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Profile: W.S. Badcock Corp.
Makeover
One of Florida's oldest retailers is midway through a rebranding it says will keep it in the game against newer, sleeker competitors.
For all his pride in the company's roots, however, Marks is future-oriented. The first non-family member to head the company, Marks is now six years into his campaign to rebrand Badcock's 333 dowdy locations into sleeker stores calculated to appeal to the customers who have thronged to competing merchants like Rooms to Go and City Furniture.
With more than half of Badcock stores sporting new signage and improved sales, Marks can point to progress. But he also acknowledges that Badcock still has a ways to go to catch up with its newer competitors that have zoomed by it in Florida's fast-growing retail markets.
Founded in 1904 by Henry Badcock and based in the tiny central Florida town of Mulberry, Badcock was one of the first stores to offer furniture financing, targeting rural customers. Wogan "Wogie" S. Badcock III, chairman of the company and great-grandson of founder Henry Badcock, tells how his grandfather sold merchandise using route salesmen in the 1920s. The peddlers would carry furniture on their trucks and make house calls on potential customers. Customers paid $1 down and $1 a week, says Wogie.How They Stack Up
W.S. Badcock Corp.
Headquarters: Mulberry
CEO/President: Don Marks
Year Started: 1904
Employees: 3,100 (includes dealers' staff)
Stores: 333 (including 12 owned separately by another branch of the family) in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee; plans to expand into Kentucky, Virginia, West Virginia and eastern North Carolina
Revenue: $480.8 million (2004)
Rooms to Go
Headquarters: Seffner
CEO/President: Jeffrey Seaman
Year Started: 1992
Employees: 5,400
Stores: 75 in Florida, Georgia, North Carolina, South Carolina, Tennessee and Texas
Revenue: $1.4 billion (2003)
City Furniture
Headquarters: Tamarac
CEO/President: Keith Koenig
Year Started: 1971
Employees: 1,110
Stores: 13 in three Florida counties: Palm Beach, Broward and Miami-Dade
Revenue: $263.7 million (2003)
Badcock launched its "dealer" system in the early 1930s, building a network of stores in small towns throughout Florida and other parts of the South. Dealers typically were friends of the Badcock family or friends of other dealers. The business plan focused on easy financing for customers through revolving credit accounts and capitalized on small-town relationships to build buyers' loyalty -- and guarantee continued purchases of new sofas, buffet hutches and televisions. The slogan: "Badcock Will Treat You Right."
By the 1990s, the company continued to add stores, but furniture customers had changed, small towns no longer dominated the landscape, and Badcock hadn't kept up. "We had a company that didn't have solid strategic direction," says Marks, who was recruited in September 1998 after spending most of his career as an executive with Rent-A-Center. Just before joining Badcock, he was a senior manager at Rent-A-Center's parent company, England-based Thorne-EMI.
In addition to competition from rent-to-own stores, newer, slicker furniture chains were leaving Badcock in the dust. In just 12 years after its launch, for example, Rooms to Go has grown to 75 locations with $1.4 billion in sales. Badcock, by comparison, generates about a third of that total sales from almost four times as many stores -- $480.8 million from its 333 stores.
Before he could take on the competitors, however, Marks first had to deal with dissension in his own ranks. Within months after he joined the company, 19 disgruntled dealers -- similar to franchisees in Badcock's unusual structure (see chart, "Dealer vs. Franchisee") -- sued, claiming they were overcharged for advertising, computers and insurance. "It was a hostile environment," admits Marks. "We had to fix that right away."Dealer vs. Franchisee
W.S. Badcock's dealer system is different from that of many franchises in that there is no upfront dealer fee and no cost for as much as $500,000 in inventory. The company looks for dealers with $150,000 to $200,000 net worth and $75,000 to $100,000 in liquid capital. The dealer's primary expense is for a 15,000-sq.-ft. to 20,000-sq.-ft. retail space, which can be renovated or built from scratch, and the working capital required to hire employees.
In return, the dealer gets a 25% sales commission. Badcock provides training, site selection assistance, employee training and matching funds for advertising. Currently, about 80% of Badcock's 333 stores are owned by dealers, with the remainder owned by the company. Many have connections to either the Badcock family or other dealers. In the Dennison family, for example, four brothers ranging in age from 25 to 37 own and operate six stores in central and northern Florida and Beaufort, S.C. The brothers -- all former competitive swimmers at the University of Florida -- say their interest stems from their father, who owned a store from age 19 to 30, and their uncle, Chuck Young, a current dealer. "You reap your own rewards from hard work," says John Dennison, owner of stores in Orange Park and Jacksonville.
