John Scarsella, Virginia Sterling co-founder on filling niches and relationship-based business

May 14, 2007  by in UnCategorized   

By Home Furnishings Business in Furniture Retailing on May 2007 John Scarsella, a veteran of retail and manufacturing, and also of Vietnam (where he was a Marine Corps captain) doesn’t mind a challenge. His latest venture, Virginia Sterling, is a division of Vaughan Furniture and a collaboration between the manufacturer and Scarsella & Associates, the marketing company he founded in 1993. He and his son Michael handle all sales, marketing and product development for the solid wood case goods line, while Vaughan provides the manufacturing capacity.

The challenge? Starting a new case goods venture with domestic production. Scarsella said Vaughan was simply the best fit: “We just happen to manufacture in America. I can’t push that too hard, considering that product in stores comes from all over the world.”

What he is pushing is a tight approach to distribution and a commitment to training retail sales forces how to move the goods.

He knows both sides of the business, founding and running retailer Homestead House, as well as owning and operating three La-Z-Boy stores. He also handled product development at Durham Furniture, from 1994 to 2004, a period when the Canadian solid wood maker’s sales went from C$6 million to C$85 million. After honoring his noncompete agreement upon leaving Durham, he’s bullish on Virginia Sterling’s prospects.

You’re starting up a case goods resource relying on stateside manufacturing, and there are some out there wondering “What is he thinking?” Why do you believe Virginia Sterling can succeed, especially as a start up, in the face of Asian competition?

There’s always been intense competition in this industry, but there are more players in the wood business today than we’ve ever had. Before the influx of Asian products the wood industry was sort of a sacred cow in the U.S.—it was so capital-intensive to get into that not many people did.

Everybody also knew all of the players, who did what—there was a kind of natural order of things. We had the lower-priced or promotional makers, the middle-priced guys, and the high end like Henkle (Harris), Henredon, Baker, Harden and so on. Today, with so much sameness coming from overseas, you almost can’t tell who is who.

Virginia Sterling can succeed because we’ve found a particular niche in the marketplace. Somewhere along the line of furniture evolution, a serious gap opened up between the lower-priced producers and the upper end. We’re trying to fill that gap with outstanding designs and finishes and service. There are way too many guys at the lower end, and we felt the real competition was at the bottom of the heap.

About a year ago, I heard Bob Maricich, Century Furniture’s president, make a statement that 50 percent of the disposable dollars consumers have are controlled by 10 percent of the population. I found that very interesting and did some homework of my own, and found that Bob was pretty much right on the money. That got me thinking that there wasn’t enough attention paid to the middle and upper-middle price points.

We also have a very strict and protective distribution philosophy that should endear us to our customers. We’re militant about distribution—at Market I sold a retailer with three stores. A 12-store retailer, who’s a friend of mine, is in the same market and came in later. It broke my heart, but I couldn’t sell him.

(Retail) competition is really tough today, particularly with the evolution of electronic shopping and a younger consumer who doesn’t mind buying a sofa or bedroom suite online or over the phone. As a result, many more retailers are flooring more and more proprietary product in their store. I think that is a very smart move, and it is a major factor in our marketing approach.

Furniture manufacturers like to believe they’re brands but they’re not. In every market of the U.S., there’s a retailer who’s a brand. We don’t put our name inside the furniture unless the dealer wants us to, but we encourage our dealers to use us as a proprietary line. That appealed to a lot of the dealers we saw at Market.

Our very limited distribution allows for that. We don’t need to be a $100 million company. If we get to $25 million, $30 million, that would be great. That allows us to pretty much select one or two good accounts in a trading area and focus on them, sort of the bullet approach to marketing as opposed to the shotgun approach.

It also allows us the opportunity to work with our retail partners in developing product that they would like to have versus us sitting around trying to be great innovators of product development. Whenever you want to know what sells, ask a retail salesperson—they’ll tell you.

Your manufacturing partner is the Vaughan furniture plant in Galax, Va. Can you trace the development of the relationship Virginia Sterling established with Vaughan? We know you were looking for production—what was Vaughan’s motivation?

