Last year, Shermag launched an import division to develop traditional case goods designs that couldn't be made at any of its 11 factories in Quebec and New Brunswick.
"We've never played successfully in the American traditional style category," Casselman said. "But at premarket we'll be showing the first two bedroom and two dining room collections from our new division. And we'll add two more collections for the fall market.
"We also will put significant investment into our upholstery," he continued. "It doesn't fall into quite the same distribution categories as our case goods."
Shermag's upholstery offerings tend toward higher retail price points than its case goods products, which are in the upper midrange of the market.
The company won't move any of its contemporary production overseas, Casselman said, since intricate turnings and carvings aren't involved.
Acquisitions? Maybe
Shermag also could grow through acquisition, but Casselman said that is the least-important element of its growth strategy, and any potential purchase would have to meet four criteria.
They are: Does the target company bring new customers or open a new channel of distribution? Does it give Shermag a new product category? Is the price right? Will there be a good management fit between Shermag and the target company?
Casselman stressed there are no candidates for acquisition at this time. "It all depends on whether it makes strategic sense," he said.
Shermag is in a good position to make acquisitions because it has reduced debt by C$8 million over the past year and essentially will be debt-free soon, he said.
The immediate concern is the state of the U.S. economy and whether or not U.S. consumers will be in the mood to buy furniture over the coming months.
"There's a world of difference between Canadian and American retailers when talking in terms of optimism," Casselman told the financial community recently. "The mood of our retail partners in the United States isn't optimistic at all."
Canadian dealers are considerably more optimistic, he said.
While Shermag isn't planning to expand facilities this year, it will increase capacity by adding shifts. "We currently employ about 2,000 people and that should grow by between 10% and 15% this year," he said.
Featured Company
-
Brandwise Inc.
Brandwise serves a model - not just an industry - by integrating, automating, and optimizing the entire sales channel, from wholesale Suppliers to their Reps and the Retailers they service. In short, our software helps Reps and Suppliers sell more and create... more
VIEW ALL GALLERIES
