Ralph Scozzafava, Furniture Brands CEO and vice chairman

April 30, 2008  by in UnCategorized   

By Home Furnishings Business in Markets on May 2008 At Furniture Brands International, the name Ralph Scozzafava has come to mean change. During an interview at the company’s Broyhill showroom during the High Point Market, the former Wrigley executive spoke frankly about the need to cut costs and boost efficiency by changing the long-standing practice of operating FBI as a set of separate companies with overlapping technology systems and products.

Formerly vice president of worldwide operations for Wrigley, the world’s No. 1 gum company, Scozzafava was named named vice chairman and CEO in June 2007 and has served a 10-month apprenticeship in the furniture industry with long-time CEO Mickey Holliman, who relinquished the top spot in May. In a wide-ranging interview, Scozzafava, who joined FBI after 27 years in the food industry, said the one area where furniture lags behind other consumer goods categories is in employing consumer research to guide product development and all phases of marketing. With a new team in place that includes Chief Marketing Officer Alex Hodges (formerly of Russell Athletic) and newly promoted Vice President of Strategy Dan Stone, Scozzafava says the pieces are now in place to reduce redundancies in corporate function—as well as in products—in FBI’s various operating companies. When it comes to the product side of the puzzle, Scozzafava said consumer research will play a key role in helping brands like Broyhill and Lane take on a new level of importance for both consumers and retailers.

Since the interview took place weeks ahead of the company’s annual shareholder meeting on May 1, Scozzafava was unable to address Sun Capital’s bid to place up to three members on FBI’s board of directors, but said critics will eventually be quieted by his team’s continued progress in meeting goals in the company’s transformation plan. The comments of Scozzafava—who was joined by Hodges and Stone during the interview—were edited for the sake of clarity and available space.

What’s the main lesson the furniture industry can learn from other fields you’ve worked in?

Scozzafava: On the consumer side, the people who are actually buying and using your products are going to tell you more about what they want than anybody else. When you ask them directly, you’re going to get really, really good information. I don’t think we do a lot of that now as a company. That’s probably the biggest thing for me.

The other is as I look at it, we all in this industry tend to do some of the same kinds of things. To say it politely, when I look at products, a lot of them look kind of like something that somebody else just did. That happens in lots of businesses, by the way, but it just seems to occur a lot in furniture. Another company will literally take this conference table (we’re sitting at) and adapt it, interpret it.

It’s obvious FBI is moving from being a collection of operating companies to a more integrated, single entity. How integrated will it become and how fast will that happen?

Scozzafava: We are moving from kind of a holding company structure to a collection of companies with shared back-office operations. What I don’t want to lose is that our brands are the focal point of what we do. Our commercial functions—such as sales and marketing—are something the brands still drive. We’re just going to take the things that are repetitive and leverage them, so HR should be the same across all of our brands, and IT, financing, accounting and certain supply chain procurement functions will all be the same. But, there will still be a focus on the P&Ls of the brands individually. We don’t ever want the brands to be all the same. Having Drexel Heritage becoming just like Thomasville is not the idea at all. They’re each separate and distinct, and each is targeted to a different group of consumers. But, there are things we can be share. When we run payroll, it shouldn’t be run in 10 different places. We should run it once and pay everybody on the same day, and we’ll get a lot of savings by doing it that way.

Dan Stone: The things that are invisible to the customers will be shared, and payroll is a good example of that, and so are questions like how many data centers will we have? Or, how will we deploy a wide area network? We can drives lots of savings that way. We’re completing the design phase of this (back-office integration), and we’re not talking about a completion date yet, but it won’t take years. In the consumer-facing side of things, we want a distinct positioning of our brands. What’s the right consumer appeal? What’s the segmentation? How do we go to market. All of those kinds of pieces are the visible piece that must have more distinctiveness. One of the things we want to move away from, as we talked about earlier, is product that looks similar.

