Critelli's Furniture

Michael Knell’s HomeGoodsOnline.ca

HGOSUMMER 2014 merchandiserVolume Three, Issue 3

LIFE AT THE TOP A look at Canada’s three biggest furniture retailers Part 1: Succession Planning Cooper on the simple math of improving profitability The mattress warranty revolution

CRITELLI’S FURNITURE: Celebrating a Century

CONTENTS

EDITOR’S LETTER MATTRESSES 6CHANGE AT THE TOP 26THE WARRANTY Over the past decade, the REVOLUTION Canadian furniture, mattress and It’s no secret mattress warranties major appliance scene has come are unique in their generosity. to be dominated by just three Unfortunately, extra-long players, but the good news for the warranties sometimes lead to independent retailers is this: they confusion, misunderstandings are the ones with the momentum and unrealistic expectations on for growth. the part of the consumer. Fortunately, a shift towards PROFILE shorter and less complex 8AHEAD BY A CENTURY warranties is on the horizon. Few businesses, regardless of the industry they belong to, last 20 ON RETAIL years let alone 100! That said, after 32THE SIMPLE being helmed by four successive MATH OF IMPROVING generations of its namesake PROFITABILITY family, Critelli’s Furniture will Raising prices 5%, increasing reach that milestone this year and sales 5% or cutting expenses by it’s still going strong, growing 5% can have an enormous impact 26 bigger and rapidly evolving with on profitability. Our resident the ever-changing market. A business coach, Donald Cooper, profile by regular contributor explains. Ashley Newport. INDUSTRY BY THE NUMBERS 35CALENDAR & 14 LIFE AT THE TOP ADVERTISERS’ INDEX Canada’s furniture retailing community is dominated by three merchants who operated a total of 358 stores under 14 Michael Knell’s HomeGoodsOnline.ca different banners in 2013. Two

are publically owned Canadian HGOSUMMER 2014 merchandiserVolume Three, Issue 3 companies while the other is a LIFE AT THE TOP A look at Canada’s three biggest global powerhouse that industry furniture retailers Part 1: insiders rarely, if ever, talk about Succession Planning or consider in their competitive Cooper on the simple math of improving 8 and strategic planning. profitability The mattress warranty MANAGEMENT revolution 22SUCCESSION CRITELLI’S FURNITURE: 14 PLANNING: PART 1 Celebrating Most people get into business a Century to leave something behind for their families. If what’s to be ON OUR COVER: Joe Critelli, the fourth left behind is the business itself, generation president and owner of it’s too important to leave to Critelli’s Furniture, which will celebrate chance. It seems no more than its centennial in 2014. Located in 14% of all family businesses have downtown St. Catharines, Ontario, a viable, documented succession Critelli’s prides itself on being a plan in place. Michael J. Knell ‘lifetime furniture store’ with a product writes a primer on how to get mix that’s solidly in the upper-middle to the process started. high-end price points.

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MICHAEL J. KNELL HGO merchandiser SUMMER 2014 • VOLUME THREE, ISSUE 3 Change ISSN 2291-4765 www.HomeGoodsOnline.ca at the top PUBLISHER & EDITOR Michael J. Knell The last decade has brought out enormous change [email protected]

throughout this industry, which is somewhat staggering MANAGING EDITOR as most of us who have made our livelihoods working in Anthony E. Bengel it often remark about how stable it is. [email protected] CONTRIBUTORS Donald Cooper N 2003, LEON’S FURNITURE WAS A SOLID MEMBER OF TOP FIVE Ashley Newman furniture retailers in Canada and Sears continued to hold the post position. Today, Leon’s is the largest furniture, mattress and major appliance retailer ART DIRECTOR in the country – a position that no other Canadian retailer is likely to chal- Samantha Edwards Sam I Am Creative lenge over the next ten years. I [email protected] Looking over HGO’s report on Life at the Top (beginning on page 14), there are some interesting conclusions to be made. The first being, not one member IT DIRECTOR of 2013’s Top Three Canadian furniture retailers has much room to expand Jayme Cousins their physical store count. Leon’s with 300-plus stores and nine banners doesn’t In House Logic [email protected] have many more places in this country to go. Granted, IKEA Canada only has 12 stores, but there aren’t many big cities (Halifax, maybe?) left with populations PUBLISHED BY large enough to support another. And unless Groupe BMTC decides to expand Windsor Bay Communications Inc. beyond the borders of Quebec, they don’t have many places to go either. P.O. Box 3023, 120 Ontario Street Brighton, Ontario K0K 1H0 This means their future growth will come in other ways and I don’t think ac- T: 613.475.4704 quisition is one of them. With the exception of BMTC’s launch of the cheap-chic F: 613.475.0829 Economax banner, the Top Three are going to focus on what analysts and consul- Michael J. Knell, Managing Partner tants refer to as ‘organic’ growth. Leon’s recent deal with Furniture.com suggests PUBLISHERS OF e-commerce is going to be key component of their growth strategy and since HGO This Week IKEA is already e-commerce savvy, as their momentum in this area gains speed, Home Goods Online.ca © 2014 other retailers are going to get into the game seriously as well. Windsor Bay Communications Inc. This is the first time in almost a decade that I’ve written an overview of life at All rights reserved. the top of our industry. I’m glad I did. This report is designed give insight into Windsor Bay Communications does not accept (and don’t worry, I haven’t forgotten about Sears) the strengths of Canada’s most any responsibility or liability for any mistakes or dominant furniture, mattress and major appliances retailers. They are forces to misprints herein, regardless of whether such errors be reckoned with, but there’s still room for everyone else. are the result of negligence, accident or any other cause whatsoever. Reproduction, in whole or in part, of this magazine is strictly forbidden without the prior written permission of the publisher.

Michael J. Knell AFFILIATE MEMBER Publisher & Editor [email protected]

6 HGO merchandiser For TCHFM’s National Advisory Committee, furniture is serious business.

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June 4 - 7, 2015 HomeGoodsOnline.ca 7 Spotlight PROFILE AHEAD by a CENTURY Few businesses regardless of the industry they belong to last 20 years, let alone 100! That said, after being helmed by four successive generations of its namesake family, Critelli’s Furniture will reach that milestone this year and it’s still going strong, growing bigger and rapidly evolving with the ever-changing market. BY ASHLEY NEWPORT

HIS YEAR WILL SEE CRITELLI’S A medium-high to high-end furniture store Furniture mark its centennial, an that has long been a fixture in the Niagara Re- awe-inspiring milestone few inde- gion city of St. Catharines – although it serves pendent small business founders communities all over the Greater Toronto and can only dream of. Hamilton Area (GTHA) – Critelli’s Furniture While family-owned operations are not at began as a grocery, hardware and furniture Tall unusual in the home goods industry, one store in the nearby village of Thorold in July spanning four generations while thriving for of 1914. The once-humble variety store, then 100 years after inception is indeed rare. There operated by Thomas H. Critelli (with the sup- are perhaps a dozen or so belonging to this port and assistance of his father, the current particular club across the country, including president’s namesake and great-grandfather, James Reid Furniture in Kingston, Ontario, Joseph Critelli) began focusing on fine furni- and believe it or not, Canadian industry giant ture, the category which drove its growth in the Leon’s Furniture. early years. But while reaching your centennial is indeed In 1936, Thomas opened another store with a precious milestone, Joe Critelli, fourth gen- his brother Frank before the opening of its eration owner of his family’s namesake opera- first St. Catharine’s location three years later. tion, is humble about his store’s staggering ac- In 1946, Thomas’ son Thomas J. Critelli joined complishment. the company. “Due to recent developments, such as con- In 1961, the decision was made to close the sumers using the internet to research a furni- Niagara location to focus on what had become ture purchase there are fewer multi-generation the flagship St. Catharines King Street store, companies are left in the industry,” Critelli which began to truly take shape in 1963, when observes. “So we’re happy to not have just sur- it grew to include four showrooms and a ware- vived, but flourished.” house. In 1979, current president Joe Critelli }

8 HGO merchandiser Joe Critelli (bottom), the fourth generation president and owner of Critelli’s Furniture, which will celebrate its centennial in 2014. Critelli’s Furniture (top) has been located in downtown St. Catherines since 1939, having been founded 25 years earlier in the nearby village of Thurold. This is how the store looks today. The exterior of Critelli’s Furniture as seen in the early 1960s (inset).

