Where FBI went awry
Thomas Russell -- Furniture Today, September 30, 2013
HIGH POINT - On paper, Furniture Brands International's strategic plan had many aspects that likely sounded good to bankers and Wall Street.
The list included hiring new talent from outside the industry, using consumer testing to help guide product development, consolidating core administrative services and cutting nonessential expenses.
But in the end, industry observers said, some of these efforts cut individual companies to their core. Many believe they also robbed the life and spirit from some of the best known and most respected brands in the industry.
The effects of such measures didn't occur overnight. But some believe that corporate-led initiatives over the past six or seven years are what ultimately led Furniture Brands to file for Chapter 11 bankruptcy on Sept. 9, leaving investors and customers wondering about the future of the company and the brands.
On some levels, the company's efforts paid off for customers. For example, around 2010, Broyhill began offering a mixed container program out of Vietnam, allowing the dealer more flexibility in ordering product.
Henredon and Drexel Heritage offered more custom finish options, and Maitland-Smith offered a custom program handled out of its Philippines plant that allowed dealers and designers more product variety.
Meanwhile, Lane underwent a major shift in the mid-to late 2000s, focusing on the motion upholstery and occasional needs of its core dealers. Thomasville continued to have success with its licensed Hemingway line, and in recent years developed collections with a soft contemporary edge aimed at young, metropolitan consumers.
Furniture Brands even has made strides to shore up its balance sheet by better managing inventory and administrative expenses and lowering its long-term debt levels.
But many of the company's efforts came at great cost to the brands. Former and current company officials, many of whom share both loyalty and a long history with individual brands, spoke to Furniture/Today and raised these chief issues:
► Too often, the company looked outside the industry for talent. While this may have brought in fresh ideas from other businesses, the newcomers didn't know enough about product design and development. This caused some of the brands to lose their luster as design and style leaders. Product purchased in Asian factories ended up looking not much different from other non-branded product in the marketplace.
► While eliminating some expenses, various cost cutting measures left the company too shorthanded in a number of areas. Instead of maintaining a swagger with design and product development, this created an environment where the people were left in survival mode and "performing perfunctory jobs." It also had a tremendous negative effect on morale, officials said.
► The company allocated time, resources and money to develop consumer testing panels to guide product development. However, this had mixed results at retail, according to both company sources and retailers. It also complicated and lengthened a product development process, slowing the speed to market that many view as critical in a fashion industry. "We were going to market with what in our minds we had no chance in hell of selling," one former executive said.
► In what it called a shared services model, the company consolidated some core functions that were once handled on the local level at Furniture Brands headquarters in St. Louis. It also based more executives in St. Louis, meaning some brands were managed from there. This cut costs, but in doing so, "you eliminate the spirit of the companies," one former executive said.
► Too much change in executives, particularly at companies like Broyhill and Thomasville, caused a perceived void in leadership at those brands. This gave some retailers the impression the companies were in transition. It also made some question whether the right people were put in place to oversee product.
► Some industry officials were left with the impression that the company spent too little money to market the brands. The opinion was that this couldn't have come at a worse time given the competition brands faced in a highly fragmented industry and one where new design leaders such as Restoration Hardware, Crate & Barrel and Pottery Barn have emerged.
Furniture Brands Chairman and CEO Ralph Scoz zafava was not available to comment for this story.
To be fair, in recent years Furniture Brands has faced challenges that weren't of its own making. Many of its moves were made to combat an industry slowdown caused by the recession, with slumping home values, stagnant income levels and weak consumer confidence.
Yet while other industry companies have managed to recover as the economy improved in the past few years, Furniture Brands' sales and earnings continued to decline.
"This is what has happened to a lot of big corporations since the recession," said longtime industry analyst Jerry Epperson, a partner in Mann, Armistead & Epperson of Richmond, Va. "While it's true Furniture Brands hasn't shown any profits, they do have plenty of assets."
Epperson said it has been difficult for Furniture Brands to meet its obligations to fund its pension plan, particularly due to issues involving cash flow. Many of the company's challenges, he said, also have resulted from soft demand at the high end of the business.
He also noted that some of the brands have lost some of their luster from years past.
"Each one of these divisions has a different story of their own," he said. "Some of these companies that were the hottest thing in the '90s are not hot now. Some did not change quickly enough and some lost some good people."
Budd Bugatch, an industry analyst with Raymond James, told Furniture/Today that in the past few years Furniture Brands experienced too much change too quickly.
"You want a business to be able to introduce a cadence of change that may disrupt an organization and move an organization forward. Here, there was so much change moving through so fast it was destructive to the business," Bugatch said.
