Hom run: Chain grows in recession

With their close ties to the housing market, furniture stores got socked earlier and harder by the recession than other retailers. But instead of retrenching, HOM Furniture has gone on a two-year spending spree.

In the first seven months of 2008, Coon Rapids-based HOM opened new stores in St. Cloud and Rochester and moved into far-larger new digs in Sioux City, Iowa.

Then it began gobbling up competitors.

In September 2008, a mere two months after the ribbon cutting in Sioux City, the mid-tier HOM startled some Twin Cities consumers by purchasing Gabberts, one of the most upscale designer showrooms in the Midwest. And in two swift acquisitions this year, HOM has obliterated all serious competition in the patio furniture market -- snapping up Seasonal Concepts in January and buying Hoigaard's outdoor furniture line in August.

All this without taking on debt.

"No doubt the recession has brought opportunity to us," said Rod Johansen, CEO and president of HOM Furniture Inc. He declined to disclose terms of the deals. "We're a strong retailer. We're financially sound. Things tend to follow the money."

HOM has come a long way from its roots selling waterbeds in the 1970s. The company was started by Johansen's older brother, Wayne, and the brothers abandoned waterbeds when they fell out of favor and expanded into a broader array of futons and bedroom furniture. In 1997, they opened the first HOM Furniture store in Coon Rapids, a suburban-based, full-line showroom.

Today, with 13 HOM stores plus Gabberts, the private company expects to see about $190 million in sales this year, on par with last year, Rod Johansen said. While the industry is down 20 to 25 percent, Johansen said HOM's sales are down just 2 or 3 percent this year.

Gabberts' high-end sales have been harder hit than HOM's, though Johansen wouldn't offer specifics. He said October sales are "up sizably" from a year ago, when the market was crashing and everyone worried how far it would fall.

Keeping Gabberts Gabberts

Some consumers worried that HOM would downgrade Gabberts' focus on high-end furniture and design services.

But, said Gabberts General Manager Becky Lepley, the new owners retained all of the interior designers and were adamant about not making major changes. Even though the store had recently undergone an expensive renovation and downsizing, HOM re-engineered the showroom to incorporate changes that Gabberts customers have been asking about for years, Lepley said.

HOM brought the odds-and-ends merchandise back into the store, after displaying it at a separate location at the other end of the Galleria mall. It also reintroduced youth bedroom furniture, mattresses, lighting, art and accessories.

"When the sale was first announced, we had customers march up to the concierge desk and say, 'I'm no longer shopping at Gabberts' ... because they were afraid it was going to change," said Lepley, who has worked at Gabberts for three years. "We haven't heard those kinds of comments for six months."

Carl Nyberg, part owner with the Johansen brothers and the company's longtime chief operating officer, spent nine months working full time at Gabberts to oversee the transition and reassure customers who begged HOM "not to do what Macy's did to Marshall Fields and Dayton's," he said.

"We were absolutely committed in this first year to prove that Gabberts is still Gabberts," Nyberg said. "We worked very, very hard at making sure that we absolutely delivered on the experience that Gabberts was known for, and it was done with familiar faces."

Nyberg and Johansen sought to make Gabberts more efficient. They turned storage areas into display areas, making better use of what Johansen called some of the most expensive real estate in the space. And Gabberts customers outside of the Twin Cities now save hundreds of dollars in delivery fees because of HOM's larger trucking system.

Additional changes are afoot. Come spring, shoppers who haven't seen patio displays at Gabberts in years will see full lines of high-quality offerings, some culled from the Seasonal Concepts line, others that were exclusive to Hoigaard's, such as the Brown Jordan line.

And by the end of the year, the HOM Furniture store in Duluth will begin carrying more of Gabberts' popular brands. It's a test to see if HOM can increase sales of higher-end furnishings in those markets, often outstate, where HOM already dominates the middle and upper-middle segment.

The Seasonal Concepts brand began appearing in HOM stores this past spring, and Christmas trees sprouting the labels already grace the stores. Johansen and Nyberg say HOM has become a "category killer" in patio furniture, where consumers can pretty much find the largest selection and the broadest price point of anywhere in the region.

