Elite Furniture:
Coming of Age in a
Maturing Market

It has been my distinct privilege to have a bird's eye view of this category as it developed from a cottage industry to the viable and still growing segment of the home furnishings industry it is today. Along the way several pioneers have had to pick up their chips (if they had any left) and leave the table. Some have fallen by the wayside because of less than proficient or professional management techniques while others have been unable to secure enough working capital to hang in there during the periods of drought that naturally occur in any business's sales and marketing cycles. As the industry began to mature a handful of companies began to dominate the frame business while many small regional mattress manufacturers and vertically integrated retailers made futon mattresses in small quantities for themselves and their local market. Today this has changed radically. The larger, more mature companies have their basis in the futon mattress business. The manufacturers, distributors, and suppliers of futon frames are now in the competitive hot seat and are characteristically smaller, less mature companies. With imports dominating sales in an industry searching for its base price point, and still struggling with its image as a bottom feeder, a young company is emerging as a major player in the market. With some hot new products in the wings, a "what the consumer wants the consumer gets" service attitude, and a technologically leading edge national distribution system in place, Elite Furniture is a company to watch as we move towards 1998 and beyond.

1989: Retail Beginnings

"I started as a futon specialty retailer in Berkeley in 1989," said Sean Pathiratne, President of Elite Furniture. "It was during this time that I began to understand the supply side issues pertaining to this market," he said.

Back then Pathiratne didn't see a problem, he saw an opportunity, and Elite Furniture was born three years later. "We wanted to overcome the issues facing the supply side of the business. We believed we could do it by setting up a distribution center which offered quality products, value based pricing, and consistent supply through an efficient, service based distribution channel," he said. Also, from the very beginning, the Elite Furniture business philosophy was built on developing strategic business relationships with companies that shared common goals (with Elite). "Sean started by supplying product to the West Coast only," said Justin Kumar, Elite's VP of Sales and Marketing. The company focused on delivering product to the rapidly expanding futon retail community in the San Francisco Bay area. "We discovered early on that strategic partnerships with complementary companies could only enhance our position," he said.

Prior to any of this partnering and growth Pathiratne was simply a one man show. "When I started Elite in 1991 I did everything myself. My beeper and my cell phone were my office and receptionist. When a container came in I would call some of my friends up to help me unload it. Back then I had a 1700 square foot space. I would get an order, deliver it in my own truck and then come back and start all over again," said Pathiratne. Growth and expansion came quickly. "I would travel to other cities to see relatives and friends and while I was there I would sell. We struggled with the cost of shipping to cities on the East Coast. It was because of this experience that we came up with the idea of a national distribution network, and in fact that's how we opened our first warehouse in Miami," he said.

Today the company has over two hundred thousand square feet of warehouse space in four distribution centers strategically located in key cities across the country. "Our vision," says Pathiratne, "has always included a national presence." With facilities in Dallas, Miami, and Hartford as satellites to their home office in San Jose, Elite is now positioned to deliver product to any retail situation from independent specialty shops to major national chains. "Service is the key," added Kumar, "We haven't just grown because the business grew. We have planned and carefully thought out how to provide the best products, packaging and service so that our level of defects and errors is the lowest in the industry. The purpose behind the plan is our desire to be able to take in an order on Monday, after a busy weekend of selling, and deliver fresh product by Friday, in time for the next weekend sales cycle."

While visiting Elite in early August we visited the company's new office space and warehouse in San Jose. "We are very tight where we are now," said Pathiratne, "The new space will allow us to breath a little now and will also afford us plenty of room to grow in the future."

Early on Elite began expanding its marketing plan by sharing space at shows and doing advertising cooperatives with pine specialists Frameworks in Washington. "As we began to grow we also began to work with Tony (Wolf) and Robin (Reid) of Wolf Corp. and Omni. Together we could work toward common goals, complement each other's lines and realize the cost savings of showing together," said Pathiratne.

Business was good but Pathiratne soon discovered that success and a rapidly growing demand that outstripped supply caused many companies to compromise. "Due to the exploding market many of the dealers were so eager to get product to sell that they overlooked many quality related issues. Price became the primary tool used to distinguish suppliers on the wholesale side and this guided many retailers to use price only as a sales tool as well," he added. This issue still haunts the industry today.

"We are a full service futon furniture distributor. We want to be perceived as a company that can put a package together for a customer, designed to meet their specs and distribute it nationwide. We have the resources, we have the personnel, and we have the sales force to make it happen," Kumar said.

"We are not competing with the mattress companies directly for mattress sales. We are targeting national or regional dealers who need a supply of products to meet their need. Our mission has now been focused on the end user. We want to discover and understand what the consumer wants and needs so we can make the products to meet that need," said Pathiratne.

Syncronicity: Technology Providing Service

One of the most interesting aspects of the Elite Furniture story is their sales, product tracking and distribution technology. Software, developed exclusively for Elite, provides both the company and its customers with a powerful and comprehensive relational data base of information. "The formula we have developed allows our dealers to have their orders entered into our system at a single point, the national sales office in San Jose, and get a detailed confirmation electronically via the Fax or EDI. They don't have to call us back to see if their order is in the system or if it will ship," said Pathiratne.

