Jennifer Convertibles, Inc.

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Jennifer Convertibles, Inc.

419 Crossways Park Drive
Woodbury, New York 11797
U.S.A.
Telephone: (516) 496-1900
Fax: (516) 496-8380
Web site: http://www.jenniferfurniture.com

Public Company
Incorporated: 1976
Employees: 440
Sales: $111 million (1998)
Stock Exchanges: OTC
Ticker Symbol: JENN
NAIC: 5712

Jennifer Convertibles, Inc. is one of the fastest growing specialty retail stores in the United States. As a specialty retailer, the company’s stores focus on selling a complete line of sofabeds as well as companion pieces, including chairs, re-cliners, and loveseats, all priced to appeal to a broad range of consumers. Each of the stores has a kiosk which sells mattresses, and Jennifer Convertibles stores are well-known as the largest dealers of Sealy sofabeds across the United States. At the end of fiscal 1998, the company reported that it operated 153 stores, including 46 Jennifer Convertible stores, 32 Jennifer Leather stores, two Jennifer Living Room stores, and 73 licensed Jennifer Convertible stores. The firm’s Leather Stores concentrate on the retail sale of living room furniture made of leather, while its Living Room Stores focus on the sale of a broad range of sofabeds and furniture also marketed in the company’s other stores. The company’s headquarters are situated in Woodbury, New York, but its stores are located primarily on the Eastern seaboard, Florida, and around the Chicago metropolitan area.

Early History

Jennifer Convertibles, Inc. was founded in 1975 by three enterprising businessmen who knew they could offer a better product at a lower price. Harley Greenfield, Fred Love, and Ed Seidner were all friends who worked as manufacturing representatives for furniture companies during the early part of the 1970s. As they began to talk more and more about striking out on their own, the three men engaged in late night strategy sessions as to what market niche they could best meet. Well acquainted with all of the various furniture lines within the industry, Greenfield, Love, and Seidner finally decided to focus on the sale of sofabeds. The three men were convinced that, due to the changing demographics within large cities where many young people lived in small spaces, selling sofabeds would be easy since there was a strong desire to use such small space as efficiently as possible. Furthermore, by selling sofabeds exclusively, they hoped to take advantage of the specialty merchandising trend that was sweeping across the industry, keep start-up costs within an affordable limit, and attract manufacturers by ordering large volumes. Having decided what business to engage in, the three men then put their heads together and searched for a name. They finally agreed upon naming their business after Fred Love’s daughter, who also happened to be Harley Greenfield’s niece. Thus Jennifer Convertibles, Inc. was born.

The first item on the new owners’ agenda was to come up with a detailed and workable marketing strategy that would enable Jennifer Convertibles to compete with the large number of retail department stores and other specialty stores that carried various lines of sofabeds. Greenfield, Love, and Seidner decided to focus on the image of the company’s store as the cornerstone of a comprehensive marketing strategy. Accordingly, all stores were designed to display merchandise in model room settings, with each store similar to the next one in layout, carpeting, and use of lighting to emphasize both sofabeds and other furniture alike. The owners decided to display a wide variety of sofabeds and companion pieces of furniture and accessories such as lamps and tables and carpeting. By focusing on the image of company stores in this way, the owners hoped to distinguish themselves from their competitors in an attempt to attract a wider range of people from various socioeconomic classes, especially since their line of sofabeds sold for between $299 and $2,200.

Throughout the late 1970s and early 1980s, Jennifer Convertibles attracted far more people than the traditional retail stores and specialty stores that sold their sofabeds to niche markets. Not surprisingly, Greenfield, Love, and Seidner discovered that they were right after all, namely, that price was one of their best weapons to use against competitors. Soon the company was not only selling merchandise made by brand name manufacturers, but was also offering merchandise at its stores under the “Jennifer” brand name for sofabeds. The average sofabed cost $400, which was significantly less than any other chain retail store and specialty store price. In addition, the company implemented an aggressive and rather expensive advertising campaign during the early 1980s. The owners hired an in-house staff of advertising executives and gave them the freedom to devise a marketing campaign that would attract more customers to company stores. Within a short period of time, the in-house advertising staff had created both print and television ads that were highly successful. The print campaign during this time featured a sofabed or love-seat with the tagline, “The largest selection of $400 sofabeds,” and a prominent display of the price. Advertising in the New York Times Magazine, among other prestigious publications, gave the company a high level of visibility and resulted in a growing number of customers.

By the end of fiscal 1987, Jennifer Convertibles reported revenues of approximately $5 million. The company had grown from one retail store to 18 privately owned stores in just over ten years. Most of the stores were located in the New York metropolitan area, but plans had already been laid to expand the company’s operations up and down the East Coast. When Jennifer Convertibles finally got the necessary capital from an initial public offering of stock near the end of the fiscal year, management was ready to take advantage of the opportunity to implement its long awaited expansion program, and within a very short time the firm reported a total of 47 stores operating from Washington, D.C., to the upper reaches of New England. By the end of fiscal 1988, Jennifer Convertibles reported sales of over $15 million. Most importantly, as the first stores opened began to reap the rewards of the constant image building emphasized by the owners, the increasing number of customers helped to push sales and revenues sky high. By the end of fiscal 1989, the company reported revenues of $35 million for the year.

