Bob Maricich

June 30, 2007  by in UnCategorized   

By Home Furnishings Business in on July 2007 In an industry environment where global sourcing has made price a defining competitive factor for many furniture companies on both the manufacturing and retail sides of the business, Century Furniture Inds. has chosen the high road in terms of price emphasis.

Century didn’t make that decision without exploring other options. Earlier this decade, the company developed a new starting price point with Destinations, a container program combining original design and hardware with Chinese sourcing with the aims of appeal to upper-middle price points, and offering consumers entry to the Century line with the hope they’d trade up over time. The company found, however, that the move not only didn’t expand its customer base, but it also diluted Century’s premium-level presence on retail floors.

A few years later, Century reversed course, eliminating Destinations, and adding the ultra-premium Heirlooms by Century featuring luxurious materials and finishes on both in-line pieces and items developed for the program, as well as developing a very high-end outdoor business.

Bob Maricich, president and chief executive officer, and former chairman of the American Home Furnishings Alliance, talked with Home Furnishings Business about Century’s evolved strategy; the company’s approach to licensed furniture collections; and what he sees as the challenges and opportunities facing the industry today.

In the past couple of years, Century has traded up in price points, dispatching its Destinations starting line, and introducing the premium price point Heirlooms program that has special appeal for high-end designers. Can you tell us how that’s affected overall sales, and give us an idea of the percentage of business with the design trade compared to a few years ago?

We thought, back in 2001 and 2002, that we could address our premium consumer and at the same time extend into the upper-middle market with global sourcing through Destinations. Frankly, we’d found a lot of the retailers were seduced by lower prices and traded down on their floors. We also found that designers weren’t interested in trading down.

Around 2003, we discovered it wasn’t bringing us new customers, and for us it was a failed strategy. In later 2003 and into 2004, we got back to the idea of emphasizing fashion, broad choice, customization—which we call “personalization”—speed and reliability. We found that those were big differentiators for us across price points.

Intitially after we made that change in concentration—and I’ll use 2003 as the benchmark—we saw a sales decline. Net sales since then are essentially flat, around a 1.4 percent increase, but our profitability has improved dramatically. Further evidence of our success is that our year-to-date 2007 purchase orders are up an eyelash away from double digits.

On the design side of our business, I really want to make the point that there are designers working in the traditional retail model we serve—a lot of our best retail customers are design-oriented, the Robb & Stuckys, the Toms-Prices.

All our business is design-driven. If you break out independent designers from our showroom business, it’s about 40 percent of our overall business, and that’s up markedly. Our point, though, is we want to drive our company based on the needs of designers, wherever they work or shop.

How has your traditional retail base reacted to the change?

I think we’ll end up with double-digit increases for the first half of this year. A lot of retailers were seduced by lower prices and the hope for higher gross margin percentages in recent years. That’s proven for a lot of retailers at the upper end to be a disastrous strategy. Operations with high fixed costs were generating fewer net gross margin dollars.

I have a sense that the pendulum has swung back, and a lot of retailers are saying, “We want to trade up.” They ended up making less on more units, and the high end really bore the brunt of price deflation.

Today, a lot of retailers are still about price, and if they believe value is all about having lower prices, we just aren’t the right guys for them.

It seems part of Century’s trade-up has focused on domestic finishing and customization capabilities. What percentage of your goods now made domestically, and how does that compare to levels over the past few years?

It’s a hard thing to measure because of the parts, carvings, fabrics and mixed materials. I’d say 85 percent of our goods are made in the United States, and that’s much higher than a few years ago.

Our head of marketing Ed Tashjian put it very well when he said that we don’t have a “made-in-America” strategy per se, but those things we talked about—fashion, broad choice, customization, speed, reliability—we can do better because we make it in the United States.

Typically, a made-in-America strategy involves putting the flag out there and appealing to patriotism, but in our case we believe we’re just better able to deliver on our overall strategy as a business by making most of our product here.

From your tenure as chairman of the American Home Furnishings Alliance, what emerged as the major challenges and opportunities facing the furniture industry, not only at the high end, but overall?

It’s not government, it’s not globalization, it’s not dumping. From my perspective, I don’t know whether the biggest challenge is the commoditization of furniture or the lack of differentiation. It’s probably a combination of the two.

We as an industry have a product that’s tailor-made to enhancing a home, at all price points. As an industry we’ve been focusing on price rather than how this product can be differentiated.

At the end of the day, the furniture industry has to learn how to focus on the shopping experience, service, how our products improve a home.

When you think about a trade organization, you typically worry about government regulations and other structural issues, when we’re really our own worst enemy when it comes to communicating our products real benefits to consumers.

Century has a foot in the licensing business, including programs with Oscar de la Renta and Kelly Hoppen. What are the benefits and challenges of licensing, and can you tell us how business is trending with your licenses?

The benefits are pretty straightforward. You have a really unique point of view on design, and from a perspective that’s not so close to the industry, so you have a chance for something really fresh.

We’re really looking for designers not endorsers—we’re not into renting a name. We have what we believe is a great combination with the designers and the Century brand.

As far as the challenges, it’s just bottom-lining the added cost. That’s always a challenge in this hyper-competitive environment, to bottom-line those costs, so the product has to be really good.

As far as trends, and this isn’t just at Century, licenses all start off with a bang, and then they tend to seek some level of sustainability.

With Oscar de la Renta, it’s just magic in the design channel, and it’s strong as ever there. It didn’t really work in the traditional channel. It is very high-priced, and not all traditional retailers attracted that ultra-premium consumer.

Kelly Hoppen was a different scenario that didn’t work on a sustainable basis in the U.S. market, but has been a blockbuster internationally, and continues to grow among our international dealers.

We also have a license with Richard Frinier in outdoor leisure furniture. The luxury outdoor business has the wind at its back. That started with a bang and has grown and grown and grown since.

For decades, housing starts and sales were a key indicator for the furniture industry’s prospects, but that didn’t really pan out for us during the housing boom in recent years. What do you see as the key indicators today for the industry?

When I was chairman of the AHFA, I was a champion of pulling together on the Web site all kinds of indicators we called the Dashboard from a huge number of sources.

As they relate to our business, I think indicators really differ by price segment. The first thing we look at for our business (at Century) would be consumer confidence. Second is the stock market—the global stock market, I might add. Our best years have been when there have been big bonuses on Wall Street. Lastly, we still look at housing starts. Our key indicators are a basket of all those things.

When you’re away from work, what do you do for fun?

I grew up in Montana, and I’ve been a lifelong fly-fisherman. I was a fishing guide a couple of summers in the West Yellowstone area while I was in college.

For me, fly-fishing is beyond an avocation—it’s a sickness. I still love it out there, and I get back there every chance I can find. HFB