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Business Observer Friday, Jan. 23, 2004 15 years ago

General Store No More

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New blood revives a century-old, family-owned retailer of home furnishings.

General Store No More

New blood revives a century-old, family-owned retailer of home furnishings.

By Francis X. Gilpin

Associate Editor

A banner slung across a dusty main street invited town folk to celebrate one of the community's biggest employers. Two blocks west, the great-grandson of the company's founder, a bespectacled 45-year-old nicknamed "Wogie," stood before a replica of a general storefront where his ancestors began selling dry goods in 1904.

Behind the mockup, a century's worth of company memorabilia was displayed around a 1913 Ford pickup. Bonneted women in floor-length period dress handed out gifts from the flatbed.

Welcome to Mayberry - er, Mulberry. Welcome to the small-town Southern culture of W.S. Badcock Corp.

Residential furnishing retailers like Badcock don't get to toast their 100th anniversary by doing everything the same way they always did. While the Polk County phosphate industry limps along, Badcock Corp., which employs 600 locals, has fresh legs.

Wogie, born Wogan Stanhope Badcock III, and his two brothers did something six years ago that no Badcock had ever done. They turned over the family business to an outsider.

Not only was Donald C. Marks not from Imperial Polk County. Marks grew up in Southern California. He lives in St. Petersburg's Old Northeast and commutes 116 miles roundtrip to work. For weekend pleasure, Marks travels shorter distances very fast on a sanctioned drag-racing circuit.

But Marks, 56, has decades of experience running expansive retail operations for companies like BankAmerica Corp. and Thorn-EMI PLC. He may have been just what stodgy Badcock Corp. needed when he became president in 1998. While updating a tired brand, Marks has been sensitive to Badcock tradition and a successful dealer-oriented business model. He's an exemplar of the gingerly touch required of an outsider who gets recruited to lead a languishing family-run business.

Marks took over almost two years after the 1996 death of Wogie's father, W.S. Badcock Jr.

Unlike most chains, Badcock Corp. consigns merchandise to dealers, who get a straight 25% sales commission upon customer payment. Heavily dependent on credit purchases, Badcock finances the transactions but also dictates how much the appliances, electronics and furniture on the showroom floor get tagged for. (The home office would lose inventory control if dealers could negotiate retail price with customers.)

As with Badcock chief executives before him, Marks is careful that company pricing doesn't hurt sales volume for dealers. The balance is delicate to maintain, but Marks says Wogie Badcock Jr. was "a master at it."

The elder Badcock's health had been in decline for years before he succumbed to pneumonia at age 64. His incapacity caused the 350-store chain to lose a little edge, says veteran industry analyst Wallace W. Epperson, an unabashed admirer of the late Badcock patriarch and the company. "There's a normal decline in confidence," says Epperson. "Maybe you don't open the stores you should or the credit policy gets too tight."

Closely held W.S. Badcock Corp. discloses little financial data. A rare snapshot of its finances surfaced when the Internal Revenue Service performed some calculations for the purpose of levying a $5.3 million tax on W.S. Badcock Jr.'s estate.

The 1996 IRS figures show profits had been slipping at Badcock Corp. The company earned $6.6 million on sales of $249.7 million in 1992, according to the IRS. That 2.6% return improved over the next two years. Then, the IRS claims, earnings bounded downward, from $13.2 million in 1994 to $7.7 million in 1995 to $5.2 million in 1996.

By Badcock Jr.'s death, the return on sales had dipped to 1.6%.

Management by committee

His heirs, managing the company by family committee, apparently lacked a ready solution. "That's not how a business like that should be run," says Epperson.

Marks says the company was in need of overhaul upon his arrival. "In terms of same-store sales increases, they'd been flat for a couple, three years," he recalls.

The Badcock image, both externally and internally, was taking a beating.

"The stores didn't look very good," says Marks. "The dealers were unsure of where the company was headed. There was a little bit of unrest among the dealers." Fourteen of them filed a lawsuit in Pasco County that accused Badcock Corp. of reducing their commissions by charging new fees.

"People were doing things without letting the dealers know in enough advance notice and selling the ideas," says Marks, "as opposed to telling them what they were going to do."

Marks, who used to oversee large swaths of territory for fast-food purveyors like McDonald's and Taco Bell, says that wasn't his style. "I've worked in franchising enough to know better," he says.

The Mulberry headquarters had slashed selling, general and administrative expense. Cutting overhead like information technology support, while maybe prudent under the immediate circumstances, further alienated dealers. "We were starting to fall behind the rest of the industry in our ability to execute," Marks says.

Badcock Corp. was trying to be high service, low price and easy-access-to-credit, all at the same time. "You can't do that," says Marks. "We had to decide what we were going to do."

Starting in 1999, Marks convened a series of planning meetings. With about a dozen senior executives in tow, Marks journeyed to Longboat Key, Ocala, Palm Beach and other resorts to rethink the Badcock mission.

Executives came up with some audacious goals for the next five years: 1) Triple profits; 2) increase sales 5% a year; and 3) open a set number of new stores.

"We ended up hitting all the numbers, except the store number," Marks says. "The wildest dreams came true, mainly because of getting focused."

