Furniture Brands International Inc. (FBN-NYSE)
April 22, 2011 Issue
The Most Powerful Name In Corporate News and Information
With Some of the Most Popular Brands in Home Furnishings that Generate Sales Through Their Own Retail Stores as well as Interior Designers and Department Stores, Furniture Brands International Inc. Has the Key for Success that Enabled Them to Weather the Financial Crisis of 2009 and 2010
Furniture Brands is a
company on the move – in the past two years we've taken steps to weather the
worst economy in our lifetimes and create a vision for the future. That
vision is spelled out in four words: Build, Win, Deliver and Grow.
Build Our Brand Power – We have the best brands in the industry and we understand what consumers expect from us. With that knowledge, we deliver the products and values that consumers want to buy.
Win With Our Customers – Furniture Brands does more to help its retailers than any company in the industry. From testing products with consumers to top-notch websites to national marketing campaigns, Furniture Brands is driving business to our retail partners.
Deliver Operational Excellence – We're using tried-and-true practices to lower costs, increase quality, and improve deliveries. That's a formula for success in any business.
Grow and Develop Our People – We're turning Furniture Brands into the kind of company where passion and commitment can really make a difference … for both the company and our associates.
Chairman of the Board and Chief Executive Officer
Ralph P. Scozzafava has
served as Chairman of the Board since May 2008 and as a director since June
2007. Since January 2008, Mr. Scozzafava has also served as Chief Executive
Officer of our company, and from June 2007 to January 2008, he served as
Vice Chairman and Chief Executive Officer- designate. Prior to joining our
company, Mr. Scozzafava was employed at Wm. Wrigley Jr. Company since 2001,
where he held several positions, most recently, serving as Vice President-
Worldwide Commercial Operations from March 2006 to June 2007, and as Vice
President & Managing Director – North America/Pacific from January 2004 to
CEOCFO: Mr. Scozzafava, Furniture Brands has a long history; would you give us a brief background?
Mr. Scozzafava: Furniture Brands today is an operating company that has some of the most popular well-known brands in home furnishings; brands like Thomasville, Henredon, Drexel Heritage, Lane, and Broyhill to name a few. We are a manufacturer and we also source a limited amount of product. We have some of our own retail stores and we sell product through interior designers and department stores in traditional furniture retailers. We are about $1.2 billion today and like many other companies, we are a little smaller than we were before the recession, but are looking to get back to where we were.
Mr. Scozzafava: Our brands were acquired over time with Broyhill coming onboard then Thomasville, then Lane, and in the early 2000’s, Henredon, Drexel Heritage and Maitland Smith were added. You really have a history of twenty-plus years of acquisitions that together create the entity called Furniture Brands, which began in the early 1990s.
Mr. Scozzafava: The core competitive advantage that we have versus a lot of key competitors is our brand portfolio and brand strength. Consumers know our brands and trust that we will bring quality and value to them. That is the build our brand power. The whole idea of winning is to win with our customers. Whether you are a customer that walks into our store or a customer who is a retailer that buys from us at the wholesale level, we want to give you the best service, the best experience, the best product, and the best value that we can give you. Operational excellence is a big deal for us. We are a manufacturing company to our core. We do source a little bit, and we have facilities here in the United States, as well as in Asia. We make about two thirds of what we sell in our own factories, that number is getting bigger every year, and that is what we want to do. We also grow and develop our people. The best team typically wins, so we want to have people here that are talented and engaged, so that we can motivate and reward them and put the best team on the field in the industry. If we aspire to that and we can do that, we think our results will follow.
Mr. Scozzafava: We are in a unique situation in that we are in a bit of a turn-around, and in addition, we are managing through a recession that is really affecting a lot of folks. I think with us, the fact that housing is such an important element of our business, you really have to look at that as a key indicator. We all look forward to the day when housing rebounds. Until that happens, there is a lot of fixing and improving and things that we can do within our own infrastructure. We’ve been improving our infrastructure, and will continue to do to things that make us more successful. That means to exit things that do not make sense for us, which we have done. Next, we want to continue to build capabilities, product supply and product design, and improve our marketing and advertising. This is the kind of work that makes us better.
Mr. Scozzafava: It is a little bit of both. We have websites that are heavily trafficked, consumers recognize our brands and go online. They visit our websites, they fall in love with products, and that is one route that consumers take to shop for furniture. Some consumers will just walk into a store and if there is something that catches their eye, they will walk over and in every case, they are reassured when there is a brand name. Although they buy some off-branded products too. So it is not a completely branded business.
CEOCFO: What is new in furniture?
Mr. Scozzafava: What we are seeing now is that we are a design business. We are a fashion business to a degree and as you see people dressing and living more casually, we see that reflected in their home furnishings. Consumer purchases and the way consumer appoint their homes is so much more casual. We were also seeing homes that for a while were getting very large and now we see homes that might be getting a bit smaller. So that affects some of the furniture size and scale and some of the things that we do. There is definitely some focus on the eco/ green movement and people wanting natural fibers and natural surfaces. There are also fashion trends and lifestyle trends and we respond to those.
