Jan 3, 2020 2:00:00 PM
Bob Phibbs interviewed Alex Shuford, CEO of ARRA, HF Companies. In this episode Bob and Alex talked about managing expectations when it comes to customer service.
Bob: Welcome. Alex Shuford, CEO of ARRA, H F companies, and that includes century furniture, Hancock and Moore, Hickory chair, and others.
Alex: Thank you. Great to be with you.
Bob: Thank you. So, who are you and what do you have to do with retail?
Alex: I'm a third-generation owner and operator of a large luxury U.S. furniture manufacturer across multiple brands and have been in the business for 20 years. I actually started, strangely enough, in retail as a young man, right out of college, which is a whole different story.
Bob: No one goes to college and says, I'm going to go work in retail. I did that, but, I'm just curious, did people call you back and say, “would you like to work in furniture?”
Alex: No, I started off after college doing some high net worth advising. Basically selling financial services to business people. And part of what they asked me to do was to specialize in a category. I started seeking out furniture and fabric store owners as part of my consideration set part of the people that I was going to go contact and approach. And the more I researched the stores that were in my area, the more I realized that they were all single mom and pop stores, and that there was an opportunity if I was active and smart enough to pull it off, to roll a few of them up and make a bigger retail business out of a number of these stores that were really only lasting five, seven, 10 years. Kind of a link to their first lease. And then they'd sort of go away and so I bought a little fabric and decorating store in the San Francisco Bay area with the concept that I would open another and acquire a few others in the area. And, I did the classic retail thing. I got up to four stores and I didn't realize, because I was young and foolish that two stores are not twice as hard as one store. It's 10 times as hard as one store and three stores is 10 times harder than the problem you had. And you know, by the time I got to four stores, I was working 80/90 hours a week and running all over the San Francisco Bay area and managing a staff of 40. And, I couldn't quite get over that adolescent stage of retail where you break into kind of professional management and have all the additional benefits.
Bob: I don't mean to interrupt you all the time, but you have so much to talk about, Alex. I just love it. You know, that's such an important point. People think, “Oh, well I would just open another store.” And a lot of times I think people do that more for ego than necessarily demand. So, we do it and then we think, “Oh, well I can, I can just do it,” but you can't be two people. See, that's the difference, I think, right? That you have four stores. And yet it's yours, you've added more responsibility on your back.
Alex: Right. Exactly. Well, you know, I think part of what people underestimate, “two stores or three stores, you know, I'll just replicate the success I had,” but so much of their success in a one store operation is them. So now when you provide only a third of you to the new store that you open, or only half of you, then the problems in that store burn out of control because they're only getting half of what made the first store work, or they're only getting a third if you add the third store. And so not only is it, you're not giving them as much attention, but the things that you don't put your attention on, can get out of control faster and become bigger problems, you know? So, the third store is a harder store to run than the first store because the problems that you would have solved the moment they popped up, because you would have been onsite, are actually allowed to burn for three or four weeks before you even recognize that there was a problem. And now it's not just something that you can will back into its normal pattern. And that's what I found out. Just the combination of part of me hopefully was part of what made the first store successful. And so the other stores didn't have as much of me, but also that lack of me allowed the things that were holding them back to fester and get worse rather than normally having me solve them really quickly. Lesson for me early in business.
Bob: That's such a great lesson. I'm glad if we'd talked about nothing else. I think that's really important for anybody of any size to understand. And I would also add, Alex, that you also were getting farther away from your customer, right?
Cause now you're being drawn into all of these other things and the whole part that made you so successful is moving farther back in your scope of vision. So now you're more likely to maybe make some other things. So, okay, so you decide I am not doing five stores, so what do you do? You end up selling them?
