Heilig-Meyers Company

views updated

Heilig-Meyers Company

12560 West Creek Parkway
Richmond, Virginia 23238
U.S.A.
Telephone: (804) 784-7300
Fax: (804) 784-7913
Web site: http://www.hmyco.com

Public Company
Founded: 1913
Employees: 7,700
Sales: $2.30 billion (2000)
Stock Exchanges: OTC
Ticker Symbol: HMYRQ
NAIC: 442110 Furniture Stores

Through a rapid expansion in the 1970s and 1980s, Heilig-Meyers Company attained status as the largest publicly traded home-furnishings retailer in the United States by the mid-1980s. By 1998 revenues exceeded $2 billion and the company ran more than 1,250 stores, most of which were in small towns. Difficulty assimilating acquisitions and problems with the company’s credit unit pushed Heilig-Meyers into the red in the late 1990s. In August 2000 the company filed for Chapter 11 bankruptcy protection. Then, in April 2001, it announced plans to close all remaining Heilig-Meyers furniture stores in order to focus on its 70 RoomStore units, which sell entire ensembles of furniture designed for particular rooms. Middle and higher income consumers were the target customers for the RoomStore chain, which in 2001 had stores in metropolitan areas of Texas and Maryland as well as in Washington, D.C. Whereas the vast majority of sales at the Heilig-Meyers chain had been made on installment credit plans through the company’s own credit unit, the RoomStore’s customers had to pay cash, use credit cards, or qualify for a third-party credit program, as Heilig-Meyers had jettisoned its credit unit as part of its restructuring plan.

First 50 Years: From One Store to 14

Heilig-Meyers was founded in 1913, when W.A. Heilig and J.M. Meyers opened a home-furnishings store in Goldsboro, North Carolina. These two Lithuanian immigrants had entered the retail business in 1911 by peddling piece goods to farmers settled around Goldsboro. The two men drove a horse and wagon over dirt roads to deliver merchandise, or even traveled on foot with the furniture on their backs.

In-house credit, along with effective cost controls, allowed Heilig-Meyers to survive the Great Depression. In 1931, its single year in the red until the late 1990s, the company still lost only $5,000. By 1934 Heilig-Meyers had added stores in Kinston and Wilson, North Carolina. A fourth store opened in Raleigh in 1936 and a fifth in Rocky Mount, North Carolina, in 1939.

The collaboration between Heilig and Meyers ended in 1946 with the Meyers family retaining control of the stores in Goldsboro, Wilson, and Rocky Mount. J.M. Meyers turned over direct management responsibility to his sons Hyman and Sidney. Hyman became president and general manager, and Sidney became director of merchandising. Their father continued, however, to be involved daily with all aspects of the business until his death in 1968. Company headquarters were moved to Richmond, Virginia, in 1951.

By this time Heilig-Meyers had developed its operational philosophy of focusing on small towns and rural areas for its growth. Because newspaper circulation was limited in such locations, management chose to base its advertising on direct mail. The limited customer base meant that the company could not grow if it confined itself to selling furniture. Soon items such as jewelry, electronic goods, small appliances, lawnmowers, and bicycles were being offered as well. In 1965, when Heilig-Meyers had 14 stores, mostly in eastern North Carolina, it opened a central warehousing facility in Rocky Mount.

Rapid Expansion in the 1970s and 1980s

Heilig-Meyers had 19 stores early in 1970, when it merged with the nine-store chain of Thornton Stores of Suffolk, Virginia. George A. Thornton, Jr., founder of Thornton Stores, became chairman of the board of the combined company, a position he held until his death in 1980. Heilig-Meyers had 41 stores when it went public in 1972 to finance further expansion. The officers, besides Thornton, were Hyman Meyers, president, and Sidney Meyers and Nathan Krumbein (brother-in-law of Hyman and Sidney Meyers), vice-presidents. Heilig-Meyers had revenues of $22.1 million and net income of $1.5 million in 1972. In 1974, when it operated 55 stores in North Carolina, South Carolina, and Virginia, it had net income of $1.7 million on revenues of $34.4 million.

