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Futon
Life Feature Story
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by David Garretson |
The Sun Sets On New West
Ring. Ring. Ring. Ring. Ring. Ring. Ring. Ring. Ring.
Ring. Ring. Ring. Ring. Ring. Ring. Ring. Ring. Ring.
New West, leader of the futon industry, wasn't answering the
phone. Dozens of futon retailers were persistently calling,
trying to get word on their orders. Thanksgiving was coming
and customers were getting restless. Ring. Ring. Ring. Ring.
Only two years earlier, New West had been the leader of the
pack, the top company in futons, the fastest-growing segment
of the home furnishings industry. One of the best showrooms
in High Point. A top exhibitor at the Futon Expo. Big advertiser
in Futon Life. Fancy catalog, big product line, big payroll,
big warehouse. New West was the only futon company in the furniture
mainstream, the only one owned by a publicly traded corporation.
Admittedly, it had been a tough year. Throughout 1997, New West
had sent several mailings to its retail customers. "Our
new products will excite you," they wrote. "The company
is turning around," they promised. "Our best days
are ahead." "Rumors of our demise are false."
One mailing after another.
Now, in November, silence. No announcement, no press release,
no recorded message. Ring. Ring. Ring. Ring. Ring. The telephone.
It ended as it started, with a single telephone.
From The Source
In 1986, the original phone sat on the desk of Bob Fireman in
New York City. His store, Furniture Gallery, was the city's
leading futon store, and he was branching out into buying futon
frames direct from the source. "At that time, almost nobody
was in the futon business," Fireman remembered. "I
had about two thousand dollars in the bank, and I was putting
together my first deal to import futon frames from South America."
"My customers wanted oak, so I found a factory in Tennessee.
They weren't very good. Actually, they were working on my second
order when they went bankrupt. I went to the auction hoping
to buy some of my inventory, and Gary Shaffield was there. I
convinced him to buy the futon frame parts and assemble them
for me. He and his brother Bill had a woodworking shop in Sparta,
Tennessee called Shaffield Industries Inc. Back at the shop,
I think they laughed at Gary when he came in with this junk
from the auction. But it put their business on the map."
Fireman was buying platform beds and futon frames for his own
store only. "I was the only customer. I'd order six of
this, seven of that. Almost everything they made, broke,"
he said. "I was talking to Gary five times a day on the
phone. Eventually we worked out the bugs. One time somebody
sent me a prototype futon frame, but I didn't like it. A fellow
named Ed Boling redesigned it for me and I named it after him.
I called it the Bo-Ling, and it became our best seller."
The word spread and Fireman began wholesaling futon frames to
other retailers through Furniture Gallery. The wholesale business
grew. "Finally I got together with Bill and Gary Shaffield
and said 'Let's set up an office in Tennessee. Instead of me
marking up everything in New York, let's put everything in one
pot, the imports, the covers, everything. You run the business,
do the banking, and I'll get the business and find new sources.'
We called it 'From The Source' because retailers could now go
direct to the factory, the source."
"The first year we did $200,000, and before long it became
millions," said Fireman. "I handled the sales, the
Futon Show, got us the High Point showroom, and lined up the
factories overseas. They ran the factory, handled the customer
service and the billing. Bill started attending shows with me
and meeting the buyers."
As the business grew, the money grew, and the tensions grew.
"We were always on edge, always arguing, always needling,"
said Fireman. "Money was an issue. The work load was an
issue. One day in 1992, I decided that I was tired. 'Let's split
up,' I said."
"One time I asked Bill, 'What do you see as your role in
the company?' I'll never forget his answer. He said, 'I spend
most of my time holding you back, Bob.' I'm chaotic, wild. They
were the anchor. I was creative, and they had the business sense.
Looking back, we were a good team. Neither of us did as well
after we split."
New West, the Marketing Partner in California
From The Source relied heavily on regional distributors to fuel
its growth. The most important was New West, the distributor
on the west coast. In addition to warehousing From The Source
products, New West manufactured its own line of pine futon frames.
The two companies became interdependent, each distributing the
others' products. They shared exhibit space at trade events
such as the Futon Expo, San Francisco, and High Point. They
shared advertising space in Futon Life. They co-sponsored events
at the Futon Expo. To many retailers, the line separating the
two companies was unclear. Was it one company or two? Who cared?
The $8 Million Valentine
Adam Levondosky had an idea. He was President of Southern Wood,
the RTA shelving company based in Sparta and owned by Loewenstein
Furniture. He was impressed with the rapid growth he saw at
From The Source. Bill and Gary Shaffield's woodworking shop
had grown to over one hundred employees and sales of $13 million.