Alex: Yeah, so these four stores are stretching me as thin as I could be stretched then the first.com boom went bust. Pets.com boom. You know, in the, in the early two thousands, and so I was in the Bay area with high end decorating stores. When all of a sudden, you know, somebody turned the faucet off and the business just stopped coming in the door. I went from four stores to three stores to two stores, which was another very good lesson for me as a retailer, that retail is cyclical. That was just a really accentuated cyclical cycle. And having to close a location is incredibly painful. I was in my late twenties. I was having to lay people off. I was having to close stores. I was having to negotiate my way out of leases and relied on my “just add water, instant MBA.” I shrunk down to one store and when I got back to one store, I retained all my best people because each time I shrunk, I kept my really core team. And at that point in time, the team in that one store was so good that I started to be able to do other things. I got into other businesses and eventually got pulled back into the family business of manufacturing furniture and actually kept that one store that survived for another six, seven years out in California as an absentee owner. But the difference this time was because I had expanded up to 40 people and then boiled it back down to the best six or seven. Well, they were so good that they actually didn't need me. Where when I was growing and just getting started, they needed me every moment of the day.
The reverse was now I had really good, trained, competent, trustworthy people. And now seven years later, I actually handed the business off to the manager of the store, who was the third person I ever hired. And she still runs the store today. It's a nice story. The most important thing, I guess for me in those years was I learned how tough retail was, and I learned those lessons of customer service at the point of contact. They really flavored and colored my career. You know, a healthy respect for just how critical the relationship with the consumer is in the store itself, at the point of contact and how that can be the difference maker. Hopefully for our current customers, today's customers, as they try to realign their businesses for the age of the internet, there's still personal connection that is a difference maker that they need to accentuate and not run away from. And I think you said it well earlier that when I had one store, I was there every hour of every day. I knew the customers. I actually had a great story about that, if you indulge me, I'll tell you a quick one.
I had owned the first store that I bought for maybe a month. It had been struggling a little bit. I changed the name, I remerchandise it, bought new product, and did a little bit of marketing. And all of a sudden, I thought it was a genius, right? Because sales were growing. And on a Wednesday afternoon at about three o'clock, a lady pulls up in a big stretch, Mercedes-Benz, to this little store, it's only 3,500 square feet and comes blowing through the front doors of the store just as mad as a Hornet. She’s just beside herself and comes up to the counter and I'm standing there next to one of the ladies that I just bought the store from and she starts talking to this lady, “I want to speak to the owner. The drapery job that just got installed at my house is terrible. I have a party tonight. Everybody in the entire communities coming, everybody at the country clubs coming, and I'm going to tell them all the shoddy workmanship that came out of this store.”
I mean, just berating this lady that a month ago I just bought the store from and finally this lady comes up for breath and says, “who is the owner?” And this lady turns to me and points right at me, very ill. And I think I was 24 years old - my eyes must've been as big as butter dishes. And I said, “ma'am, I'm sorry. I will follow you to your house. And I will fix every single one of those drapery panels for your party tonight, and then tomorrow we'll pick them all back up and fix them.” She didn't know what to say. She's fine. She turns around and runs out and gets in her car, and I look at the lady that I just bought the store from. I said, “what do I do?” She said, “you better follow her.”
