Meeting the Challenge in Competition and Leadership

Speaker Name: Carl E. Gunter
Speaker Title: President and CEO
Speaker Company: Broyhill Furniture Industries, Inc.
Broyhill Furniture Industries, Inc. Website

Carl E. GunterBeginning in the early 1980s, domestic furniture manufacturers began to seriously feel and acknowledge the need for change--in organization and managerial skills, production techniques, marketing programs, etc., and, most importantly, in our attitude toward, and a commitment to, speedy implementation of these needed changes. The impetus for that action--like that experienced by the northern smokestack industries as well as southern textiles--came from off-shore.

From a level of approximately $1 billion in 1982, a cascade of furniture imports was experienced each year with uninterrupted double digit increases that pushed the 1987 level to approximately $3.6 billion. Two-thirds of this import furniture product, primarily wood product, came from Taiwan, Canada and Italy, in that order. The remainder was shipped by Germany, Denmark, Yugoslavia, Mexico and others in lesser amounts. In the years 1982 through 1984, as a consequence of the accelerating tide of these imports, thousands of jobs were lost as numerous furniture factories comprising millions of square feet of manufacturing space were permanently closed and dismantled.

Furniture industry management was severely stunned by the off-shore incursions into two major wood categories--dining room furniture and occasional tables. While some time passed before the industry began to acknowledge the full and potentially adverse impact on individual companies, the situation was really a benefit in disguise which resulted in the industry shaking off the lethargy of traditional and frequently obsolete modes of operation.

While successful companies met the challenge in varying degrees, I have personal familiarity with the measures initiated and sustained at Broyhill--measures which I am confident have enabled our company to become, in academic terms, an "overachiever" in "meeting the challenge of competition and leadership."

At the outset, Broyhill enjoyed a strong people organization as well as an enviable market position and strong financial base, all of which helped to blunt and soften the negative effect of these external changes on our company. Recognizing the situation and starting with that base, our management pragmatically identified and pursued actions aimed at meeting and overcoming this problem.

One such action involved our dining room factory in Rutherfordton, North Carolina. As a result of a serious erosion of sales brought on by highly competitive import products, this dining room factory, the largest in the United States, was forced to operate on a three-day-a-week basis and with significant reductions in manning. Despite that action, the factory experienced losses sometimes exceeding $200,000 per month. Senior management's action to stop this dire circumstance was to:

Quickly put some product into the marketplace--product that was styled to fit the best opportunity niche and priced aggressively enough to create immediate sales!

Develop and implement a targeted marketing program that would ensure exposure of this product to any potential buyer.

Ensure that the decisions regarding this product design, pricing and marketing would achieve the sales volume necessary to allow the Rutherfordton facility to "break even," given the manufacturing efficiencies that are inherent with increased production levels.

Enhance productivity and quality by an intense employee communication program aimed at dramatically increasing our employee involvement in, and support of, our plan to "ensure full employment" and job security. Employee reaction and response, I might add, was overwhelmingly positive.

I am pleased to tell you that a continued maturing of these four basic actions has subsequently resulted in full employment, significant overtime operation and profitability at the Rutherfordton plant.

Broyhill's several occasional table factories experienced somewhat the same competitive circumstance--which was addressed and overcome with similar management actions. Those actions and programs represent, in my opinion, what is necessary for the American furniture industry to successfully compete, first, with offshore manufacturers and, second, domestically.

Many other individual efforts, programs and decisions were made to support and sustain these four basic management actions--all of which contributed to successfully "meeting the challenges" of competition. At the same time, these efforts enabled Broyhill, like many of its industry associates, to expand its overall leadership position. Two of the more important of these programs were:

First, recognizing that to produce a product competitively priced and with perceived value, Broyhill and the domestic furniture industry require modern facilities and state-of-the-art equipment. For each of the past eight to ten years, we have invested millions of dollars in high technology equipment such as computer controlled cutting machines for wood and fabric, automatic and robotic spraying and furniture finishing equipment, and computer controlled yield optimizing saws.

A second critical ingredient in support of the four basic management actions was a recognition and dedication to a constant improvement of quality--not only quality in the product, but quality in everything we did--from the manner in which we answered the telephone to the courtesy, consideration and service extended to our suppliers, dealers and consumers. These elevated quality standards--"doing the best we can in everything we attempt"--required improved communications with people at every level of the organization as well as emphasizing the supporting educational programs for all of our employees. Broyhill's quality improvement is currently undergoing renewed emphasis.

As management actions to combat this product competition took effect, a second and equally significant challenge was encountered. Broyhill, as an important brand name in the industry and a member of the INTERCO family of manufacturing and retail operations, became a part of the "furniture industry consolidation." Ten years ago, the top ten furniture manufacturers accounted for 21 percent of the total market; in 1987 the top ten accounted for 33 percent of the market. Obviously, the rate of growth of market share was consistently greater than the balance of the industry. This consolidation brought on an increased domestic competitive pressure.

Accompanying that industry consolidation was a dramatic shift in the retail dealer structure. Industry observers estimate that, during the past ten years, as much as 40 percent of the retail furniture stores in the United States closed--some 15,000 retailers. This shrinking of the number of retail dealers resulted from high interest rates, increased capital requirements, a consolidation of retail firms in consumer demographics and preferences.