HomeGoodsOnline.ca 9 Here is one view of the joined the company, a position he assumed “It takes constant focus and continual im- sales floor at Critelli’s upon his father’s retirement in 1990. provements to keep things pointed in the right Furniture (left), whose Under Joe Critelli’s supervision the compa- direction in this industry. Going to market and merchandise mix focuses ny has continued to grow. Critelli’s – which its missing vacations, I love all of it. I love spend- on ‘lifetime’ furniture in current president refers to as a ‘lifetime furni- ing three or four days shopping the market. It’s contemporary transitional ture’ store – is now a 25,000 square foot space not a job when you love it that much.” to traditional styles at offering higher-end brands such as American Loving furniture is vital to remaining a top medium-high to high-end Leather, Barrymore, Jessica Charles and more. player in a challenging industry, but it’s just price points. Critelli’s is In 2002, the company launched Transitions, a one of several keys. While it’s extremely im- an authorized Stressless/ store focused more on modern and contempo- portant to never allow boredom or complacen- Ekornes dealer. This is rary pieces that, in Critelli’s words, “cater to a cy to set it, it’s equally important not to rest on a view of their in-store sharper entry level price point.” your laurels or stick to the same old sales tac- gallery (right). Transitions, which is located nearby on St. tics. As the consumer becomes more educated Paul Street in St. Catharines offers such brands and tech-savvy, so does the team at Critelli’s. as Precedent, Vanguard, Brown Jordan and “The store is a brand and I understand the more. Critelli’s and Transitions work in tandem, lifecycle of a brand,” says Critelli. “The new occupying two niche markets – fine, traditional stage is growth, the middle stage is plateau, furniture for more mature, higher-income shop- and when you’re old, you’re in jeopardy of de- per and modern and stylish pieces for a young- cline. So how do we never get to the ‘old’ stage? er, slightly more budget-conscious clientele. Doing new things within our four walls kept me But while the Critelli clan deserves acco- engaged in the 80s and 90s, and I enjoy being lades for keeping the family-owned operation creative, so we started Transitions and it made afloat through the original Great Depression the company feel younger. We also added a and all of the following recessions and other third building to Critelli’s in 2012.” economic upheavals as well as the enormous In terms of adjusting to rapid technological changes in consumer culture, it can’t just be advances, Critelli’s has stayed on trend by em- perseverance that keeps a business thriving. bracing social media, curating a strong online So what else sets them apart? presence and posting frequent blogs penned “You need to have a passion [for the busi- by Joe Critelli himself. He also recognizes ness], and I love furniture,” Critelli enthuses. it’s not just the purchasing landscape that’s changed — buyers are fundamentally different. “In the first 15 or 20 years of my being in Critelli’s and Transitions work in the business, it seemed that the younger gen- tandem, occupying two niche markets – eration aspired to have lovely traditional fine furniture like their parents,” he says. “Now, the fine, traditional furniture for more younger generation, exposed as they are to fur- mature, higher-income shopper and niture from all over the world via the internet, see their parent’s furniture and say ‘that’s nice, modern and stylish pieces for a younger, but we want something different’. “In the 80s and 90s, we could easily antici- slightly more budget-conscious clientele. pate wants and desires,” he continues, “and }

10 HGO merchandiser HomeGoodsOnline.ca 11

MX_ADV HGO New_8,5x11inch.indd 1 16/07/14 17:28 Thomas H. Critelli (left), grandfather of current company president Joe Critelli, opened the first Critelli’s Furniture store in 1914 in the village of Thurold, Ontario. Tom Critelli (middle) was the third generation president of the company. His son reports that at age 87, he still takes an active interest in the business while working THOMAS H. CRITELLI TOM CRITELLI MISETTE CRITELLI on his golf game. Misette Critelli (right), sister of company now determining what are the most sought af- tomer is around the corner or, in one situation, president Joe Critelli, ter style trends is a moving target. The internet ordering from Switzerland. We don’t just meet is the manager of means you’re not just competing against local the customer on the store floor anymore. Our Transitions. operators, but on a national or even interna- results are predicated on people shopping on tional stage. People used to go to only depart- the internet, and we’re always ready to reply in ment stores, furniture stores or designers for a professional manner.” their furniture. Now there are so many ways Critelli’s embraced the internet relatively people can make a purchase for their home. early on, first posting its catalogue online in The channels of distribution for furniture 2008. That tactic proved successful and the are expanding rapidly and it seems to me as store enjoyed a great year before facing de- though competition in our industry from out- creasing traffic – much like everyone else in re- side our markets is only going to increase.” tail – in the wake of the Great Recession which To adapt to the new, tech-savvier consumer, landed with a thud about a year later. Critelli’s Critelli’s focuses on round-the-clock accessi- has also embraced social media wholehearted- bility and undivided attention to each and ev- ly, even though Critelli acknowledges it’s diffi- ery inquiry she makes. cult to gauge how a strong Facebook or Twitter “We’re trying to be easily engaged with ev- presence translates into an uptick in sales. ery client and perspective client,” he explains. “We’re on Facebook, Pinterest, YouTube, “We’re very aware of the fact that our web sites Houzz, Twitter and LinkedIn,” he says. “We’re are our storefronts 24/7. We’ve stayed with the always trying to drive traffic to the web site times by being accessible whether the cus- and store. It is hard to determine if our social media presence increases sales, but I see some activity. I guess it’s one of a number of differ- WHAT’S ON TAP FOR CRITELLI’S CENTENNIAL? ent ways for people to come across our brand. This past May, Critelli’s Furniture sponsored the University Women’s There are, generally, seven points of contact a Club 40th Annual House Tour. The tour took guests through four customer usually makes before they establish historical homes, and Critelli’s hosted an after-party in the main store. a comfortable level of confidence and trust to Over 300 people came out for wine, appetizers and education on interior make a purchase from your company. If some design and trends. All the funds from the tour went towards furthering of those points are from social media, it makes young women’s post-secondary education in the Niagara region. sense that it’s becoming more important to This coming September, Joe Critelli, the store’s fourth generation participate in.” president, plans to hold a 100- year anniversary sale. While the details As for driving traffic to the store, Critelli says of the sale are not available at this time, he says it “will be a sale like while costumer activity levels have been lower no other.” over the last few years, his team – which current- Then, on November 5, Critelli’s will host and participate in the ly consists of himself, his sister Misette Critelli, Niagara Chamber of Commerce’s Business after Five. Held in who manages Transitions, and seven designers – partnership with the Niagara Community Foundation, this event helps has to take on a disproportionate amount of re- local businesses connect with sponsibility to stay ahead of the curve. one another. It will be held in “In-store client activity arrives bunched into the Critelli’s store from 5 to 7pm. tightly packed time-frames more frequently now; phone and e-mail enquiries also reach our sales team in bunched periods,” he observes.

12 HGO merchandiser Opened in 2002, Transitions gives the consumer an alternative style and price point from Critelli’s main store. It offers more contemporary and urban styles in sharper price points than does the main store, which is only a few steps away.

