La-Z-Boy Incoporated

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La-Z-Boy Incoporated

1284 North Telegraph Road
Monroe, Michigan 48162-3390
U.S.A.
Telephone: (734) 242-1444
Fax: (313) 241-4422
Web site: http://www.la-z-boy.com

Public Company
Incorporated: 1941
Employees: 19,700 (2001)
Sales: $2,154 billion (2002)
Stock Exchanges: New York
Ticker symbol: LZB
NAIC: 337121 Upholstered Household Furniture Manufacturing; 337122 Nonupholstered Wood Household Furniture Manufacturing; 442110 Furniture Stores

La-Z-Boy Incorporated is the largest independent manufacturer of upholstered furniture in the United States and third overall in the manufacture of residential furniture. La-Z-Boy enjoys near-universal name recognition. In fact, its name has become practically synonymous with the reclining chair.

Birth of the La-Z-Boy Recliner

La-Z-Boy originated in a love of carpentry shared by two cousins, Edward Knabusch and Edwin Shoemaker, both of Monroe, Michigan. In the early 1920s, Knabusch was a carpenter at the Weis Manufacturing Company and spent his evenings repairing furniture as well as building novelty and custom furniture in a workshop set up in the family garage. Despite the fact that Shoemaker was being groomed by his father to take over the family farm, he was far more interested in carpentry and spent his free time in his cousin’s new workshop.

In 1925, Knabusch’s hobby became a full-time business when he left Weis Manufacturing to start his own business. His first project was to invent a new bandsaw guide. Because of his engineering aptitude, Shoemaker was hired by Knabusch and together they completed the project. Afterward, business increased significantly, spurring Knabusch to purchase new equipment. By March 1927 the business had expanded far beyond any expectations shared by the two cousins, and they decided to form a partnership under the name Kna-Shoe Manufacturing Company. Meanwhile, business continued to expand and the partners soon outgrew Knabusch’s family garage. By the end of 1927, with the financial support of friends and family, a new factory was completed north of Monroe. Built in the middle of a cornfield that fronted a cow path, the site led many to say the two men were foolish to establish their factory so far from the city. However, their gamble paid off as rumors of a state highway became reality soon after; the old cow path became M-24 (Telegraph Road), a major north-south Michigan artery.

As a rule, the partners preferred to develop new designs rather than copying the products of other companies. One such design was the Gossiper, which was a telephone stand with a built-in seat. Although the Gossiper was an immediate success, a large manufacturer soon copied the design and sold it more cheaply than Knabusch and Shoemaker. Other products would follow, but none were as successful as the simple wood-slat porch chair that reclined to follow the body’s contour, whether sitting up or leaning back. Believing they had a winner, the two men sought to market the new chair. However, when Arthur Richardson, a buyer for the Lion Store, suggested that they upholster the new chair for year-round use indoors, they changed their plans. Lacking any upholstery knowledge, the partners called upon George Welker to assist in upholstery decisions.

To protect their new invention the men incorporated in 1929 as the Floral City Furniture Company, abandoning the Kna-Shoe name because people mistook the company for a shoe manufacturer. Through friends and family, the men raised $10,000 to secure the necessary patents and began production. The men attended their first furniture show in May 1929 and returned with more orders than they could fill.

As their innovative recliner became increasingly popular, the need for a name became apparent. The partners held a public contest to name the recliner, thus finding a name and generating further interest in their product simultaneously. In November 1930, the winning name, La-Z-Boy, was trademarked, and the patent for the new mechanism was issued in January 1931. Soon thereafter, the partners licensed the right to manufacture the chair to existing companies. Floral City manufactured the metal recliner mechanism and retained the rights to manufacture and sell the chair in Monroe County. At the same time, Floral City Furniture returned to repairing furniture and manufacturing novelty/custom furniture.

