SOLID HISTORY
SINCE WORLD WAR II

Retail
Service Retail
NYSE: HVT

Haverty Furniture, Co.

780 Johnson Ferry Road, Suite 800
Atlanta, GA  30342
Phone: 404-443-2900
www.Havertyfurniture.com

J.E. Slater, Jr.,
President and
Chief Executive Officer

Interview conducted by: 
Diane Reynolds, Co-Publisher

CEOCFOinterviews.com
April 2001

BIO OF CEO 

My father started in the furniture business when he was 18 years old with Haverty’s.  He began as a collector and worked his way up to store manager.  He managed one of our larger stores in Florida until he retired.  I started with Haverty’s at 21 years of age and I began my career in the credit department as a collector.  In those days, Haverty’s was an installment house type of furniture retailer and the largest asset we had was our accounts receivable portfolio.  Anyone who had management ambitions needed to start in credit.  Over time I became a Selling Assistant Manager in a store that we had in Orlando, Florida.  I became Assistant Manager in a single unit we had in Beaumont, Texas.  I was offered an opportunity to be a staff worker in the Merchandise Department in Atlanta, Georgia in 1964.  I joined the home office in Atlanta at that time.  Subsequently, I worked my way up the ladder.  I became Assistant Merchandise Manager and Vice President, and for a few years was General Manager of our Atlanta area stores.  Eventually, I became the Western Region Manager and served as the Mid South Region Manager after a period of time as well.  I became the Chief Operating Officer and then was offered the opportunity to become President and CEO seven years ago.  I've had a great run and very enjoyable time during that career path.  I've been with the company for 45 years this June. 

CEOCFOinterviews:  Please tell us about the Haverty’s basic approach to retailing? 

Mr. Slater: Haverty’s is rather unique and prospers in a very difficult type of business.  We've become the leader in our various markets.  We have a very clear understanding of the changing dynamics of our industry.  We believe we are a leader and we plan to build on that position.  There are four key drivers of our business -- the consumer, the store, the merchandise and efficient operations.  Many people have tried to make this a very complicated business, but truly the furniture business is not rocket science.  The focus we've had on these very basic things has made Haverty’s profitable for many years.  In fact, we've been profitable every year since World War II.

We know who our customer is.  Our target customer is a female, she's generally college educated, she's married and has kids.  She lives in the suburbs, and is between 34 and 54 years of age.  She's in the middle to upper middle class bracket with about $50 - 85,000 family income annually.  She's part of the baby boom generation that is either in or moving into the peak earning years.  She's also part of the generation that will be receiving $40 trillion dollars the next 40 years in inherited wealth, not to mention their own stock portfolio wealth.  With that wealth, she's upgrading, she's buying a home with bigger rooms, or she's redecorating her current home, she's a great customer and loves shopping at Haverty’s.   

We believe that there are three reasons why this lady rates our store so highly.  It's location, curb appeal, and purposeful interiors.  We know that she's busy and doesn't want to shop anywhere that is inconvenient, so we locate our stores in areas that are in her traditional shopping patterns.  We also know that she may shop at Wal-Mart for paper towels, but when she wants to buy furnishings for her home, she wants the exterior and location of that store to reflect items that are inside.  She also wants to see the merchandise arranged and accessorized.  She likes to shop in a store that is logically laid out and not a maze. 

CEOCFOinterviews: What are you doing that is different than that of your competitors?

Mr. Slater: The principal thing that drives our business is our merchandise strategy.  We focus on what a woman wants.  We advertise in a way that doesn't insult her intelligence, and then we provide additional tools for her to purchase the merchandise.  This is done by in-house credit and quick delivery.  We know she's looking for fashion, value and selection, which we advertise and provide.  We do not provide 50% off everyday, or 24 months without making a payment.  Actually the most lucrative credit promotion that we run is 12 months without paying interest with a 20% down payment and 12 equal payments; over 60% of the consumers that use in-house credit choose that program.  Generally speaking, the most discount driven promotion that we allow the stores to use is 12% off the everyday selling prices. 

CEOCFOinterviews: I noticed that your stores are in the central and southern states.  Why just in those locations?  Do you see yourself expanding?

