Industrie Natuzzi S.p.A.

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Industrie Natuzzi S.p.A.

Via lazzitiello, 47
70029 Santeramo in Colle (Bari)
Italy
(39) 80 8820111
Fax:(39) 80 837637

Public Company
Founded: 1956
Employees: 2,631
Sales: L839.3 billion (US$529.7 million) (1995)
Stock Exchanges: New York
SICs: 2512 Upholstered Frames; 6719 Holding Companies, Not Elsewhere Classified; 6722 Management Investment

With an estimated two percent of the global market for leather furniture, Industrie Natuzzi S.p.A. is a trend-setter in this highly-fragmented industry. Noting the fragmentation of the industry, the company calls itself “the only truly global furniture manufacturer.” Although it is headquartered in a small southern Italian town in an area better known as an agricultural center, only seven percent of its sales are generated in its homeland. The remainder comes from exports, with its largest markets in the United States, Europe, and Asia. The vertically-integrated company boasts more than a dozen Italian plants and was poised to open its first American production facility in the late 1990s. It was also one of Italy’s largest non-governmental employers.

Post-World War II Origins

The origins of the company can be traced to post-World War II Italy, where young Pasquale Natuzzi, son of a cabinetmaker, began an apprenticeship with a local furniture maker. Natuzzi designed and assembled his first solo project in 1956 at the age of 16, and was manufacturing competitively-priced, fabric-upholstered furniture on his own by the end of the decade. It was in these early years that Natuzzi nurtured a strong work ethic, learned the principles of furniture design, and gained an appreciation for quality craftsmanship.

In 1962, the young entrepreneur moved his 12-employee factory from Taranto, Italy, to his hometown of Matera, where he was soon manufacturing more than 2,500 furniture groups per year. He doubled production over the next year, adding 38 workers to the roster in the process. Tragedy brought a brief but significant halt to the growing business’s progress, when the factory was destroyed by fire in August of 1973. In a company history, Pasquale Natuzzi cited this event as a catalyst for change; he not only rebuilt the facility by the year’s end, but also began to seek out new lines of business.

He soon settled on diversification into leather-upholstered furniture, which commanded much higher profit margins. As he would later reflect in an interview with Forbes magazine’s Peter Fuhrman, “[The price difference] had nothing to do with the cost of leather, which was only slightly higher than good fabrics. But there was this idea that a leather sofa was something that could only be sold in small volumes for high prices.”

Natuzzi turned that equation on its ear, electing to trim fat margins and make up for the loss with high volume. Focusing especially on contemporary-styled sofas, Natuzzi brought leather to an unprecedentedly wide market by offering comparable quality at an incomparable price. He took this marketing concept throughout Europe and across the Atlantic to Canada by the end of the decade. By the early 1980s, Natuzzi had accumulated annual sales of about $10 million.

Laying the Foundation for Success

Several key factors contributed to the steady, profitable growth of Natuzzi. Dividend reinvestment was a core value, as Natuzzi explained in a 1989 interview with HFD’s Christie Adams: “We reinvest all of our profits in the company to create new facilities, to purchase new equipment, to make product better, and to make the work of our employees easier.” Adams asserted that “the backbone of the Natuzzi Group is design.” In 1989, the company was investing more than U.S.$2 million annually in design, engineering, and prototyping. The company carried out these designs with an exacting regard for detail. In the process, Natuzzi grew so successful that suppliers started setting up production near the corporate headquarters. Natuzzi’s quest for quality control led inexorably to the acquisition of these upline suppliers, including tanneries, foam block factories, and cushion plants. By the mid-1990s, Natuzzi managed the production of roughly 93 percent of the raw materials it needed. As the company grew to international magnitude, Natuzzi used his buying power to demand “the absolute lowest price possible” from his remaining suppliers.

Employee welfare, efficiency, and customer service have been the cornerstones of Natuzzi’s success. Employee welfare has been a high priority for Pasquale Natuzzi, who often referred to them not as employees but as “collaboratori,” or co-workers. Due to the natural variability of leather hides, manual labor consumed three-fourths of the value of a Natuzzi piece. The CEO told Adams that “since we make our product by hand, and the attitude of our workers has impact on the finished product, we work very hard to keep their motivation high.”

Improving conditions for his “co-workers,” combined with the CEO’s desire for cost controls, drove the company’s steady improvements in manufacturing automation. The company married old-world craftsmanship and attention to detail to cutting-edge technology. Computers increased the company’s efficiency; Natuzzi’s more than one dozen factories were networked to coordinate production of the hundreds of models in more than 150 colors and two dozen grades of leather. There were computers on every desk, and even sales representatives used laptop computers to illustrate styles and trends to buyers instead of schlepping heavy catalogues from store to store. In addition Natuzzi used a “just-in-time” operating schedule since before there was a name for this highly-efficient (and widely emulated) production schedule.

Natuzzi’s attention to customer service has been another vital factor in its success. At the heart of the company’s popularity with retailers were its low wholesale prices, which resulted in high inventory turnover and subsequently “higher payback per square foot.” Natuzzi carefully scrutinized currency markets and bought futures in order to insulate his company from the damaging effects of global currency fluctuations. His discretion in this area kept prices to retailers and the end customer stable, further cementing Natuzzi’s client relationships. The company was also renowned for its timely deliveries. These business strategies would become ever more critical as the company moved into overseas markets, especially the United States. But together, Natuzzi’s qualities formed a compelling package to furniture retailers in Europe and around the world. A top executive with America’s Levitz chain praised Natuzzi’s prescience in a 1989 HFD article: “Natuzzi is definitely a step ahead all the time in price, styling, and quality.”