So, I picked up a toolkit we have behind the counter, I ran out into the parking lot, got in my car, and followed this lady to her house. Now mind you, this is the East Bay of San Francisco. This is out in the hot area. We’re in the summer, it's 104 degrees. I sat in this lady's house between the draperies and the window for three hours hand hemming the bottom of these draperies with a needle and thread window by window, by window. I was leaving when her guests were coming in for the party, sweating. I had sweat through my shirt. The next day we picked them all up, put them back in the work room and reworked them. And there were a lot of lessons that came out of that. First was customer service, it’s an interesting thing. You have to be ready for the volcano to explode on you. The other lesson that I learned shortly thereafter was she became one of our best customers over the next four or five years because we had taken that moment and turned it into a positive which could have been a crisis. I could have yelled at her and stomped my foot and said, “we're not doing anything about it, and they're fine.” And then what I learned many years later, which was probably the more nuanced lesson, was she was actually a pretty shy and gentle person. That she had had to sit there and watch all day as these draperies were being put up that were not what she had intended, and she had to work herself up to be angry enough to come and confront us because it wasn't her natural state of being that she was scared to come in the store and confront us, but she as a consumer wanted what she had intended. And so, she had to sit there for hours to get herself worked up into a lather to be mad enough to come in the store. And if I had reacted with anger, it would have gone supernova. But instead I reacted with softness. Over the rest of her time with us so far outweighed the value of that one order that it doesn't even bear talking about it. And for me as a young retailer, it was a very, very formative moment in my career. The way we did business and realigned it all around service. We would even talk to our customers up front and say, “look, if it's possible and not only possible, but likely that in this project something's going to go wrong. And that's why you're picking us that we know everything won't go right. And we'll be there with you to make it right, that we're going to see you all the way through to the end of this project. And so, let's not assume everything will be perfect along the way.” It's kind of like a marriage, right? When you deal with the customer on a long-term project, you're kind of getting married to them cause you're going to be working together and communicating constantly over many months.
And that's what we tried to tell our customers that in this marriage it takes two. And we will do our part to work with you. You do your part to work with us. When something goes wrong, we'll talk about it and we'll figure it out. And you don't have to get angry because you're afraid we aren't going to take responsibility for it. We will be there with you. And that was a big deal for my little business out there. We try to hold through that even today. It's one of those things that retailers in the faceless age of the internet - it's a part of the physical retail experience that it just can't be easily replicated online.
Bob: That's an amazing story, and I'd love to just spend the rest of the time unpacking why that is such a great lesson from everything when you're first starting out and it’s easy to pass the buck. “This was her job, not mine.” But you took it and said I'm going to go and follow. Here's this woman mad enough to say, “my whole life is ruined because of you and I need to get ahead of it.” You took the ball in your court and you ran with it. But more importantly, I think that you manage expectations because of that. You know? I think so many people think that, “Oh, there was a painful thing that happened in this order.” That's a gift, because then you can say, “yeah, all right?” So, we now have to change something and manage expectations and then get ahead of it because that's all anyone wants to know is, “I'm going to be reasonable. Things can happen.” You are the first guy I've ever heard and I've had many draperies done a lot from probably one of your competitors up there, Monique's up there in the Campbell sound, and that managing expectations, it's not all going to be great, but I can tell you that we're going to be able to handle those little moments. So that you will always come back to us and that's why, let's be honest, Alex, that's probably why your brand is still going strong. When an awful lot of furniture companies have gone out around you.
Bob: from the customer standpoint. I think that's very different.
Alex: Commiserating and understanding that especially in large, durable goods purchases, they're big decisions for almost everybody. And, when you add the element of style to it, especially a lady that's making an expensive purchase of home furnishings in her home, and what she chooses is reflecting to her friends and family, and part of her. She needs it to not only go well because it's stressful and it's expensive, but she needs it to show to her friends and family that she can make good style choices. And so, you take all of that emotion and bundle it up into this decision, and then you wonder why people get stressed and they get mad when something goes slightly askew.
And I tell our people all the time, “perfectly understandable.” They spent months working on the idea, the concept, and then they spent another month or two waiting for it to be delivered and installed. And all of that is excitement, anticipation, but also fear and stress. And then in that moment of unveiling, it's all released. And it's either released positively or negatively, and we've got to be there with them, because they also don't do it that frequently in their life, right?
You redecorate your home maybe only a handful of times - it's just like buying a car. Buying a car is stressful. It's a big ticket, and you're making a big decision. You're going to change the next three, four years of your life. People are going to think about you in a certain way because the type of car you drive and you don't want to get something that's going to break down and cost you a lot of money. I mean, we think people are just pure logical analytical units, right? That's what the business world wants you to think. And you go get your MBA. Why don't you just put them in a spreadsheet and chart out the demand curve? And now people are these crazy bundles of emotion, and if you can become a confidant and if you can become somebody that's a partner in the journey to take a co-traveler with them, then it's a much different thing than being just a supplier, a vendor, or a retailer.