Part of Heilig-Meyers’s subsequent growth in the 1970s came by acquisition. The company purchased the assets of Granite Furniture Co. of Mount Airy, North Carolina, in 1975, and Bruce’s Furniture Stores of Easley, South Carolina, in 1979. It also bought furniture stores in Richmond, Danville, Virginia, and Kershaw, South Carolina. By 1980 there were 72 stores. Revenues had risen to $81.5 million and net income to $5.1 million. Management considered, but ultimately rejected, a 1979 proposal from an unidentified company to buy Heilig-Meyers for about $36 million in cash and notes. Two years later it turned down a $43.9 million offer from Citicorp Capital Investors Inc. of Chicago and Founders Equity Inc. of Washington.

The Meyers brothers and Krumbein sold much of their stock in 1983 and retired the next year, but remained directors. They turned over the management to two trusted executives still in their 30s, William DeRusha and Troy Peery, Jr. DeRusha, the company president, subsequently became chairman and chief executive officer. Peery advanced from treasurer to senior vicepresident and secretary and later became president and chief operating officer.

DeRusha won an award and high praise from the Wall Street Transcript in 1984 for his management. A leading industry specialist cited Heilig-Meyers for “the number one management team in the industry.” He credited the previous management with having put into place a successful system of how the stores should be run, down to the smallest detail. Another industry analyst said that in 1982, a year of severe economic recession, “Their earnings only flattened when others typically went down 20, 30, 50 percent. They’ve never closed a store in their 72-year history as a result of nonperformance.…What we could say has changed is that they’ve adopted a more rapid expansion program.”

The Heilig-Meyers system of operation called for placing stores in communities of 50,000 or less, where competition from other retailers was limited to local stores. After saturating the market in Virginia, North Carolina, and portions of West Virginia, the company turned in the 1980s to South Carolina, Georgia, Alabama, Mississippi, and Tennessee for expansion. In fiscal 1985 (ending March 31, 1985), when there were 127 stores, net income reached $11.7 million on revenues of $167.9 million. A board of investment analysts told the Wall Street Transcript in 1985 that Heilig-Meyers had become “the premier investment play in the retailing side of the [home furnishings] business…. They have established a tremendous record—20 percent compounded growth rate in earnings and 15 percent compounded growth rate in sales.”

Part of this growth was by acquisition. In 1984 Heilig-Meyers bought a Bristol, Tennessee, furniture company and a West Virginia supply company that it merged into a subsidiary. The purchase of 14 Royal Jackson stores in 1985 for $9.3 million opened up the Mississippi and Alabama markets. In 1986 the company bought the 74-unit Sterchi Bros. Co. for $44 million. These acquisitions brought Heilig-Meyers’s total to 216 stores in 175 towns.

Although Heilig-Meyers was selling household goods ranging from VCRs to bicycles and lawnmowers, in addition to furniture, DeRusha told an interviewer for Dun’s Business Month in 1986 that “We’re really in the distribution and credit business.” Some 90 percent of the company’s 300,000 customers were using its credit plans to make purchases on time, paying annual financing charges of up to 24 percent. Income from credit came to 16 percent of total revenues. In defense of the company’s practices, DeRusha pointed out that many of its customers could not pay cash, that there was no minimum monthly payment or penalty for late payment, and that it offered delivery within a week plus a unique repair service.

Heilig-Meyers placed great emphasis on its intensive training program of three to five years for developing its store managers. Once promoted to this level, company personnel were earning $32,000 to $38,000 a year, with an incentive program based on store performance that could double their salaries. As a result, the Heilig-Meyers manager was the highest-paid person in some towns.

