New Owners Refurbish Battered Ohio Furniture Maker

Wall Street Journa Report August 20, 2010

By JAMES R. HAGERTY
NORWALK, Ohio-Dan White has an edge that many rivals in the slumping U.S. furniture business can only envy: He wiped the slate clean at a venerable manufacturer, Norwalk Furniture, and restarted the business with no union, little debt and a simplified business plan.

Nearly two years ago, Mr. White and 11 other local investors paid about $5 million for the choicest assets of Norwalk Furniture just before the rest of the 106-year-old company slid into bankruptcy liquidation. Mr. White, a 60-year-old Norwalk native and entrepreneur who made his fortune selling flood-zone data to mortgage lenders, had no experience in furniture. But he ended up as chief executive of the resulting firm, Norwalk Custom Order Furniture LLC.

Norwalk's new owners cut costs by trimming staff and consolidating production in one facility. Above, a worker adds upholstery to a sofa in July.
The wobbly economy is keeping furniture sales depressed. Industry-wide wholesale sales of furniture in the U.S. last year were $28.6 billion, down from $41 billion in 2006, when the housing market was near its peak, according to Mann, Armistead & Epperson Ltd., an investment bank in Richmond, Va. After an encouraging first quarter this year, U.S. sales have slumped anew, says Jerry Epperson, a managing director at Mann Armistead. "It's awfully tough out there," he says.

Mr. White says Norwalk Custom's sales this year will be about $20 million, or one-eighth of the predecessor company's five years ago. But he says Norwalk Custom should be able to make a modest profit this year because it has stripped away so many costs.

With the weak economy, U.S. furniture makers face growing pressure from imports. The share of imports in U.S. household furniture sales surged to 56% last year from 31% a decade earlier, Mr. Epperson says. So U.S. manufacturers are concentrating on products hard to import.

One of those areas is custom-made upholstered sofas and chairs, allowing consumers to choose fabrics and design options. Consumers usually want those custom sofas delivered within about a month. That would be hard for an Asian factory to achieve, given the two weeks or more it takes for container ships to cross the Pacific.

Norwalk Custom cut costs by reducing the number of fabric choices to about 850 from 2,200 at its predecessor. It prices most of its sofas in a range of about $1,000 to $1,800, the lower end of the custom market.

Unlike the old company, the new one doesn't own or franchise retail stores, and it no longer owns the trucks that deliver its furniture. The furniture is sold through about 350 dealers scattered around the nation. Among them is Circle Furniture, which operates five stores in the Boston area. "They offer a good quality product," says Harold Tubman, one of the owners of Circle. He says the new management is better at consulting dealers before product launches.

The business gained flexibility last year when workers voted to decertify the branch of the United Steelworkers that represented them. Several workers say they voted against the union because they believed it was coddling unproductive colleagues and providing little value to the rest. A Steelworkers spokesman says the union fought to protect the rights of all workers.

All production is done at a 450,000-square-foot factory on the edge of Norwalk, where workers build wood frames, cut and sew fabric and slice up four-foot-high "buns" of foam. The old company had plants in four states, complicating logistics.

Being a "furniture virgin," Mr. White says, helped him decide how to remake the business because he wasn't "stuck in any historical inertia." Still, he recognized the need for industry experience and promoted four middle-management veterans of the old company to his top executive team. Workers had to reapply for jobs at the new company. Employment at the Norwalk plant and corporate headquarters is about 120, down from 325 at the old company.

Mr. White says he is working without any compensation. He had sold his flood-data company in 2004 and was spending much of his time investing in and advising an array of businesses. In September 2008, during a business trip in Scotland, he got a call telling him that the furniture company was on the rocks after a proposed rescue of Norwalk by two investment firms fell through.

The old company got into trouble because it was caught with high costs, poorly performing company-owned stores and too much debt when furniture sales plunged in 2008, current and former executives say.

He flew home and within four days put together an agreement with 11 other local families to relaunch the company. The state of Ohio and town of Norwalk provided about $2 million in loans. Local leaders helped pull together the investor group in this north-central Ohio town of about 16,000 people, hit hard in recent years by factory closures. The furniture maker "has always been kind of our flagship," says Norwalk Mayor Sue Lesch.

Mr. White and some of the other owners say they were motivated largely by civic pride and a desire to save a company that provided some of the best jobs in town. "Nobody got into this as an investment deal," he says. "They certainly could have found something safer with higher returns." Even so, Mr. White says the furniture business may turn into a good long-term investment.

One looming question is what will happen if some of the owners eventually disagree about strategy or want to take their money out. "At some point," Mr. White says, "we'll have to talk through all those issues."

James R. Hagerty at This e-mail address is being protected from spambots. You need JavaScript enabled to view it