Mr. Slater:  We feel that there are a lot of advantages in operating where we can use our existing distribution systems without having to go out and create a whole new one.  There's also the value of name recognition.  Television, and cable TV in particular, has made Haverty’s a household name even in cities where we do not have stores but have other stores in that same state.   We also recognize that to be successful we have to turn our assets faster, and the last thing we need to do is build a brand new distribution center just so that we can go into a new city.   There are a lot of opportunities in the states that we operate in right now that are still available to us, especially in Florida and Texas.  They are dynamic states in terms of population growth and profitability for the company.

CEOCFOinterviews: How do you control your inventory as to knowing what items to get in, and when?

Mr. Slater:  We think we've developed a very interesting way to do that.  About five years ago, we had 50 different market areas where we carried product.  We recognized that was not a very good way to turn our assets faster so we concentrated most of the inventory in the 50 market area warehouses into five distribution centers.  We turned the old warehouses into cross-dock facilities and in some cases if it was part of an existing retail store, we turned that into retail selling area.  We also formulated an alliance with Furniture Brand International, the largest furniture manufacturer in the world.  We agreed to show their products in up to 50% of our retail selling area.  In turn they agreed to do a very bold thing, which was to provide us with a product from the date of receipt of an order until they shipped in an unbelievable short time frame.  Typically bedroom and dining room were cut on 60 to 120 day cycles.  That meant that we needed to carry product in our warehouse to cover that time frame.   They agreed to shorten bedroom and dining room delivery to three weeks.  We now carry three weeks worth of shelf life in five distribution centers, rather than 60-120 days in 60 warehouses.  Upholstery normally would ship in about 8-12 weeks.  They shortened that time to 4 weeks.  Since we formed that alliance three years ago, they've actually done some improving, and one of their large upholstery divisions, Lane Action, is down to about two weeks on delivery.  Other vendors not wanting to get displaced off of our floors have matched or exceeded their delivery cycles.  As a result, we've had some very interesting things happen to Haverty’s.  Five years ago our warehouse inventory represented 50% of our total inventory.  Today, after four consecutive record years, it's down to 35% and our average inventory to net sales has steadily improved.  Our sales per square foot during that same time frame rose from $160 to $200 and our turnover rose.  The combination of putting the burden of inventory back on the manufacturer in conjunction with the "just in time" delivery system, which we developed, actually works.  This means that we provide our customers with the shortest delivery cycle of any furniture retailer.  Ninety percent of all the deliveries are made within five working days of the consumer's purchase.  You can compare that with the other successful retailer/manufacturer who is taking 8 to 12 weeks.  We have a big advantage.  We don't tie up much in our warehouse and our consumer gets the product faster than ever.

CEOCFOinterviews: What kind of demographic search do you do prior to opening a new store?

Mr. Slater:  We do an extensive demographic search of the market prior to our getting into it, whether it's an existing store or a green field opportunity.  We use a program called Claritas.  We know who our target customer is and we can determine if the target groups will warrant the capital expenditure.  We know typically we can achieve a certain minimum percent of a target market.  If that minimum won't produce a profit, then we won't go into that market.  To my knowledge we are one of the few furniture retailers that do that type of demographic work.  We are also very careful that our store is in the type of shopping area that the consumer is typically going.  We go to a great deal of trouble to make sure that the market is the right size and contains the right number of people in the income groups that we sell to.  We also know that people like to shop in very attractive stores both inside and outside.  We do as good a job as anyone in keeping our real estate portfolio updated.  When stores become obsolete, and sometimes that is the case, we relocate those stores.  If they start to get a dated look to them, we remodel the exterior as well as the interior.

CEOCFOinterviews: How do you handle bad debt?

Mr. Slater:  Our accounts receivable look like a very well run bank's portfolio.  Last year we had five-tenths of one percent to net sales as a write off.  Bad accounts are not a problem for us.  We go after the higher income customer and we are very good at looking at credit, consequently our losses are minimal. We don't run our credit department as a profit division but rather as a convenience for our customer.  That beats discounting products in order to get people to come in.  More than ninety percent of all the people who apply to us for credit are approved.   About 46% of the people who have bought from Haverty’s in the year 2000 have used our internal credit program. 

CEOCFOinterviews: Do you feel that the sales growth is fueled by the economy?

Mr. Slater:  I think that the sales growth that we've enjoyed has been fueled by three things.  First, the strategy I outlined has been a significant part of our growth, that is, knowing our target customer, purchasing a product we know she wants to buy, advertising it the way she would like to see products advertised, locating our stores in the right areas, and keeping them looking attractive both inside and out.   Second, I think that the economy has a lot to do with it.  And last, the number of competitors that have gone out of business has also created a much greater opportunity for Haverty’s. 