The 1990s

By 1990, Jennifer Convertibles was widely regarded as one of the fastest growing retail specialty stores within the United States. The company counted over 65 convertible-sofa stores located throughout the Northeast, with much publicized plans to continue its expansion strategy. But the owners, especially Harley Greenfield, recognized that the sofabed market had changed dramatically in the 15 years since Jennifer Convertibles was founded. At first, Jennifer Convertibles marketed its merchandise to a broad socioeconomic range of the population that lived primarily in high-rise apartment buildings. In fact, every time Greenfield passed by an apartment complex he used to wonder how many potential sofabed customers lived in the building. But as the cost of living in apartment buildings increased significantly during the decade of the 1980s, many younger families began relocating to the immediate suburbs or so-called bedroom communities, while many older people who were retired moved to smaller homes in the Southwest and Southeast.

Although the company maintained its commitment to market sofabeds to a broad socioeconomic range of the population living in apartments located primarily within large metropolitan areas, Greenfield came to the realization that the firm’s expansion strategy had to branch out to include both the suburban and retirement communities. With the $1.5 billion sofabed market continuing to grow at a dramatic rate, Jennifer Convertibles clearly did not want to be beaten by its competitors. Consequently, at the beginning of 1990 the company announced plans to expand into six carefully chosen markets, including Florida. Florida was specifically chosen as an expansion site due to the fact that many retirees live or own second homes in the state and, of course, have many uses for the kinds of merchandise sold by Jennifer Convertibles. At approximately the same time, management at the firm announced that it had reached an agreement to license 20 Jennifer Convertible stores in the greater Chicago metropolitan area. The agreement, concluded in 1991, was the first of its kind for the specialty retailer, and provided the company with exposure to the growing sofabed market in the Midwest.

In 1993, Jennifer Convertibles announced both to the public and company shareholders that it was embarking upon an experiment to expand the current sofabed operation. This experiment, according to Greenfield, involved opening brand new retail stores that sold regular furniture and accessories. These stores were to be divided into two retail groups, including one called Elegant Living, and the other called Jennifer Leather. Elegant Living stores would specialize in upholstered living room furniture, while Jennifer Leather would specialize in upscale leather furniture and accessories. Owned by licensees who paid a two percent royalty on sales, the first stores opened their doors for business during the same year on Long Island. Greenfield was confident that the two new types of retail stores under the Jennifer Convertibles umbrella would be lucrative, since he pointed to ample evidence that suggested the market for regular sofas was approximately four times larger than that of sofabeds, while the market for leather furniture was about equal to that of sofabeds. In addition, it was the owners hope that both the Elegant Living stores and the Jennifer Leather stores could expand across the United States.

Key Dates:

1975:: Jennifer Convertibles, Inc. opens its first retail store in New York City.
1989:: Company reports $35 million in revenues.
1990:: Company expands into Florida.
1991:: Licensee operation is initiated in Chicago metropolitan area.
1995:: The Securities and Exchange Commission announces formal inquiry into the firm.
1998:: The SEC does not recommend legal action against Jennifer Convertibles and its ownership; company reports $111 million in sales.

At the end of fiscal 1993, Jennifer Convertibles seemed to be on the edge of one of the most impressive success stories in American business. Sales continued to increase, more and more stores were added to the company’s licensee operations, and the firm’s marketing campaign indicated that even greater revenues were on the horizon. Then, suddenly, the company’s momentum came to a grinding halt. Although sales and royalties were up significantly during the autumn of 1994, the company reported a serious loss for the entirety of the year. Consequently, the firm’s stock price dropped precipitously, from $15⅞ to $3⅛ after the report was made public. After shareholder lawsuits were filed against the company, the Securities and Exchange Commission announced that it was conducting an informal inquiry into the financial records and business dealings of Jennifer Convertibles with an affiliated private business named Jara Enterprises, Inc. Jara Enterprises was also founded by Greenfield, Love, and Seidner. The company helped Jennifer Convertibles to select store sites and arrange limited partnerships for Jennifer stores that were about to be opened. Jara provided these services to Jennifer on a contractual basis and for clearly stated fees. A former member of the board of directors, Michael Colnes, accused Greenfield, Love, and Seidner of numerous examples of misconduct, including undisclosed transactions, self-dealing, and providing misleading information to the board of directors at Jennifer Convertibles. In May 1995, the Securities and Exchange Commission upgraded its inquiry from an informal investigation to a formal investigation.

Shedding the Past, Facing the Future

After years of examining the financial records of both Jennifer Convertibles and Jara Enterprises, Inc., the Securities and Exchange Commission ended its investigation in October 1998 without recommending any enforcement or legal action. As a result, all the class actions that had been brought against the company were settled in a federal district court of New York. Under the terms of the settlement, certain individuals were to receive approximately $7 million in cash and nearly $400,000 in preferred stock. Although the company continued to grow during the years of investigation and lawsuits, nonetheless, the firm’s stock price was affected by the cloud of unfavorable publicity and by the prospect of an uncertain future. Yet once the announcement was made by the Securities and Exchange Commission not to recommend legal action, Jennifer Convertibles entered upon a period of revitalization and renewal. Revenues began to slowly increase, and management’s strategy of expanding the number of Jennifer stores into new geographical locations progressed gradually but smoothly.

With its legal problems over, and the accompanying publicity no longer at the forefront of management’s concern, Jennifer Convertibles was beginning to recover the momentum it had created during the early 1990s. The company had made a concerted effort to renew its expansion strategy into both Florida and the Midwest, especially around the Chicago metropolitan area. Harley J. Greenfield, still CEO, was confident that the company had weathered its worst storm, and that Jennifer Convertibles would now enhance its image as one of the largest retailers of sofabeds in the United States.