These changes in both manufacturing and retailing--to coin a phrase, the "big got bigger"--forced us, again like many of our industry associates, to squarely address and respond to the circumstances. In the case of Broyhill, it was acknowledged that the company had historically been "manufacturing driven"--that is to say, the company was oriented toward efficiently producing a product which a sales force then attempted to sell. The changes in alignment of manufacturers and retail dealers forced us to look inwardly and subsequently to reorient both our structure and focus to be "market driven." For a company with traditional values and philosophies in business since 1926, the shift to being "market driven" has not been easy and is not as yet at what I feel is an acceptable level. Significantly increased emphasis has been placed on continually monitoring and attempting to forecast shifts in consumer tastes in furniture design and to accommodate those shifts by being first in the marketplace with quality products meeting those new consumer requirements. Having fully adopted an attitude and a mindset to design to the consumer a product which is easily manufactured, we focused on the following four major marketing opportunities.

A plan to sell the Broyhill product on a selective basis to major retailers--national and regional chains and department stores. Currently, our product is sold to more than 50 percent of the top 100 retailers and department stores in the United States.

The Broyhill Showcase Gallery Program--a program currently comprising 270 galleries. A gallery is a 6,000-square-foot or larger, home-like display located inside retail furniture stores. These galleries provide an exclusive display of only Broyhill products in well decorated and accessorized room settings and they result in larger ticket sales for both our company and for the gallery retailer. They make it more conducive and easier for consumers to see the product and to enjoy making their purchase. This marketing program is growing aggressively with 45 new galleries currently in some stage of design or construction. In addition to the United States, our galleries are also located in the Bahamas, British Columbia and in Sweden. One recently opened store on Long Island is a prototype of a complete Broyhill store. Two more of these will open on Long Island and we have a commitment for four in another major metro market. These stores represent a progression to the next plateau, moving from the gallery instore to a concept of a complete Broyhill store. That will be our next national thrust. We are a pioneer and a leader in the furniture gallery marketing concept--a concept and technique for selling furniture which is today at the center of a dramatic furniture retailing revolution.

The Independent Dealer Program was initiated with specific consideration to the consolidation and closing of thousands of retail furniture stores and is focused directly on the remaining relatively small furniture retailers. Broyhill's Independent Dealer program offers comprehensive advertising, product and service support to selected, locally owned retail furniture stores throughout the United States. Although the Independent Dealer Program or "IDP" as we call it, is less that 18 months old, it now services 600 retail stores and is currently being expanded to additional states. We have recently been receiving a deluge of correspondence from these smaller retailers around the country telling us of their endorsement and support of our IDP program.

Reacting to our need to expand our growth opportunity, we have formed a Contract Furniture division. We created this to market Broyhill to the hotel/motel/hospitality industry as well as to resorts, condominiums, time-share, and health care markets. A national contract sales force is now in place. We have in the last few weeks received significant orders from Saudi Arabia, and a large contract for a product that will be shipped worldwide.

Further undergirding Broyhill's attempt to be market responsive is an expansion of our historical involvement in education in the workplace. In response to requirements voiced by an overwhelming number of our dealers, we've recently become involved to a greater extent in education as we've opened the Broyhill Education Center. That center is now fully enrolled for the balance of 1988 with Broyhill retailers across the nation sending their sales personnel for education in furniture skills. We currently have tuition deposits from 340 students. We also have three fully enrolled classes that are offering a curriculum for the professional store manager.

The education opportunity for our employees is also an integral part of our quality improvement program at every level of our company. Currently, we have 325 salaried managers enrolled in a 32-hour "Principles of Supervision" course. Again, we are dependent on, and very happily involved with, the community college system, which supplies instructors for this program. Additionally, we support a reading program for any employee wishing to improve his/her reading skills. This program is supported by two qualified instructors equipped with 50 personal computers. There are currently 140 employees enrolled as beginning readers who attend regularly scheduled classes while "on the clock" and receive regular hourly pay for this classroom activity. I can tell you that I do not, under any circumstance, think that the pay is the inducement or incentive. We're finding that our employees enrolled in this program are avidly interested and even if they are ill, are checking back in so they can make that class.

We are convinced of the social and financial value of our education involvement and would both endorse and recommend such an effort. Business needs to expand its role in education--education that helps us develop empathy--that will allow us to listen and learn from our friends, our family, our customers and certainly from our employees and to benefit from the powerful feedback and involvement that is necessary for our success.

During this decade we have observed a massive restructuring of the furniture industry--and of a lot of other industries. At both the manufacturing and retail level, management style, life-style and job style have all changed. This change will not go away--there will always be a need to "Meet the Challenge in Competition and Leadership."

Our businesses, our factories, our universities and our individual futures are dependent on our reaction to change. After we have armed ourselves and our business with the best of study, with optimistic attitudes and confidence and after we have listened to all the speeches, it is time to "do something"--action is necessary! Reminiscing about the "good old days," or the "way we've always done it," or suffering "paralysis by analysis" will not get the job done! Action Is Necessary!

My closing comment is to the students--it would be normal to assume a person would need a grade of all "As" to be a good manager. That's really not the case. Three "Fs" can be very desirable--firm, fair, feeling--and when a good plan "comes together," there is another "F"--fun!!