Levondosky took the idea to Loewenstein management. The futon
business was growing fast, going straight up! Mass merchants
such as Wal-Mart and K-Mart were getting interested, and Southern
Wood already had entry to those channels. This was a good match
with tremendous growth potential, and it could all be run from
a new division, the RTA Division, to be headed by Levondosky
in Sparta.
The deal came quickly. Loewenstein Furniture bought From The
Source from the Shaffields for about $5 million in the fall
of 1993. Bill and Gary Shaffield stayed on to help run the company,
but they bristled at having to get Levondosky's okay for everything.
"We never thought we'd run it, but we expected Adam to
work with us," said Bill Shaffield. "We thought he'd
let us do what we'd always done. That was our understanding.
But as soon as the deal was done, ninety percent was taken out
of our hands immediately."
"Adam Levondosky had a funny attitude," remembered
Gary Peterson, then head of quality control at From The Source.
"As far as he and his people were concerned, everything
we did was all wrong. They eliminated all 'indirect labor,'
which meant that we dropped the quality control program. No
more inspections."
Until then, quality control had been a top priority at From
The Source. Quality control inspectors examined every batch
of imported futon frames, monitored quality in the Sparta oak
frame plant, and also monitored the soft goods produced at the
Sparta futon and cover plant. "Under the Shaffields, nothing
got shipped without a QC sign-off," said Peterson. "And
then, under Loewenstein, it (eventually) stopped."
Levondosky may have been too busy to consider the consequences
of dropping the QC program. In addition to running Southern
Wood and From The Source, he was negotiating to buy New West.
By acquiring the other "half" of the marketing partnership,
he'd have the two leading futon companies. Plus, Mike Haworth,
then 30 years old, a more polished and aggressive executive,
could run the business. Haworth received about $8 million in
Loewenstein stock for New West. The deal closed on Valentine's
Day, February 14, 1994.
Wal-Mart
Haworth moved to Sparta with his team to take over the merged
company, now known as New West/From The Source. Things changed
rapidly. The slow-and-steady, let's-take-months-to-study-it
Shaffield approach was gone. It was time to move fast and grow
the business. This was it!
A Wal-Mart contract was in the offing. It was a big deal, a
very big deal. Gary Shaffield was bitterly opposed. He argued
that selling to Wal-Mart would undermine the company's existing
business with small futon stores and furniture stores. It was
decided to produce the Wal-Mart futons under the Southern Wood
label. Gary Shaffield left the company.
Bill Shaffield stayed on as Import Manager. When Futon Life
did a cover story on the company, Bill Shaffield was absent
from the company-provided photo of the management team. Soon
after, he left the company too. "I left about a year after
the buyout," said Shaffield. "They fired me. I think
I was making too much money. They got rid of my entire management
group, too."
"The heart of the company left when they left," said
Gary Peterson, referring to how he felt when the Shaffields
were gone.
It was full speed ahead, with plenty of important projects cooking.
For the existing customer base, the entire product line-up was
being re-vamped and expanded, with more high end futon frames,
more pine futon frames, more imported futon frames. The line
would be so big that there had to be something in it for any
retailer.
For Wal-Mart, Sam's Club, and the big volume of mass merchant
business on the horizon, there was a new promotional product
line, including a 72" bi-fold futon frame and mattress
packaged together in a single box. To produce futon products
for the mass merchants, a new factory was being readied nearby
in Cookeville, Tennessee.
The payroll zoomed from 130 to 320, and the company started
running two, sometimes three, manufacturing shifts at both plants.
"The Wal-Mart production took precedence," said Peterson.
"We were working three shifts, crazy hours, the pressure
was on. When you're growing that fast, it's a nightmare to control.
Cookeville was mostly new workers, they could not keep up, and
so some of their production started coming back to Sparta."
With Wal-Mart production having top priority, orders for existing
customers lagged behind. Product quality began to slip too,
for several reasons. The lower-end Southern Wood products were
often being produced side by side with the high end From The
Source products in the Sparta plant. Intense pressure to meet
production demands was no longer offset by quality control measures.
Also, design changes had been made in the product line. There
were bugs to work out, but the pressure was on to fill orders.
The import program became troublesome also. Rocky Bastian owned
the plant in Indonesia which produced virtually all of the company's
imported futon frames. The plant was struggling to keep up with
demand. The product line was restyled and re-engineered, One
change, switching to one bolt on stretchers, later affected
product quality. Also, there were no firm specs on materials
such as hardware or wood. The wood used in import frames was
sometimes just too weak. "Some of those frames... the mattress
itself would break them," said Peterson.