Bob: I truly believe that, and you take them from being a transaction to that long-term partner. I appreciate that. You know, I often say customers aren't just buying a product. They're buying a better version of their lives when they pick a premium item or a luxury item. It's a way of saying, “these are my values. This is what I believe, which is reflected in the style and the purchase.” But also to your point, there's risk involved in it because this is what I think I want. But if I'm buying, you know, luxury furniture from you, I'm not seeing that for what, three, four months.
Alex: It's hard to hide if I get it wrong. I've just bought this gorgeous sofa. I get it in my house and decide that it is exactly what I ordered and I don't love it. Now, if you do that with a shirt, you hide it in your closet. If you do that with a sofa.
Bob: You move. Let's fast forward to you now. You are the CEO with all of these different luxury brands, and one thing that impressed me is you've made a real firm commitment to your brick and mortar retailers. Can you tell us just a little bit about this, a select group that you've decided to focus on.
Alex: Absolutely. There’s sort of a historical amount of pressure these days on traditional retailers and it seems to be even more acute in the home furnishings category because the type of store that has existed previously was a large footprint operation. So, you think about little stores that have pressure from online retailers. When you expand that out to a 20,000 or 50,000 square foot store and the kind of cost structure that goes along with it, we're seeing a lot of our retail partners struggle to stay in business. And these are partners we've had for many decades. The sort of locally owned furniture store operator and part of that pressure matrix certainly. It’s rising costs, but it's also coming from pressures of distribution, channel changes, web changes, the sort of vertical branded players in the marketplace, like Restoration Hardware, Crate and Barrel, etc.
There are other ways that a consumer can access furniture. We as a manufacturer need to have that local presence in order to display the product. In order to nuance the sales of the product and in order to help that customer not make that big yellow sofa mistake. It takes some hand holding but their strain is that their margins are under pressure. They don't have a selection of products that give them a unique selling proposition. If you're selling the same thing that's available online or in lots of other stores, then the inventory that you're going to display is eroded by that lack of margin. The lack of turn, that lack of exclusivity.
Alex: We're going to get showroom. The classic problem that you see and hear and it's going to get bought somewhere else and it's going to be the lowest common denominator that sells it because they'll hit the lowest price. In that lowest common denominator, they may have bad service, they may have any other number of places where they cut corners. But the consumer at that moment of acquisition is just looking at the price. You know, all the rest will come later, but it's too late. You've already bought the piece of furniture problem. So, from our standpoint, we want to, you know, embolden, enhance, sort of build a moat around some of these better retailers that are in the local market areas.
We started to have a conversation with this sort of, and we said, “look, it's okay if you get enough all together and you have enough buying power to work with a company like us, and we'll create product just exclusively for you, we'll work with you to tailor a selection.”
So it's not just us developing something and hoping it works for you, but where you can become an active participant in what we create, and then we can provide that to you in a very tightly distributed manner so that you can make a fair price on it. Price can allow you to pay for a good salespeople and sharp display and marketing programs. Not be constantly, battered by this show-rooming effect or this web pressure that you're feeling from some of the big old-line-distributors.
I'll tell you that more than anything else, we think it's a great product line. We think it's the right approach, but what we saw was this group of retailers looking at us and just saying, “thank you.” Thank you for reaching a hand out to help us stand up. Because I think there's increasingly been this divide between the manufacturing side and the retail side where the retailers feel like they're being left out. They see manufacturers simply stepping out of that canoe and into whatever the new distribution canoe is. And what we've said to them is, no, we're not going to get out of the boat with you. We're going to be in the boat with you. And not only that, we're going to double down. We want to know what's working and what's not. We want your insights and opinions into our process so that we can give you what you need to be successful locally, because having that local presence is for us at least, it's bedrock. It's foundational for our business. We don't do business with some of the big national chains that are dominating landscape. Now, we have built our business over 70 years. Own the local retail success. We finally got to the point where we said, “it's not okay for us to stand idly by and just allow the ecosystem to change so much that that type of retailer goes extinct. We have to help protect them. They are the precious resource. They are the endangered species.