"A cadence of change (has) got to have a rhythm to it that an organization can assimilate, your customers can assimilate, your salespeople can assimilate, your manufacturing people can assimilate."
Among those changes were movement to centralization and shared services, Bugatch said. He also noted the continued loss of FBI's talented personnel to competitors.
"I don't think the senior leadership at Furniture Brands really cherished their product creation and design creation talent in the business," he said. "Without cherishing that you really take a major competitive advantage away from the company and its dealers. You can't create great product when you don't have good people who know how to create great product."
Furniture Brands timeline
1996: Company changes name to Furniture Brands International from Interco to reflect its focus on furniture. The company consists of Broyhill (acquired in 1980), Lane (1987) and Thomasville (1995). Interco also had owned Ethan Allen from 1980 until 1989 and had been in the shoe business (Converse, Florsheim) before divesting those companies. Interco had gone through its own Chapter 11 bankruptcy, exiting in 1992 with new owners.
Furniture Brands International annual revenues, gross profits
In millions, fiscal years ended Dec. 31
Source: 10-K filings with the Securities and Exchange Commission
1996: Mickey Holliman, a co-founder of Lane motion division Action Inds., is named Furniture Brands president, succeeding Dick Loynd.
2001: In December, Furniture Brands acquires Henredon, Drexel Heritage and Maitland-Smith from LifeStyle Furnishings International for $303 million.
2001: Implements a plan to reduce its domestic case goods production capacity, closing 12 plants and reducing payroll by 20%. Impairment charges total $26.4 million in 2001. Over the next several years, it will close more than 30 domestic plants.
2003: A group of U.S. manufacturers files a petition with the federal government claiming Chinese wood bedroom manufacturers are dumping product in the U.S. at below-market prices. This eventually leads to the imposition of antidumping duties that, under U.S. law at the time, yield tens of millions of dollars paid to the petitioning companies. Furniture Brands opposes the petition, although it will later go to court in an unsuccessful effort to try to collect some of the duty money.
2003: In April, Tom Tilley is hired as president and CEO of Thomasville.
2004: In February, Randy Spak is named CEO of Lane. In September, Steve McKee is named CEO of Henredon.
2005: In April, Harvey Dondero is hired as president and CEO of Broyhill. In May, Henredon, Drexel Heritage and Maitland-Smith are consolidated into one entity called HDM Furniture under Jeff Young, who will be its president and CEO. In July, Randy Spak resigns as Lane CEO. In August, retail veteran Nancy Webster is hired as president and CEO of Thomasville and Tom Tilley moves to president of Henredon.
2006: Harvey Dondero resigns from Broyhill in June. In August, Larry Milan is named president of Maitland-Smith.
2007: Hong Kong-based Samson Holding, the parent of U.S. brands Universal Furniture and Legacy Classic, acquires some 13% of Furniture Brands' shares and suggests a merger, but FBI's board rebuffs the offer.
June 2007: FBI announces that Chairman and CEO Mickey Holliman will retire and says it has hired Ralph Scozzafava as vice chairman and CEO designate. Scozzafava has been an executive at gum and candy supplier Wm. Wrigley Jr. Co. Holliman praises his "extraordinary depth of experience in branded consumer products, which will translate well to the furniture industry."
2007: More new company presidents are named: Jeff Cook at Broyhill in March, Skipper Holliman at Lane in August, Ed Teplitz at Thomasville in October and Dan Bradley at the company's Designer Group in November.
January 2008: Scozzafava becomes CEO, succeeding Holliman.
February 2008: U.S. investment firm Sun Capital makes a non-binding offer to Furniture Brands' board to acquire the company at a "substantial premium" to the company's stock price of $10.18 per share. The board doesn't act on the offer.
March 2008: Sells contract division Hickory Business Furniture for $75 million.
2008: In December, Furniture Brands announces it will cut its work force by 1,400, close three domestic plants and exit unprofitable Lane and Broyhill stores.
January 2011: In January, Mark Stephens is named president of Broyhill.
April 2011: Despite continued losses and sales declines, Furniture Brands' top five executives earned $11.8 million in compensation in 2010, including $6.6 million that went to Scozzafava, according to the company's 2011 proxy statement. About $4 million of the CEO's compensation was related to a retention bonus the board approved in 2008. 2013: In June, retail veteran Kathy Veltri is named president of Thomasville, replacing Ed Teplitz.
2013: Financial struggles deepen as first-half sales decline 7.8%. Despite efforts to cut costs and improve liquidity, the company files for Chapter 11 bankruptcy protection on Sept. 9.