An Emphasis on Retail Sales

Flourishing during the depths of the Great Depression, the men redoubled their efforts in retail sales. In 1933 the first floor of their factory was converted into a showroom. To celebrate the opening of the showroom, a circus tent was set up in front of the store to display furniture. Soon, the “Furniture Shows” were drawing people from Detroit and Toledo. With Edward Knabusch’s keen marketing sense, the company’s flamboyant shows helped to assuage the anxiety of a people caught in the grips of a horrible Depression. While other companies frantically worked for quick sales, Floral City provided entertainment in addition to their high-quality products. Knabusch and Shoemaker were able to sell their wares in ever-increasing numbers, while thousands of other businesses faltered and failed. Business was so successful that in 1935 the partners opened a new showroom.

By the late 1930s, problems with the licensing agreements and increasing costs to manufacture the reclining mechanism led Shoemaker to develop a new mechanism. Completed in June 1938, the new mechanism was so different from the original that all new patents were required. The licensing agreements came to an end in 1939, and all manufacturing operations returned to Floral City Furniture.

World War II Years

In order to separate the manufacturing and retailing functions, the La-Z-Boy Chair Company was incorporated in May 1941. A new factory designed by Knabusch and Shoemaker was completed on October 15, 1941, but the new facility would not produce La-Z-Boys until six years later due to America’s entry into World War II. While Woodall Industries produced specialized plane parts in the new building, La-Z-Boy rented out garage space to produce seats for tanks, torpedo boats, turret guns, and armored cars.

At the war’s end, the company reverted to civilian trade, and production of La-Z-Boy recliners began at the new building in 1947. La-Z-Boy rode their solid reputation and emerged as the Baby Boom favorite into the 1950s. The platform rocker was introduced in 1951. The company’s most unusual promotion took place late in the decade. In 1959 the company built a loveseat designed to look like a car seat. Upholstered in mink, the loveseat was fitted with lights, horns, fins, and tires. Unlike the imaginative promotions of the Depression era, which combined style with substance, and marketing with manufacturing, the loveseat was all style.

Innovation and Advertising

By the beginning of the 1960s, the company regained the balance of innovation and promotion that had marked the company’s earlier successes. La-Z-Boy began a long-lived marketing campaign that used the support of such celebrities as Bing Crosby, Ed McMahon, Johnny Carson, Joe Nameth, Alex Karras, and most importantly, Jim Backus. Known for his role as the voice of the myopic cartoon character Mr. Magoo, Backus recorded more than 15,000 television and radio commercials for La-Z-Boy during the 1960s.

A burst of product innovation accompanied this successful advertising campaign. Late in 1960, the partners introduced the Reclina-Rocker. Unlike other recliners, this one formed an unbroken line of support from head to toe and utilized independent seat back and footrest mechanisms. The partners commented that “[the] chair was like magic. It sold well from the beginning. The problem was making enough of them.” Other new products included the Reclina-Way wall chair, which allowed the chair to be placed very close to the wall while maintaining the ability to fully recline; the La-Z-Touch recliner, which featured a massage system to reduce muscle tension and stress; and the Reclina-Rest reclining chair. In order to keep up with increasing production and to help the company expand into the national market, La-Z-Boy opened its first factory outside of Michigan in Newton, Mississippi, in 1961.

The renewed marketing efforts, along with the introduction of the Reclina-Rocker, helped La-Z-Boy’s sales increase from $1.1 million in 1960 to $52.7 million in 1970. In March 1972, the company went public, and, in the first year, 600 people bought over 320,000 shares in over-the-counter trading. The company enjoyed continued success throughout the 1970s, experiencing new sales records every year except for 1975, despite the shutdown of the partners’ first company, Floral City Furniture, in 1974. By the end of the 1970s, La-Z-Boy operated nine manufacturing plants: two in Michigan, and one each in Arkansas, California, Mississippi, Missouri, South Carolina, Tennessee, and Utah. In addition, La-Z-Boy had established licensing agreements with plants in Canada, Germany, Italy, Japan, New Zealand, Great Britain, Mexico, and South Africa. In 1979, the company purchased Deluxe Upholstering Ltd., a company that had previously manufactured La-Z-Boy products under a licensing agreement, and formed La-Z-Boy Canada Ltd. as a subsidiary.

