Decorize adds to management lineup, sharpens brand focus

by Paul Schreiber

SBJ Reporter

pschreiber@sbj.net

Going public has both its joys and pains. Recent changes in Decorize's management lineup and product focus are designed to push the public company forward as a home-dcor manufacturer and supplier.

Management changes began at the top when Steve Crowder went to Decorize as CEO and president from his executive vice president slot with Springfield Remanufacturing Corp. in January. Top on his agenda: boost the bottom line through new management hires and give sharper definition to the company's product line.

About four years ago, Jack Stack, CEO of SRC, began work with Steve Fox, CEO and general manager of Quest Capital Alliance LLC, to secure private capital for promising Springfield businesses, raising about $6 million. Fox thought Decorize was a good investment and had a good record of sales.

"When we took a look at it, we advised Steve that these guys were really smart on brand and smart on products, but they really needed some manufacturing disciplines and they needed some business discipline," Stack said.

In January 2002, Quest pumped $225,000 into Decorize through a 100,000 share stock buy and 100,000 warrant buy, Fox said. In November 2002, Quest made a private fund placement to Decorize for $500,000, he added.

Prior to the initial stock buy, Stack approached Decorize's Jon Baker, then president, CEO and chairman of the board, and other management personnel about two and a half years ago with the idea of taking the company to the next level via a management team shift. At a certain point after a company gets up and running, it needs an "organized managerial team to come in and figure out the next steps in the business," Stack said.

SRC also has spent $500,000 on a Decorize preferred stock purchase and has guaranteed a $1 million line of credit thus far in 2004, Fox said. Part of Decorize's move forward was securing additional working capital for tweaking international and domestic infrastructure, said Brent Olson, vice president and treasurer.

"We're making (the loan guaranty) because we believe in the managerial team," said Stack. "We believe that they're going to grow the company significantly, and they're going to need that money to grow."

Baker left Decorize in August to open a consulting business Baker McCormick Group.

Growth planned

Crowder's installation at the helm was the first move in Decorize's management shift.

Crowder's mandate is to guide the company and define its strengths. "I think right now they're all things to all people" Stack said, adding it should focus on one market segment, make good on its promises and then build from there.

Decorize's $15 million finish in 2003 is a start. "Our goal is we've got to drive the company over $50 million as fast as we can. Being a publicly traded company, you have to have that kind of size just to cover yourself. It costs, conservatively, $300,000 to $500,000 a year just to be public." Crowder said.

"For us, being at $10 million or $15 million, or even $20 million, there's just no sex appeal at that level. So the real goal why SRC made the investment, and why I'm over (here), is to grow the business over the next 36 months," Crowder said.

Entrepreneurs can often take companies to $15 million on sheer will-power, sheer force, Stack said, "And then the wheels fall off. It's almost inevitable."

Part of Crowder's three-year, $50 million vision would take advantage of an inherent industry fragmentation making company mergers and acquisitions an active part of Decorize's expansion strategy.

"That's one of the things that I think this company lost sight of is that the main purpose of business is to generate cash," Crowder said, then elaborated, businesses make money and show profits, but it's the receivables that count. When receipts are delayed, interest and taxes don't stop, and this cuts into a company's on-hand operating dollars.

Staff additions

Since March, three people have been added to the company's management line-up: Vik Karode, Tad Moseley and Buzz Leer.

Staff additions are designed to hone company operations through maximizing both production and distribution, said Olson, who also took over as controller and interim CFO since Alex Budzinsky departed Feb. 23.

Vik Karode joined the company as vice president of operations, overseeing sourcing, overseas production and logistics March 8. He will be responsible for perfecting the operations and the supply chain and making sure our product is quality and that we flush out all the less-than-desirable vendors," Olson said.

Previously, Karode worked 11 years with Firestone Tire and Rubber Company in both domestic and international capacities, as well as 11 years with Reichhold Chemicals, five of which were in "turning around troubled divisions and, or troubled operations" in Eastern Europe, he said.