Bob: And what I appreciate about that as well - not to cut you off, Alex - is your commitment to your employees. I mean, how many employees do you have as a manufacturer?
Alex: There’s s a lot. We've got quite a few families that depend on this local, almost 2000.
Bob: I mean, it's a holistic approach that this is what's good for us. It's good for our employees, it's good for our customers, and it's good for our retailers. And in an era when, so many retailers I think are cutting their losses and saying, “I will just go online.” What they miss is that that local furniture gallery in your case is the one that can most likely make somebody go, “wow, I wonder what that would look like in my home.” Or that has that connection to those homes where people have used your product for generations and suddenly say, “I want something new. I'm going to go to the people that I trust instead of ordering it online. If I don't like it, I'll return it.” Because that's a very different mindset than luxury furniture, which you sell.
Alex: That's absolutely right. We were kind of okay with the concept that there is a percentage of the transactions and home furnishings, they're going to be done digitally. They're going to be done online. And there may even be a phase of your decorating life where you are dominated by online purchases. Maybe when you're just starting out in your own apartment or your own home and the first things you buy, you're more willing at that point in time to go buy a book case from say a retailer like Ikea, where you've got to do the labor of putting it together. In the higher end side of the market, we always kind of smile a little bit and say, “we don't force our customers to do the final step of manufacturing for us as part of what you get when you pay for the furniture.”
If you're a young couple or young person just starting out, you're willing to provide that labor into the process. You're willing to take a little bit more risk because the price is low and you'll deal with having to pack it back up and all that. But as your life gets busy as your income moves up a little bit, your time becomes more valuable, and you might want something that's more refined that that can be executed only in a factory, right? That there's a difference between a bookcase that's assembled with rotating screws locally and one that's put together properly in a factory. And as you move up that social economic spectrum and you look for more refined things, I think you then really begin to appreciate what a local retailer brings to the table. As far as advice, as far as administration of an order, I think you start to develop that appreciation for what the local business provides to your community. The connective tissue that comes from locally owned restaurants and locally owned stores is very different than even the connections that come from a national retailer, and certainly different than the lack of connections that come from a web transaction that happens completely out of market. I just think we know that as a younger, newer customer, there's lots of growth potential for the online retailers and then we see a reduction of that as they move up the ladder.
But still, if you're somebody that is buying something that's more of decorating, sort of a junk food, if you will - I just need it for this event. We got a party coming up. I need a little table over there. I'm not ready to make my commitment to the piece. Or I just need some new bed linens. I just need some pillows for my sofa. You know, that's sort of decorating junk food piece can easily be done online. Because you're not making a longer commitment to it. “I don't have to worry about as much. I don't have as much risk.” When it's a bigger and more important transaction for me, a bigger purchase for me, I want to go talk to somebody. I want to maybe see some examples of that company's product locally. I want somebody to come to my house and spend some time. I own a furniture and decorating company with my family, and so I've been in the industry 20 years and people look at me and say, “Oh, you must do your own home decorating.” That's absolutely not my wife. And I hired a designer just like I don't do my own dentistry and I don't do my own lawyering. You know, I've read some legal agreements, but I'm not a lawyer. I don't do it every day of my life, eight hours a day. I'm not an expert. And when it's expensive and important, and it's going to last a long time. I want an expert. I won't an actual doctor doing my doctoring. I don't want to just try to figure it out myself. Most of the time, you know it’s the same with my home designs.
