Its advertising slogan is "Nobody Beats the Brick," but this spring the big furniture retailer got beat up by its own blunders in a deep downturn.
It was grappling with a liquidity squeeze, inventory shortages and faltering product demand forecasting. To try to cut its losses, the company slashed its ad spending and let go almost 450 of its sales staff (about 20 per cent), crippling the company's selling machine. Same-store sales tumbled almost 33 per cent in the second quarter. Despite a refinancing in May, the company still suffered.
On July 10, Brick Group Income Fund signalled that change was needed. It named Bill Gregson, a retail turnaround expert, to replace Kim Yost as chief executive officer. Late last week, the company unveiled a $25-million life line to buy it time - up to a year - to fix its other problems.
Today, Mr. Gregson's priority is to get stock back on the shelves and sales staff back on the floor. To draw customers, he is bolstering advertising and paying less for it. He's sharpening customer demand forecasting to ensure that employees order enough of the heavily promoted products so stores don't chronically run out of them.
"We fell quite far, quite fast," Mr. Gregson said in an interview after a harried week of meetings to calm anxious suppliers, investors and lenders. "We think we can reverse that quite fast as well … We solved the liquidity issue quite quickly. We're working feverishly on internal process issues and we're already seeing an improvement in our stock position."
Brick was hit by the perfect storm. A bad economy, lax inventory purchasing procedures and a credit crisis all combined to leave the firm "a little bit paralyzed."
Enter Mr. Gregson, who in early 1997 was part of the top executive team that joined sporting goods retailer Forzani Group Ltd. (Sport Chek and other chains) and helped it return from near death. He faced many of the same snags then as now: a liquidity crunch, anxious suppliers and low inventory levels. At Brick, Mr. Gregson estimates that only 10 per cent of the second-quarter sales slump was due to the recession; the rest was the result of the company's own missteps.
"It is encouraging to see new CEO Bill Gregson take immediate action to address some of the company's operational deficiencies," said Stephen MacLeod, an analyst at BMO Nesbitt Burns. "However, the challenges and uncertainties still remain plentiful for the Brick."
Consumer spending continues to be weak in a challenging economy, he said. Uncertainty lingers about Brick's liquidity position and the firm's poor stock performance.
A pioneer in the no-money-down, hard-sell furniture business, Brick expanded from a single furniture store in Edmonton 38 years ago to about 230 outlets today at five chains. It became a destination for furniture, mattresses, electronics and appliances.
But the good times, fuelled by a strong housing market and growing demand for home goods, masked the firm's internal weaknesses, Mr. Gregson said. In the lean times, the inefficiencies helped drag it down.
More particularly, its inventory-purchasing staff were ordering too many items that customers weren't buying frequently, and too few of the popular, often-advertised sofas and front-load washers.
"Long delivery times are customers' primary frustration, so a heavy promoter like [Brick]must have its featured items in stock," said Tal Woolley, an analyst at RBC Dominion Securities Inc. "This has not been the case in recent months as supplier credit dried up and co-ordination between marketing, buyers and the supply chain evaporated."
Mr. Gregson's first step was to get financial relief and regain supplier credit. Brick's largest investor, Fairfax Financial, agreed to provide a $25-million letter of credit to the retailer's major lender, GE Canada Finance Holding Co. It's worth up to $57-million to the retailer in higher borrowing capacity.
In the stores, customers needed help buying big-ticket items like furniture, but the Brick had chopped 442 commissioned sales jobs, erasing what Mr. Gregson estimates is $300-million of annual sales. By this week, Mr. Gregson had reinstated almost all those jobs.
And the stores were attracting fewer shoppers after ad spending was sliced by 16 per cent in the first half of this year, he said. For the rest of the year, the Brick will run 15 per cent more TV ads and 80 per cent more radio ads, but pay about $2-million, or 10 per cent, less for its advertising than a year earlier, he said.
Customers faced late deliveries, as the retailer's warehouses frequently ran out of inventory. By the end of June, merchandise available for shipment had declined by 38 per cent or $50-million, he said. "We were too low - it was costing us sales." In the current quarter, he's bolstering inventory levels by 20 per cent, about $30-million, from the previous quarter, and matching merchandise more closely to the products being touted in ads. He envisages further savings by shaving expenses from marketing, transportation and other areas. He's thinking of shedding warehousing costs by storing inventory in suppliers' warehouses, rather than its own, until the goods are sold, for instance.
Its Urban Brick chain, which it launched late last year, could also be an engine of growth. Shifting the focus to downsized downtown outlets from sprawling suburban stores, the new concept offers modern chic for a burgeoning urban population. For the company, it can offer improved sales-per-square-foot productivity in a smaller space. With just three stores today, it's performing well, Mr. Gregson said. For now, however, all expansion is on hold as he dives into damage control.
Already he's seeing signs of a turnaround. Last month, Brick enjoyed its highest monthly sales of the year, he said. As well, sales in the month rose for the first time in one of its four major categories - mattresses - because they were fully in stock. And During the August holiday weekend, it generated its biggest weekend business since last December. "It can be fixed quickly," he said. "We will fix it quickly. It's not dissimilar to what I've done in the past."