This proprietary system was designed for Elite over a two year period and is now in place and ready to meet the challenges of the future. "This powerful tool allows us to have an up to the minute handle on the current state of both our on hand and in transit inventories. When an order comes in from the field the system allows us to look at things like stock status, availability, incoming, reserved, and other information as well. This gives our customers the information they need to make a decision to buy based upon fact not an educated guess," said Jeff Dyson, Elite's West Coast Sales Manager. "We can let a customer know that a particular product will not be here for ten days and then put in a subsequent reserve order so that when that sku lands it is shipped to that customer before it could possibly be committed to someone else," he said. The system allows the Elite team to make reasonable commitments and then keep them because it tracks inventory in real time based upon information on the company server. This server is accessed and updated as the number of outgoing orders and incoming inventory change. "This is the only way you can run a national distribution system," Dyson said.

"Elite's company wide goal is to meet a 48 hour turnaround time deadline for all shipments. When you back that up with professional field reps and sales training for retail associates for almost any city in the country you have an idea of the commitment we have made to be a leader in this industry, a leader that delivers the best value and superior service," Pathiratne said.

Besides these up to the minute details, the new system also allows Elite's home office to track regional buying patterns, including information on what has been selling best in each dealer's store or stores. "This information will allow us to see what patterns develop and will hopefully allow our customer service people to alert dealers to possible product shortfalls as well as availability situations several months down the road," he said. The system also gives Elite a great handle on receivables, a critical issue in a growth oriented market. "The system flags late payers by locking out order processing until a principal makes a phone call to clarify the situation," said Kumar. Like all suppliers Elite understands the importance of cash flow in an immature market, and has always tried to work with their dealers during the dry spots. The system alerts them to changes in payment patterns and gives them an opportunity to begin to address the issue before it hurts either their position or their dealer's.

Patterns for the Future

With the emphasis on creating what the consumer wants, Elite is about to introduce several new products to the market. By utilizing a new metal mechanism design called the Dura Hinge, which comes fully assembled, and by creating several new metal brace parts, Elite's principals believe they have now hit their stride. "We wanted to be able to offer a frame that addresses every objection this category has traditionally been stuck with," said Kumar. "By assembling the seat and backrest and packing it as a single unit we have overcome both the hardware and the strength/durability issue. This construction also allows us to use our new front loading metal Dura Hinge without fear of the wood to metal construction issues. This new design will revolutionize the futon furniture industry," he said.

This new mechanism will be showcased at the Elite High Point showroom on the eighth floor of the Radio Building and will be available for shipping by the end of this year. Pathiratne added, "Our new rail brackets add so much additional integrity to the base construction of the frame. In fact we are completely confident that this new generation of frames will be able to pass any traditional retailer's quality and durability tests." Elite is also breaking new ground in the design area. "We have also begun to look at several furniture designers as sources for new product design," Pathiratne said.

Attention to detail is also a top priority. "Our dealers are our best advisors," said Pathiratne. "Because of an idea submitted by a dealer we have recently added value to our packaging by just adding a small piece of yellow string. The string is attached to the hardware bag and is then folded to hang outside of the box when it is sealed. No string showing on the outside means there is probably no hardware in the box. If the string is there then the hardware is there," he said. This detail is a simple advance and is very easy to execute at the factory compared to the hassle and additional cost of delivering hardware after a sale. "Not to mention calming down an irate customer who is left with a box full of wood and a guest who may have to sleep on the floor," he said.

"Creating new and innovative products is great," said East Coast Sales Manager JC Gholston, "but we are taking it one step further." To meet the needs of the many different types of retail dealers they are currently serving and the many others they hope to do business with in the future, the company not only has to differentiate its products it has to help retailers differentiate themselves. "Elite intends to help retailers do this by strategic branding," he said. In the past some companies tried to fudge exclusivity in a given market by creating different products for each retailer in a specific geographic area. Elite will not only be creating special product lines for specific customers but they will be name branding these products with special packaging and collateral material to back up the brand. Along these lines Elite will be introducing five new frames in American Oak, and will also be developing regional futon mattress and cover production too.

"This will allow us to supply both the large regional and national retail outlets with products branded and priced for their customers, while we still supply our smaller dedicated futon specialty dealers with a program geared just for them," said Pathiratne, who added, "We could never do this without the national network of distribution centers or the digital technology we now have. It is obviously more difficult to carry more products and special brands than it is to take a more simple route, but we are convinced that this direction is the best way to produce the kind of long term sustained growth we are geared for."

If you want to be successful and be around for the long term you have to think about what direction you are going to take," said Kumar. "We have done the planning, we have the people, and we are putting it all into action in 1998," said Pathiratne.

In 1978, when I saw my first futon mattress and Shinera had already gone under, the executive brain trust of Elite Furniture was still in elementary school. Today this young, savvy and energetic team is pumping its blood, sweat and tears into a maturing industry that needs some new pioneers. If they succeed we will all be better for it.