had stuck it out through thick and thin, reluctant to leave the only livelihood their families had known for generations. Making matters worse, both sales and profits were cyclical and tied to broad economic factors such as new home starts and sales of existing homes.
Management in the industry was generally regarded as unsophisticated, and hadn’t made many significant changes in the previous fifty years. Wesley Collins, a furniture executive and trenchant observer of industry conditions, summed it up dramatically:
When everything else in our lives was changing, furniture stood its ground. While we put a man on the moon … furniture put another steak on the backyard grill and muttered, “My god, the price of oak went up again.”
When videotape put the home movie camera in the trash can forever, and tape cassettes put the plastic record-maker six feet under, and word processors put typewriters in the closet, and microwave popcorn killed the makers of popcorn makers … the furniture industry said, “Thanks, but we’ll stand pat.”
While we sat on our tuffets, the consumer forgot all about us. Our share of consumer expenditures slipped year after year. We lost over 40 percent of the retail furniture space in America, 25 percent of the retailers shut their doors, and department stores discontinued furniture right and left for products that gave them a better ratio of margin and turns per square foot.3
Collins went on to say that “the average tobacco chewer spends more for Levi Garrett Chewing Tobacco every year than he does for furniture.”
Most furniture purchases were discretionary and highly postponable, and, as Collins noted, there were many substitutes and lots of competition for the customer’s dollar. New innovations and designs were quickly knocked off by competitors, eliminating any advantage the innovators might have momentarily enjoyed.
Equally distressing, in the United States, there was little brand recognition in the industry. Customers didn’t know much about furniture and weren’t motivated enough to find out. There was little advertising and consumer research had shown that many American adults could not name a single furniture brand. Think for a minute: “What brand of sofa do you have in your living room?” When I pick an executive in the class at random and ask this question, the response is usually a startled look, a long moment of silence, and then, something like “Brown leather?” Everyone laughs, but when I open the question to the entire class, only a few hands go up and they’re inevitably executives from Europe. Yet when I ask how many of them know the brand of car their neighbors drive, virtually all hands go up. Yours probably would, too.
On top of its marketing challenges, the industry was riddled with inefficiencies, extreme product variety, and long lead times that frustrated customers. Buyers often received partial shipments; for example, a dining table might arrive weeks or months before the chairs that went with it.
The real issue, though, is not whether there are problems in the industry but what they mean. Are all these problems an opportunity for a courageous company with the right skills? Or are they red flags warning outsiders to stay away?
When I ask my executives whether they would take the plunge, most respond with a resounding “Yes!” They’re energized, not intimidated, by the challenges. Most say, in effect, “Where there’s challenge, there’s opportunity.” If it were an easy business, they say, some company would already have seized the opportunity: It would be much tougher to dislodge a strong leader than to gain ground in an industry like this where there are no big players, no Microsofts already established. “It’s a horse race,” someone once said, “and all the other horses are slow.”
Further, they note, the furniture industry is much like the faucet industry before Masco entered. The opportunity is a great fit with Masco’s manufacturing skills, its marketing savvy, and its strong management capabilities. It’s another chance for Masco to bring money, sophistication, and discipline to a fragmented, unsophisticated, and chaotic industry.
Opponents can’t get past how awful the furniture business is. They can’t imagine any company overcoming such huge hurdles. So the arguments go back and forth. Enthusiasm and a gung-ho spirit on one side struggle against caution and concern on the other. In one discussion, an exasperated proponent blurted out, “Look, this isn’t about being passive investors in some yet-to-be-invented furniture industry index fund. We’re going to be players in this game. We can make things happen. If Starbucks or Under Armour had listened to you naysayers, they wouldn’t have done anything!”
What’s your inclination at this point?
Usually when the time comes for a decision in my classes, “Do it” wins definitively, by at least a 2-to-1 margin.
So what, in fact, happened?
Masco did enter and in a bold way. Over two years, it bought Henredon (high-end furniture) for $300 million, Drexel Heritage (mid-price) for $275 million, and Lexington Furniture (low–middle) for $250 million. Combined, the revenues from the three made Masco the second-largest player in the U.S. furniture industry. It followed up by spending $500 million for Universal Furniture Limited (low end), which had manufacturing operations in ten countries on three continents and followed a ready-to-assemble concept—component parts were manufactured in low-cost countries and shipped in containers to five U.S. locations for assembly. Now Masco was both the largest furniture company in the world and one of the only firms with products spanning nearly every price point, a strategy that had worked well for the firm in faucets.
In total, Masco spent $1.5 billion acquiring ten companies and another $250 million upgrading their manufacturing facilities and investing in new marketing programs.
Presenting Manoogian with its Gold Award in the Building Materials Industry, the Wall Street Transcript cited his
imagination, foresight and strategic sense…. Manoogian has acquired low growth, mature products and become the dominant player in those product categories…. [H]is most recent set of acquisitions has been in the furniture industry. His strategy is to do to the furniture industry what he did to the faucet and kitchen cabinet industry….4
With this historical update, the classroom crackles with energy. Executives who had advocated for bold action nod their heads to one another or give each other high-fives and thumbs-up, pleased that they’ve nailed their first Harvard case. I hear little “told-you-so” comments directed at the naysayers, who sit in grim silence. Someone once even called across the room: “Don’t worry, Bob. One bad decision won’t ruin your reputation. We won’t hold it against you the rest of the program.”
But it doesn’t take long for those who opposed entry to speak up.
“But how did Masco do?”
“They bought great brand names,” says someone.
“But how did they do?”
“They’re number one in market share. What more do you want?”
“But did they make money?”
There, as it’s said, is the rub.
When I post Masco’s financial results, silence falls as people absorb the numbers. In a few seconds, there are whispered expletives around the room.
After thirty-two years of consecutive earnings growth, Masco’s net income fell 30 percent. Two years later, operating earnings from furniture came to $80 million on sales of $1.4 billion, an operating margin of 6 percent, versus 14 percent for the rest of the company. After many years of struggle, Masco announced its intentions to sell its furniture businesses, leading one