Ultimately, 15 of the 19 disgruntled dealers settled, signing confidential agreements. The family of the leader of the group, Dade City's Charlotte Kiefer, opened an independent furniture store after Kiefer's contract was not renewed. Marks speaks openly of the period, saying "It was 90% a communication issue."
Today, Badcock dealers have a new contract that gives them more protection as well as better communication with top executives. They're also making more money. In 1998, the average commission per store was $261,306. In 2004 it was $396,137.
Growth customers
Marks says Badcock's ultimate challenge is to expand its customer base from traditional, "cash constrained" middle-aged white families in rural areas to the customers who are producing much of the sales growth in many Florida business sectors these days. That includes young, middle-income Hispanics and African-American consumers.
To that end, Badcock in 2000 began transforming its Badcock Home Furnishing Centers into more upscale Badcock & more outlets. The remodeled stores have a sleek design, bright red logo and a more spacious feel. About half of the company's stores have been rebranded, with promising results. Last year, the Badcock & more stores produced $96 per square foot on average compared to $81 per square foot for Badcock Home Furnishing Centers locations. Overall, average sales at the Badcock & more locations were 36% higher than at the older Badcock Home Furnishing Centers. "It's not that easy to reposition yourself. They're in a new generation of competition," says Erik Gordon, director of the MBA program and marketing professor at the University of Florida. But he adds, "I think they are trying the right things."
Even as the rebranding has proceeded, however, Badcock's culture has remained predominantly white and Anglo. Although the company says it is actively recruiting minority dealers, the director of dealer development, Mike Whitten, can only point to a handful of African-American and Hispanic dealers and prospects.
The company also faces intense competition on other fronts. The company plans to test a rent-to-own store concept in the Tampa area this spring -- "a natural for us," Marks says -- but faces powerful foes, including his old company. Market saturation could be an issue: In Tampa alone, there are more than 30 rent-to-own stores according to RTO Online, a trade database."It's not that easy to reposition yourself. They're in a new generation of competition," says retail expert Erik Gordon.Another new Badcock venture focuses on kids furniture. Badcock is considering opening its first Kids & more stores this fall. Again, Badcock will have competition across the price spectrum from Rooms to Go, Pottery Barn, Pier 1 and the Bombay Company, each of which has already rolled out a kids furniture concept.
Marks counters with demographics, particularly the Echo Boomers, ages 7 to 24, as proof that the kids furniture market is getting ready to boom. He adds that Hispanic parents typically spend lavishly on their children. "This is a marketplace we didn't want to be left out of," he says.
Gordon agrees that the kids furniture stores are a good move. "I think that it's a great idea if he can execute it," he says, adding that Hispanic buying power is growing quickly in Florida and much of the focus is on home and family.
There are other challenges for Badcock. Gross margins improved in 2004, but at the anniversary meeting Badcock Chief Financial Officer Mike Price warned that margins are flattening because of rising manufacturing costs and limits on price increases that can be passed on to consumers. Price also says that expense control is an issue, in part because of the cost of operating the company's new $10-million distribution center -- its fourth -- scheduled to open this month in central North Carolina.Donald C. Marks:
Man at the Top
Don Marks relishes life in the fast lane. No, not the tiny central Florida town of Mulberry where he runs W.S. Badcock from a non-descript building adjacent to the rail line. Marks, 57, and his 17-year-old son like to spend their free time drag racing. In his office, he proudly displays a photo of his souped-up race car.
Since joining Badcock in 1998, Marks has put a lot of miles on his family car, too. He travels close to 60 miles one way from the home he shares with his son and his wife, Teena, in St. Petersburg. His 19-year-old daughter, a junior at the University of Florida, works at the Gainesville Badcock store.
Marks is undaunted. The company's ambitious five-year plan calls for 400 stores in 10 states generating $800 million in sales, with expansion into three new states -- Virginia, West Virginia and Kentucky. Both Wogie Badcock and Marks say there are no plans to take the company public. "Our balance sheet is extremely good," says Marks. "We really don't need the capital at this time."
Amid the marching bands and cheerleaders at the anniversary meeting, Badcock family members -- who retain complete ownership of the company -- were likewise cheery and optimistic. Commenting on the rebranding effort, Wogie Badcock says, "The ship needed a coat of paint." He remains in a senior position within the company along with his two brothers, Henry and Ben; a fifth generation of Badcocks is now involved in running the company. Adds Henry C. Badcock, who serves as the company's executive vice president for strategic planning, "The marketplace keeps evolving, and we have to keep pace."
