La-Z-Boy Works to Update Image

Sales are down and industry outlooks are bleak, but La-Z-Boy Inc. executives say they’re not going to take it lying down.

The furniture maker is drastically restructuring in an effort to return the brand to profitability and convince shoppers that it makes more than clunky recliners.

Despite a shaky first quarter and a loss of $3 million last year, La-Z-Boy has launched a marketing campaign to update its image, closed plants and sold off nonessential brands. Companywide, La-Z-Boy now has about 13,000 employees -- 7,000 fewer than six years ago.

“We’re very committed to working on the things we have control of -- our costs, our processes, our designs -- and as the consumer comes back into the market, we will be in a better position to take advantage of that,” Chief Executive Kurt Darrow said at company headquarters in Monroe.

Darrow’s vision signals a stark change for the company that used an aggressive acquisition strategy to grow from $150 million in sales in 1981 to $2 billion last year.

The company earned $2.3 million in first-quarter profit, down 29% from last year. Same-store sales were down 5.5%.

Analysts have issued mixed forecasts for the rest of the year but seem impressed with improvements being made by Darrow, who took the job in 2003.

“I give this management team good marks,” said analyst Budd Bugatch of Raymond James & Associates. “We’ll have to see how they execute these strategies, but they’re on a very sound path.”

La-Z-Boy has survived a rough few years in the furniture industry after Asian companies brought fierce competition and several major retailers folded. On top of that, hurricanes shut down factories last year and caused substantial foam shortages.

Tough times have forced the company to change where and how its furniture is made, Darrow said.

It has closed or sold 20 of its plants that build wood products. Instead, La-Z-Boy will share designs and processes with Asian suppliers to build the furniture.

The ability of those companies to build quality furniture for cheaper costs forced La-Z-Boy and others to close their own facilities and hire foreign ones. The move saved La-Z-Boy $13 million this year.

“We’ve made some tough decisions and had to do some things that affected a lot of people,” Darrow said.

The company has reduced its retail warehouses from 12 to five and recently sold off the American of Martinsville brand, a maker of furniture for hotels.

The $33-million sale eliminated one of the biggest divisions of LADD Furniture Inc., which La-Z-Boy acquired in 2000. Some analysts have long criticized the LADD purchase.

One of the company’s biggest hurdles has been communicating to shoppers that La-Z-Boy offers more than clunky, comfortable recliners.

The latest marketing campaign shows more stylish, decorative furniture for all rooms of the home.

“A lot of progress has been made,” said Shirley Pittman, manager of the La-Z-Boy Furniture Gallery store in the Detroit suburb of Taylor. “But we still have some people that are totally surprised.”

Designer Todd Oldham has helped reach younger buyers with his own line of products and designs, Darrow said. A program that brings La-Z-Boy designers into homes to design entire rooms also has helped attract customers.

La-Z-Boy plans to open 50 New Generation stores by next year. The redesigned stores feature a design center where customers scan their own fabrics into computers that match them to products offered at the store. Almost half of its 334 stores have the new format.

The company also is opening more stores in major metro areas, closing unsuccessful locations and remodeling others.

“If we can get people into our stores, their impression of La-Z-Boy and what we do changes dramatically,” Darrow said. “They just have a wow factor when they walk in the store.”

Competitors haven’t put their feet up either.

Danbury, Conn.-based Ethan Allen Interiors Inc. had an $85.7-million profit last year. Chief Executive Farooq Kathwari credited changes in its stores, new products, improved advertising and faster delivery.

St. Louis-based Furniture Brands International Inc., maker of Broyhill and Thomasville, saw profit jump $17 million in its fiscal second quarter that ended July 26.

But those companies have warned that interest rate increases and higher fuel prices could continue to hurt them.

A downturn in the housing industry could boost profits if more people start remodeling homes instead of buying new ones, Darrow said.

The CEO believes La-Z-Boy is on the road to recovery.

“We’ve got a steady course and we know where we’re going,” he said. “We’ll see this thing through.”