Rebuild the business & make it profitable again
Futon Life Feature Story
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by David Garretson Part 3


McLeod to the Rescue

By the fall of 1995, time had run out for Mike Haworth. The company wrote off more than $3 million of problem inventory. Richard McLeod, a seasoned veteran of furniture manufacturing, took over as the new President of New West in October. McLeod was there to set things right. He was there to rebuild the business and make it profitable again.

Like a politician giving stump speeches, McLeod spoke to employees, to the sales force, to customers, about the future of New West. He didn't know "squat-diddly" about futons, but he was going to listen, he was going to learn, he was going to apply good furniture business sense to the problem, and it was going to get better. New West was on its way again!
Receivables were high, bloated by what may have been an overly lenient collection policy. Some of those old customers were questionable, and New West couldn't afford the risk. McLeod cracked down on late-paying customers, sending millions of dollars in receivables out for collection.

The languishing import program was put back on track. Bastian was shipping to New West again. But now he was more careful. No more easy credit, no more favors. New West had run out of favors in Indonesia. The onetime free and friendly relationship with Bastian would never completely heal.
The quality control program was another priority. Gary Peterson was brought to San Francisco to meet customers at the 1996 January market. "Yes," he reassured futon retailers, "New West was committing itself to higher quality."
New West's advertising took on a new look too, featuring a photo of Richard McLeod to show customers that new management was on the job. The first ad in Futon Life promised customers a guaranteed shipping date within 24 hours of orders. No, not the shipment within 24 hours, just the shipping date. But it was a start.

Tom Aders took over as sales manager and set to work on producing an elaborate new catalog, an effort that would consume most of his time. Futon veteran Paula Sonner was brought in to update the futon cover fabrics and restyle some of the futon frames.
One by one, McLeod tackled the problems. But the big problem, the vanishing base of core customers, the small futon stores and furniture stores, continued. Stubbornly, the core business was still not coming back.

Carlos Reed, the New Sales Manager

As Richard McLeod saw it, New West had three avenues for marketing its product line. First, the core customers, futon specialty stores and other specialty stores, might buy the entire range of futon products. Secondly, big furniture merchandisers such as Sears, Helig-Meyers, and direct mail catalogs, would be attracted to futons, seating options he called it, that looked and functioned more like conventional furniture. The last group, low end mass merchants, such as Wal-Mart, wanted low price tags, period.

The low end mass merchants presented a predicament. It was difficult to compete for their business, and the margins were low. On the other hand, the sales volume was attractive. For a time in 1995, mass merchants stopped buying from New West. But soon, they were back on board again. New West needed the sales volume.
In July 1996, Carlos Reed was hired as Sales Manager. "It looked like any factory," he said of his first visit to New West. "It seemed efficient, and I was impressed to see so much inventory. Later, I learned that most of that big inventory was obsolete or had other problems."

Reed's main job was to get the core business back. The specialty store customers, two-thirds of New West's sales volume, were now almost all gone. Most of the remaining futon buyers were buying at lower levels than in the past. Executives at New West and WinsLoew wondered if the entire futon industry had peaked. Not only had the poor California economy affected west coast business, but the futon market seemed saturated, with so many companies in the business now.
Reed traveled around the country to visit customers. "There were some very angry people out there," he said. He listened to complaints about non-shipments, shoddy products, the lack of replacement parts, poor service. Futon retailers told him that New West didn't care about them any more. They complained that New West was paying too much attention to big customers.

"The futon buyer base needed to be stroked, (made) to feel like we cared," said Reed. "We fought hard to try to win back our core customers. We fought with new products, and we discounted futons like crazy." Reed later realized that his core customer didn't need discounts as much as they needed quality products, shipped on time, by a company they believed really cared.
In late 1996, the New West workforce dwindled to a few dozen. Reed and McLeod worked to get new product introductions ready, but it was difficult to accomplish with a small staff and budget. "We had more people working in the office than on the factory floor," said Gary Peterson. "I was miserable the last year and a half, always on pins and needles, constantly seeing signs that the company could close at any time."

"We tried to be the one-stop shopping source, but it's impossible to do with a skeleton crew," said Carlos Reed. "You can't have one guy running a frame company, a futon mattress company, and a futon cover company. Hey, covers alone require full-time attention."
Despite the difficulties, New West introduced two innovative products in 1997. The Casual Sleeper, a bi-fold with two-piece cushion and tufted-on cover, and the Recliner Chair. The products were targeted for big furniture merchants such as Sears, JC Penney, and Rhodes. "In order to hit our numbers, there was only one place to go," said Reed. "You gotta go for the big customers, the chain stores and mass merchants."
The response was encouraging but less than overwhelming. "We were trying to go higher and better," said Reed, "but they were still interested in cheaper low-end only." He called it a "huge miscalculation."

The low-end mass merchants, meanwhile, were migrating to ever lower prices at other sources. "New West in its original state did $10-15 million as a pine futon producer," said Richard McLeod. "That was all replaced by China metal. The marketplace didn't want pine any more, the imports were killing us. Cost was more important than function. The lowest price tag won. We couldn't produce at a profit, couldn't sustain margin and get enough volume going."

continued on next page

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