Natuzzi Leads “Italian Invasion” of U.S. Furniture Market in 1980s

Like a modern-day Christopher Columbus, the Italian furniture maker discovered America’s largely untapped leather sofa market on a trip to New York in 1982. Even accounting for import duties and overseas shipping, Natuzzi found that he could undercut U.S. wholesaler’s prices by more than 50 percent. His competitively-priced bids won accounts large and small, from major national department stores like Macy’s, Bloomingdale’s, and Dillard’s, to specialty furniture retailers and so-called “promotional powerhouses” like Seaman’s and Levitz. HFD characterized the concept as “Class Meets Mass” in a 1988 piece.

But price and service were not the only things that drew clients to Natuzzi; with his clean shaven head and chic silk and leather duds, the Italian furniture magnate had an undeniable charisma. An awestruck employee called him “the heart, the engine [of] Natuzzi” in a 1992 HFD profile. In spite of his broken English, Natuzzi was able to express his enthusiasm for the business to potential clients and the American business press. Forbes’ Peter Fuhrman described him as a “sober and disciplined businessman” who looked like “Mr. Clean in a Versace outfit” in a 1994 profile.

Natuzzi was hailed as “one of the most outstanding success stories of the Italian invasion” by HFD’s Liz Seymour in 1987. By the end of the decade, Natuzzi alone was supplying one-fifth of the leather furniture sold in the United States and that single market generated more than 80 percent of the company’s annual revenues. Natuzzi spearheaded the “invasion,” which saw Italian furniture grow to encompass more than 10 percent of all furniture imported to America. A 1988 company profile in HFD credited Pasquale Natuzzi with making leather “one of the hottest furniture categories for volume furniture retailers in the United States. [He] has breathed new life into the upholstered business as a whole.” From 1980 to 1985, the company’s sales increased more than six fold, from L6 billion to L45 billion (over U.S.$30 million) on production of about 1,700 seating units per day.

IPO, Global Strategy Mark Early 1990s

In the early 1990s, Natuzzi added three new strategies to his core formula. In order to garner more of the U.S. furniture market, he concentrated on adding new markets across the country and consuming more display area in existing venues by expanding his company’s product offerings. From its bulkhead in North Carolina, the company sought clients in the Midwest and on the West Coast, adding a California office.

Company Perspectives:

The Natuzzi Group designs, manufactures, and sells upholstered furniture around the world. For several years it has been Italy’s largest furniture manufacturer and the global leader in leather upholstered furniture sales with the top market shares in North America and Europe. The holding company, Industrie Natuzzi S.p.A., was listed on the New York Stock Exchange on May 13, 1993. The Group operates 19 factories producing upholstered furniture and controlling over 92 percent of the Group’s raw materials.

Natuzzi expanded its leather furniture offerings from the core sofas to include “motion” models like sleep sofas, rockers, swivel occasional chairs, and recliners. The CEO also reached back into his company’s history, revisiting the market for fabric-upholstered furniture he had abandoned in the late 1970s. Noting that the market for sofas upholstered with cloth was four times larger than the leather market, he hailed it as “the best opportunity to grow.” In order “to fill the historical gap in the craftsmanship sphere,” Natuzzi acquired a controlling interest in Spagnesi, a manufacturer of “traditional European upholstered furniture with exposed wood frames” with sales of U.S.$29 million based in Tuscany. The company also added a line of slipcovered furniture in 1996.

Having achieved virtually complete vertical integration of production, Natuzzi turned downstream, to retailing, for increased profit retention. In 1990 he launched the Divani & Divani chain of franchised furniture stores. Within five years, the company boasted 73 stores in Italy, Portugal, and Venezuela. Natuzzi launched a second chain under the NOVUM name in 1996, hoping eventually to have 120 of these specialty shops. The CEO also sought to expand his geographic reach to Asia, especially Japan but also Taiwan, Singapore, the Philippines and Korea, as well as Australia, Mexico, and Canada.

Pasquale Natuzzi took his company public in May 1993 on the New York Stock Exchange, selling about $77 million worth of his own stake. He continued to hold about 49 percent of the company’s equity in 1994, while daughters Anna, a manager of product development, and Nunzia, a personnel manager, owned a combined six percent. Industrie Natuzzi shares, which started at $15, had reached $27 by August 1994 and were projected by Allan Raphael and Arthur Lerner of First Eagle International Fund to reach $60 by 1996, according to an August 1994 Business Week brief.

In April of 1994, Natuzzi told HFD’s Alessandra Ilari that “Our mission is to grow and offer new employment.” In 1992, he unveiled plans to bring that ideal to the United States with construction of a plant in Texas. This would put the company close to both cattle producers and American furniture retailers, thereby reducing freight and duty charges as well as shorten delivery time to what had become Natuzzi’s biggest market. In 1994, the furniture maker fulfilled a long-held dream with the launch of “Natuzzi 2000,” a six-year building program budgeted at half a billion U.S. dollars. The plan was to consolidate 20 production centers as well as distribution in four buildings at one location. When finished, Natuzzi expected to expand domestic employment by three times.

Natuzzi’s ongoing performance did not suffer under the weight of these capital requirements, however. In spite of flat upholstery marketing in the mid-1990s, sales nearly doubled from L465.7 billion in 1993 to L839 billion (U.S.$529.7 million) in 1995, while net income increased from L63.4 billion to L95.9 billion (U.S.$60.5 million). As the company sailed into the waning years of the 20th century, there was every indication that this excellent record of profitable growth would continue.