"We've always found that competition's a good thing, but owning it all yourself is even better," said Johansen, breaking into a hearty laugh.

Todd Brewer, president of Hoigaard's, said that others were interested in purchasing his company's patio line, but that Johansen was the first who "really got it, from the first conversation," how important it was that the new buyers take care of both Hoigaard's customers and its six employees, who had more than 200 years of combined service.

"Even though their culture is different from ours in terms of how they work day to day, the values were similar," said Brewer. "It was a pretty quick, straightforward, simple transaction."

Capturing $50,000 per lifetime

From the start, HOM's strategy has been to compete against department store mainstays such as Marshall Field's and Macy's as well as now-gone national retailers such as Wickes and Levitz, by setting up shop along major transit routes in suburban areas. This way, the stores would promote themselves so that when shoppers were ready to buy, they'd know right where to go. As Johansen sees it, the average American spends $50,000 on furniture in a lifetime. Getting shoppers through the door the first time and making them happy could lead to a long and fruitful relationship.

Real estate deals often drive the decision. Johansen said the company waited 10 years or so for the right spot in St. Cloud. In late 2007, it bought a strip mall anchored by an empty Ultimate Electronics. HOM sank $1 million into building a new store, and two months later was welcoming customers.

"We could easily have had more locations because our system can handle it," Johansen said. "But we're kind of fussy. We go in when the time is right and the opportunity is there."

Though HOM Furniture grew quickly with the housing boom between 2000 and 2005, the Johansens and Nyberg were committed to keeping the company based in the Midwest. A little more than half of sales come from the Twin Cities area, where it has six HOM stores.

That regional strategy has generally proven to be a more sound one for furniture retailers, said Ken Smith, whose High Point, N.C., accounting and consulting firm Smith Leonard publishes the monthly industry newsletter Furniture Insights.

"There are benefits because you've got localized distribution centers that you can serve several stores out of," Smith said. "And what sells in Southern California isn't exactly what sells in Minnesota. You understand your market a little better."

Smith said new orders from furniture manufacturers are down 20 percent, year to date. The mood at last week's market in High Point seems "a little more optimistic," he said, but the longer the recession drags on, the tougher it will be for furniture retailers, many of them mom-and-pop shops, to hang on.

A lightbulb went off

Wayne Johansen stepped back from day-to-day operations in 2007 but remains the company's key strategist, merchandiser and brainstormer. One of his many pet projects was to design a low-wattage halogen fixture that trimmed energy costs by 40 percent. The effort was so successful, HOM set up a separate business unit and sells the lights to others in the industry.

He was in China last week, and Nyberg and Rob Johansen joked that he'd come back with "50 ideas we'll have to weed through and see which ones make sense."

While both Johansen and Nyberg offer a conservative outlook for the remainder of the year, they say the company's focus on innovation and efficiency gives them an edge.

They have weathered the recession so far without resorting to layoffs among their 1,000 employees and have held onto many of the most knowledgeable employees after acquiring Gabberts, Seasonal Concepts and the Hoigaard's line.

This weekend, HOM wrapped up a clearance sale at an old Levitz showroom it bought several years ago in which it put all of its brands under one roof -- including Gabberts, Seasonal Concepts, World Rugs and Sleep Express. The range of goods and price points was a stark example of the leaps the company has made in the past year -- from its clearance centers to Gabberts, which recently completed a $15 million project for a Chicago homeowner.

Whether the recession will continue to hold more chances to grow remains to be seen.

Said Johansen: "We're always looking, and we're always looking for the right opportunity."

Jackie Crosby • 612-673-7335

HOM FURNITURE AT A GLANCE

Headquarters:

Coon Rapids

Number of stores:

13 HOM stores in

Minnesota, Wisconsin, Iowa and the Dakotas,

plus the Gabberts Design Studio in Edina

2008 sales:

$190 million

2009 sales outlook:

Flat