Company Perspectives:

We are pleased to be identified as the largest furniture manufacturer and marketer in America. But our primary goal is to be the best at what we do, and in the process, provide our shareholders with a proper return on their investment and our employees with a great working environment, adequate compensation for their services and the opportunity for a secure lifestyle after retirement. We will continue to show concern for our environment by always trying to put back more than we take away, and to be good corporate citizens in every area we operate.

New products and improvements to old ones contributed to the company’s continued success in the 1970s. The company introduced a sleeper sofa in 1977 that represented the first major departure from La-Z-Boy’s popular recliners. Applying the same high quality and mechanical savvy to the new product, the sofa featured a removable back, allowing greater portability; an innerspring mattress unique to La-Z-Boy’s sleeper sofa; a counterbalancing mechanism; and a patented weight distribution mechanism. At the same time, the company improved the immensely popular Reclina-Rocker by integrating the Reclina-Way’s ability to be placed very close to the wall, thus creating the Wall Reclina-Rocker.

New Marketing Strategies and Aggressive Acquisitions

In 1982, the company reached a major turning point when Patrick Norton of Ethan Allen, renowned for its marketing savvy, was made senior vice-president of sales and marketing at La-Z-Boy. Norton recalled that upon arriving at La-Z-Boy he found “a company with great plants, a great name, and a great product but a bit short on marketing direction.” Charles Knabusch, adopted son of cofounder Edward Knabusch, assumed the position of chairman of the board in 1985 and, with Norton’s help, concentrated on improvements in five major areas.

First, they actively sought to attract women. The furniture was redesigned in the mid-1980s to attract female customers, and in the early 1990s ad campaigns began to target women. In 1991 the company launched the largest ad campaign in its history without using a single television spot. Instead, the campaign concentrated on magazines, especially upscale women’s titles. Jim Krusinski, director of advertising and public relations, stated that “Women are our primary target audience,” and when choosing home furnishings, “it’s common knowledge that many women tend to go to the magazines for ideas.” The new campaign was in stark contrast to past “television-oriented” campaigns featuring various celebrities. Krusinski added, “We won’t go back.”

Second, La-Z-Boy began diversifying product lines through acquisitions and internal product development. Beginning with Burris Industries in December 1985, a maker of high-end motion chairs, La-Z-Boy went on to acquire RoseJohnson Incorporated in January 1986; Hammary Furniture, a manufacturer of residential tables and upholstery manufacturer, in September 1986; and the Kincaid Furniture Company, a producer of solid-wood dining and bedroom furniture, in January 1988. In all, La-Z-Boy spent about $80 million on these acquisitions and not without criticism.

In 1989, the company became a target of a hostile takeover by its largest institutional investor, Prescott Investors, which owned 5.6 percent of the shares. Thomas Smith, Prescott’s leading general partner, charged that earnings and share value had not grown at an acceptable rate and placed much of the blame on La-Z-Boy’s acquisitions. However, in the end, Prescott backed off and La-Z-Boy stood by the new acquisitions. In addition to these acquisitions, La-Z-Boy created a new division, the La-Z-Boy Contract Group, composed of three entities: La-Z-Boy Business Furniture, La-Z-Boy Healthcare, and La-Z-Boy Hospitality. By 1993 these divisions and other subsidiaries amounted to 30 percent of La-Z-Boy sales.

In addition to acquisitions, new product development within the company signaled a broadening perspective. La-Z-Boy expanded into stationary and motion modular furniture and continued to support the sleeper sofas introduced in the late 1970s. In 1980, La-Z-Boy’s sales of $160 million were derived almost exclusively from recliners. By 1993, recliner sales amounted to 57 percent of the company’s nearly $700 million in total sales.