Mr. Scozzafava: It is such a fragmented industry that there really is not anyone with a dominant market share. Therefore, even though some of our brands might compete with each other, they compete more with other companies. Where we focus our resources are brands that we think have scale, brands that have new products to offer and a point of view, something to say to the consumer and a product offering that can match that. As an example, we spend a lot of dollars on our Thomasville stores, our Broyhill brand, and our Lane brand. We do lots of TV advertising for Lane and Thomasville in particular. And of course, we have websites. A huge part of our marketing plan is our digital effort because people go online and do lots of research. Therefore, we want to make sure all of our brands offer a terrific online experience.
Mr. Scozzafava: It comes back to the branding question. Consumers can find products out there that look ok and to the untrained eye might pass the test. However, they get the furniture in their homes and it does not live up to their expectation and we see that over and over again. A lot of the time, a consumer buys an off-brand that they think they got a great price on, a real deal, and then within a year or two or three, they are very disappointed because it is worn out and there is some product failure. Part of building a brand, and that is the whole idea around building our brand power, is you have to create quality product. You also have to sell it at a value and you have to stand behind it. That is why we think the brand is so important. It is a purchase that consumers spend time on; they research. Their furniture purchase says a lot about them. It typically is a price tag that just is not a dollar or two out of the pocket. It is something to think about and if we can offer brands consumers know, like Broyhill, Lane, or Thomasville, they know that they are going to get just a great quality product that is going to stand the test of time. We think that is important.
Mr. Scozzafava: We are opening Thomasville stores. We are building more stores across the country as we begin to expand. In addition, we would like to place Lane and Broyhill in all of our independent retailers and furniture stores around the country. That is a big objective for us. We also have a whole interior design trade. Hickory Chair and Pearson are just fantastic products, designers love them. We are hoping to see as the consumer comes back and starts thinking about housing again, and the market starts to warm up a little bit, some of those big design projects for the upper end consumer will really start to happen. We are starting to see that begin to happen now.
Mr. Scozzafava: There were two reasons. One is in Mexico, where we put our factory, is a real sewing region. It is a phenomenal area of Mexico, where the work force has a lot of skill in the area of sewing, so we like that. We also like that it is close by so that we can get product. When I say product, I’m referring to raw materials, whether it is hides or fabrics from Latin America, from Mexico, where we can make our cut and sew kits and do a lot of sewing inside that factory. It helps us across the goods standpoint and it helps us logistically. It means that there is less product that we will have flowing from Asia, which makes it a very long and expensive supply chain. This will enable us to have a lot more control over our goods. We always like to do more within our own factories.
Mr. Scozzafava: Yes, we do build to order. The inventory will be raw materials, so depending upon how good your suppliers are, and we have some very good ones, you can be more just-in-time. Really, it is a flow-through facility in the sense that raw materials can go in one side and finished raw materials come out the other side as components. We should be able to take inventory down overall as opposed to having lots of inventory floating in a container on the water for thirty days that used to come from Asia.
Mr. Scozzafava: We have had tremendous improvement. In 2008, there were very large losses and charges at the operating line. In 2009, it was much better, but still nothing compared to where we are going to go. Then last year it was much improved and we will do it again this year. Our whole mission here is about continuous improvement and now we have built a cost structure with a lot of leverage in it, so when top line sales come in and grow, we can easily see a much more profitable company going forward.
Mr. Scozzafava: What would potentially surprise people about the furniture business is that a furniture purchase is not tremendously expensive relative to other things that people buy in their everyday lives on a daily basis. When you think about big purchases such as a house or car, furniture is a lot less expensive than that house and less expensive than the car. However, furniture just gets lumped in as kind of a big thing. People spend more on things like electronics, telephones, computers and stereos than they do on furniture. That is probably something that if you really look at it, it is a pretty good value and the pricing to the consumer has not increased a whole heck of a lot in the last few years. So you really have a value category. In terms of Furniture Brands, what would surprise people is just how much progress that has been made and we hope to surprise them with our financial performance in the future.
Scozzafava: The first most important thing is this is a
turnaround and despite the worst economic conditions that certainly I have
seen in the last 30 -plus years in business, we have made incredible
progress, undeniable progress and our numbers kind of bear that out. If the
past is any indication of the future, we will continue to improve; the
numbers simply point to that. The other part of it is and maybe different
from some other companies, we still have a lot of things that we are doing
and can do to improve our company and our business. We are going to continue
to get at those as we move forward over the next few years. From my
standpoint I am a large shareholder, and I purchase all the shares here with
my own money, so I believe in what we are doing and I have my skin in the
The first most important thing is this is a turnaround and despite the worst economic conditions that certainly I have seen in the last 30 -plus years in business, we have made incredible progress, undeniable progress and our numbers kind of bear that out. If the past is any indication of the future, we will continue to improve; the numbers simply point to that. The other part of it is and maybe different from some other companies, we still have a lot of things that we are doing and can do to improve our company and our business. We are going to continue to get at those as we move forward over the next few years. From my standpoint I am a large shareholder, and I purchase all the shares here with my own money, so I believe in what we are doing and I have my skin in the game. - Ralph P. Scozzafava
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