Key Dates:

1913:: Company is founded when W.A. Heilig and J.M. Meyers open a home-furnishings store in Goldsboro, North Carolina.
1951:: Headquarters are moved to Richmond, Virginia.
1970:: Heilig-Meyers merges with Thornton Stores, a nine-store chain.
1972:: Company goes public to fund further expansion.
1986:: The 74-unit Sterchi Bros. Co. is purchased for $44 million; Heilig-Meyers now runs 216 stores throughout the South.
1989:: Company expands beyond the South, into the Midwest; unit total reaches 277.
1993:: Heilig-Meyers spends $65 million for McMahan’s Furniture Co., with 92 stores in California, Arizona, New Mexico, Texas, Nevada, and Colorado.
1995:: Puerto Rico’s largest-volume furniture retailer, Berrios Enterprises, is acquired for $99.3 million.
1996:: Rhodes Inc., a 106-store chain based in Atlanta, is acquired for $261.9 million.
1997:: Company acquires the RoomStore and Mattress Discounters.
1998:: Number of units peaks at more than 1,250; company posts loss for year ending in February.
1999:: Rhodes and Mattress Discounters are divested.
2000:: Company sells its Puerto Rican division; files for Chapter 11 bankruptcy protection in August; closes more than 300 stores.
2001:: Company announces plan to shutter the entire Heilig-Meyers chain and refocus the company on the RoomStore concept.

In 1987 Heilig-Meyers purchased 22 stores in North Carolina, South Carolina, and Georgia from Reliable Stores Inc. for about $22 million in cash. It was also planning to open 20 to 25 new stores during the year. By early 1988 the company had 258 stores in 11 states, with its reach extending into Florida and Kentucky. Revenue came to $303.5 million in fiscal 1988, and net income to $15.5 million. The following year revenue grew to $351.6 million and earnings rose to $17.1 million. By the fall of 1989 the 277-store chain had entered the Midwest for the first time, in Ohio.

Continuing to Expand Aggressively in the Early 1990s

In February 1990 Heilig-Meyers bought 34 stores and warehouses in Tennessee, Kentucky, West Virginia, and Virginia from Reliable Stores for about $35 million. Over the next year it also acquired six stores from Holthouse Furniture Corp. and nine from The Furniture Center, Inc., for $5.6 million and $10.6 million, respectively. Revenues reached $447.8 million in fiscal 1991, and net earnings $18.3 million. Later in 1991 the company bought five more Furniture Center stores for $2.8 million and 42 stores from WCK, Inc., for $14.4 million.

By 1992 Heilig-Meyers had set a goal of 50 new stores a year. In that year it acquired 13 stores from Gibson McDonald Furniture Co. for $13.7 million, four stores from Reichart Furniture Corp. for $739,000, and 14 stores in Pennsylvania and West Virginia from Wolf Furniture Enterprises for $6.8 million. Of Heilig-Meyers’s 401 stores, 60 percent were less than four years old. There were five distribution facilities, each designed to serve between 90 and 125 stores within a 200-mile radius.

Heilig-Meyers purchased Carlsbad, California-based Mc-Mahan’s Furniture Co. for $65 million in 1993. This acquisition added 92 stores: 65 in California, 12 in Arizona, seven in New Mexico, four in Texas, three in Nevada, and one in Colorado. The company entered the Chicago area by purchasing 11 L. Fish stores. This acquisition of Fish’s four downtown and seven suburban stores was a departure from the company’s traditional focus on smaller markets, but DeRusha said they were a good geographic fit for Heilig-Meyers, which had been expanding in the Midwest. Also in 1993 the company began sponsoring a NASCAR racing team.

Noting that about 80 percent of its customer sales were being charged to company credit cards, an industry analyst declared in late 1993 that Heilig-Meyers had emerged as the country’s most profitable furniture retailer. Its market capitalization of $1.6 billion was said to be the biggest in the business. The only question was whether the chain, with 470 stores, was running out of room to expand at its annual profits growth rate of 30 percent. After Heilig-Meyers reported sales up 31 percent and profits up 45 percent in fiscal 1994, a professor at American University wrote that the company recorded installment purchases in revenues before sales were final and glossed over a negative cash flow of $75 million. Heilig-Meyers’s treasurer replied that “The whole report is completely erroneous and full of inaccuracies.”

