At $2.72 billion, Ashley takes top spot

By Jay McIntosh -- Furniture Today, February 19, 2006

Arcadia, Wis. — After another year of growth — and after decades of innovation, risk-taking and a dogged pursuit of efficiency and low-cost production — Ashley is No. 1.

The manufacturer and importer said it had shipments of $2.72 billion last year, up 26.7% from the $2.15 billion it posted in 2004.

That topped former industry leader Furniture Brands International, whose sales declined 2.4% in 2005 to $2.4 billion. La-Z-Boy, which reported quarterly results last week, remained in the third spot among residential furniture suppliers with sales of $1.97 billion in the 12 months ended Jan. 28, down 2% from a year earlier.

Ashley, meanwhile, doesn't seem to have hit a plateau.

It expects retailers to open another 100 or so licensed Ashley Furniture HomeStores this year, expanding the network by more than 40%. In 2005, the HomeStores had sales of $1.58 billion, with some 220 stores at year's end.

The company also is looking for a site in North Carolina or Virginia to build another factory and distribution center for upholstery and possibly case goods.

While the HomeStores account for a growing chunk of its business, the company also says it is committed to continuing to serve the independent retailers and chains that brought it to the dance. It has begun to roll out a product line exclusively for non-HomeStore retailers.

Chairman Ron Wanek said there's plenty of room in the company's 5,000 SKUs to cover its various channels of distribution. "We've got enough goods to fill a 170,000-square-foot store," he said, which is more than twice the size of the largest HomeStores.

Ashley's total revenues — including international sales, non-furniture lines like lamps, accessories, rugs and top-of-bed, and the retail markup at some corporate-owned HomeStores — probably reached $3 billion last year. The company, which is privately held, has not released the figure.

Despite its growth, Ashley has kept its focus on the meat of the market, with price points from promotional to upper medium. And it only goes that high because the China factor has pushed the higher end down, said Wanek.

It may seem like a juggernaut now, but little more than two decades ago Ashley was a Midwest upstart in a business dominated by Southern manufacturers. Its journey to become the biggest brand in the land took perseverance and a willingness to try what others had not, with a drive fueled by its underdog status.

"Ashley has always had to do uniquely different things to grow," said Wanek. He recalled early meetings with retailers who told him that in order to win space on floors and replace longtime suppliers, his product had to be more than just a little bit better.

This led to a company mantra: "We want to be the low-cost producer," said Wanek. "We do everything we can to be the low-cost producer."

Asked to describe the corporate culture, he offers one word: "Throughput." Product must flow smoothly from suppliers to factory to store, with minimum waste and maximum value. As a model for its logistics, the company looks to Wal-Mart.

Keith Koenig, CEO of Fort Lauderdale, Fla.-based City Furniture, which has opened several HomeStores in Florida and plans to have as many as 14, said Ashley has fulfilled its low-cost mission — and continues to improve.

"They have the best supply chain in the home furnishings industry. They have great product at great values. They are extraordinarily responsive. They are the best in the industry. There isn't a close second, in my opinion," Koenig said.

He added, "I'm kind of surprised, given their success, that the rest of the guys in the industry haven't picked up on this."

Maybe because it hasn't been easy.

Ashley dates back to 1946, when Carlyle Weinberger founded it in Chicago. In 1970, the company started distributing tables made by Arcadia Furniture, founded in little Arcadia, Wis., by Ron Wanek. Arcadia acquired Ashley in 1976, and in 1982 merged the two into Ashley Furniture Inds. Sales that year came to $16 million.

Soon after, the company's managers realized their table business was doomed. Offshore producers were undercutting prices. Ashley took a bold step with no guarantee of success. In 1983, it began converting the Arcadia operation to make promotional bedroom furniture.

"It was our biggest challenge," Wanek said.

His employees didn't want to make bedroom. Management convinced them the choice wasn't to continue making tables, but to make bedroom or nothing. Still, the factory lost money for three years during the transition.

"We knew that we were going to rebound eventually," Wanek said, noting that as a private company, Ashley required its owners' faith but didn't face Wall Street's quarterly scrutiny.

In 1984, the company took another prescient step by setting up a joint venture called Ashley Taiwan. Ron's son Todd Wanek, now president and CEO, spent much of the next six years running the operation and learning the import business. Ashley sold the Taiwan venture in 1990 but retains a staff in Asia to coordinate its massive sourcing program.

"They've been global longer than anybody else," said industry analyst Jerry Epperson of Mann, Armistead & Epperson in Richmond, Va.

With bedroom launched, other new products followed. The company introduced Millennium, a line of case goods with high-gloss, colorful finishes, in 1987.

In 1994, it jumped into upholstery with the purchase of a Mississippi factory from Sklar Peppler. Leather upholstery, recliners and motion upholstery were added over the next few years. The company added lamps and home accents in 1998 and rugs and top-of-bed sets in 2005.

Partly because of its home plant's isolated location in the upper Midwest, the company was forced to develop a top-notch distribution system. Its trucks now deliver to retailers frequently enough to let stores run on relatively short inventories.

This, in turn, allows retailers to achieve a higher GMROI or gross margin/return on inventory, a statistic that Ron Wanek has been preaching about for years. Paying attention to this particular financial ratio can help a store make the most money with the least investment, he says.

Ashley works to achieve the same kind of lean operation in its own business.

"Turning inventory is magic," said Wanek. "You can't believe what it does for our bottom line. It's amazing."

The company aims to reduce waste and eliminate activity that doesn't add value to the product. Michael Jedlowski, a former Millennium division president who now operates 10 HomeStores in the San Diego, Phoenix and Las Vegas areas, said the lean approach isn't just a top-down edict.

"You see it in all different kinds of aspects," he said. "Someone on a manufacturing line will see a bin of waste that accumulates during manufacturing and will wonder what can be done about it."

Epperson said Ashley's methodical growth has required a substantial investment of capital. Step by step, it built its logistics capability, sourcing and manufacturing.

Then the company brought its concept downstream. In 1997, it launched HomeStores with a few units. The aim, according to Ron Wanek, was to create an all-Ashley format to let the company efficiently deliver mixed truckloads of goods to remote areas. One of the first stores was in Anchorage, Alaska.

Only later did established retailers like City in Florida, Bay Furniture in the Chicago area, Furniture Outlets USA in the Dakotas and Minnesota, and Morris Furniture in Ohio start opening the stores. Now they seem destined for every major metro area and could become a truly national furniture store brand.

Epperson said the stores are popular because Ashley gears its business to benefit retailers.

"Their dealers make money," he said, "and that's really sort of a novel idea."