“For this reason there are periods during the week and month when we have to act like a AT A GLANCE company twice our size to meet demand. Some customers might communicate just CRITELLI’S FURNITURE TRANSITIONS through email,” he continues, “but if you provide the right attention, you might be reward- ESTABLISHED: 1914 ESTABLISHED: 2002 ed with a purchase.” ADDRESS: ADDRESS: Critelli also understands consumers have not 126 King Street, 169 St. Paul Street, only significantly altered their purchasing hab- St. Catharines, Ontario St. Catharines, Ontario its, retailers have the added challenge of selling goods frequently deemed non-essential, espe- WEB SITE: WEB SITE: cially during difficult financial periods. www.critellifurniture.com www.transitionsfurniture.com “Purchasing furniture can be postponed,” he says. “We have to understand that when we’re LEADERSHIP TEAM: Joe Critelli, president; faced with uncertainty. But if you care enough Misette Critelli, manager of Transitions to present well online, you usually have a good showroom as well. We want to present well SOCIAL MEDIA SITES: Facebook, Pinterest, YouTube, Houzz, Twitter online, making our follow-through is so im- and LinkedIn portant. If someone is willing to make a trip KEY CANADIAN SUPPLIERS: Barrymore Furniture, Bermex, Dinec, and spend time with our staff, we should have West Brothers, Palliser something for them, whether it’s just an idea or more information to help them in their search.” OTHER KEY SUPPLIERS: Stickley, American Leather, Hancock & Moore, Since Critelli offers the consumer two dis- Harden, Theodore Alexandra, Henredon, Jessica Charles, Stressless/ tinct retail profiles, they also have to ensure the Ekornes, Stanley, Calligaris, Christopher Guy, Precedent customer isn’t simply sent to a sister store with MATTRESS SUPPLIER: Magniflex (Italy) no guidance. “Transitions is a complement to the main MEMBER OF: Greater Niagara Chamber of Commerce, Canadian store, and we like to let customers know it’s Federation of Independent Business (CFIB) – Founding Member only a few steps away,” he says. “Often, we’ll Continued on page 34 HomeGoodsOnline.ca 13 BY THE NUMBERS LIFE AT THE The simple truthTOP is Canada’s furniture retailing community is dominated by three merchants who operated a total of 358 stores under 14 different banners in 2013. Two are publically owned Canadian companies while the other is a global powerhouse that industry insiders rarely, if ever, talk about or consider in their competitive and strategic planning. BY MICHAEL J. KNELL

14 HGO merchandiser ANADA’S FURNITURE STORE SEGMENT IS three players have considerably greater influence in the Ca- currently dominated by just three players: Leon’s nadian market that the Top Three do in the U.S. market. Furniture, IKEA Canada and Groupe BMTC. In In the overall retail marketplace, Canada shares many of 2013, they accounted for 47.2% of all furniture the same names as can be found in the U.S. The best ex- Cstore sales in this country and enjoyed a collective year- amples are probably Walmart, Costco, Target, Home Depot, over-year growth rate of 4.8%, which is far greater than that and Lowes – all of which have become retail powerhouses enjoyed by any other furniture store in Canada. Their com- on both sides of the border and all of whom are relatively bined sales totalled $4.58 billion. large players in the furniture, mattress and major appliance To understand their influence in – and perhaps even over markets. – the marketplace, consider these three facts: first, in 2003 However, the differences between the big ticket retailing the Top Ten furniture stores in Canada accounted for about scene in Canada and the United States can be quite star- 53% of the market (all three were members of this group that tling. For example, the largest furniture retailer south of the year). Second, total furniture store sales were $9.70 billion border is Ashley Furniture Home Stores. In Canada, they are in 2013 – after the top three players took their share, the rest a relatively minor player with about 34 stores in seven prov- was divided among the remaining 3,000-plus stores fronts inces and the Yukon. Looking down Furniture Today’s Top from coast-to-coast-to-cast. Three, the Top Three conven- 100 list, there is only a handful operating stores in Canada. TOP tional furniture stores in the United States – as determined In addition to Ashley, the most notable names are La-Z-Boy by Furniture Today – only accounted for about 14% of the Furniture Galleries, Pier One and Crate & Barrel. market south of the border in 2013. And, there is only one retailer who is a major big ticket Granted there are significant differences between the -Ca home goods power on both sides of the border: IKEA. nadian and U.S. furniture store segments (for example, both Collectively, the Top Three saw a sales increase of 4.8% in Leon’s and BMTC are major players in the major appliance 2013 over the estimated $4.37 billion in revenue generated market and there are very few large American furniture re- in 2012. Market share jumped from 45.8% to the aforemen- tailers flooring a comparable product mix). Setting those tioned 47.2%. Between them, they operated some 358 stores differences aside, it is not unreasonable to suggest these in every province of Canada under 14 different banners. }

Its acquisition of arch- rival The Brick made the Toronto-based Leon’s Furniture the single largest retailer of furniture, mattresses and major appliances in Canada in 2013. The store seen here is in Kitchener, Ontario.

The Brick continues to operate as a separate and independent company, despite its common ownership with its main competitor, Leon’s Furniture.

HomeGoodsOnline.ca 15 In September 2013, IKEA Canada opened the Swedish home furnishings giant’s largest store in North America in Montreal (seen here). A year-long renovation project saw the store expanded to cover almost 470,000 square feet of selling space.

national distribution network that will enable us to greatly enhance our online shopping capabilities,” he continued. For 2013, the new company had total revenue of $2.34 bil- LEON’S BECOMES NO. 1 lion (including $302.2 million generated by the Brick during With the acquisition of arch-rival The Brick at the end of the period before March 28, 2013, when the deal closed and March 2013, the publicly-held and family managed Leon’s not included in Leon’s financial statements for the year). Furniture secured its undisputed position as this coun- This was a 5.4% advance over the combined revenue of $2.22 try’s largest full-line furniture, mattress and major appli- billion generated by Leon’s and The Brick as separate com- ance retailer. A position it is not likely to lose in the fore- panies in 2012. seeable future. However, net earnings fell 13.8% from $80.8 million to The Toronto-based Leon’s announced in November 2012 $69.0 million – understandable when considering the cost its intentions to buy the Edmonton-headquartered arch-ri- of the acquisition and the other factors. val for $5.40 a share and $4.40 per common share purchase But the really big jump was in market share. Leon’s went warrant in a deal valued at about $700 million. from 9.2% as a stand-alone company in 2012 to 24.1% by the At the time, Leon’s management said the acquisition was time 2013 was ended. As a comparative, it should be noted made in response to the rising American presence in the the largest furniture retailer in the U.S. – Ashley Furniture Canadian retail landscape while shoring up their respective Home Stores – has an estimated market share of 7%. positions in a sluggish economy and a weakening housing In addition to making Leon’s this country’s largest re- market. It also said it was going to operate The Brick as a tailer of furniture and mattresses – with an estimated separate division that would compete in the marketplace market share of 18%, based on Statistics Canada’s Retail with Leon’s. The goal was exploit backroom efficiencies and Commodity Study – it is now the second largest purvey- best practises. or of major appliances in the country, jumping ahead of “This transaction brings together two great Canadian Home Depot Canada (with Sears Canada remaining in companies with complementary geographic footprints to the number one position in this category). Its share of strengthen our position in the home furnishings market- the white goods market is estimated at 15.4% for 2013 – place. We will apply the best practices of both companies to or $651.4 million. offer even greater value to our customers and create more Investors also rewarded Leon’s decision to acquire The opportunity for our associates,” Terry Leon, the company’s Brick. On the Toronto Stock Exchange, Leon’s shares ended long-time president and chief executive officer, said in a 2013 at $14.03 per common share, compared to $12.99 at statement when the bid was announced. the end of 2012 and $12.30 when the acquisition closed on “Our combined team will have access to national buy- March 28, 2013. ing opportunities in merchandising and marketing, and a The store count more than tripled from 76 to 311. The company now operates a total of nine banners: Leon’s corporate stores; “Our combined team will have access to Leon’s franchise stores; Appli- national buying opportunities in merchandising ance Canada; The Brick Corp. (including Midnorthern Appliance); and marketing, and a national distribution The Brick franchises; Urban Brick; Brick Clearance Centres; network that will enable us to greatly enhance Brick Mattress Store; and, United our online shopping capabilities.” Furniture Warehouse. }