Bob: I think that's such a great point. And let's be honest, also, you know, when I use a CPA for my taxes, I know I could probably use QuickBooks, but at some point someone along the way was able to point you in a way that said, “let me instruct you why this is better.” And I think particularly when I gained to appreciate finer furniture and art and window coverings in particular, you have to have your eyes opened that the most expensive piece you buy is the cheapest one cause it's not going to last or feel right or etc.. But you've also got to have someone who doesn't just throw out buzzwords they're actually able to show you when we hand roll a seam like this, it gives a much different look than something that is mass produced. And ultimately, I think for a lot of millennials they are very well educated and they're very curious, which is why whiskey and some of the things that take longer, whether it's food or drink, they're curious about that craftsmanship. I think maybe I like to believe we are coming into a golden time when consumers are starting to appreciate, “Oh, a human being made this and they have a skill level and a talent that speaks well with my lifestyle.
Alex: Oh, I, I think you hit the nail on the head. I think you're 100% correct. I think there's a Renaissance around craft. I think it’s peculating up from the sort of younger consumers in the marketplace who are developing a real appreciation for handmade things and refine things. And, and you see it in apparel, you certainly see it in food and drink. I think as that develops, with purchases in your life, you sort of make that decision that “am I ready to commit to something that's fine and durable and long lasting? Or am I still in this category buying the thing that stamped out 100,000 at the time?” And I think for everybody, that duality is at play. All the time. You mentioned art. Art's a great one, right? When we graduate from college or getting our first career art as a poster art becomes a print of a thing. A print of a more obscure artist. And then art becomes an original of an artist, and there's this evolution that you go through, and at some point in your life, you look back and you say, “I can't believe I ever just had posters on my wall,” but that's how it starts.
That's how the appreciation begins. And I think the same thing in almost every product category that I see. I see people walking around all the time that make their passion or their hobby they become very well educated in and are willing to invest in. It may be that somebody loves fine shoes, they're wearing hand-stitched, beautiful shoes. And you say, “gosh, I can't believe you spent $900 or $1,200 on a pair of shoes,” and oftentimes that person responds, “but I can wear these for my entire life. I'll have these shoes for 20 years.”
Alex: Instead of just buying something off the rack that wears out after three months. And you're just cycling to a new pair, and not only will they last, but they'll will also tend to be timeless, and be appreciated by those around me over the long arc of time because of how well-crafted they were. They're not trying to just catch the next trend. They are really pieces of functional consumer art that you use in your everyday life. Our furniture falls in that same category, they're even consumer products made in bulk. I still have my original iPhone at home because I can't bear to throw it away. It's such a beautiful, iconic thing, and it hasn’t been charged in years, but it's in the bookcase behind my desk because it’s a piece of industrial art.
Bob: Yeah. We appreciate design. I appreciate that. And I could talk to you all day, Alex. I think you are just brilliant, and you have such a great way about you and you get it. I would say if you are a furniture retailer out there and you don't realize that there are people that are out there looking for it and they aren't just going to come in and say, I'm looking for a beige couch, when people come in looking for floor covering, it isn't a matter that it's the cheapest thing that's on sale this weekend that has everything free. That ultimately, if you can just spend the time to actually share that passion in a way that opens people up to suddenly go, “ I think I would like this. That's where the money is, because that's what the craftsmen are. And ultimately, I think that what makes somebody feel better about whenever they buy a $4,000 or $5,000 sofa. Well, you guys make an awful lot of great furniture, and I am excited to hear about the innovations you're doing with your dealers. You're listening to them and making a better version for your customers as well. How can our listeners find out more about you?
Alex: Well, we've got a bevy of websites again, the primary ones, centuryfurniture.com or HancockandMoore.com or Hickorychair.com. And, obviously we're here in Hickory, North Carolina, and if anybody's in this area traveling, and they want to stop in and take a factory tour, the doors are always open and they're always welcomed. So, seek us out, either in person or online.
Bob: You're a great soul to actually think about that. That is a matter of being transparent. And I would hope that all of our retailers take away again, the idea that the lessons that Alex learned all came from where? From the customer. And that's what's most important.
Alex: Well, Bob, it's been a pleasure.
Find out more about Alex here.