ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, October 5, 1996 TAG: 9610070010
SECTION: BUSINESS PAGE: A-4 EDITION: METRO
DATELINE: RICHMOND
SOURCE: JAN CIENSKI ASSOCIATED PRESS
HEILIG-MEYERS has quietly built a furniture empire in small-town America. But overzealous credit offers are starting to strain its bottom line.
Heilig-Meyers became the country's largest furniture retailer by thinking small - growing in small towns their competitors shun.
``It really isn't a common strategy,'' said Cody McGarraugh, an analyst for securities broker Scott & Stringfellow. ``A lot of people call them the Wal-Mart of furniture retailing.''
That approach, combined with an aggressive strategy of buying up other stores and chains, has made Richmond-based Heilig-Meyers America's top furniture seller, according to Furniture Today, an industry publication.
``Most of the growth retailers are focusing on mid- to large markets where they can have much larger stores and volumes. But everyone else is doing that while Heilig-Meyers' competition is mom-and-pop stores,'' said McGarraugh.
The chain was founded in 1913 in Goldsboro, N.C., by two Lithuanian immigrants. By 1984, the company opened its 100th store. Now, 12 years later, Heilig-Meyers has 904 stores and projected annual sales of more than $2 billion.
``We sell to blue-collar, middle-class America,'' said William C. DeRusha, the chain's chairman and CEO. ``Our prime emphasis has been on small and middle-sized towns.''
Heilig-Meyers usually targets towns with fewer than 50,000 people.
``Heilig-Meyers goes in, and the first thing they do is offer to buy out the mom-and-pop stores,'' said McGarraugh. ``It gets them a way to go out with dignity rather than be forced to out of business by the big boy.''
Using its large size, the chain gets good deals on furniture. But most of its business comes from selling on credit.
Barry Brockwell, the chain's manager of investor relations, said that about 85 percent of Heilig-Meyers' business is done on credit sales. The chain has an in-house credit operation and $1.2 billion in receivables.
Local retailers vary in their estimation of Heilig-Meyers' tactics.
``They're no different than any other new retailer,'' said Pat Smith, one of the owners of A.J. Smith & Son Furniture in Pulaski.
Heilig-Meyers grew so fast because it makes loans to people with bad credit histories, she said. ``They'll let some people to carry credit whose rating is not that good,'' she said. ``We just don't allow that.''
Bowie Clift, manager of Furniture City in Christiansburg, said his store has been able to carve out its own niche and isn't bothered by the three nearby Heilig-Meyers stores.
``We're not trying to sell ourselves as the cheapest but as the best value,'' he said.
Schewel Furniture Co. Inc. of Lynchburg, which competes with Heilig-Meyers in many Virginia and North Carolina locations, tries to attract the same moderate-income customer that shops at the Richmond chain, said chairman Marc Schewel.
While 39-store Schewel is much smaller than Heilig-Meyers - and is privately owned - the two share some tactics, he said. Like Heilig-Meyers, Schewel offers in-store financing. And it has been growing by buying up independent stores that are hitting the market as their owners retire.
It's actually becoming easier for Schewel to compete with Heilig-Meyers as the larger company expands, Schewel said.
"The bigger you get, sometimes you lose contact at the local level," he said. Selling furniture isn't like selling toothpaste, where all customers really care about is price, he said. Furniture stores must offer customer service and well-trained salespeople, in addition to good prices.
There's no reason a small, well-run company can't do that just as well as a larger one, he said.
From its early days in North Carolina and Virginia, Heilig-Meyers has expanded to cover much of the Southeast. In 1994, it bought 92 stores from a California chain, McMahan's Furniture Co., and established its beachhead on the Pacific. A year later it bought a 17-store chain in Puerto Rico.
In early September, it bought Spokane, Wash.-based Self Service Furniture, which has 24 stores Washington, Idaho, Montana, Oregon and California. Most of those purchases fit Heilig-Meyers' traditional market strategy.
On Sept. 17, however, the chain announced it will buy the 106-store Rhodes Inc., an Atlanta retailer that has focused on larger cities and a more up-market clientele.
Heilig-Meyers plans to use the Rhodes stores to crack big-city markets. The stores will keep the Rhodes name and their managers.
As Heilig-Meyers has expanded, its profits haven't always kept pace. Soaring bad debt from credit card customers and sluggish demand for furniture and appliances squeezed last year's earnings, Brockwell said.
``We overspent in advertising trying to sell our way out of a slow environment,'' said Brockwell. ``We stopped all that. The focus now is on margins and the credit book. Earnings should be ahead of last year, but pretax profits won't make it back to historical norms.''
Earnings before taxes for fiscal 1996 were $64.5 million, down from $105.9 million in 1995.
But Heilig-Meyers expects to open about 80 stores this year, mostly in Texas, Oklahoma and Louisiana. By the turn of the century, the company expects to have 1,500 to 2,000 stores.
Staff writer Megan Schnabel contributed to this story.
LENGTH: Long : 101 lines ILLUSTRATION: PHOTO: 1. AP. Heilig-Meyers Chairman and CEO William C. DeRushaby CNBsays his company has been successful because it targets markets
other companies ignore. 2. CINDY PINKSTON/Staff The Heilig-Meyers
store on Williamson Road in Roanoke is one of 904 nationwide.
color.