16 HGO merchandiser SEARS CANADA: STILL A MAJOR PLAYER

ne cannot have a complete discussion about the furniture, mattress and major Oappliance business in Canada without talking about Sears. For much of the past 60 years, the publicly-held Canadian multi-channel retailer has been a continuing and dominant force in big ticket home goods, much more Sears Home was launched by Sears Canada over a decade ago as part of strategy to reassert so in many ways than Sears Holdings its dominance as a furniture, mattress and major appliance retailer. This recently refurbished Corporation, its parent company and store is located in Whitby, Ontario. operator of Sears and Kmart in the United States. furniture and mattresses is believed to be the largest In the U.S., Sears is a major player in white goods and category in the segment. mattresses but relatively minor player when it comes to This suggests 2013 sales for the ‘home and hardlines’ furniture, particularly over the past few years. segment totalled $798.4 million, as same stores sales for In 2003, Sears Canada was acknowledged as the single the segment fell 10.8%. This down 9.1% from the $869.3 largest retailer of furniture and mattresses in Canada, a million sold in the prior fiscal year. position it found difficult to defend over the ensuing decade. Furniture and mattress sales are estimated at $520 For its 2013 fiscal year, Sears Canada reported total million for Sears Canada’s latest fiscal year. This would give revenue of $3.99 billion, an 8.1% drop from the $4.35 billion the company a national market share, based on Statistics for the prior year. Same store sales fell 2.7%. Canada’s Retail Commodity Survey, of approximately 6.3%. However, earnings for the year shot up to $446.5 million For the prior year, sales are estimated at $565 million with a or $4.38 per share – thanks solely to a number of real estate market share of 6.9%. deals which saw it return a number of high profile downtown Sears Canada treats major appliances as its own locations back to the their landlords. It has been some time segment and reports it also accounts for 20% of its revenue since Sears Canada’s profit were driven by its core business on an annual basis. The segment also includes Corbeil, – retailing. the stand-alone appliance specialist launched by Cantrex Just over a decade ago, Sears Canada launched a major about 15 years and acquired by Sears when it took over the push to reassert its leadership in big ticket home with the Montreal-headquartered buying group in 2005. unveiling of Sears Home, a chain of 40 or so large format This suggests Sears Canada’s major appliance business stores scattered across the country dedicated to furniture, accounted for about $798 million in revenue for its 2013 mattress, major appliances as well as floor covering and fiscal year. This would make Canada’s largest white goods other installed home products. While many of these units retailer with a national market share of 18.9%. are seen as solid performers, it has not been enough to However, the company also admitted same store sales for reverse the set-backs that have plagued the company in this segment fell 4.2% in the last fiscal year. recent years. Sales for the 2012 year are estimated at $869 million with Indeed, when Calvin McDonald began his stint as chief a national market share of 20.9%. executive officer in mid-2011, he designated mattresses There is no doubt that Sears Canada has been losing and major appliances as ‘hero categories’ that would drive ground as a furniture, mattress and major appliance Sears Canada’s growth moving forward. He left the post in retailer for the past few years. In May 2014, Sears September 2013. Holdings announced it was looking to sell off its interest Traditionally, furniture and mattresses have been part in its Canadian subsidiary. Many analysts in the financial of Sears Canada’s ‘home and hardlines’ segment, which community are not optimistic about the future of Sears in also includes other consumer durables such as home either Canada or the United States. décor products, consumer electronics, lawn and garden But one thing is clear: Sears Canada remains a dominant equipment, outdoor furniture, and tools. This segment player in this country’s furniture, mattress and major accounts for about 20% of total revenue annually, although appliance markets. The question is, for how much longer.

HomeGoodsOnline.ca 17 IKEA doesn’t compete with other retailers for product. Instead, they design their own product lines and then shop for manufacturing capacity. This gives them unique strengths other retailers can’t match.

are procured in the same way as its furniture and mattress offerings. IKEA: CATCHING UP ON THE INSIDE It should also be noted Furniture Today ranks IKEA sec- IKEA Canada is fastest growing furniture and mattress re- ond on its Top 100 list of U.S. furniture stores with furni- tailer in Canada, outpacing not only the other members of ture sales of US$2.67 billion. the Top Three but also all other furniture retailers in the country. In 2012, and with no fanfare, Statistics Canada reclas- sified IKEA Canada as a furniture store, meaning 51% or more of its annual revenue came from the sale of furniture BMTC DOMINATES QUEBEC MARKET and mattresses each year. Previously it had been classified Even though times have been tough over the past few years, as a general merchandise store, along with Sears Canada, so broad and deep is Groupe BMTC’s dominance in the Walmart Canada and other big box department stores. Province of Quebec that it continues to rank as the third According to documents published by its parent compa- member of Canada’s Top Three furniture, mattress and many, the Canadian arm accounts for about 4% of the Swedish jor retailers. global home furnishings giant’s revenue annually. For fis- Sales for the publicly-held merchant to the end of 2013 cal year ending August 31, 2013, IKEA Canada had revenue were $694.7 million, down 3.1% from the $716.9 million re- of about $1.54 billion – up 7.7% over the prior fiscal year. corded for 2012. However, under the leadership of Yves Des This would give them a 16.2% share of the market and Groseillers, BMTC’s long-serving chairman, president and fortify their position as the second largest furniture store chief executive officer, net earnings grew last year to $57.2 in the country. million of $1.24 per share – compared to $48.7 million or Home Goods Online estimates IKEA Canada’s furni- $1.02 per share a year earlier. ture and mattress sales at $847.0 million for their 2013 fis- But it lost a little market share, which was rated nation- cal year. Based on Statistics Canada’s Retail Commodity ally at 7.1% last year, compared to 7.5% for 2012. But in the Study, this would suggest IKEA Canada is responsible for Province of Quebec – the only Canadian jurisdiction in 9.8% of all furniture and mattresses sold in Canada. This which it operates – it had a market share of 27.4% in 2013, is also a larger market share than that possessed by Sears down slightly from 28.0% in the previous year. Canada, which is believed to account for 8.4% of all furni- In 2012, as part of a new strategy to drive sales, BMTC ture and mattresses sold in this country, but is half that of launch Economax, a promotional and entry price level spe- the now super-sized Leon’s Furniture. cialist. The banner accounted for seven of its 35 stores by Whether at industry conferences or events, IKEA isn’t the end of 2013, when the company announced it plans to often the subject of discussion and analysis among indus- open at least another five locations in 2014 (for a total of 12). try insiders and, therefore, isn’t often considered a com- All are centred on the Greater Montreal Area. petitive threat when other retailers draw up their business The company also operated 10 stores under the Brault & plans. In the author’s view, this can be attributed to IKEA’s Martineau banner and another 10 under the Ameublements unique product acquisition strategy. They don’t compete Tanguay banner. Tanquay stores can be found mainly in with other retailers for product. Instead, they design their Quebec City. It also operated six Brault & Martineau Sleep own product lines and then shop for manufacturing capac- Gallery stores and two liquidation centres. Even since sell- ity. This gives them unique strengths other retailers can’t ing off the now defunct, Ottawa-based Colonial Furniture match. some 15 years ago, BMTC has shown little interest in ex- IKEA Canada operates just 12 stores across the coun- panding outside Quebec. try. In 2013, they opened the largest IKEA store in North BMTC is also considered to be the largest white goods America with the completion of their renovated store in retailer in Quebec, with a national market share of an esti- the Montreal suburb of Ville St. Laurent and its 470,000 mated 5.4%. If accurate, this would give the company sales square feet of selling space. The company is also acknowl- in this category of about $228 million last – fully one-third edged to be the finest e-commerce merchant in the fur- of revenue and a much higher percentage than that of the niture industry with a presence on all of the major social two other members of the Top Three or Canadian furniture media platforms. retailers in general. HGO Unlike its confreres in the Top Three, IKEA Canada isn’t considered a significant player in the major appli- MICHAEL J. KNELL is the publisher and editor of Home Goods ance category, although it does sell white goods, which Online.

18 HGO merchandiser Ameublements Tanguay is the second of three banners operated by Groupe BMTC. This banner found mostly in Quebec City and the surrounding area. This store is in Levis.

Brault & Martineau is one of three banners operated by Groupe BMTC, the largest furniture, mattress and major appliance retailer in Quebec and the third largest in Canada. This store is located in Montreal.

Groupe BMTC launched Economax as a bit to drive sales growth in 2012. This entry-level, promotional price specialist is centred in the Greater Montreal Area.