There will certainly be naysayers who will ask, ‘Why hasn’t payroll been something FBI managed centrally all along?’

Dan Stone: The heritage of Furniture Brands comes from Interco, which was always run as a holding company. With that approach, you want to minimize central staff. ... Each company was a stand-alone business that was run entrepreneurially. The fear was that if you combined any part of it, you would homogenize those operating companies. Over the past three years or so, we started talking more about shared services and doing things differently. Now, we’re staffed in the right way and with the right people in the central organization to start pushing on it in a way that is making it real. We recognized the issue before that there was opportunity (in shared services), but we didn’t know how to do it and we weren’t willing to go beyond a certain point with what are really entrepreneurial standalone businesses.

To what extent is the goal of reducing operating costs driving the move to shared services across all of these brands?

Scozzafava: It’s really two issues. We want to share best practices across the company. At the same time, we want to take things that are being done in disparate places and become more efficient and automate where we can. So, it’s a little bit of both. If the issue is disaster recovery, for example, it you have 10 (business units) taking care of that separately, some will do it really well and others are going to do it poorly. All 10 units are going to pay more because they’re doing it separately. We can do it once, and everybody does it the right way and saves money at the same time. ... With the kind of scale we have, we can afford to pay for the research and expertise to get it done right in a way that little companies either don’t have the time for or can’t afford.

Increasingly, we’re hearing furniture retailers talk about “the store as the brand,” which is reflected in how much private-label or no-name imports they’re selling. So, what does a brand name like Broyhill or Lane mean anymore?

Alex Hodges: In the surveys we’ve done recently on both aided and unaided awareness. Broyhill is No. 1 and Lane is No. 3, so we have two of the Top 3 brand names. We have brands that have great heritage, and they’re very relevant today. At the same time, we’re ready to invest to make them even more relevant in the future and make them even more important in terms of what’s driving the consumer’s purchase decision. It’s not just the brand in relation to product, either: It’s the total experience and all of the touch points she has with that brand, including everything from how she researches the product potentially online, the store she goes to and the type of service she gets. Obviously, the style has to be right, feel right and work in her home. It goes all the way into the delivery into her home. We’ve got to extend the power of these brands to all of these all the different touch points.

When it comes to making the brand more relevant, is that primarily a challenge in winning over retailers or consumers?

Alex Hodges: We have to do both. First and foremost it starts with the consumer. Because we are doing a better job of creating a better product based on that consumer need, we then go to our retailer customer and say, ‘She’s going to be looking for this Broyhill or Lane piece of furniture in your store. We’re also going to advertise and communicate that directly to her in her home in one fashion or another, so she’s going to come looking and asking for that product. That’s why you (the retailer) need to carry it.’ It starts with the consumer, but, absolutely, there’s a combination of addressing our retail partners and marketing to them as well.

Dan Stone: In the current system, the dealer tells eight manufacturers, ‘I need 70-inch camel hair sofas for the next market,’ so all of those manufacturers scurry off to make those, but then what’s any manufacturers’ point of differentiation with everybody else? If we instead start with the consumer understanding by doing the research on what is going to sell, you’re able to show the dealer how it works, and that changes the relationship around.

Scozzafava: I think the power of two brands is incredibly strong if both brands are strong. So, if a Nebraska Furniture Mart combines to sell Broyhill, man, that’s powerful. I think we can help the (smaller) furniture retailer, too, because we can bring that into his or her store. It’s powerful for them to have good merchandise that consumers understand, and that’s pre-sold before she gets there. When you go into a Best Buy and buy a Sony TV, you know you’ve done a pretty good job for yourself. If you go into another store, like Ralph’s Electronics, and buy a Sony, it’s still a good purchase, right? But, if you went into Best Buy and bought an off-brand, you may not feel as good about it.

What type of consumer research will you be doing?

