Roberds Inc.

views updated

Roberds Inc.

1100 East Central Avenue
Dayton, Ohio 45449–1888
U.S.A.
(513) 859-5127
Fax: (513) 859-8125

Public Company
Incorporated: 1971
Employees: 1,700
Sales: $342.1 million (1996)
Stock Exchanges: NASDAQ
SICs: 5712 Furniture Stores; 5719 Miscellaneous Home Furnishings Stores; 5731 Radio, Television & Electronics Stores; 5722 Household Appliance Stores; 5713 Floor Covering Stores; 6141 Personal Credit Institutions

Characterized as “one of the most successful retailers of appliances in the Dayton area” by the Dayton Daily News, Roberds Inc. has used innovative merchandising to carve out profitable niches in its chosen markets. It is ranked among the nation’s top 25 furniture sellers. Although it had six stores near its suburban Dayton headquarters, most of the company’s stores were located in the Atlanta, Georgia area. Another eight units covered the region of Tampa, Florida.

Following its initial public offering in 1993, the chain adopted a new “megastore” merchandising concept known as Roberds Grand. It used this new model to break into the Cincinnati, Ohio market in 1996 and planned another opening in Columbus, Ohio for 1997. Roberds faced stiff competition from a number of national and local retail powerhouses in the mid-1990s, and its declining stock price reflected these uncertain market conditions. After established sales and earnings records in 1995, the company suffered a net loss in 1996.

Rescued from Bankruptcy in 1971

The Roberds story might have ended in bankruptcy in 1971 were it not for Kenneth Fletcher. Born and raised in Depressionera Texas, where he picked cotton and pumped gas to help support his family, Fletcher’s biography reads like “a classic rags to riches tale,” in the words of Terrence Johnson of the Dayton Daily News. Fletcher worked his way through East Texas State University. Upon his graduation in 1955, he got into the retail appliance business by selling Frigidaire refrigerators. A quick succession of promotions brought him to Dayton.

Fletcher quit Frigidaire at the age of 39 to form a partnership with local realtor Donald C. Wright and two minor investors, Howard Smith and Howard Robbins. Although Wright and Smith would go on to play hands-on roles as executives and directors of Roberds (Robbins eventually divested his stake), it was Fletcher who assumed the leading role. Together, they acquired the bankrupt Roberds furniture chain in West Carrollton, Ohio (a southwest suburb of Dayton) and set out to make it profitable. As president of the firm, Fletcher put in 12- to 14-hour days. His hard work paid off almost immediately; the store’s sales jumped from $1 million in 1971 to $8.5 million in 1976.

Fletcher has been characterized as an aggressive, fearless, and hard-nosed businessman, but he is also modest. In a 1988 article for the Dayton Daily News, reporter Terrence L. Johnson quoted the retailer as saying, “You don’t have to be overly intelligent. You have to put out effort in business.” He would later attribute the chain’s growth to nothing more complicated than “good deals” and “good service,” but there was more to the formula than that.

The Roberds strategy was to offer a broad array of brand-name merchandise in a relatively large-format store. The company used consumer electronics (known as “brown goods” in industry parlance) and major appliances (known as “white goods”) as something of a “loss leader.” Low margin goods like ranges, dishwashers, washers and dryers, televisions, and stereos helped increase store traffic and generate economies of scale. But the real profits came from furniture and bedding, which generated about 50 percent of sales and more than 60 percent of operating income. Roberds’s 60,000-square-foot store encouraged customers to browse through all of these products. 361

Brief Diversification in the 1980s

Fletcher attempted to apply his turnaround strategy to a local apparel retailer, Metropolitan Clothing Co., in 1982. The partnership with former Elder-Beerman executive Richard Karp, however, was short-lived. Even injections of $750,000 cash from Fletcher and $3 million in bank loans could not turn the enterprise around. It lost money nearly every year it was under the Roberds umbrella and was liquidated in 1985.

Geographic Expansion in the Mid-1980s

Having established its second furniture/appliance store in Norcross, Georgia, outside Atlanta, in 1979, Roberds embarked on a period of intense growth in the mid-1980s. The company launched a Piqua, Ohio location in 1983 and established its second and third Georgia stores in 1984 and 1985. Roberds also penetrated the Tampa, Florida market in 1985 with the acquisition of Alpert’s Furniture Store from General Cinema Co. The following year saw the addition of two more Florida stores via acquisition. Roberds built stores in Georgia in 1987 and 1989 and entered Indiana with a unit in Richmond in the intervening year. After adding three stores in 1990—one in Georgia and two in Florida—the company took a three-year hiatus from expansion. Sales had increased from less than $10 million in 1976 to $162.5 million in 1990. Net income neared $3 million.

At first glance, the chain’s pattern of growth appears rather haphazard, jumping from Ohio, to Georgia, then Florida, and back again. But further examination reveals a pattern: through the mid-1990s, all Roberds stores were located along Interstate 75 within a 75-mile radius of a city having a population of more than one million. Roberds’s suburban locations were key to its strategy. Overhead and competition was generally lower in these areas, yet their placement near major highways made them easily accessible to customers as well as delivery trucks.