HomeGoodsOnline.ca 19 Smarter. Cooler. Better. Together. Two Brands, One Focus: Helping you grow your business.

www.sertacanada.com HomeGoodsOnline.ca ©2014 Serta® Inc. 11144.4.14 21 .PART ONE/ SUCCESSION PLANNING Most people get into business to leave something behind for their families. If what’s to left behind is the business itself, it’s too important to leave to chance. But embarking on the process, while vital, is often plagued by the frailties of human nature. BY MICHAEL J. KNELL

ETTING OUT ALIVE” IS A TONGUE-IN-CHEEK the best examples include Tepperman’s Furniture in Wind- phrase often heard throughout this country’s sor, Ontario; Bennett’s Home Furnishings in Campbellford, furniture, mattress and major appliance indus- Ontario; Critelli’s Furniture in St. Catharines and James “ try. It refers, usually, to retirement and pass- Reid Furniture in Kingston. Don’t forget Leon’s Furniture. ingG the business to the next generation of ownership. For This country’s largest furniture and appliance retailer has the typical independent furniture, mattress and major ap- been passing its leadership from one generation to the next pliance retailer – as well as the small to mid-sized family for over a century. And they’re publicly held. operated manufacturer (of which Canada has plenty) – this When it comes to succession planning, the statistics usually means handing over the keys to the front door to his aren’t heartwarming. A recent study of his own clients or her children. conducted by Donald Cooper, business coach, speaker and There are a great number of family-owned companies frequent contributor to Home Goods Online, showed that that have successfully handed over the business from one only 14% has a documented succession plan. And even then, generation to the next (we’ll be highlighting some of their most are not regularly updated to account for changing stories in an upcoming issue of the Merchandiser). Some of business conditions.

22 HGO merchandiser MANAGEMENT

grow effectively?” This is followed by: “What’s your ‘eventual’ plan for the business?” Kriszenfeld says situations are often made worse than they need be because the business owner fails to consider a few simple things. “For example, are the children prepared to take over the business? Has that notion ever been com- municated to anyone?” he asks, adding, “I like to make sure all of my clients have a ‘crash test’ – what should happen if they suddenly fall ill or pass away? Who has those instruc- tions? Where does the successor go for answers or who does he or she call first? People don’t like to talk about their own mortality but it will happen at some point.” THE PATHS TO RETIREMENT Most experts agree there are five different paths to retirement for the typical independent furniture and major appliance retailer – indeed, any small business owner. They are:

1 Transfer the business to another family member, most often one’s son or daughter; 2 Sell the business to a key employee; 3 Sell the business to your employees (ESOP); 4 Sell the business to an outside investor; and, 5 Liquidate and close the business.

Kriszenfeld specialises in advising family businesses on a wide range of issues, including succession planning and points out the last option also includes putting the business into bankruptcy – but only under very specific conditions. There is merit to most of these options. “Transferring the business within the family allows the owner to still be involved during and often after the transi- tion has taken place (‘Hey, it’s my mom and dad,’ the new owners can assert) and continue to add value well past tran- “Most independent furniture, mattress and appliance sition as long as they don’t wear out their welcome,” he says. retailers do not have a good succession plan if they have “Selling the business to a key employee is also a great op- one at all,” adds Phil Kriszenfeld, principal of the Burling- tion,” he continues, noting such a person has likely been ton, Ontario-based Transitions Mediation & Consulting involved in the business for a long time, knows it well but Group. “In their minds they have a plan perhaps but very often doesn’t have the capital available for an immediate few have ever shared it with those who would be most af- acquisition. This allows the owner to stay involved with the fected. They may have a son or daughter in the business business – perhaps under different terms – while the em- and just ‘assume’ that if something happened to them, their ployee works to pay off an ‘earn-out’ over a predetermined child would take over.” number of years. Cooper also points out that succession planning isn’t Selling to a group of employees is the least common op- an event. “It’s the process of preparing the people and the tion and the trickiest. If the group is small – say no more organisation, over time, for changes in responsibility and, than three key employees – this can be a successful option. eventually, changes in ownership,” he says. “Beyond that, managing the ‘group’ of owners becomes more Cooper also makes one critical observation. Before onerous than running the business itself,” Kriszenfeld says. launching a succession planning process, there is one Selling to an outside investor is often the simplest way critical question to answer: are you creating a saleable busi- out “especially if the owner wants a complete exit in the ness? “If you think there’s strong competition when you’re shortest period of time,” he notes. running your business, wait till you try selling it.” Putting the business into bankruptcy and liquidating its Once that question is answered, the next one to be an- assets is the option most family business operators struggle swered is: “When will you want to get out, or when will the with, but this option has its place. “Often this option is exer- business need you to step aside so that it can continue to cised,” Kriszenfeld explains, “when the business owner also }

HomeGoodsOnline.ca 23 owns the real estate and can lease out the space “I know I’m generalising, but these are often the to create future income without having to run the unspoken messages being sent out,” Kriszenfeld says. business in it.” At that first meeting to draw up the plan, Kriszenfeld suggests the following have a seat at STARTING THE PROCESS the table: the owner; his or her spouse; those chil- Both Cooper and Kriszenfeld point out succes- dren working in the business and their spouses; sion planning is a process while selling the busi- those children not working in the business and ness to an outside is a transaction. their spouses; and, key employees and managers. “I often tell clients that a sale is a sprint, but PHIL KRISZENFELD “Each person’s involvement will be slightly differ- true succession planning – which can take from ent and on different levels but I have found in my one to five years – is a marathon and requires much stron- practice that I get tremendously varying perspectives from ger endurance,” Kriszenfeld says, who counts a number of ‘in-laws’; children not in the business; and those key managers furniture and appliance retailers among his client base. He who are managing the ‘heir apparent’,” Kriszenfeld said. has also spoken on the subject in front of various organisa- Kriszenfeld believes the process also needs a small group tions including the Saskatoon-based Mega Group, the larg- of outside advisors such as accountants and lawyers. “Hav- est co-operatively owned furniture and appliance buying ing a family business advisor like me help guide the family group in the country. through the often turbulent waters is invaluable,” he says. If Kriszenfeld’s name seems familiar, it should be. Prior “I have not only been through this myself, but taken many to becoming a qualified mediator (Q.Med) and family en- families along the journey.” terprise advisor (FEA), he was the second-generation presi- One of the first tasks should be to have an accounting dent of his own family business – Royal Mattress, a six-unit firm conduct a business valuation – oftentimes, family en- chain of factory-direct sleep shops that operated in Hamil- terprises don’t know what the business is worth and that’s ton and the surrounding area before going out of business one of things that must be agreed upon. in 2009. The company was started by his father in 1967 and Another necessary early step is to have the business’ so- was a victim of the Great Recession that hit Canada’s econ- licitor draw up new shareholder agreements to reflect the omy in late 2008. changes being made in the business and to address all of Succession planning is also a journey fraught with anxi- the outstanding issues. ety, ego, fear and anger – the dangerous underbelly of hu- Once all of those things are done, the successor or suc- man nature. cessors need to purchase a life insurance policy to cover the “People do not always prepare for things they feel will not value of the shares he or she is acquiring from the prior gen- be an issue for them,” Kriszenfeld observes. These are the eration. This will minimise the damage should something people who think planning to die is for others. “They as- untoward happen. sume the business will just get sold for top dollar if they don’t have kids in the business at that point.” AN EVOLVING PROCESS They don’t realize that if there’s no plan, what will actu- Every successful succession plan includes up-to-date wills ally happen is the business they’ve spent a lifetime building for all shareholders in the family business – and their spous- will be liquidated by the estate and sold for far less than its es. And everything in the plan should be updated and ad- true value just to put closure to it. “Or worse, someone very dressed after every important life cycle event such as births, unqualified (perhaps a spouse or average manager) will deaths, marriages, divorces, and, coming of age. take over and reduce the value of the business to nil in very Kriszenfeld also insists that all shareholder agreements short period of time,” he says, “and all because no plan was contain dispute resolution mechanisms as well as naming laid out and communication to those close to the owner.” a trusted advisor who the family can turn to as issues arise. Cooper and Kriszenfeld agree the time to start the suc- “And the family should meet at least once a year together, cession planning process is on the day the owner realizes off site and formally with a clear agenda and an open mind,” the business is beginning to have value. It’s at this point he says, adding, “It’s also better to meet more often in the wealth is being created and with it, the need to preserve it. first couple of years just to create good habits.” Believe it or not, some of the first steps in creating a suc- Finally, it does cost money to create a viable, successful cession plan are pretty simple: making sure both the owner succession plan. For example, an entry-level project – where and the business has adequate insurance coverage – some- there are no conflicts – resulting in a comprehensive share- thing the local broker should be able to provide advice holder agreement could cost $7,500 or more. If the enterprise about. Next, the owner needs to ensure both his personal including more than one holding company as well as real es- and business wills are up-to-date. Now the fun begins. tate, not to mention conflict issues, the price will be higher. “But at the end of the day, it’s a wise investment for every SEATS AT THE TABLE family business to begin planning early and continue plan- Perhaps the toughest, most gut-wrenching question a busi- ning often,” Kriszenfeld believes. HGO ness owner needs to answer concerns his children. Do they know the business? Have they worked in it? Do they think MICHAEL J. KNELL is the publisher and editor of Home Goods it’s easy and that they can just step in and take over? Online.