Badcock targeted middle-income, working-class households headed by dual wage earners making between $30,000 and $65,000 a year. There was a rededication to the dealer model. Traditional franchising or running all company stores was rejected.

The local ties of dealers build fierce customer loyalty in the hamlets of the Southeast where Badcock stores are concentrated. "They usually grew up in the town and they know the community," says Epperson.

Jerry Mascari, a Badcock salesman in Tampa, worked for years in other marketing jobs. "I've never seen anything like it," says Mascari. "There's a personal involvement that Wal-Mart or Rooms to Go would give their eye teeth to have."

Needless to say, Marks didn't tinker with that. "We're a relationship company," he says. "We don't look to sell you once on a bait-and-switch."

Instead of expanding, though, Badcock trimmed the number of stores from 354 in 1998 to 319 by 2003.

Taking advantage of dealer retirements, Badcock closed ailing or ill-situated stores. That included some of the 25% that are company stores. An Ybor City store that opened when the Tampa historic district was a quiet Latin neighborhood had by the 1990s become surrounded by rowdy bars, incompatible with family retailing. Badcock is selling the location, which is to be transformed into a House of Blues nightclub.

With the closures, average per-store sales went up nearly 32%, from $1,057,000 to $1,391,000. Total revenue moved up 18.6%, despite the reduced store count.

In 2000, the company introduced Badcock & more. The concept was an attempt to expand product offerings by enlarging and brightening floor space. Badcock & more stores average about 18,000 square feet, the older stores 13,000.

Out went the faded blue and orange color scheme of Wogie Badcock Jr.'s University of Florida. In came a crisper black-and-red motif. "We wanted something that would attract a younger consumer, a more with-it consumer," says Marks.

By last June, 120 stores had been converted into Badcock & mores. The combined volume at the Badcock & mores surpassed that of the other 200 stores in the chain.

In spite of having to pay for their own remodeling to company specification, "the dealers are now lined up to do it," says Marks.

Pleasing the family

The dealers were finally happy. But what about Badcock family members? Were they happy with company dividend checks?

Badcock Corp.'s paternalistic relationship with dealers, including holding the paper on customer installment purchases, isn't cheap. "Yeah," admits Marks. "We make all of our money - not all of it - we make most of our money on gross margin."

Those margins needed to improve. Badcock had to buy smarter at the semi-annual wholesale furniture showcases in High Point, N.C. "If we make a lot of mistakes and buy things and have to turn them over and clearance them out, that costs us," he says.

Marks says Badcock cuts better deals with suppliers than it did five years ago. Thus, the trebling of profits has come with only a modest rise in showroom prices.

The financial performance has cemented the working partnership between Marks and the Badcock family.

The three sons of Wogie Badcock Jr., a cousin and a brother-in-law all hold senior management positions. "They are doing a good job," says Marks.

In turn, the Badcock majority on the company's board of directors has twice renewed Marks' employment contract. Marks and Epperson's investment-banking partner, James M. Mann, are two of the non-family directors. The family has asked Marks to stay on the board after his eventual retirement.

"I won't say it's always been perfect," Marks says of his rapport with the Badcocks. "We haven't always agreed."

But there is mutual respect. "They treat me well, I treat them well," says Marks. "We get along OK."

That would be in keeping with the retailer's advertising mantra: "Badcock will treat you right."

Marks wants to spread the hometown dealer approach into Kentucky, Virginia and West Virginia, where furniture shoppers were abandoned three years ago by the bankruptcy of Richmond, Va.-based Heilig-Meyers Co.

Badcock Corp. seldom discounts below everyday prices. It made an exception for the day after Thanksgiving last year. The experiment probably won't be repeated.

Everything was just 10% off, but price tags were already so low that the retailer did $8 million worth of sales in five hours. Warehouse capacity is about $50 million at retail. Badcock got rid of almost 20% of its entire inventory in less than a day and had to scramble to find product for the rest of the holiday shopping season.

How is the bottom line today?

Company Chairman Wogie Badcock III says sales for the fiscal year that ended June 30 were $443.8 million. As for how much of that was profit, Marks offers only a hint.

The magic number was close to the $24.3 million of net income reported by New York Stock Exchange-listed rival Haverty Furniture Cos. Inc., he says.

Marks cannot resist pointing out that Atlanta-based Haverty had $704 million in 2002 sales. "Now they're doing 700-and-change million, so that means our return on sales is a little bit better," he notes.

No wonder everybody seemed to be smiling back in Mulberry earlier this month at the kickoff of Badcock Corp.'s yearlong celebration of the 100th anniversary. After praise from the mayor, the chamber of commerce, the economic development council, even the local postmaster, Wogie Badcock walked through the crowd, beaming and accepting more congratulations.

"Thank ya," he drawled. "Thank ya."

Stacking them up

Where do Badcock and the other big Florida furniture retailers fit in among the top 100 in the nation?

2002 salesNational

CompanyHeadquartersin millionsrank

Rooms to GoSeffner$1,300.01

W.S. BadcockMulberry$427.014

City FurnitureTamarac$220.732

Robb & StuckyFort Myers$218.033

Kane's FurniturePinellas Park$164.540

El Dorado FurnitureMiami Gardens$126.546

CarlsBoca Raton$111.251

Baer'sPompano Beach$110.052

Source: The Furniture/ Today trade journal

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