Conventional wisdom in the furniture business holds that anytime executives from another industry assume the reins of a traditional furniture company, it rarely ends well. In light of the company's recently reported fourth quarter and fiscal 2021 results, the executive team at Flexsteel is proving an exception to the rule.
It would be an understatement to say that when Jerry Dittmer, a veteran of the office furniture business, was named president and chief executive officer of Flexsteel Industries in late 2018, the general feeling among independent furniture dealers across the country was one of concern.
"I was very skeptical when we first met, as were many of the retailers I talk to, because we've all been down this road before," remembers Tom Balistreri, owner, and vice president of merchandising at four-store Colder's Furniture and Appliance, a long-time Flexsteel dealer in the Milwaukee area.
"The furniture industry is unique and consumer-centric," Balistreri posits, and the office products business is not consumer-facing. So, I was worried. We'd been doing business with Flexsteel for almost 40 years at that point, and it was a very important brand for us at the upper-end of our quality assortment."
At the time, Flexsteel—long an industry leader known as a good, Mid-Western company with strong values and a family atmosphere—was clearly floundering. "They were a legacy company," the retailer describes.
"Over the years, they promoted a lot from within, so the corporate culture was 'well, this is how we do things.' They weren't very progressive, and they weren't fresh in terms of product. Plus, they were having issues with their backend, caused by the failed implementation of an ERP system that was a disaster, and was costing everyone sales. Business was slowing and we needed them to get it right."
The good news, according to Balistreri, was that from the jump, "Jerry was decisive. He started bringing in very intelligent, energetic people who were very progressive and very good listeners who really wanted to hear what we were doing and what we needed. Some people talk a lot and tell you, 'we're going to do this, and we're going to that,' and they never really do anything. But it was clear from the beginning that Jerry and his team were doing the things they said they were going to do."
Among Dittmer's first orders of business was to get Flexsteel out of hospitality and contract.
Back to Basics
Among Dittmer's first orders of business "was to get Flexsteel out of hospitality and contract—a low-margin industry that was costing them money, resources, and factory production time—in order to focus all their efforts on the wholesale furniture side. I think that was a great first step, because it was a major distraction," Balistreri says.
Certainly, when the pandemic hit in the Spring of 2020 and leisure travel all but came to a standstill, that initial move proved more prescient than anyone could have imagined. And as consumers reprioritized disposable income to focus on improving their living spaces, the stars began to align for a record-breaking year.
As it happens, in the months leading up to the pandemic, Flexsteel had not only been quietly seeking economies and making strategic changes in the way the company's goods were produced, they were also laying the groundwork for augmented capacity—adding a third North American factory based in Juarez, Mexico that helped them to mitigate the growing logjam overseas. According to Sharad Mathur, vice president of marketing at Flexsteel, the Juarez factory is now fully operational and ramping up production quickly as poly foam availability improves.
While many independent retailers have always looked to Flexsteel for its special-order capabilities, gallery dealer Ty Hoffard at Marchant Home Furnishings in Grandview, WA, says the ability to produce in-line goods domestically was particularly helpful in servicing his customers as the industry's supply chain woes increased. "They made it a point to help us out with domestically produced product that could ship quicker."
In another effort to further diversify its sourcing in the Western hemisphere, Dittmer notes, "we recently entered into an agreement to secure a fourth leased building in Mexico to expand manufacturing. Construction for the new 507,800-square-foot facility in Mexacali has begun immediately and we hope to take possession by June 2022."
"The additional North American production in Mexico has really benefitted our relationship with them," comments Will Harris, president of Darvin Furniture & Mattress, one of the country's Top 100 furniture retailers based in Orland Park, IL. "Most of their overseas production is done in China, which has had less of a logjam than some of the other Asian ports. While manufacturing in China might have been considered a negative at one point, now that the pandemic is starting to effect other countries like Vietnam, it's become a positive."
Paying the Price
"In the beginning, they made some mistakes with their partners in China and Vietnam, and like every other company in the industry, they had production issues for a time," Balistreri says, "but they cleaned all that up."