Hodges: It’s a combination of things. We’re kicking off some qualitative focus groups next week (in mid-April), but it’s really just the starting point to make sure we understand how the consumer talks about our category and the language she uses. It’s just one input into a very in-depth set of quantitative research studies. The end result will be to segment the market and segment consumers within the market. ... There may, for example, be the furniture shopper who is obviously concerned about both brand and value, and they may represent 12 percent of the market and 20 percent of all the dollars that are spent. There’s another group of customers who are furniture enthusiasts who are all about high-end designer brands. So, you segment the market and quantify the size of each of the groups as well as FBI’s opportunity to reach those segments with the brands we have in our portfolio. We will try to do a better job of not having as many of the overlaps that exist today.

As the transformation plan progresses in the year ahead, what signs can we look for to know whether FBI is succeeding in its goals?

Scozzafava: I think we’ve already seen the first sign. Our balance sheet is as strong as it’s ever been, and that’s good because we’re in a challenging economy. The second thing is you’re going to start to see products that, hopefully, you’ll identify as pretty neat and innovative. Our brands have spent a lot of time developing and designing, and it will get better as we do more consumer work. You’re going (to see progress) by looking at our profit numbers and our performance in the marketplace. We have a plan we think is a good one. We have a good team. We have a lot of folks who have spent a lot of time in this industry. We also have some who are pretty new, and I’m one of them. What I tell our guys is ‘We don’t need a lot of me.’ Watch our results. What we’re trying to do now is just really manage a large company and do it in such a way that we feel like a small company. If we can do that and energize our people along the way, we’re going to be OK. But, I think the first part is in good shape. We said what we’d do with the balance sheet and we did it, so we’re just going to continue to promise and deliver, promise and deliver. Our (initial) promise was to reduce debt and produce cash. We did that, and there will be more to come. We’re going to get better. The work that Mickey (Holliman) started more than a year ago and that I’m engaged in now has, I think, put us in a good place. I don’t see any gaps.

We all know that Sun Capital is working to seat members on your board. Will a change in the board change the strategy you’ve described?

Scozzafava: The board is a big part of any company. I always think the board is at the very top overseeing management and validating strategy. Boards do what they have to do. I sit on our board, and I see how decisions get made. All we want to do is make sure the best decision for all shareholders is the decision that gets made. I can’t predict the future. I know we have one hell of a strategy, though.

You came to furniture from Wrigley, the world’s largest gum maker. Are there elements from that industry you can apply in the transformation of Furniture Brands International?

Scozzafava: Some of the things that are different and are better is that during a major industry conference, it tended to be that you only had time to meet with the big guys—the Top 10 or so that accounted for 70 percent of your business. So, that was the only input you got. Here you meet with everybody. You get ideas from guys with one store and guys with 10 stores, and I always think the more information you get, the better off you are and the smarter you’re going to get. I come here, and I listen to everybody. I’m still learning like crazy. I spent 27 years in the food business, and I was learning every day at that. I come here to High Point, and I’m learning like 10 times as much every day. You just try to learn and understand and listen to everybody.

I’ve just met so many high-quality, high-integrity smart people in the furniture industry. Then, of course, I had Micky Holliman, who has taken me under his wing. What would be better than to have Mickey Holliman teach you the business? If the UNC grad school offered a course taught by Holliman, I’d sign up no matter what it cost. It’s been just a great introduction to the business.

Hodges: The real commonality between furniture and other industries is that we’re going to win in the same way which is by knowing the consumer better than anybody else. So that’s what we want to bring to the home furnishings industry. We want to know why she buys and where she buys and by doing the best job of marketing to her needs, that’s how we’re going to make the difference. That’s the discipline that comes from Ralph’s prior companies as well as the companies Dan (Stone) and I worked for. What we’re going to do with the learnings and experiences from those industries. Like furniture, the products we dealt with before are similar in many ways (to those of competitors). We are focused on finding out how to bring (our furniture) to market in ways that meet the consumer’s needs better than anybody else.