Less than three years ago, I was part of a consulting team that participated in a strategic planning retreat for Art Van Furniture’s senior management. At the time (mid 2017), the company was riding high: it was immensely profitable, growing fast, entering new markets and looked poised to double its growth and cement its standing as a regional powerhouse in the furniture industry. Last week, the company announced it is closing its doors forever. It is now in the process of a full liquidation and becoming yet another footnote and cautionary tale for the retail industry.
So, what happened? While I hate to use the perfect storm analogy, a combination of poor decision making and bad timing took a once powerful company down.
- Private Equity Ownership. Art Van was purchased by Thomas H. Lee Partners LP in 2017 for an estimated $550 million from the company’s founder Art Van Elslander. TH Lee saw opportunity to consolidate what has always been an historically fragmented industry. They also used a couple of widely copied pieces of the private equity playbook, including using debt to finance the transaction. Sale-leasebacks of the properties were used to fund the purchase price to the selling shareholders but did lead to higher rental rates on leased properties.
- Management team turnover. It is always difficult to transition from a family owned business, but there was also significant turnover in the executive ranks by failing to secure the team (much of it non-family) that had achieved the prior success.
- Rapid Growth Organically and Through Acquisition. The company then proceeded to grow quickly, as it tried to enter the Chicago market, grow its Pure Sleep mattress store brand and make bolt-on acquisitions of Levin Furniture in Pittsburgh and Wolf Furniture in Altoona, PA. Again, all likely strategically correct plays but poor sequencing and implementation of the plans above. My broken record of “too fast” growth (see Earth Fare, Lucky’s, etc.) spurred by outsized private equity expectations feels like a broken record.
- E-commerce. Sure, let’s blame Amazon. Or, in this case, more specifically, the money sucking Wayfair business. In 2017, e-commerce was a relatively small factor in the furniture business. Today, it is roughly 20% of the market. Art Van tried, unsuccessfully, to quickly ramp up its e-commerce business. No doubt that e-commerce had an impact on the core brick and mortar business, but it cannot be the sole cause of blame.
- Tariffs. For good measure, the furniture industry was also caught up in the U.S./China trade war. China was the top furniture exporter to the U.S. and initial tariffs of 10% were raised to 25% in May of 2019 after trade talks stalled. This undoubtedly had an impact on margins.
In total, both internal missteps and external factors took a once great company to the brink in an incredibly short period of time. Fellow Forbes contributor Steve Dennis likes to say, “Physical retail isn’t dead. Boring retail is”. In this case, Art Van didn’t deserve to die. Hopefully, we can learn lessons from another sad retail tale.