Letter from Hancock and Moore's Founder

Thought I would share this letter I received in the mail today from Jack Glasheen, who founded H&M together with Jimmy Moore. (dollar amount of sales has been edited).

Jack is the hardest-working, smartest and most courteous man in the furniture industry today. He has built a fantastic business based on doing things the right way, with honor and commitment, and resisted the charge into China with all the other manufacturers in the 90's. He has kept his companies in America, never compromised on quality to make a dollar, and could have retired long ago retired if he wanted to. I try to run my business the way Jack runs the Hancock and Moore companies, and appreciate his acknowledgment that I'm on the right path.

Duane,

With a 52% growth in you primary line and no overhead increases what happened to almost close you up? Did margins disappear? What am I missing?

If I had know the difficulty you were facing I certainly would have placed an order with you last summer. Please do not go to the length of putting your resume out to Bloomies without letting your customers know about the situation. For sure there are others who would have adjusted their purchasing decisions to support you.

Larry

It was margins. Though I had a 101% increase in my H&M business for 2008, and a 52% increase in sales volume above that in 2009, I had been basically providing employment for companies such as Hancock and Moore, but there was none left for The Keeping Room as I was selling too low in price.

It's impossible to survive in Fairfax County VA in a brick and mortar business if I try to price match with some of the lowest price people in the country who have their operations out in rural areas. Rent, Taxes, Insurance, Vehicles, Credit Card fees and operating costs are significant in a Washington DC area business. This forum costs about $ 1,000 a year to operate as well and yet I don't try to bloat it up with ad revenue or charge to use it.

An an example, if a sofa and chair wholesale for $ 3,000, fixed costs equate to 15% of the gross in my store or $ $ 450. That leaves no profit at that, just covering costs. There are rural dealers out there that will sell that group for $ 3,500 or $ 3,600. I can't match that, as it leaves only $ 50 to $ 150 profit for me - and everyone here knows you cannot raise your family and pay for gas, house mortgages etc, at that rate. How do they do it for $ 500 / $ 600 over cost on a $ 3,000 sale? I don't really know. Maybe they have no rent payments, the taxes/insurance we have in Fairfax County, or that dealers home is paid off and kids are out of college.

In the 1990's everyone in the furniture business earned a decent living. Since 2001 however, its been very lean. Too much heavy discounting, and too many customers that don't want to pay for quality goods (the move to China for furniture). That's why we've seen hundreds of furniture stores failing nationwide, and manufacturers as well. They can't make margin to support their families. We have almost lost our American furniture industry in this country, but it seems to still be on life support for now and I think it will get better if the trend continues to NOT buy Chinese furniture and also to support small businesses.

I understand in today's age that everyone internet shops and compares prices to get their best deal. Certainly nothing wrong with that, its smart shopping. Everyone has the right to buy from whomever they like, and that's a good thing. My wife tells me that I have a tendency to spend too much time with customers both before and after the sale to try to make sure things are right, and that cuts into time spent pursuing new sales leads. I had to make a decision to survive by not trying to be the absolute lowest price on what I sell. Service, Honesty, Knowledge of the Product and treating customers with the respect they deserve has to be worth something, I figure, as well as providing tools such as this forum. I always find it interesting that folks will tend to shop for the cheapest store to sell them a product - but they wouldn't dream of hiring the cheapest lawyer, doctor, or even a plumber. They want someone to do the job right for them, as it applies to their needs at a reasonable price. Why is it different in retail?

Its great to get letters from suppliers like H&M telling me I'm doing a great job! I love the business I'm in and my customers are terrific. I'll continue to offer the very best pricing I can do and still stay viable, and as always, customer service is Job 1.

Duane,

I have seen some manufacturers trying to keep the brick and mortar retailers alive and still service the growth from the internet by differentiating the product available to each business type. Has H&M considered this? They could limit certain fabrics or leathers or models to non b&m customers, thereby providing a competitive environment that extends beyond price. If a the b&m stores fail then the manufacturers ultimately will also suffer since the b&m stores provide a showroom for the manufacturers merchandise that the internet can not provide. How often on this forum do we see posts asking all those questions that can really only be answered by visiting a local b&m store. I believe companies like H&M and the other quality suppliers you represent should come to this realization and find ways that will help guarantee your survival and prosperity. Ultimately their success is tied to yours'.