24 HGO merchandiser HomeGoodsOnline.ca 25 MATTRESSES

It’s no secret mattress warranties are unique in their generosity. Unfortunately, extra-long warranties sometimes lead to confusion, misunderstandings and unrealistic expectations on the part of the consumer. Fortunately, a shift towards shorter and less complex warranties is on the horizon. BY ASHLEY NEWPORT

HEN IT COMES TO COMMODITIES, mattresses are warranty kings. Any other necessity typically comes Wwith a warranty under the five-year mark, and a warranty approaching 10 years — let alone 20 or 25 — is almost unheard of. In a way, it makes some sense. Consum- THE ers expect cars to falter, refrigerators to mal- function and electronic devices to crumble. A mattress, a somewhat out of sight and out of mind product that hides under sheets, duvets and pillows, might not be top of mind when it Warranty comes to wear and tear concerns. The reality is that most shoppers simply don’t get as excited over the prospect of replacing a mattress as be enacting its new policy on January 1, 2015. they do a dated cell phone, and most hope their Once the ball drops, Serta will ring in the New crucially important but oft neglected sleep- Year with five-year warranties on promotional ing surface will last as long as possible. That and lower price point models and full cover- said excessive warranties, while reassuring, age, non-prorated 10-year warranties on luxury tend to inadvertently overpromise longevity and premium products. in a commodity that should be changed much What specifically drove Serta to make this more frequently than every 25 years. They also, change? especially the prorated ones, tend to confuse “The extensive input from our customers consumers and frustrate retailers. prompted us to change this,” Channell says, “We have varying warranties from one year pointing out that as time passes by, the body to 25 years,” says Les Channell, national sales changes and sleep patterns also change. “If manager with Serta Canada. “These are a mix you don’t sleep, you die. Sleep is important and of full coverage and prorated warranties. We people understand this. Your body will change know our beds last at least as long as 25 years, over a 10-year period. What matters is if you but customers would like shorter warranties.” can fall asleep quickly or if you wake up with a Serta is keeping in line with a shift in the backache. There are things that make you want industry towards shorter warranties, and will to change your bed that has nothing to do with

26 HGO merchandiser THE Warranty REVOLUTION

quality, so changing warranties to fit that is the ferent products,” Jervis says. “On higher-end Seen here is one of right thing to do.” products, we offered complex 20 to 25-year Sealy Canada’s recently Other major manufacturers are also on- warranties where the first 10 years were not introduced hybrid board, with Sealy also shortening their warran- prorated. Proration is complicated and that’s mattress models, which ty periods to remain in step with the evolution one reason for the change. It’s confusing and features a marriage of of the North American market. the consumer doesn’t have clarity. Warranties tried and true innerspring “Our warranty policy is going to change,” also don’t determine how long the sleep set technology with the latest says Simon Jervis, vice president of market- should last. We want to prioritize clarity and in gels and foams on an ing for Sealy Canada. “Our U.S. counterpart not overstate the life of a product.” adjustable foundation. for Tempur-Pedic and Sealy changed to a more While it might seem like scaling back on Like most other major uniform policy and we’re in the midst of a overstatement is a confession that products mattress producers, Sealy launch and are looking to align with them.” aren’t built to last, it’s quite the opposite. Most is making adjustments Sealy’s new warranty policy, which will offer manufacturers are confident that their prod- to its warranty program, a 10-year non-prorated warranty on such premi- ucts will (and do) last for two decades. Most including a 10-year um brands as Posturepedic, Sterns & Foster and also know lifestyle and body changes as well as non-prorated term for its Tempur-Pedic, is much simpler for the retailer everyday spills and stains occur, suggested hy- premium brand models. to explain and the consumer to understand. giene concerns alone should prompt buyers to “We used to have different policies for dif- switch mattresses more rather than less often. }

HomeGoodsOnline.ca 27 Rev Sleep is one of the few leading Canadian mattress makers not planning to change its mattress warranty program beginning in 2015. The producers of Natura, NexGel, ObusForme and Sommex say their warranties are already in line with the new thinking. Seen here sitting on one of the latest Natura models is Valerie Stranix, chief marking officer.

“I don’t like the word ‘oversells’,” says Laurie major manufacturers, their higher-end products Dubrovac director of marketing at Simmons will maintain the longest warranty periods. Canada. “When it comes to quality, it’s a core “Consumers expect that the length [of the association with our brand. [A long warranty] warranty] will increase with the price point,” doesn’t oversell for us, but sometimes the con- she says. “Our higher-end products, such as sumer’s body does change. A mattress can be Beauty Rest Black, will get a 15-year warranty.” soiled. You might move or downsize and need But while you might think consumers – who a different bed.” are more savvy, educated and health-conscious Simmons is also shifting their warranties to than ever before – might want shorter warran- reflect changes in the industry. But, like other ties because they plan to replace their bed more often, Dubrovac finds, long warranty or not, people don’t change their mattresses hastily. How mattress warranties compare “People don’t tend to prioritize changing a Until recently, it wasn’t abnormal for a mattress manufacturer in North mattress over, say, a computer. If your fridge America to offer consumers a 20-or 25-year warranty regardless of the goes, you have to replace it as soon as possible. quality of the product purchased by the consumer. People think a mattress can wait a month or Here’s a look at how those gargantuan warranties stack up against other two,” she points out, adding, “Some consumers commodities and luxury products: replace things more often because they can, but mattresses seem to be the exception.” VEHICLES: basic warranties are typically three to five years So while a shift in consumer awareness WHIRLPOOL REFRIGERATORS: one year warranty hasn’t necessarily driven this change, people APPLE MACBOOK PRO: Up to three years with AppleCare Protection Plan are more likely to keep health in mind when it comes choosing to stay with or leave a long- SAMSUNG GALAXY S4 SMART PHONE: one year time bed. SAMSUNG WASHING MACHINE: one year “It’s really about health,” says Serta’s Les LG 49-INCH LED SMART TELEVISION: one year (parts and labour) Channell. “I’m not a doctor, but I know a lot about sleep. A mattress is an important purchase }

28 HGO merchandiser The OrthoGel™ Solution OrthoGel™ provides thousands of relief points to respond to each body’s personal sleep posture. By relaxing beneath areas of high pressure and re-distributing weight to the surrounding mattress surface, these relief points eliminate the painful pressure dynamic that exists in other sleep surfaces. Pressure on hips, shoulders and other ‘hot spots’is reduced while support to low pressure zones such as lumbar and neck is increased.