There was no change in the Heilig-Meyers strategy in 1994. It announced plans to open 70 to 90 stores during fiscal 1995, exclusive of acquisitions. Seventy-seven stores were added during 1994, including eight acquired Nelson Bros, units in the Chicago area, bringing the total to 647. For fiscal 1995 (ending February 28, 1995), Heilig-Meyers reported that sales had reached $956 million and total revenues $1.15 billion, an increase of 33 percent over the previous fiscal year. Net earnings were $66.8 million, up 21 percent. The company planned to open at least 50 new stores and to aggressively seek acquisitions that could take it beyond the 700-store mark in 1995. By then a sixth distribution center had opened in Moberly, Missouri, to serve its stores in Illinois, Iowa, and Missouri, and a seventh, in Fontana, California, to serve its California stores. According to company executives, expansion would continue to center primarily on small-town markets in the Southeast and Midwest. The company’s long-term debt was $370.4 million at the end of fiscal 1995, up from $248.6 million at the end of fiscal 1994. Dividends had been paid in every year since 1975.

Developing a Variety of Formats in the Late 1990s

In 1995 Heilig-Meyers acquired Puerto Rico’s largest-volume furniture retailer, Berrios Enterprises, for $99.3 million. The deal gave Heilig-Meyers 17 more stores and its first presence outside the U.S. mainland. The stores continued to operate under the Berrios name, which had a good reputation in Puerto Rico, breaking with the company tradition of changing the names of its acquired stores to Heilig-Meyers. The company moved into the Pacific Northwest for the first time in 1996 through two acquisitions. The purchase of Santa Monica, California-based McMahan’s Furniture Co. included six stores in Washington, 13 in California, and one in Nevada. (This McMahan’s, a different corporate entity than the one purchased in 1993, was owned by other members of the McMahan family.) Also acquired was Self Service Furniture Co., a chain based in Spokane, Washington, operating 23 stores in its home state, Oregon, Idaho, California, and Montana.

A larger and more significant acquisition in 1996—the largest acquisition in company history—was that of Rhodes Inc., an Atlanta-based furniture chain with 106 stores mostly located in the Southwest and Midwest. In a deal completed in December 1996, Rhodes was purchased for $69.4 million in stock and the assumption of $192.5 million in debt. Rhodes sold slightly more upscale furnishings than Heilig-Meyers, and its units were located in mid-size markets and large cities rather than the small towns of its new parent. Because of these differences, Heilig-Meyers retained the Rhodes name and its more upscale product line.

During 1997 Heilig-Meyers added three more formats as it quickly and nearly inadvertently developed into a multiformat retailer. It purchased the RoomStore, a ten-unit chain of stores in the Dallas area that sold ensembles of furniture designed for particular rooms. The RoomStore became Heilig-Meyers’s format for major metropolitan areas. Heilig-Meyers next purchased a 19-unit North Carolina chain called Star Furniture Co. These units were rebranded under the name ValueHouse Furniture, with ValueHouse becoming the company’s format for very small towns, towns even too small for a Heilig-Meyers store. Finally, Heilig-Meyers went in a slightly different direction with its third 1997 acquisition, that of Mattress Discounters Corp., the largest retailer of specialty bedding in the country, with 169 stores located in mid-size and large markets in ten states. By early 1998 the six formats of Heilig-Meyers amounted to a total of more than 1,250 units, and the acquisition spree had led to a 60.9 percent increase in revenues for the fiscal year ending in February 1998, with sales surpassing the $2 billion mark for the first time.

Heilig-Meyers had plans to rapidly expand each of these formats through organic growth and through purchasing other chains and converting the units to the appropriate format. But profits suffered in fiscal 1998 as the company concentrated on assimilating the acquisitions. Also hurting the company was the steady increase in personal bankruptcies from the middle to late years of the decade, which translated into more and more bad loans being carried by the company’s credit arm. Furthermore, Heilig-Meyers had attempted to make Rhodes into a more upscale retailer than it had been, which led to the loss of many of that chain’s traditional customers.