An internet-only store cannot get a dealership, they all have to have a showroom to some extent or they cannot have a dealership.

Its extremely difficult to manage dealer pricing. Legally, they have to allow every dealer to buy at the same price that can meet a certain criteria, and that's fair. And the manufacturer is in the business of making product, not spending half his day on the phone listening to dealers squabble about prices. And we dealers do! As soon as a dealer loses a sale to a competitor, he/she is on the phone complaining about being undersold. So they take a hands-off approach, because its really hard to draw the line.

In 2007, the US Supreme Court said it was legal for a manufacturer to set a minimum selling price to control a brand.:

http://www.supremecourtus.gov/opinions/06pdf/06-480.pdf

They can't tell a dealer what to sell it for, but they can mandate a number they cannot go under. The problem then becomes enforcement. Dealers can also get around that by offering free shipping or no sales taxes, or long payment terms - in effect its difficult to tell who is playing by the rules - or not.

Some stores have a niche that earns them a tidy profit. Greenfront , for example, is a powerhouse in the industry. They make their money by being a direct importer of oriental rugs and get them dirt cheap overeseas. It allows them to sell furniture aggressively in order to get folks in to buy a rug. Thats their hook.

Other stores have the buying power to take large lots and absorb them, such as an entire High Point Showroom from a vendor that will be sold to them after Market at 30 % off regular wholesale. That gives them a LOT of nice, high-quailty floor stock for cheap prices.

All these companies don't like the internet sellers but don't know how to stop them. They know that having brick and mortar stores is critical to show their product, and they also know that retail customers use the facilities of the local store to select and choose, then go hunting for the lowest price. About the only way to stop that is to do what Councill does and refuse to drop ship anything - it all must go to the store first. Re-shipping would then make it cost prohibitive to do internet sales for the most part. But even then, stores can re-direct the load once the truck line has it, so even that is not foolproof.

The wallpaper business was one that failed totally due to failure to contain discounters. This was back in the days before the internet, when discounters ran "Call 1-800" ads in the back of the decor magazines, telling people to shop locally, then call for discounts. In those days a store had to purchase a wallpaper book, each one costing about $ 60. Customers would check them out, take them home, right the pattern number down and call the 800 numbers to order. The wallpaper companies had volume discounts in place where small stores paid the wholesale price off the list, but BIG operations that could move volume got wholesale less 20 %. The small store could not compete on price. Then what happened? The small stores stopped buying the books at $ 60 each (at one time in the 80's I had 200 wallpaper books in service, a $ 12,000 investment). Why should we buy the books when the orders go to someone else? Pretty soon there was no distribution on wallpaper books and customers could not see the patterns. And that drove all the wallpaper companies bankrupt. Even today, you won't see much distribution on wallpaper - small stores remember throwing $ 12K worth of books in the dumpster!

Its expensive to operate a brick and mortar business. In cities, even moreso. The taxes I pay for my BPOL license (Business Occupancy License) to the county every year, as well as the taxes on my truck and all office equipment don't exist out in the small counties of Maryland or North Carolina. My property taxes are probably 4x what they pay as well. it puts stores that set up in population areas at a marked disadvantage as not only our operating costs higher, but personal cost of living is as well. If I were smart, I'd move 150 miles south and set up in the country - but them my kids wouldn't be in top quality schools.

You might remember Steve Oster from Oster Furniture in IL? He was very active at Garden Web and one of the first members here on this forum. I really liked Steve, but he had to close his store - just couldn't make a living at it any longer. Its a tough business to be competitive AND economically healthy.

There's an outdoor power store not too far from my shop, called Belmont Power Equipment in Newington VA. I buy all my lawn and garden equipment from them, even though I know I could find it for less on the internet. Why? Because they take the time to show me the differences in one blower vs. the other, and will always take a quick look at a stubborn-starting piece for me if I bring it in to them. They give me knowledge (theirs) and service, so I don't mind paying a bit more if need be. Its worth it and I'm supporting my local small business (which also pays in to the local infrastructure via their business taxes).

In the end, most folks wants a fair price with good, honest, reliable service, rather then the absolute best price with little or no attention to personal service. At least that my assessment, but I could be mistaken.