Key Dates:

1928:: Cousins Edward Knabusch and Edwin Shoemaker, (“the two Eds”) create the first folding wood-slat porch recliner
1929:: The porch recliner is upholstered, allowing for indoor, year-round use; the La-Z-Boy name is chosen
1931:: The patent for La-Z-Boy is issued, and the partners license the right to manufacture the chair to existing companies
1941:: La-Z-Boy incorporates; and stops chair production to create plane parts for World War II.
1947:: Production of recliners resumes; and matching ottomans are introduced.
1952:: The first La-Z-Boy recliner with built-in footrest is introduced
1960:: La-Z-Boy begins making rocker recliners; and opens its first factory outside Michigan in Mississippi
1970:: The company offers recliners with electric controls
1972:: The company goes public; 600 people buy shares in over-the-counter trading.
1975:: The company introduces recliners that move away from walls
1986:: The company introduces power recliners and power-assisted lifts
1987:: La-Z-Boy begins trading on the New York Stock Exchange
1989:: The company opens its first La-Z-Boy Furniture Gallery
1993:: The company’s new line of recliners offers massage and heat; another line targets customers with smaller body types
1999:: The company offers recliners with built-in beverage coolers, phones, caller ID, and motorized-massage options
2000:: La-Z-Boy and Microsoft team up to offer the Explorer E-cliner, a recliner with built-in WebTV Internet access and tools
2001:: The company introduces chairs for children.

Third, La-Z-Boy reevaluated its retail system. In the 1970s and 1980s, independently owned La-Z-Boy Showcase Shoppes were opened across the country. In-Store Galleries within Independent General Furniture Dealers displayed La-Z-Boy furniture in separate dedicated settings. At the same time, ineffective dealers unwilling to push the product were eliminated. By the late 1980s, 42 percent of all the La-Z-Boy dealers in existence in 1980 had been eliminated. In 1989 the company reached a major turning point in its retail operations when it opened the first La-Z-Boy Furniture Gallery. These superstores facilitated the display of a much larger and more diverse selection of La-Z-Boy furniture. By 1993 the company was operating 63 La-Z-Boy Furniture Galleries and planned to transform many La-Z-Boy Showcase Shoppes into galleries. The La-Z-Boy proprietary retail system included 750 locations, accounting for about half of La-Z-Boy’s upholstered furniture sales, and thousands of independent retail outlets, regional furniture chains, and a major nationwide retailer.

Fourth, technological innovations placed La-Z-Boy at the forefront of the furniture industry. In the late 1970s, the company automated its material requirements planning process, which greatly simplified the acquisition of materials, manufacturing processes, and distribution. By the late 1980s, La-Z-Boy had introduced computer-aided design (CAD) to expedite the research and development of products, enabling the company to cut the delivery time of new products by 60 percent. Additionally, La-Z-Boy adopted an Electronic Data Interchange to facilitate the electronic transmittal and tracking of orders. As a result, retail operations were able to reduce ordering time and to track the progress of an order more accurately. As of 1993, the company had implemented the La-Z-Boy Screen Test video catalog system that allowed customers to review every style, color, and fabric offered by La-Z-Boy at the touch of a button.

Finally, La-Z-Boy set its sights on globalization. Although La-Z-Boy had licensed its chairs internationally for 30 years, international sales amounted to only one-half of 1 percent of La-Z-Boy sales by the early 1990s. However, with the opening of markets in Eastern Europe and the former republics of the Soviet Union, La-Z-Boy redoubled its efforts to market its recliners in Europe. More importantly, La-Z-Boy made its most significant move toward globalization when it developed recliners designed for smaller Asian body types in 1993.