Indeed, unlike many other major manufacturers that put production on hold in the Pan Asian countries as container prices began to climb, "Flexsteel chose to pay the increasing premiums and keep product coming," Darvin's Harris says.
That decision has paid off in increased market share. "We've heard a similar refrain again and again from dealers who say, 'Oh, you have this product in stock? We're giving you prime placement and it's coming right up to the front of our showroom," Mathur relates. "We've gained a lot of floor slots because retailers are so starved for available inventory. They just keep asking us for more."
"Our inventory position relative to our competition was a clear advantage in fiscal 2021, and we intend to maintain that strength," Dittmer comments. "We've remained aggressive with purchasing and our inventory ended fiscal 2021 at $161 million, of which $62 million is in-transit to our distribution centers."
"They've kept their commitments to keep goods flowing, and they continue to pay the price for the containers," Balistreri says. "It's going to take quite awhile to get the backlog squared away from a logistics standpoint, but throughout this whole time, they've consistently made good decisions."
Darvin's Harris concurs. "They are good planners and users of technology for sure, and they have good forecasting models, which means that in the second half of the pandemic their manufacturing capability has remained almost normal." While others hesitated or tried to wait out the disruption, Flexsteel also began pricing its backlog almost from the get-go. "They adjusted prices in as fair and transparent a way as possible," he says.
"We took pricing actions immediately, connecting with our retailers and telling them what was happening, and as a result, because we took the steps to mitigate the process, they were whole and we were whole," Mathur reports.
Notes Marchant's Hoffard, "as annoying as it was to be making new price tags every couple of weeks for a time there, we didn't ever have to worry about Flexsteel's prices being accurate. That transparency was nice. Flexsteel stayed on top of it and that meant we could stay on top of it."
"Our inventory position relative to our competition was a clear advantage in fiscal 2021, and we intend to maintain that strength." - Jerry Dittmer, CEO of Flexsteel Industries.
Let the Good Times Roll
Of course, the container shortage was not the only transportation issue that Flexsteel had to contend with. Though the company had used its own fleet of trucks for years, Mathur says that one of the most important moves the company has made was to partner with Ruan on a transportation integration system to streamline its logistics. "We wanted a stronger and more robust Flexsteel logistics," Mathur says.
"We used to have only our own delivery system, but we had a limited number of trucks, and there was only so much we could do. Ruan has afforded us countrywide coverage while staying connected to our integrated backend systems. We've been able to expand our entire transportation footprint. This means we are able to get all of our stocked product to customers within 15 days. If it's in stock, we deliver."
Beyond the company's moves to increase the availability of in-stock product, Balistreri and the others have been impressed on the special-order side as well. "We're still seeing customers special ordering product who are willing to wait for quality product. And thanks to their forecasting systems, Flexsteel has been pretty accurate about when that product will arrive, which enables us to give good information to our customers."
Add to all this the recently announced addition of a new distribution center in Pennsylvania that will enable the company to better service customers in the Northeast and Mid-Atlantic region. "The new DC positions us to handle increased inventory levels to support our growth," Mathur says.
That's cause for optimism among the dealers. "In all the years we've doing business with Flexsteel, we've rarely had a year that we haven't grown," Balistreri says. "Thanks to all the positive moves they've made we've been up double-digits throughout the supply chain disruption, and we've already shipped in the first six months of this year what we shipped in Flexsteel product the entirety of last year."
"The two most relevant things right now are reliability and product mix," says Harris. "Flexsteel is a uniquely good value for quality product and their new rollouts and additions have been very positive. Our history with them goes back four generations, so in our case, it's one established company working with another, both of which have family roots. Ultimately, our people are what make Darvin great, and it's the same for Flexsteel. Really, as stories go in the furniture business, this one has been refreshing."
Headquartered in Dubuque, Iowa, USA, Flexsteel was founded in 1893 and incorporated in 1929. The company went public in 1969 on the NASDAQ and trades under the symbol FLXS. Operating under the brands of Flexsteel and Homestyles, our products are distributed nationally through over 1,300 independent retailers and via eCommerce sites to reach our customers wherever they are.