Fabric protection suppliers eyeing growth
By Gary Evans -- Furniture Today, March 15, 2010
HIGH POINT —
As business improves for fabric, leather and wood furniture, it also improves for the companies that want to protect it.
These are the companies that sell retailers the chemicals that protect furniture from stains, rips and tears. In turn, retailers sell warranties to consumers that protection companies back and service. A chemical spray and warranty is known in the trade as a “wet warranty,” while the newest industry direction is the “dry warranty,” a card that promises protection without a chemical application.
Protection companies say they've suffered less than the industry in general through the downturn because retailers have sought to keep their cash flow going by providing add-on sales through warranties — a product known for its high profit margins.
While several of the protection companies have at least held on during the past few years, not all have been so lucky. The most notable closure was Florida-based Stainsafe, one of the industry's largest providers and a key supplier to a number of Top 100 retailers.
After a series of moves involving refinancing, mergers and name changes, Stainsafe (which became Global Solutions) was unable to overcome its difficulties and filed for bankruptcy in 2009, as did a few other smaller companies around the same time. Competitors say they are still scooping up Stainsafe's old customers, some even taking on its liabilities in order to forge new partnerships.
The challenges associated with the closure of Stainsafe and other providers left a number of retailers with a bad taste in their mouth. Now suppliers are stressing their stability and service to consumers as they make sales calls on prospective customers.
Don Smith, president of long-term supplier Ultra Shield/Jody Chemicals, said he sees business “slowly beginning to turn” with customers ordering more frequently and consistently.
The company has added some new products recently, including a fabric kit with Amodex that is endorsed by Martha Stewart. But Ultra Shield's growth “has been basically from those who dropped out,” Smith said, indicating a key factor in his competitors' failures was their focus on sales at the expense of service.
Even though contracts generally are clear that any problems that occur because of stains or damage are to be handled by the warranty provider, consumers are likely to return to the store if something goes wrong and they're not covered as they think they should be.
“Retailers might offer great service, but if the warranty companies don't come through, it will reflect on them (retailers),” Smith said. “You have to take care of service today or tomorrow (you'll) be like companies who have gone out.”
Protectant providers also are placing more emphasis on the consumer.
Guardsman's parent, Valspar, has made a large investment in consumer research to increase brand awareness, respect and loyalty, increase household penetration, and build consumer confidence, according to the company.
“We want to enhance that — and there's no way to enhance it if we're not honoring consumer claims,” said Stuart Graff, division vice president.
Guardsman has a “pretty aggressive plan for 15% growth,” said Graff, adding that the company is “actually tracking ahead of that at about 20%.”
He attributes that success to the fact that “with furniture sales down, getting higher attachment rates for furniture protection plans is becoming more important to the retailer.”
Protectants represent a high profitability category for retailers, “and they're really looking for that,” Graff added. “They don't have to carry inventory, or inventory is relatively low in our category.”
Guardsman's policy of billing retailers after they've sold the product so there's no cash up front also is a plus.
“From a cash flow standpoint, they get the benefit out of it because they get paid by the consumer before they pay for the product,” he said. “In these times of credit being tight, having such a strong contributor to cash flow for these businesses is huge.”
With the constant price pressure on furniture, protection offers a margin enhancer, with 60% to 80% margins not uncommon, supplier said.
“Some (retailers) are charging too much, and they're leaving volume on the table,” said Graff. “But that's their decision to make between margin and volume.”
Despite the generous margins, suppliers estimate that 25% to 40% or more of home furnishings retailers don't have protection programs in place, leaving all of the suppliers a good opportunity for growth. Graff said a portion of those unsigned retailers are at the high end, where design firms and boutiques are reluctant to tell consumers that the expensive purchase they just made may require protection.
“Despite the longevity of fabric protection, a number of retailers haven't embraced it and are not reaping the benefits,” said Ultra Shield's Smith. “It's one of the best benefits to consumers. It can make a big difference.”
Meanwhile, protection companies are going all-out to provide training to retail sales associates and to service consumers who've purchased their warranties — providing quick turnaround on repairs, strong customer service, and an open line of communication so those with problems won't be left in the dark.
Ultra Shield, like others, has a team of trainers who go into the field to help associates improve their selling skills.
“They spend hours of time so that the salesman fully understands the warranty and is not prone to exaggeration,” said Smith.
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