Beginning in 1987, La-Z-Boy began trading on the New York Stock Exchange, and in 1990 the company moved into the Fortune 500 at number 496, reaching number 460 by 1994. In spite of an economic downturn in furniture sales from 1989 to 1991, La-Z-Boy enjoyed continued success. La-Z-Boy sales rose 10 percent to $805 million in fiscal 1994, which represented the company’s 12th straight year of record sales. La-Z-Boy continued to be the number one manufacturer of recliners with over 30 percent of the market.

A New CEO

When Charles Knabusch died in 1997, and Edwin Shoemaker a year later died (in his recliner), La-Z-Boy ceased to be family-owned. Gerald Kiser took over as president in 1997 and had big shoes to fill. Company sales had continued to increase for the past 17 years, and the company pulled in $1.2 billion in revenues. No longer a sole manufacturer of recliners, the company had acquired five furniture makers and sold dining room sets, tables, entertainments centers, and other furniture. But although recliners still constituted one third of the company’s sales, it was getting more difficult for La-Z-Boy to generate more growth. They had to come up with new plans.

One move was to continue the company’s growth with more acquisitions. La-Z-Boy bought LADD furniture in 1997, making themselves the largest residential furniture manufacturer in the United States. The deal was expected to increase La-Z-Boy sales to more than $2 billion.

Declining Sales and Company Consolidation

However in 1999 the economy began to sink and took the furniture market along with it. Bankruptcy filings by Montgomery Ward stores hurt La-Z-Boy, and sales dropped for the first time in 20 years. Foreseeing poor revenues for 2000, the company decided to try a new tactic. The La-Z-Boy name was one of the most recognized. They spent $50 million on advertising and for the first time targeted more affluent and younger buyers, a strategy none too easy considering La-Z-Boy’s present “tacky” connotations. Up to then the company had catered to sports fans and basic armchair living styles. Still, the company thought it would be worth trying and began to roll out updated offerings, such as chairs covered in designer fabrics. Design, too, became all more important, especially with the company’s desire to start catering to women. Smaller, more feminine chairs, updated styles, retro looks, and fabrics created by “painter of light” artist Thomas Kincaid, added to the La-Z-Boy lines. The company took care however, not to alienate its main consumer market and to and keep its chair franchise.

By the middle of 2000, La-Z-Boy had decided to start consolidating. They closed their Lea Industries and Pilliod plants, incorporating production into their other facilities. In addition, La-Z-Boy had to close its Chilhowie, Virginia plant and move production of the lodging line to American of Martinsville due to the September 11th terrorist attack aftermath and its impact on lodging furniture needs. While some employees transferred, 245 lost their jobs, bringing the total eliminated jobs to almost 3,000 since July 2000.

In September, La-Z-Boy streamlined at the top as well; their management and reporting structure broke into two groups, Case-goods and Upholstery. The Casegoods group comprised the dining room sets, hutches, and tables, while sofas and chairs fell under the Upholstery group. In addition they incorporated their LADD line into these two divisions and phased out the LADD name.

New Features and Innovations

By the new millennium the high-tech boom had not only taken over business but had infiltrated the La-Z-Boy Design teams as well. While they had already designed chairs with advanced features, nothing else showcased the Web-savvy world more than La-Z-Boy’s newest recliner, created as a joint venture with Microsoft, Inc. Called the “Explorer E-cliner,” this model featured a La-Z-Boy chair with built-in keyboard tray and an infrared beam that connected to a Sony WebTV receiver. Users could sit comfortably in their favorite recliner and surf the Web without leaving the chair.

For 2002, La-Z-Boy began to branch out its lines even more. They entered a joint venture with European household goods manufacturer Steinhoff Group to produce a line of chairs for the European market. The collection would be manufactured in Steinhoff’s base in Germany. Later that year the company decided to showcase a new line of designer recliners featuring looks by top fashion designers such as Tommy Hilfiger, Nicole Miller, and Cynthia Rowley. The company felt these chairs would extend their “new look of comfort” concept. While the initial run was auctioned off for charity, La-Z-Boy had started to evaluate a mass-production option with a possible marketing target of professional women.