IPO, New Strategy Mark the 1990s

Roberds underwent something of a retrenchment in the early 1990s. It did not open any new outlets in 1991 and 1992, instead concentrating on increasing same-store sales and net income in the face of recession and intensifying competition. Rivals included national chains like Loew’s Companies, Circuit City, and Best Buy Co., Inc., as well as regional opponents like Columbus’s Sun Television and Appliances and REX Stores Corp. Despite its comparatively small size, Roberds felt it had an important advantage over its competitors; while they all concentrated on appliances and electronics, Roberds could afford to shave its profit margins on these brown and white goods and make up the difference via furniture and bedding sales. In fact, Roberds’s sales increased by nearly 18 percent from 1990 to 1992, and net income more than doubled from $3 million to $7.4 million.

The company joined a veritable stampede of privately held firms to the public markets with an initial offering (IPO) of 2.7 million shares at $13 each (about a 46 percent stake) in November 1993. After expenses, the IPO raised about $30 million, which was applied to a chainwide renovation and expansion. Selling space was reorganized from brand-oriented “galleries” into product showcases by dismantling walls and partitions in favor of an “open store” format. This new display strategy featured groupings by type, for example, dining room sets or bedroom suites, as well as by function. For example, a home office grouping would combine a desk, office chair, and storage units with a multimedia computer package. A home theater grouping might showcase a big screen television, VCR, and stereo with a storage cabinet, sofa, recliner, and occasional tables. Roberds could then offer package deals including all components of the grouping or sell the individual pieces.

Proceeds of the IPO also enabled Roberds to resume expansion. The company added one store in Florida in 1993, three in Georgia in 1994, and four more (one each in Ohio and Florida and two more in Georgia) in 1995. But even before this growth spurt ended, the company had developed a new expansion strategy, one that would allow it to, as CEO Fletcher told the press, “leapfrog the competition.”

Company Perspectives:

“Roberds is a leading home furnishings retailer specializing in furniture, bedding, major appliances and consumer electronics products. Growing steadily from one store beginning in 1971, Roberds at December 31, 1995, operated 23 stores in Dayton, Ohio, Atlanta, Georgia, and Tampa, Florida. This growth has been sustained by our approach to satisfying customers: we combine high quality merchandise with outstanding customer service and guaranteed lowest prices. Our plans for the future involve continuing to set ourselves apart from our competition through strategic merchandising, pricing, and customer service. Our stores are spacious, modern facilities designed to create an open, pleasant shopping environment for our customers. We are known for our broad selection of name brands and our distinctive product mix. Our well trained professionals sales team provides friendly, knowledgeable service to our customers. We offer in-home delivery seven days a week with next-day delivery on big screen televisions, refrigerators, and bedding. Roberds’s 1,700 employees share in our ongoing commitment to the customer and our mission to be the dominant home furnishings retailer in each of our markets and product categories.”

Roberds adopted the “megastore” model in the mid-1990s, using it to establish a foothold in the Cincinnati market in 1996. Dubbed “Roberds Grand,” the near-six-acre store was located in Springdale, a northwest suburb of the Ohio River city, and cost $10 million. Local ads noted that it was “bigger than a breadbox/bigger than Riverfront Stadium/bigger than Union Terminal.” James McConville upped the ante by calling it a “gigastore” in his 1995 coverage for the trade journal HFD. Patterned after a Las Vegas casino, the behemoth featured a canopied circle drive out front, scads of red carpeting, and classically styled statuary and columns. Roberds reasoned that it could use one mammoth outlet to effect a strong presence, generate consumer excitement, broaden its price points at the high and low ends, economize on overhead, penetrate new markets, and do all this at a more rapid pace than it could with its traditional multistore expansion strategy. The company had plans to open a second “gigastore” in another new market, Columbus, in 1997. In 1996, Roberds launched a new, 480,000-square-foot warehouse east of Dayton to serve its three key Ohio markets.

In the wake of this rapid expansion, Roberds’s sales increased by more than 55 percent, from $191.7 million in 1992 to $301.3 million in 1995, but its net income increased by only 7.5 percent, from $7.4 million to $8 million during the same period. The chain slid into the red in 1996, recording losses in the first half of the year. An $885,000 profit in the third quarter amounted to less than half of the previous year’s net for the period and was not enough to offset the first half’s shortfall.

The company blamed its 1996 losses on heavy competition, lackluster consumer spending, an unseasonably mild summer, and even the Olympics, but other factors also played a role. In June 1996, Roberds paid an undisclosed amount to settle a wrongful termination suit brought by an employee that also charged that his wife had been sexually harassed by another employee of the company. In the fourth quarter of that year, Roberds set aside $2.6 million to cover a workers’ compensation judgment against it. Although the company was appealing its case to the Ohio Supreme Court early in 1997, that contingency fund contributed to its $830,760 loss in the fourth quarter of 1996. Roberds ended 1996 with a $910,000 net loss on sales of $342.1 million.

Not surprisingly, Roberds’s stock price faltered in the wake of its poor showing, declining from an issued price of $13 in 1993 to just $7 in early 1997. The decline triggered yet another lawsuit. In December 1996, Roberds agreed to pay $1.6 million to settle a shareholder suit first brought in 1994 and elevated to class action status in October 1996. Shareholders who had charged that Roberds’s forward-looking projections were deceptively rosy found that subsequent company reports laid out a litany of unforeseen events that could influence actual performance, including everything from “general economic conditions” to “Acts of God.”

CEO Fletcher, who at more than 65 years of age continued to own about one-fourth of Roberds into 1997, must have hoped that his megastores would bring his company megaprofits in the waning years of the 1990s. Given his reputation as a tenacious competitor, he was not likely to retire until the chain had returned to healthy profitability.