Recession lesson: Save creatively
By Heath E. Combs -- Furniture Today, May 17, 2010
HIGH POINT —
Patricia Gillis, senior vice president and chief financial officer for case goods source A-America, believes a good financial crisis is a terrible thing to waste.
“When times are good, and we're flush with profits and we're very busy. It's easy, and probably appropriate, to focus on the big money-making opportunities and let smaller issues slide,” Gillis said.
Solid-wood dining and bedroom supplier A-America is like many companies in the industry, which since the start of the economic downturn have tracked expenses more closely as sales have declined.
Many companies have downsized with layoffs, but have found it's not so easy to cut back on other items, like markets and showrooms and product development expenses.
Inventory management is one area companies are closely eyeing in hopes of saving money during the downturn. Some have found creative ways to do more with less, and to reduce expenses.
A-America focused first on reducing variable costs tied to sales volume. Then it looked at fixed costs — a tougher nut to crack, but with a much higher return, Gillis said.
She said A-America carefully, through attrition and layoffs, reduced staff to keep costs in line with sales. All expenses were scrutinized. Leases and contracts for telecommunications, copiers, insurance, banking services, catalog production, postage, supplies and other services were evaluated.
But the company also found other creative ways to cut costs. Last year, it challenged its operations managers to “earn their salary” in 2009 by finding effective savings that exceeded their pay.
“They blew past their goal before mid-year and just kept on going,” Gillis said.
The company didn't reduce employee benefits, Gillis said. With more work piled on fewer employees, A-America wants to make sure its employees know it appreciates their efforts, she said.
Some changes during the recession haven't been entirely about cost cutting. The company upgraded its automated systems and added functions that allow it to measure performance better and make better use of Web technology.
“I think we've instilled a greater sense of thriftiness — but always with that cost-benefit perspective,” Gillis said.
At full-line furniture source Four Hands, meanwhile, CEO and President Matthew Briggs said the company has been able to save money in product development without limiting the number of SKUs it carries.
In good times, a factory selling a sample to Four Hands may have wanted to the company to order a container or two of the sample product — when it only really needed two sofas and a chair.
“When things got tight, we got a lot more disciplined about saying to vendors, 'Look, if you want to do business with us, we just want a set of samples,'” Briggs said.
Four Hands also renegotiated leases at markets and for its headquarters, and watched market lodging and meal costs. It used to send multiple trucks to a market but now sends just one, and plans its setup at the shows more diligently, he said.
He said one area the company is putting more money into is technology, specifically website, Enterprise Resource Planning and inventory tracking. He said Four Hands is seeing great efficiencies from those efforts.
“Our industry has been fairly technology-averse. But we feel going forward that the companies that don't raise their game to the highest level will really suffer,” he said.
At home office and entertainment supplier Sligh, CEO Rob Sligh said a new good habit picked up during the recession was having sales reps handle some jobs they previously may have delegated to customer care representatives. Company leadership also learned to better employ technology such as e-mail and Skype to do jobs that previously were delegated to support staffers.
Sligh also changed its credit analysis, moving to a database approach instead of the labor-intensive and hit-or-miss process of manual credit checks. It uses a credit analysis supplier whose “new system is online and always up-to-date,” said Rob Sligh.
John Scott, president of home accents supplier Sterling Inds., said the economy is forcing companies to do more with less.
“I don't feel we will quickly return to the days when the fat cats freely and cheerfully signed the checks and appropriated the funds without question,” he said.
He said smart businesses are looking at every expenditure and are doing more planning and forecasting.
“All budgets in the past were fat and therefore they were easy to shave off some fat and not feel any pain,” he said.
As the recession wore on, Sterling began looking for savings in areas it had overlooked in the past. When it printed a catalog, it looked at paper weight and number of pages; for travel, it looked closely at hotel rates and airfares, and worked to accomplish its goals in fewer days.
Jim Berk, CEO of accent supplier Bailey Street, said his company has worked to find more cost-effective resources in non-merchandise areas. The company has cut staff and had the remaining personnel absorb more duties. It switched health care providers to avoid a 25% rate hike.
Berk said he has always gone through every line of its expenses, but with the recession, the exercise has become more critical. He said the most difficult cuts to make have been with marketing dollars — especially trade advertising.
“For me to get the retailer excited about Bailey Street, but then the retailer not to have any customer for the Bailey Street product, I've not gotten a good return on that dollar,” he said.
The company has put more money into updating its electronic catalog so retailers can flip online through pages and see detailed photos of finishes. Berk said that's money well spent, going to where Bailey Street will generate the most sales.
Steve Crowder, CEO of accent supplier GuildMaster, said his company began teaching its employees to think and act like business owners.
The company's major investor group, SRC Holdings, came up with a strategy called People, Positive Cash Flow, Profits and Positioning. Cuts had to be made, among them 10% to 20% pay cuts.
But through the program, employees also began questioning expenditures more carefully.
“People started questioning quickly how every dollar was spent. We had someone cut out our coffee service we had provided and was costing us $200 a month. People realized that we could lower our breakeven on sales if we increased our gross margins. Our gross margins improved 500 basis points during 2009,” Crowder said.
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