Heilig-Meyers began restructuring beginning in late 1997, with charges and asset write-downs leading to a net loss of $55.1 million for fiscal 1998. Expansion plans were scaled back, although the company did complete the purchase of 21 stores in the Baltimore-Washington, D.C. area from Reliable Stores Inc. Of these units, 18 were subsequently converted to RoomStores, two to Rhodes, and one to Heilig-Meyers. This restructuring also included the closure during 1998 of about 40 Heilig-Meyers stores in noncore metropolitan areas, such as Atlanta, Cleveland, and Milwaukee. Hundreds of workers lost their jobs. In late 1998, Peery stepped down from his post as president in the midst of another year in the red—a $2 million loss for fiscal 1999.

In March 1999 Donald S. Shaffer, a former executive at Sears, Roebuck and Co. with a reputation as a turnaround specialist, was named president and COO. At the same time, the company decided to reverse some of its recent expansion moves by selling off both Rhodes and Mattress Discounters to focus more on Heilig-Meyers and RoomStore. In July 1999 Rhodes was sold to its management team and certain institutional investors for about $110 million. One month later, Mattress Discounters was sold to an investment group led by Bain Capital for $230 million. Later in 1999, Heilig-Meyers closed down 18 stores located in the Chicago and Milwaukee areas. A loss of $58.6 million was posted for the fiscal year ending in February 2000, by which time the company had been reduced to 906 units. Revenues fell 16.2 percent for the year, to $2.04 billion.

2000s: Declaring Bankruptcy, Focusing on RoomStore

Continuing to shed units acquired only recently, Heilig-Meyers sold its Puerto Rican division in April 2000 for more than $120 million. In July Chairman and CEO DeRusha resigned under pressure after a number of shareholders and analysts began blaming the company’s problems on the acquisition spree that he launched in 1995. Shaffer became president and CEO. In need of a financial overhaul, and with its share price dropping below $1, Heilig-Meyers filed for Chapter 11 bankruptcy protection on August 16, 2000. It also announced at that time that it planned to close 302 Heilig-Meyers stores— including all of its stores in California, Idaho, Montana, and other markets in the West—and lay off about 4,400 of its employees. Distribution centers in California and Georgia were slated for closure. Another key element of this initial restructuring was the elimination of all in-house credit programs in favor of contracting with a third party to handle financing for customers. This last move meant that Heilig-Meyers would no longer face the risk of being exposed to consumer bad debt.

Even these drastic measures quickly proved to be inadequate. Following the store closures in the fall and the elimination of in-house credit, a number of the company’s remaining stores turned unprofitable. In January 2001, then, Heilig-Meyers began closing an additional 116 stores, including 97 Heilig-Meyers stores in 20 states, 14 ValueHouse units in North Carolina, and five RoomStore locations in Portland, Oregon. Another 1,000 workers lost their jobs. Despite these additional cutbacks, however, the company was having trouble finding a viable way to escape from bankruptcy in what was a very difficult retailing environment. Heilig-Meyers therefore announced in April 2001 that it would close its remaining 375 Heilig-Meyers stores, shut down three more distribution centers, and concentrate its full attention on its profitable RoomStore chain, which numbered 70 units at that time, all located in metropolitan markets of Texas, Maryland, and Washington, D.C. This would represent a huge slimming down for a company that was once—only a few years previous—the undisputed leader of U.S. furniture retailing, but it perhaps provided a viable way for Heilig-Meyers Company to emerge from Chapter 11.

Principal Subsidiaries

Heilig-Meyers Furniture Company; HMY-RoomStore, Inc.; MacSaver Financial Services, Inc.; MacSaver Funding Corporation, Inc.; MacSaver Insurance Services, Ltd. (Bermuda).

Principal Competitors

Ethan Allen Interiors Inc.; Rooms To Go; HomeLife Furniture Corporation; Havertys Furniture Companies, Inc.; Levitz Furniture Incorporated; IKEA International A/S; Seaman Furniture Company, Inc.; Krause’s Furniture, Inc.; Jennifer Convertibles, Inc.; Schottenstein Stores Corporation.