Call us today for an appointment with your local representative and for details on how you can become an authorized NEXGEL dealer. (800) 567-7933 • nexgel.com HomeGoodsOnline.ca 29 “We value and people need to understand that it’s about “We haven’t changed anything because we a good sleep.” produce different brands with difference war- sleep because Sealy’s Jervis agrees that even though a ranties. We have lower-price point products it drives product might last a long time, it shouldn’t with lower warranties and higher price point necessarily be overused. goods with higher ones. Our lowest warranty performance “We do our due diligence with research is a year and our highest is a 20-year limited during the and development to ensure [the product] has where the first 10 years are full and non-prorat- a long life,” Jervis says. “Mattresses should ed and the second ten are prorated.” day. The more be changed every eight to 10 years. People One thing most manufacturers have in com- change and their bodies change and mat- mon and what is, therefore, not a driving force you value tresses wear out. To overstate a warranty is behind this change is low return rates. sleep, the to overpromise to the consumer. Hygiene is “Our return rate has been steady and we a major factor in replacing mattresses on a haven’t changed our quality,” says Stranix. “We more you’ll more frequent basis. We value sleep because have good warranty cards that explain how to spend on and it drives performance during the day. The care for the bed and we have well-educated as- more you value sleep, the more you’ll spend sociates who teach people who to take care of change a sleep on and change a sleep product.” the mattress.” It might seem like a shift in warranty policy Serta’s Channell says while there’s no hard product.” is a good way to push the consumer to change data on return rates, he knows its low and can their sleep set more frequently. It might also even boast a 0% return rate on his brand’s make sense to assume consumers who have iComfort bed. more money to spend on a high-end mattress “With iComfort, we’ve never had a defec- might be more apt to change their mattress tive bed,” he says. “Returns are zero. Beds have more frequently because, as Simmon’s Dubro- changed a lot from the high warranty beds sold vac says, they can. Others, however, find the 10 to 15 years ago. We’re better at making beds. beds changed most frequently are the ones not Our processes and materials are better. Our goal Simmons Canada is also meant to function as forever furniture. is 100% perfect quality and that is attainable.” adjusting its warranty “[We find people shop more to replace] the Sealy’s Jervis says while the return rate is programs to reflect sleep sets that are supposed to changed fre- low, most returns occur in the first year – not current industry thinking quently,” says Valerie Stranix, chief marketing the 19th or 20th. – the higher the price, officer with Rev Sleep, the Toronto-based pro- “The further you get [from purchase], the the longer the coverage. ducers of the NexGel, Natura, ObusForme and less claims you see. A warranty is typically For example, the high- Sommex mattress brands. used very soon after purchase,” he says. end Beauty Rest Black Rev Sleep is unique in the sense that it won’t Since excessive warranties tend to be con- (seen here) will be sold be altering its warranty policies in 2015. Accord- fusing, some might wonder if sales associates with a 15-year warranty. ing to Stranix, no change is needed at this point. are good at explaining them. Just like anything else, some sales people explain them expertly, some explain them to the best of their ability but still leave consumers confused as to whether or not eventual dislike of the product – as opposed to an actual manufacturing defect – is covered, some use the warranties as a selling point and some rarely feel the need to talk warranties at all. “We rarely ever have warranty discussion,” says Channell. “Consumers rarely inquire and associates don’t really focus on that. I don’t remember talking to a customer about a warranty during a sale, but all the info is there if the customer wants it.” Jervis believes some people sell them well and others do not. “I believe some do and some don’t,” he says. “In many cases they use it as a selling point, but it should just be a promise of manufacturer quality. It was a competitive thing [between brands], but that’s changing. Long warranties should

30 HGO merchandiser not be necessary to sell more mattresses. There “Complex, long-term prorated warranties Serta Canada’s iComfort needs to be a discussion about how to prolong are confusing on all levels. The math can be sleep system has become the life of a mattress, such as a proper bedframe difficult for the consumer to understand,” a mattress industry and mattress cover. We sweat when we sleep says Simmon’s Dubrovac. “These changes will leader since it debuted on and that breaks down the cushioning materials, make warranties easier to understand. War- Canadian retail floors in and a good mattress pad can help you escape ranties give the consumer confidence.” August 2011. The company that. Some retailers need to make sure they and Sealy’s Jervis also believes mattress quality says not one unit has been the consumer understand what the warranty is always getting better, so 20-year warranties returned because of a covers and the promises it makes. They are not simply aren’t necessary to inspire confidence. manufacturing defect in satisfaction or comfort guaranteed.” “The industry is making better products that time. Rev Sleep’s Stranix also agrees the warranty than ever,” he says. “Major manufacturers are can’t be the only reassurance the consumer has spending more time bringing products to mar- – sales people need to emphasize maintenance ket and conducting various tests. We need to and care. provide better clarity and lowering the warran- “It’s important for our sales people to tell ty makes sure consumer expectations are vali- the consumer how to rotate the mattress and dated. Ten years is a long time. Home goods, to purchase a mattress protector to protect it cars and electronics have much shorter war- from food, kids and pets,” she points out, add- ranties and that doesn’t mean they are poorer ing, “We don’t cover comfort, we strictly cover quality.” HGO manufacturing defects. The average consumer does understand that for the most part.” A frequent contributor to HGO Merchandiser, Ultimately, warranties – such as Simmon’s ASHLEY NEWPORT is a Toronto-based freelance upcoming three-tier warranty that will set journalist who writes primarily for trade and warranty lengths according to product quality business publications. Her specialties include – should aim to be clear, understandable and food, hospitality and emerging social/busi- confidence building. ness trends.

HomeGoodsOnline.ca 31 ON RETAIL

THE SIMPLE MATH OF IMPROVING YOUR BY DONALD COOPER PROFITABILITY

OST BUSINESS OWNERS AND the next day – and determine what the actual managers believe they must ei- numbers are for your business. If you don’t ther make big improvements in have this information, how can you make any sales or deep cuts in their costs business decision wisely? Mto have real impact their bottom line. This is How can just raising prices 5%, growing simply not true. sales 5% or lowering expenses 5% make such a In fact, very small improvements will dra- dramatic difference? It’s called ‘leverage’ and matically improve your profitability. Here’s the it’s about the most powerful thing we have go- scoop: ing for us in any business. • Increasing prices by just 5% could increase your bottom line by as much as 50% to 80%; THE INCREDIBLE BOTTOM-LINE • Increasing sales by just 5% could increase MATH OF INCREASING PRICES your bottom line by as much as 30% to 45%; BY JUST 5% • Reducing expenses by just 5% could in- No other single action has the power to grow crease profits by 20% to 28%. your bottom line as much as a very small in- These numbers will vary somewhat de- crease in prices. Are you so good at what you pending on the type and size of business but do that nobody would even notice, or care if you get the idea. The impact is huge! Sit down you increased prices by just 5%? with your accountant – call him or her today In this example (left) the XYZ Furniture and make the appointment for tomorrow or & Appliances increased prices by 5% and the improved results show in the right column. After-tax profit doubles from $40,000 to INCOME STATEMENT XYZ FURNITURE & APPLIANCES $80,000. INCREASE But here’s the real magic! By increasing their PRICES BY 5 % after-tax bottom line by $40,000, in just one Sales $1,000,000 $1,050,000 year they’ve also increased the eventual selling Cost of goods (65%) $650,000 (62%) $650,000 price of their business by $120,000 to $240,000. Gross margin (35%) $350,000 (38%) $400,000 How can this be? Because privately-owned businesses typically sell for a multiple of three to six Operating Expenses $300,000 $300,000 times previous after-tax earnings. Pretax profit $50,000 $100,000 So, in this example, increasing prices by After-tax profit* $40,000 $80,000 just 5% puts and extra $40,000 in the owner’s pocket right away and adds between $120,000 *assumes a 20% small business tax rate. and $240,000 to the eventual selling price of Note: Profit has doubled by increasing prices by 5%. the business. This is huge (think happy exit strategy here).