Relations with Bastian began to turn sour. The company's credit
line for imports, now controlled at Loewenstein headquarters,
would sometimes be cut off unexpectedly.
It was at this critical time that Loewenstein Furniture merged
with Winston Furniture to become WinsLoew Furniture. Winston
President Bobby Tesney became CEO of WinsLoew, and Haworth now
reported directly to him. For Mike Haworth [who declined to
be interviewed for this story], the pressure of growth, production
demands, marketing and new product introductions were complicated
by the shifting structure of upper management.
New West/From The Source saw its sales balloon to over $40 million
and its workforce to nearly four hundred. On the surface, it
looked like a runaway success. In reality, things were not as
they seemed. "We did forty-four million dollars in sales,"
reflected Mario Morales, then VP of Product Development &
Marketing, "but nobody in the company (New West) had forty-four
million dollars worth of experience."
By the end of 1994, it was clear that a problem was developing.
The Wal-Mart deal, for one, had lost its luster. Core customers
were troubled by the Sam's Club program, complaining that the
product was too similar to theirs and undercut their prices.
Meanwhile, Wal-Mart and Sam's Clubs' mounting chargebacks and
allowances for advertising and returns were surprisingly high.
Margins were being squeezed. Had they figured it right?
"You can't sell those guys and win," said Morales,
"not unless you're as big as they are, like Proctor &
Gamble. We needed a whole team to stay on top of Wal-Mart and
Sam's Club. We didn't, and they ate us alive."
Receivables were creeping upward too. Some of the unpaid receivables
were related to poor product that had been shipped to core customers.
"We went through Customer Service VP's and Finance VP's
like nobody's business," said Peterson. "One after
another. It was an impossible situation for those people to
work under."
New West, as the company now called itself, had gone from bright
hope to lightning growth to stumbling giant, all in the space
of one short year. The numbers were bad. From headquarters,
the threat of shutting off the credit line for imports was constantly
hanging over Haworth's head. Without imports, the company would
be dead in the water. It was time to bring things back into
line.
In January 1995, it was decided to close the Sparta futon frame
plant and consolidate it into the bigger Cookeville factory.
Unfortunately, Cookeville wasn't equipped to produce the high
end products. The finishing line, for instance, lacked an overhead
conveyor system. Even worse, few members of the Sparta workforce,
the company's most experienced, made the move to Cookeville,
causing the quality of the high end oak products to suffer.
The mistake was recognized almost immediately, but more time
and money had been lost in the effort.
In May, as the futon season was warming up, the company was
scrambling to get the Sparta factory open again, while Cookeville
slowly began to wind down its operations. To meet price demands,
and in the hope of improving margins, the Wal-Mart program was
switched to imports. The import volume went through the roof,
but the credit line was still a problem. At one time, when the
credit line was cut, Bastian sold a cancelled shipment to a
competitor still packed in New West boxes.
By the end of summer, Haworth was on shaky ground. In a dispute
over payments, Bastian had stopped shipping imported frames
to New West. Consequently the line-up of new products, recently
introduced at the Futon Expo in St. Paul, could not be produced.
The core customer base of futon stores and furniture stores
was eroding, due largely to inconsistent product quality and
customer service. In the face of this, New West grew lenient
with slow-paying accounts, and receivables mounted. On top of
everything else, the California economy was soft. With its pine
factory and distribution center there, New West still relied
on the west coast for about half of its core business.
Wal-Mart was not enough. By now, it was clear that if the core
business kept declining, the game was over. "Mike sat me
down one day, and told me to put the QC program back in,"
remembered Peterson. "He said he didn't know how to pay
for it, but we'd cover it somehow."
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 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 cover fabrics and restyle some of the 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 customers 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. 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 customer 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 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 mattress
company, and a 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 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 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."
Rising, Briefly, From the Ashes in Phoenix
By early 1997, New West's survival depended more than ever on
reviving the core business, the small futon stores and furniture
stores. If the core business didn't come around, and fast, there
wouldn't be enough time for the new high-end program to develop
at big furniture merchants.
The small New West staff went all-out to present their new introductions
at the Futon Expo in Phoenix. This was the last stand, and it
had to count. The New West display was fresh and exciting. The
sales reps were psyched. The new introductions were prominently
displayed. And the reaction, according to Reed, was terrific.
"We came home from the Phoenix expo absolutely pumped,"
said Reed. "It was a great show for us. We'd had a great
reception. But almost immediately we knew that it wouldn't come
back fast enough, there wouldn't be enough volume there. The
core business was not coming back. We could open or re-open
300 accounts, but those customers were not giving us the volume
or the floor space they did before. They were gun shy.