Both GuildMaster and Faith Walk, Decorize subsidiaries, had production moved overseas, Crowder said. Even though facilities in Indonesia, China and the Philippines had in-country managers, overseeing these operations and maintaining quality standards from afar was problematic, he added. Karode will address these issues, Olson said.

"Just getting orders doesn't mean anything if you cannot deliver them on time and in good quality," Karode said. One cost-saving strategy will be implementing new container software that utilizes up to 95 percent of container space available as opposed to the 75 percent, he said.

"Tad (Moseley) is leveraging technology for us so that our customer service and finance (and) everybody else can have the best tools we can to manage (and to) disseminate information and make a decision," Olson said.

Moseley comes over from 14 years at Bass Pro Inc. where his last slot was vice president of information systems and technology. Part of his contribution will be to develop a virtual showroom with a 360-degree perspective, Crowder said.

"Buzz Leer will responsible for generating a lot of revenue," Olson said, of the April 15 addition to Decorize's management.

Leer said he will oversee about 150 sales representatives, who function as company subcontractors in about 10 different groups. They then market Decorize's product line to companies that carry its inventory. About 80 percent of sales in the home furnishings industry are made on the road, he said, with about 20 percent derived from regional trade shows like the one Decorize's management attended this week at High Point, N.C.

Home furnishing market tiers

There are essentially three retail tiers operating in the home furnishing market, with sub-groups scattered among them, Crowder said.

For sheer numbers, the count goes to the smaller retail shops with revenues between $5 million and $10 million, Crowder said, adding they probably number about 50,000. Holding center strata are the middle-tier players with revenues in the $100 million to $600 million range, and on top of the pile sets the national retailers like Dillards and Sears.

It's the middle-tier niche Stack thinks will be a boon to Decorize. "If they then can get that niche, what they hope to do is build volume internally and do some acquisitions" to build a broader product line.

Brand definition

Initially, the company grew from securing smaller specialty store retail accounts, Crowder said, but "when they created Decorize, they got some big key accounts like Home Depot Expo and the Great Indoors and La-Z-Boy. That became a big piece of the business."

As a result, a significant amount of the firm's smaller specialty retail customer base was lost, partially due to the difficulty in coordinating distribution channels, Crowder said. He'd like to see the smaller specialty retail shops make up a full 50 percent of Decorize's business.

What they've tried to do from market is "retrench the company with branding GuildMaster as our specialty retail brand and build that business back to where it was before," Crowder said. Eventually, GuildMaster will be the middle-tier and specialty shop brand with Faith Walk eventually folding under the GuildMaster banner; Decorize will be the label used to attract national retailers, he said.

The company also is trimming back the total number of stock-keeping units SKUs to better define its inventory profile, Karode said. At one time between Decorize, GuildMaster and Faith Walk, there were as many as 22,000 and this is being downsized to about 1,200 ultimately.

Decorize operates two wholly owned subsidiaries overseas, P.T. Niaga Merapi in Yogyakarta, Indonesia, and Westway Enterprises Ltd. in Shenzhen, China, Olson said. Both sites do quality control and expediting functions, he said. Both facilities employ six.

The Far East has the resources, both material and personnel, and at a much more favorable market price than the United States, Olson said. "All your big companies are over there. It doesn't have anything to do with the Far Eastern flavor (of the product), it has to do with the resources."

The firm has also scoped out possible site locations in new and emerging markets, such as Vietnam and Thailand, said Olson.

In the United States, infrastructure improvements will center on beefing up the company's 40,000-square-foot warehouse at 2655 N. Airport Commerce. "We want to build a domestic inventory to give our customers a quicker availability," Crowder said. Interest rates are going up and businesses making buy decisions don't want to wait 12 to14 weeks for a company to figure out the design, build the thing in China and then ship it over, he added.