32 HGO merchandiser The key question is how many customers might you lose if you increase prices by 5% INCOME STATEMENT XYZ FURNITURE & APPLIANCES and, if you lose customers is a price increase INCREASE still a profitable decision? It depends on how SALES BY 5 % many customers you they lose and how profit- Sales $1,000,000 $1,050,000 able those customers were in the first place. Cost of goods (65%) $650,000 (65%) $682,500 If you increase prices by 5% and lose 5% of you customers, you’d still be $23,000 (after Gross margin (35%) $350,000 (35%) $367,500 tax), or about 58% better off immediately and Operating Expenses $300,000 $300,000 would add between $70,000 and $140,000 to Pretax profit $50,000 $67,500 the eventual value of the business. If the cus- THE SIMPLE MATH tomers you lose were unprofitable in the first After-tax profit* $40,000 $54,000 place, you’re even better off. *assumes a 20% small business tax rate. If you increase prices up by 5% and lose Note: Profit has increased 35% by increasing sales by just 5%. 10% of your customers you’d still be $7,000, OF IMPROVING YOUR or about 18% better off on the bottom line and you’d add $20,000 to $40,000 more to the ating expenses just 5%, not only have they im- eventual value of the business. proved their bottom line by 30%, they’ve also PROFITABILITY So, clearly, if you would lose much more increased the eventual selling price of their than 10% of your customers by increasing business by $45,000 to $70,000. prices by 5%, it would be a bad idea, unless So, there you have it. The amazing math of most of those lost customers were unprofit- profitability. The exact profit improvement able. It’s difficult to know how a price increase numbers will be somewhat different for each will affect sales volume, but you can see that specific business, so you’ll need do the ‘math there’s a lot at stake here. This is one of the of improving profitability’ for your business. most important judgment calls that any busi- It’s very important that you work with your ness owner can make. accountant to develop these numbers that will guide you in making more effective pricing, THE AMAZING BOTTOM-LINE marketing and operating decisions. There is MATH OF INCREASING SALES a lot at stake here. HGO BY JUST 5% In this example (top right), the XYZ Com- A regular contributor to Home Goods Online, pany increases sales by 5% and the improved DONALD COOPER has been both a world-class results show in the right column. After-tax manufacturer and an award-winning retailer. profit increases 35% from $40,000 to $54,000. Now, as a business speaker and coach he helps But here’s the magic again! By increasing business owners and managers throughout the their after-tax bottom line by $14,000, they’ve world to rethink, refocus and re-energize their also increased the eventual selling price of business to create compelling customer value, their business by $42,000 to $84,000 in just clarity of purpose and long-term profitabil- one year. If they could increase sales by 5% for ity. For more information, or to subscribe to his 5 years in a row, at the end of that time the thought-provoking free business e-newsletter, go business will be worth an additional $210,000 to www.donaldcooper.com to $420,000. Not bad. THE AMAZING BOTTOM-LINE INCOME STATEMENT XYZ FURNITURE & APPLIANCES MATH OF REDUCING EXPENSES REDUCE BY JUST 5% EXPENSES BY 5 % What could you do to operate 5% more effi- Sales $1,000,000 $1,000,000 ciently, without diluting the customer experi- Cost of goods (65%) $650,000 (65%) $650,000 ence or the employment experience for your Gross margin (35%) $350,000 35%) $350,000 team? How could you, as a team, work just 5% smarter? How could you improve systems Operating Expenses $300,000 $285,000 and processes to get it right the first time, ev- Pretax profit $50,000 $65,000 ery time? After-tax profit* $40,000 $52,000 In this example (bottom right), reducing expenses by 5% improves the bottom line by *assumes a 20% small business tax rate. $15,000, or 30%. Note: Profit has improved 30% by reducing costs by 5%. Now, back to the magic! By reducing oper-

HomeGoodsOnline.ca 33 High-end furniture producer Handcock and Moore is one of Critelli’s featured vendor partners.

Continued from page 13

spend an hour with them at Critelli’s and then take them “We’re planning and creating a proper mattress shop,” he to Transitions for alternative price and style. It’s nice to see says, adding the store is working on creating a new mattress customers buy both traditional and contemporary.” shop featuring product from Magniflex, the Italian produc- The style range for Critelli’s Furniture runs from transi- er of ‘better’ and ‘best’ quality foam and latex sleep prod- tional contemporary to classic traditional while Transitions ucts. The new shop, which will be located right in Critelli’s runs from classic contemporary to European and urban current showroom, is set for a soft open this summer and is modern. expected to be operating in full swing just in time for the In terms of vendors, a store that’s been around as long as company’s centennial celebrations. Critelli’s has seen lots of shifts and changes over the years. But another burning question remains: will future gener- “As far as suppliers, we’ve lost a few Canadian manufac- ations of Critelli’s be ready to take the long-held torch when tures over the years,” he says. “I would say the majority of Joe Critelli is ready to hand over the reins? our brands were acquired more recently – say over the last “We’re hoping there’s a fifth generation taking over,” he 10 or 20 years. We don’t add a lot of brands, but as we’ve says. “I have three daughters and I hope one will come to evolved, we’ve gone from having half Canadian and half enjoy the business as much as I have. It’s too early to tell, as American-made products to 20% Canadian, 50% American two (Marisa, 18 and Julia, 20) are still in school. My oldest and 30% international.” daughter Cristina, 28, is a medical doctor.” As for international brands, most of which come from The loyalty of the surrounding community – as well as Europe and Asia, Critelli sings the praises of Vietnamese- the stores close proximity to Hamilton and Toronto – also made products, especially those created by Stickley and helps keep the company thriving. Theodore Alexander. “It’s a familiar name and I like to think it goes hand-in- “We’ve made a conscious effort to buy Vietnamese furni- hand with people trusting we’re going to meet and exceed ture, as the quality has been more consistent,” he explains. their expectations,” Joe Critelli believes. “Sometimes peo- “They’re very creative, almost artisanal. Good Vietnamese ple drive to us because their family members bought furni- made furniture is like a German automobile. They’re often ture from us in the past.” HGO family operations with access to materials that are unique, such as stone tops, wood species, veneers, leather, etc. A frequent contributor to HGO Merchandiser, ASHLEY They’re meticulous in their details and their finished pieces NEWPORT is a Toronto-based freelance journalist who are cost-effective and beautiful.” writes primarily for trade and business publications. Her As for what the future holds for the brand, Critelli says specialties include food, hospitality and emerging social/ growth is on the horizon. business trends.

34 HGO merchandiser ADVERTISERS’ INDEX Pages 2-3 Phoenix AMD International 41 Butler Court Bowmanville, ON L1C 4P8 T: 800.661.7313 F: 905.427.2166 www.phoenixamd.com

Page 5 Natura World c/o Rev Sleep Corporation 53 Bakersfield Street Toronto, ON M3J 1Z4 T: 800.567.7933 F: 888.567.7934 INDUSTRY CALENDAR www.naturaworld.com July 27 to 31, 2014 August 17 to 20 December 3 & 4, 2014 Page 7 LAS VEGAS MARKET ALBERTA GIFT FAIR IIDEX CANADA Canadian Home World Market Center Edmonton Expo Centre Metro Toronto Convention Furnishings Market Las Vegas, Nevada Edmonton, Alberta Centre North 101-1111 Saint-Urbain www.lasvegasmarket.com www.cangift.org Toronto Montreal QC H2Z 1Y6 www.iidexcanada.com T: 514.866.3631 F: 514.871.9900 August 9 to 11, 2014 August 24 to 27, 2014 www.tchfm.com/en TORONTO SUMMER QUEBEC GIFT SHOW January 18 to 22, 2014 FURNITURE SHOW Place Bonaventure LAS VEGAS MARKET Page 11 Toronto Montreal World Market Center Magniflex www.chfaweb.ca www.cangift.org Las Vegas, Nevada 1000 5th St., Suite 220 www.lasvegasmarket.com Miami Beach, FL 33139 August 12, 2014 September 7 to 9, 2014 T: 905.481.0940 CHFA GOLF CLASSIC ABC KIDS EXPO January 22 to 25, 2015 www.magniflex.com Caledon Woods Golf Club Las Vegas Convention INTERIOR DESIGN SHOW Bolton, Ontario Center Metro Toronto Convention Pages 18-19 www.chfaweb.ca Las Vegas Centre North Serta Canada/Star www.theabcshow.com Toronto Bedding Products August 10 to 13, 2014 www.interiordesignshow.com 40 Graniteridge Road, Unit #2 TORONTO GIFT FAIR September 10 to 14, 2014 Concord, ON L4K 5M8 Toronto International Centre CHINA INTERNATIONAL January 24 to 27, 2015 T: 800.663.8540 Mississauga, Ontario FURNITURE FAIR TORONTO WINTER www.sertacanada.com www.cangift.org Shanghai World Exposition FURNITURE SHOW & Conference Center Toronto Page 25 August 10 to 13, 2014 Shanghai, China www.chfaweb.ca Protect-A-Bed PRIMETIME www.furniture-china.cn 1500 S. Wolf Road Gaylord Opryland Resort Wheeling, IL 60090 Nashville, Tennessee September 15 & 16, 2014 T: 519.822.4022 nationwideprimetime.com HIGH POINT PRE-MARKET www.protectabed.com High Point, North Carolina August 14 to 17, 2014 www.highpointmarket.org Page 29 TUPELO FURNITURE Obusforme MARKET October 18 to 23, 2014 c/o Rev Sleep Corporation Tupelo, Mississippi HIGH POINT MARKET 53 Bakersfield Street www.tupelofurniture High Point, North Carolina Toronto, ON M3J 1Z4 market.com www.highpointmarket.org T: 800.567.7933 F: 888.567.7934 www.naturaworld.com

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