CEOCFOinterviews: What does Haverty use for growth?

Mr. Slater:  Our plans are to grow internally and our growth is going to be very controlled and measured.   We believe that we can add three to five percent selling square footage compounded annually, we can very comfortably handle the financing on it, and we can also provide trained management to run that type of growth.   I think many of the companies you've seen go out of business or are bankrupt, or are in danger of going out, grew just for the sake of growth and didn't plan on how they were going to grow and finance and manage new growth. 

CEOCFOinterviews:  Do you think that the new technology is helping this companys’ growth?

Mr. Slater:  Technology has been a significant part of our growth and I think that is one of the reasons we've been able to turn our assets faster.  We have state of the art sales and inventory systems that provide our ability to run a "just in time" system efficiently so that our customer gets the service she wants.  We also use a very sophisticated forecasting inventory system that projects our needs out to as much as nine months.  This allows the vendors to anticipate how much product they are going to be shipping to us in any given month.  This is updated on a weekly basis and this has made life easier on our vendors and has also made Haverty’s a much safer place for the consumer to buy because we are going to have the product when she comes in

CEOCFOinterviews: Now the website, are you using it just for information or are you doing sales through the website as well?

Mr. Slater:  We recognize that at some point the web will be a viable selling tool for some products in a furniture store.  Realistically, when a customer comes into our store and sees a product and says that it is beautiful, it will go with my drapes, with my carpet, and it will take up the wall space that I have, a significant number of times when it gets to her home, it's not the way she thought it would be.  The color is not right, the size is a little too big or too small.  When you are selling a product over the web, it makes for more difficult returns.   When you buy a book from Amazon.com and you want to return it, you just put it in a box and UPS it back.  When you buy a sofa or piece of furniture, it's a little bit different to return.  You can't just put it in a box and UPS it back to the company.  The other problem we have with sales over the Internet, we can't touch up the merchandise if it needs it; we can't provide the service the customer needs and expects.  As explained earlier, Haverty’s depends on value, quality and service and that is what makes us very successful where a lot of other retailers have failed.  Our two largest vendors, Furniture Brands International and La-Z-Boy, don't allow their products to be sold over the Internet; this closes the door in a hurry.  With all of that said, I think there will be certain commodity type items that can be shipped successfully by UPS and in the future will be sold by Haverty’s.   Our website is very successful with consumers.  We get a tremendous amount of requests on the types of products we carry, the brand names we carry, and price points.  Our website is full of information for customers on how to decorate their homes and how our products are constructed.  It's a widely visited site, but at this point we don't really see the need or the wisdom for selling over the Internet.

CEOCFOinterviews: A potential investor is looking at your company and is wondering what you can tell him/her that will spark his/her interest in investing?

Mr. Slater:  The thing that I will tell them is that in 1997 we had record earnings per share of .56 cents.  We set another record in 1998 of  .70 cents a share.   In 1999 we set another record of $1.20 a share.  We set another record in 2000 of $1.30 a share.  Another important thing is that both FITCH and NAIC have both given Haverty’s a private investment grade debt rating.  We've enjoyed some very strong cash flows and better asset turnovers over the last four years.  We've been able to reduce our total debt by $24 million dollars in the past four years.  In the same time, we've paid out over $69 million dollars to our shareholders.  Sixteen million dollars of this was in the form of a dividend and $53 million dollars of this was in the form of stock repurchases in the stock open market.

CEOCFOinterviews: Interest rates are dropping, how does this affect the company?

Mr. Slater:  There is no doubt about that.  In fact, when interest rates drop, consumers will be able to refinance their existing mortgages, and usually when that happens it becomes a bonanza for the retail store.  They're used to paying that monthly payment out and if they can take those additional dollars in reducing their mortgage rates, they quite frequently put it back in home furnishings. 

CEOCFOinterviews: What personally motivates you after 45 years?

Mr. Slater:  Well you know I love what I do.  I love watching our people grow and become strong, vital members of the team.  I'm pleased to watch their incomes grow.  I basically enjoy being around the people that I work with.  They're a great group of people.  Haverty’s, in my opinion, has the best team in retail that any industry has ever seen.

CEOCFOinterviews: Yes, you do have a lot of strong points.