Turnaround Tactics All of this activity would have been unthinkable a decade ago, when National Home Centers looked like it was about to become one more log on the pyre of home centers and building supply outlets that had gone up in flames once they found themselves competing head-on with The Home Depot and Lowe’s.
In the mid-1980s, rising interest rates were inhibiting new-home construction and sales, and Newman decided that his company needed to diversify more into consumer-oriented retailing. In 1985, National opened its North Little Rock yard with a 90,000-square-foot store, and followed that with four other, larger outlets that he thought would “complement” its contractor business. In retrospect, however, Newman is now convinced that his larger stores tipped off Depot and Lowe’s that Arkansas would be suitable to their brand of retailing, leading both giants to invade the Razorback State. In 1998, National wound up selling its 160,000-square-foot store in Fayetteville to Depot and its 200,000-square-foot store in Rogers to Lowe’s. “In towns with [big boxes], you’d be foolish to try and compete against them,” says Lawton. “We can’t make money selling lawn mowers.” Those two sell-offs, ironically, helped National reduce its debt by $39 million and weather “our most tumultuous period,” says Newman.
But National was still saddled with a handful of stores that had interior selling areas that were simply too spacious to operate profitably as conventional building supply outlets. Newman’s answer was to experiment with new product lines. He added mirrors and lighting to the North Little Rock store, which had been under the heaviest competitive siege of any of its stores from The Home Depot and Lowe’s. Newman says that he was able to convince reluctant home décor suppliers to sell National by placing sizable open orders. “I once placed a $200,000 lighting order, and I’ve used that M.O. time and again to get vendors on board,” he says. Then National added inside sales specialists for different categories to provide more knowledgeable service to the company’s customers, which have migrated from a 50/50 pro and consumer mix in the 1980s to just over 80 percent pro today. And the dealer began printing special-order catalogs for millwork, lighting, and other categories to give pro customers more choices. Today, National distributes a dozen catalogs.
The downsizing and the refinements in its assortment produced the intended effect, as National has been profitable since the fourth quarter of 1998. And no one can say Newman was afraid to put his money where his mouth is when he tendered an offer to buy back the 36 percent of National’s stock he didn’t already own in August 2001. “Well, I started this company from nothing, and I’ve always been a risk taker,” he states.
New Twist In 2001, Newman and some of National’s merchants attended a furniture trade show in Tupelo, Miss. Newman laughs when he recounts how his “twisted mind” somehow connected the leather tool belts that contractors wore with potential demand for leather furniture. As bizarre as that sounds now, Newman says he decided to try furniture in some of his stores, and ordered four truckloads from the importer Leather Bella. “I didn’t think we’d be that great at selling huge volumes of furniture, but I thought it would create some excitement for our business.” He and his wife, Glenda, picked out the initial assortments themselves.
What appeared at first to be a flight of fancy has become a business strategy. National now sells furniture at six of its yards, and plans to include full furniture departments in all new or relocated stores. The 60,000-square-foot Bentonville store alone displays $1.5 million in furniture inventory within 25,000 square feet of densely packed floor space, says Lawton. Newman projects that Bentonville should increase its sales by $10 million in 2005 as a result of its redesign, which also expanded departments for paint (National added Benjamin Moore to all its stores last June), appliances (which this retailer has stocked for two decades), and mill-work. Newman says National will add furniture to its circular advertising program for the first time this year.
Contractors seem to be welcoming these changes. “It’s difficult to find someone who can handle the whole gamut of products for a home,” says Bill Bosley, president of Bosley Construction, a Little Rock–based builder and developer that’s been buying product from National since the mid-1970s. Bosley Construction now purchases “everything” from this dealer—including appliances, flooring, lighting, and cabinet tops—and recently began purchasing furniture for a retirement community it’s working on. “It’s easy for us because it can all be done through two or three [of National’s] people,” says Bosley. He adds that his salespeople also point home buyers in National’s direction for appliances, furniture, millwork, and other interior products.
Jack Wilson, who owns Woodhaven Homes, a 35-year-old, $20 million custom home builder in Sherwood, Ark., notes that there’s been “a lot of comment” among local pros about National’s moves, most of which he says has been positive. “Their lighting in particular is more upscale than what you’d typically find in a home center,” says Wilson, whose purchases from National now include flooring, cabinets, and furniture that Woodhaven uses to “stage” rooms for the homes it builds.
All of these maneuvers could be for naught, though, if National can’t find enough of the right people to work in its stores. Frame, the general manager of the Springdale yard, says that the learning curve to sell a broader mix of products hasn’t been too steep for National’s employees because “Dwain teaches us to be good merchants first, so it doesn’t matter if you’re selling a chicken or a couch.” National also has hired outside salespeople that focus exclusively on paint and cabinets. Lawton—who joined National in 2001 from Hank’s Furniture, a local specialty chain—notes that the mistake most home improvement dealers have made when they’ve tried to sell furniture has been failing to bring in skilled sellers. “A $2,000 mattress or a $1,500 sofa has to be sold by salespeople.”
Finding more of those people at the wages National is willing to pay is a challenge when the unemployment rate for northwest Arkansas is less than 3 percent. The dealer competes for talent with Wal-Mart, The Home Depot, Lowe’s, the University of Arkansas, Tyson Foods, and JB Hunt, to name just a few of the prominent corporations and institutions operating in the state. “Recruiting, training, and keeping good people are our biggest challenges,” says Funderburg. Newman also notes that it can be difficult to find employees who can exercise the proper work ethic to stack up to National’s expectations, making it clear that, labor shortages notwithstanding, National’s transformation can succeed only if its associates, including himself, are held to a high performance standard.