"In July, WinsLoew decided to cut out imports entirely
and immediately. There went seventy percent of our total business.
Gone! They led us to believe that we would continue as a domestic
company," Reed said.
"In early 1997," said McLeod, "it became a reality
that we were not achieving market growths in our product lines
and specific market segments. We started executing a strategic
plan to evaluate and possibly exit segments of the industry."
"Despite our determined efforts and our commitment to our
futon business, sales never returned to their former levels,"
said Richard Hurwitz, Vice President, Corporate Communications
at WinsLoew, in a letter sent to us in response to some questions
we had asked them. "As a result, a new strategy was required.
We decided in the third quarter of 1997, with a great deal of
regret, to close our doors," the letter said.
Death Watch
The first week of July (1997), Gary Peterson received a phone
call. "I was on vacation and got a call from somebody telling
me that the day had come. In one day they laid off all the computer
people, all the support people, the VP of Manufacturing, the
plant manager, all the supervisors. When I came back from vacation,
they laid me off, too.
A letter went to customers on August 1st. "Our company
tends to be a lightning rod for rumors," it read. The letter
went on to detail New West's decision to stop selling imported
frames, but continue producing domestic frames and mattresses.
A long list of discounted products was enclosed. "New West
will remain in business...New West is not going away,"
excerpts from the last paragraph. The letter was signed by Carlos
Reed.
"We spent the summer selling everything as fast and as
cheap as we could," said Reed. "Later, in August,
Richard told me that the entire operation was closing. Our official
line was that the company was for sale. Frankly, by that time,
it was a relief for it to be over." Reed, hoping to remain
with WinsLoew, stayed on.
The dwindling staff was besieged with phone calls. First, with
customers eagerly snapping up the bargains. Later, with demands
for replacement parts. Some of the discounted product was defective.
And through it all, the persistent question from customers was,
"Is New West closing?" The routine answer, given repeatedly,
was "no."
In October, just prior to the October High Point market, Carlos
Reed was terminated. The New West showroom in High Point opened
as usual for the October market, but its usual look was missing.
Half of the space was occupied with Southern Wood's promotional
shelving products.
Traffic was lean. The customers who did stop were surprised
at the spare display. McLeod spent much of his time discussing
complaints and concerns from unhappy customers. The New West
division is being sold, he told them. On Saturday afternoon,
the third day, McLeod went home, leaving the showroom unmanned.
For the remainder of the eight day event, a neighboring exhibitor
opened the showroom each morning.
Two weeks later, New West stopped answering the phone. The company
had ceased operating. There was no announcement of any kind.
"We didn't feel it was necessary at that point," explained
McLeod. "We were on the phone every day with our customers,
they knew what was going on. Also, there's a time period in
which you must notify your employees if you are intending to
close, and we were trying to collect our receivables."
Aftermath
What went wrong?
"When we started to sell to mass merchants, the company
lost its focus," said Mario Morales. "You've got to
sell to one or the other."
"My greatest regret is what happened to our employees after
we sold," said Bill Shaffield. "My second greatest
regret is what it did to the industry and our customers. Gary
(Shaffield) and I have never forgotten our futon customers.
I make a formal apology for what happened."
"I've never seen a team of people try any harder,"
said Richard McLeod. "We just could not pull New West out
of where it was in the marketplace. The WinsLoew people were
supportive.You couldn't ask for better support. Some of the
damage had begun before we got there."
"WinsLoew lost in excess of $10 million in its futon business,"
said Hurwitz' letter. "While we deeply regret the disruption
to our customers and employees, it is our view that industry
conditions are not sufficiently promising for the level of monetary
commitment that would be required for our long-term involvement."
We asked WinsLoew what they intended to do with New West's warranties.
They did not respond to us verbally or in writing by the time
this article went to press.
In January 1998, WinsLoew liquidated the New West assets. The
equipment, inventory, product designs, and rights to the New
West name were sold to Jordan Furniture, a manufacturer of outdoor
furniture based in Monticello, Indiana. Jordan is a supplier
to the Winston division of WinsLoew.
"We plan on being a real factor in the marketplace,"
said company president Dave Jordan. He said that they are now
producing frames and mattresses for "selected key accounts."
Jordan emphasized that his company is not liable for New West
product claims, and he was unsure if they would continue to
use the New West name. "New West doesn't have a real good
name out there," he remarked. The company will not exhibit
at the Futon Expo in New Orleans.
"Right now we have about six million dollars in inventory
to move," said Jordan. "We shipped about fifty truckloads
to Indiana. I know that we've got about twelve or thirteen thousand
futon covers." |
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