Competition, missteps led to Bombay's fall
By Clint Engel -- Furniture Today, October 21, 2007
Fort Worth, Texas — Too many CEOs. Too many strategies. Too many competitors stepping into low-priced imports.
These are among the problems that industry analysts and one former executive say torpedoed The Bombay Company's fortunes in the United States.
Bombay hung on for a long time after its golden years of the early 1990s, when the mall-based, flat-pack specialty retailer was a media darling and then-leader Robert Nourse was heralded for making the U.S. operations profitable and expanding the chain to nearly 500 stores.
Missteps prove costly
But those accolades were short-lived. Bombay turned onto a rocky road that brought profits one year and losses the next. It opened a separate chain of stores called Alex & Ivy in 1990, announcing plans to grow it to 135 stores, but shuttered it less than two years later at a loss. Later, it added new, large-scale furniture that didn't sit well with consumers, who had come to expect Bombay's low priced, take-with and ready-to-assemble goods.
Then there was a disappointing rollout of a BombayKIDS concept. The Top 100 company was working on a long-term plan to migrate from mall to off-mall locations, but that led to trouble, too, as time- and cash-conscious consumers made shopping trips more planned and less impulse-oriented.
Bombay was profitable from 1998 through 2003, but began losing money the next year and never stopped.
The 384-store retailer filed for Chapter 11 bankruptcy protection Sept. 20, after failing to secure more capital or find a buyer in a search that began last year. Last week, a court approved a bid that will lead to the liquidation of all U.S. stores by early next year, while Bombay's Canadian stores will continue operating under new owners.
Chain 'lost its identity'
"It's just sad that Bombay, after all these years, can't make it. It's tragic, really," said Michael Glazer, a former executive who led the company's day-to-day operations during some of its best years, from 1990 to 1995. He later led KB Toys and now is managing director of Team Neu, a private equity firm in Pittsfield, Mass.
"They've gone through a lot of management changes since I left," Glazer said. "They've gone through tremendous change at the top. Each one had a different concept of what Bombay should stand for, and therefore Bombay lost its identity with the customer."
Jerry Epperson, an industry analyst with Mann, Armistead and Epperson, said Bombay struggled with a shifting marketplace and some initiatives that didn't pan out.
"They had a pretty good run," he said. "They had a pretty good record in the malls."
But when Bombay neared full penetration with its formal traditional dark-finish furniture, it launched Alex & Ivy with lighter, more relaxed European country styles. That turned into one of the biggest "bombs of all time" as the company took a $41 million writeoff to shut down the chain, Epperson said. The married management team of Robert and Aagje Nourse were later fired by the board.
Good times returned
Epperson noted that Bombay had some good years after that. When James Carreker stepped in as chairman in late 2002 and later became CEO, things were turning around. Carreker had a real estate background (as former CEO of Trammell Crow) and seemed to understand Bombay's issues in that area. That's when the company began a major push out of expensive malls and into cheaper strip centers.
Carreker also sat on the boards of other home furnishing businesses and seemed to have a good handle on the industry, Epperson said. The retailer's stock recovered somewhat, and same-store sales jumped more than 25% some months.
But the eventual comparisons to those heady results took their toll. Sales dropped, losses mounted. In its past three fiscal years through Feb. 3, 2007, Bombay lost more than $112 million.
Epperson recalled that the company moved into at least two critical Christmas selling seasons in discount mode, needing to unload inventory. At the store he frequented most often, he remembers seeing so many cartons of goods sitting around that consumers couldn't get through the aisles.
"It's tough to run any business where you make all your profit during one quarter of the year," he said.
Add to that the onslaught of imports. All of Bombay's competitors carry Asian-made product now, a far cry from early '90s, when Bombay's Nourse saw the retailer's sourcing operation as a nearly insurmountable competitive advantage.
In December 1993, Inc. Magazine recognized Nourse as its Entrepreneur of the Year. In the story that came with that honor, Nourse is credited with Bombay's stellar performance and growth, opening 119 stores in the previous three years and planning to launch another 120. Bombay stores were averaging $340 in sales per square foot, which the magazine said "clobbers the $110 industry average" and the retailer was praised for "undoubtedly the most sophisticated sourcing network in the industry," with 130 suppliers around the world, including 30 key factories in Taiwan, Malaysia and Korea.
"Most furniture retailers buy whatever comes out of the factories in and around the Carolinas. Bombay could not be more different," the magazine said.
Sourcing 'complex'
"If we were going to get imitators, that would have happened when we had 50 to 75 stores," Nourse told Inc. "It would be pretty hard to do now. That whole string of different factories with different capabilities is a complex thing to administer, and that's a deterrent. I wouldn't want to start out trying to compete with us today."
But in the years that followed, the industry did solve the sourcing puzzle, and it appears Bombay was the one that got clobbered.
"They had such a huge cost advantage and that just evaporated as everybody went to the same sourcing," said one industry analyst, who declined to be identified.
"What Bombay was originally known for was a pretty eclectic mix of imports," said Laura Champine, an analyst with Morgan Keegan who followed the company from 2002 until she dropped coverage in May. That strategy of "importing low-cost furniture is now the strategy for the whole industry, so they're not as unique as they once were."
In a follow-up Inc. story two years later, Nourse was blamed for meddling with a well-oiled Bombay machine and its subsequent decline, while Glazer — who was fired by Nourse in early 1995 — was said to be the driver of Bombay's early 1990s financial success.
In an interview with Furniture/Today last week, Glazer said he understands that the sourcing parity Bombay faced from competitors was an issue, but he didn't necessarily agree with some analysts' conclusions.
"Bombay had a unique brand that people looked for," he said. "They saw items that looked great and were affordable. There was perceived value by the consumer, and that's why they went to Bombay."
The retailer sold a product "that looked like it was worth several hundred dollars, and they only had to pay $50 or $60 for it. That was the key to the Bombay concept," he said.
Glazer said that when he was with the company, nothing in the store sold for more than $500. There were no items that a consumer couldn't easily take home.
"The Bombay name meant something," he recalled. Back then, if a consumer could find a similar item at a similar price at Wal-Mart, Glazer said he believes the sales would have gone to Bombay because the name stood for quality.
Epperson said that when Bombay started selling full-scale bedroom and dining room furniture, it didn't have the home delivery system needed to make it work in a mall setting.
"You don't see many people walking out of malls carrying a dining room chair or a dining room table," he said. "I'm not sure I ever understood that."
In her bankruptcy court affidavit, Bombay Chief Financial Officer Elaine Crowley notes that some of the retailer's strategic initiatives had unintended negative consequences, including the move away from core goods at lower prices to larger, higher-price goods. "Customers did not react favorably to this shift away from take-with products ... or to the raise in overall price point of the stores," she said.
Glazer said be believes Bombay, for whatever reason, walked away from the core concept that made it successful, "which was being an impulse store, selling merchandise where the consumers could get instant gratification."
"They lost their way," he said.
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Changing strategies hurt Bombay
Oct 19, 2007
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