A mutual industry friend introduced Bill Vaughan, Vaughan Furniture’s CEO, and I to each other. We met and sort of hit it off as friends. As we talked, Bill was interested in learning if there were expanded markets he could approach with Vaughan’s extensive manufacturing assets and personnel.

My son Michael and I put together a marketing plan for a solid wood, middle- to upper-end furniture company and presented it to Bill and Taylor (Vaughan), Vaughan’s president, and their staff. They decided to embark on this course with Michael and I heading the division.

Vaughan’s motivation was to maximize manufacturing experience and physical assets by entering a new market and adding a customer base that, for the most part, Vaughan didn’t sell to in the past.

I think that everyone knows that most of the Vaughan line is currently made off-shore, and that factory capacity in Galax wasn’t running full out. We hope to change that in the next couple of years.

One of our advantages is that the Vaughan family’s been making furniture 85 years, and they have wonderful assets in place, including a tremendous amount of computerized equipment. We have 250,000 square feet of manufacturing space and a 150,000-square-foot distribution center attached to the plant.

The Valspar guys told us Vaughan has one of the best finishing lines in the South, so there’s a lot we can accomplish there. The main difference between what they were doing and what we’re doing now is materials and time—we use cherry instead of a lot of poplar solids and we redid the construction.

They build it and warehouse it, Michael and I do everything else. It’s a different approach to outsourcing—rather than outsourcing production, they’re outsourcing all the marketing, product development, sales and distribution functions, and concentrating on making a great product.

Where else did you look for potential manufacturing partners? Why didn’t those prospects work out?

The same friend who introduced me to the Vaughan family also introduced me to Jim Kepley, Dan Timberlake and Brian Starnes of Linwood Furniture in Lexington, N.C. We had a number of discussions that centered on the possibilities of domestic production being successful in today’s business climate.

We also discussed the possibility of a relationship between our two companies, Linwood and Scarsella Associates, but to be honest, they were way ahead of us in developing their new company. The folks at Linwood were looking at market penetration in a price range higher than we wanted to be in. I think they’ll do very well.

You’ve been around this business for a long time, both in retail and on the supplier side. What’s going to dictate the future of vendor/retailer relationships in furniture industry, especially as importers hone their logistics chops?

I firmly believe that relationship selling is still an important factor in this business. I just experienced seeing over 120 old dealer friends of mine come see me and my family in a tiny showroom in High Point because of that relationship we had in the past.

Being a realist, I do understand today’s retailer has countless vendors to choose from, and they all make the same products as my company. In order to succeed, we need to do what we’re doing—zero in on a segment of the business we can excel in. By excel, I mean that we need to make it better, ship it better, and assist our dealers in the sell-through, which includes having the proper training for their personnel.

I’ve long been a proponent of bringing the selling personnel to my factories to see how the furniture they sell is made. You’d be surprised to know how few retail personnel have been through a wood factory.

And value counts. You don’t have to be the cheapest manufacturer in the business, but you need to have a price-value relationship that your customers understand and believe in.

Then you need to offer service, and I don’t mean just having someone answer the phone and then send out parts for defective goods. I mean service that gets to the most important person in this whole furniture food chain—the retail selling person.

It isn’t enough to sell on price alone. The selling person needs to understand the features and benefits of what they’re selling, and that’s where we come in—to train them on how to sell our products.

For the average lady trying to buy a bedroom suite she’s going to own for the next 20 years, it’s a traumatic experience. She needs reinforcement that she’s making a good purchase.

I’ve always found it weird that our industry has never really impressed consumers with how much we improve their lives through our products, and really for peanuts. If you think about buying a bedroom suite for, say $4,000, and keep it for 20 years, it ends up costing you $200 a year, and yet we go out and spend 20, 30, 40 thousand (dollars) and up for a car and turn it over every three or four years.

Let’s talk about Spring High Point Market, Virginia Sterling’s debut. Without naming names, how many storefronts are you signed up to ship, how many companies, and when will they get their first goods from you?

As of today (late April) we have 63 accounts with orders in the house, and each of our first four collections passed muster. We’re cutting all of them.

Our first cutting will be complete May 31, so our dealers will begin receiving our first production in their stores in early June. All the collections will be runing through the plant during May and June, with our last group being shipped by July 20. HFB