Havertys, FBI end pact
Different brand strategies make alliance unworkable
By Clint Engel -- Furniture Today, September 29, 2003
Atlanta — In ending their six-year-old strategic alliance, Havertys and Furniture Brands International are pursuing very different branding strategies.
The companies have announced they will end the alliance at the end of this year, and 113-store Havertys will drop FBI's Thomasville brand from its floors early next year. The Atlanta-based retailer said it will continue to be a big Furniture Brands customer, with Broyhill and Lane "an important part" of its lineup.
Industry analysts say the move has been coming for some time, as the companies' business strategies have evolved differently since the deal was formalized in February 1998.
Under the agreement, Havertys allocated up to half its furniture floor space to Furniture Brands' Thomasville, Broyhill and Lane lines, and Furniture Brands agreed to provide priority service support to Havertys' regional distribution centers.
In the years since 1998, Thomasville has accelerated its dedicated store program and Havertys has broadened its private-label line, dramatically increasing the imports in its mix.
Havertys was FBI's largest customer last year with more than $100 million in sales but less than 5% of the manufacturer's total volume of $2.3 billion, said Lynn Chipperfield, FBI senior vice president and chief administrative officer. He wouldn't give a figure for Thomasville's sales to Havertys, but said it "is a small percentage of the business we've been doing with Havertys," and "a very small percentage of Thomasville's overall sales."
Thomasville has said it anticipates having 150 dedicated stores in its network by the end of this year doing an estimated $485 million in sales. The brand also still sells through a number of other retailers.
Havertys President and Chief Executive Officer Clarence Smith said Furniture Brands remains Havertys' largest resource, and that Thomasville — although smaller than Broyhill or Lane — is the third largest line on the floor. He would not estimate how much of the floor Furniture Brands will be left with, noting, "We're not going to deal in percentages going forward."
"I will say Broyhill and Lane are our top two suppliers and we anticipate it staying that way," Smith said.
He estimated it will be March or April before all Thomasville product is cleared from Havertys' floors.
Analyst John Baugh of Wachovia Securities, who follows both Havertys and FBI, said the big story is that Havertys is saying its store name is its key brand.
"They will continue to sell branded product — Sealy, Serta, Broyhill, Lane and La-Z-Boy, among others," Baugh said. "But if you look at their floor over the last two years, the amount of product branded by furniture (suppliers) vs. the Havertys brand is shrinking, and that's just going to continue."
Smith confirmed this, saying, "Our philosophy is, we're going to build the Havertys brand in everything we do, and that would include the look of the stores, how we serve our customer and the merchandise."
About 35% of the store's furniture is under the Havertys name now and roughly 60% of all its furniture is imported — including all leather upholstery and goods coming from overseas through domestic sources — up from about 40% a year ago.
Jerry Epperson, an industry analyst with Mann, Armistead & Epperson in Richmond, Va., said the breakup was "inevitable." He said the Havertys brand product has been more successful than anyone thought possible, and is much more profitable than some branded lines.
"With 50% of the floor devoted to Furniture Brands and 35% for their own brand, there wasn't much room left for expanding their own brand," said Epperson.
He said he had expected one of two things to happen — either the retailer had to break the relationship so it could expand the Havertys brand, or Furniture Brands would acquire Havertys, "and I don't think either one of them would want that right now."
Smith said the stores will replace Thomasville product "with premium Havertys collections and other premium lines." Details are still being worked out, but he said the change is likely to include the expansion of existing lines such as Schnadig, Bernhardt and some others.
Keith Hughes, an analyst with SunTrust Robinson Humphrey in Atlanta, doesn't see any great short-term impact for either company, but said that in the long run, "It somewhat removed the shackles from Thomasville in this part of the country.... It frees Thomasville here in the Southeast to more aggressively market products in the current store base and expand the stores."
One possible negative: There will be no "special status" for Broyhill and Lane at Havertys, he said.
"Everyone in this channel is re-examining (sourcing) relationships," Hughes added. "That's not new. It's just sort of symbolized by this agreement."
As Thomasville stores and Havertys have expanded, they've begun running into each other. Havertys, for instance, has been building a presence in metro Washington, which Thomasville had targeted for dedicated stores. In Atlanta, Havertys' home market, Hendricks Furniture Group recently opened two Thomasville stores and plans a third next month and possibly a fourth next year.
Smith also said Thomasville has exclusive arrangements with its dedicated stores in some places that has prevented Havertys from moving into those markets. Yet the original agreement allowed for Havertys to carry Thomasville in all of its stores — an important provision for the retailer, which is striving for a more uniform mix and wanted to advertise Thomasville in all markets.
It was this kind of conflict that led both sides to revisit the agreement, and decide to scrap it.
Smith said he's not concerned with future service issues from Furniture Brands even though the agreement provided "increased service support." FBI's Chipperfield said there should be no reason for concern.
"Havertys will continue to be a significant customer for Furniture Brands — perhaps even our largest customer — and will be treated in the way you generally treat your largest customer," he said.
Nevertheless, the dropping of Thomasville signals the end of an era at Havertys. The retailer has carried the line for more than 20 years, and Smith said he believes an Atlanta Havertys store was the first with an in-store Thomasville gallery.
"It's been a terrific company and a great relationship," he said. "There are no negatives here. We're moving in one direction. They're moving in the direction of opening stores.... It's a recognition of those business realities."
The Havertys agreement was the first of three strategic alliances announced by Furniture Brands. Alliances with Olathe, Kan.-based Benchmark Home Furnishings and Indianapolis-based Kittle's followed — and remain intact — although none is as specific in its terms as the Havertys pact, but rather "simply established a strong working relationship between the companies," Chipperfield said.
