Shaw Furniture, E-Commerce Dream Proves the Undoing of a Solid
Business
November 24, 2000
By MATT RICHTEL, NY Times
New York Times
front page November 24, 2000
RANDLEMAN, N.C. Just before midnight, Larry K. Canoy steps into his
truck to drive an hour to his father's trailer, where he will spend
the night. Neither the commute nor the accommodations are ideal,
but Mr. Canoy has been cutting back on expenses, like rent, since
the new economy upstarts came to town and turned his world on its
head.
Until recently, Mr. Canoy and 65 colleagues worked at Shaw
Furniture Gallery, a fixture for six decades in this industrial
town of 4,000 near High Point, North Carolina's furniture capital.
The store closed after being swept up in a dot-com revolution,
leaving Mr. Canoy and some co-workers in perilous financial
straits.
But it was not that Shaw was bested by an Internet competitor.
Rather, the company was done in by an Internet partner that
promised to make Shaw, one of the 10 largest furniture stores in
North Carolina, part of the biggest furniture outlet the world had
ever seen.
"They tried to high-tech us rednecks," said Mr. Canoy, 39, turning
back from the 1996 Toyota 4Runner he may soon return to creditors.
"But they ruined us."
Dot-com failures and layoffs are increasingly common, as investors
shed ventures unlikely to meet once- lofty expectations. Yet the
bankruptcies of Shaw Furniture and its partner, Living.com, stand
apart, and not merely because they took place far from New York or
Palo Alto.
Theirs was a union marked by the collision of two worlds. When
Living.com acquired Shaw last year to gain a toehold in the
furniture business, Internet entrepreneurship came face to face
with the rigid, traditional world of home furnishings.
Technology-savvy M.B.A.'s intersected with hands-on sellers of sofa
beds.
And the difference that counted most may have been how the
partners measured success. Living.com was designed to be a
billion-dollar company, its name whispered in the same breath with
Amazon.com, returning tens of millions of dollars to its investors.
In the end, though, company executives issued a statement saying
that those returns would not materialize any time soon and that
investors were unwilling to wait.
For its part, Shaw was accustomed to earning a profit, albeit a
modest one compared with the aspirations of many Internet
start-ups. Before the takeover, it expected to sell $20 million
this year in merchandise, earning $1 million in profits and paying
its top sales people $70,000. And it might have continued that
course had its fate not become tied to a plan to move the furniture
business into the 21st century.
"They had every C-blank-O you can imagine C.E.O., C.F.O.,
C.M.O.," said Mark A. Milligan, a former general manager of Shaw,
who is presiding over its bankruptcy liquidation. "I remember one
of them made the statement, `We're going to revolutionize the
furniture industry.' "
"I just rolled my eyes and said, `Get a clue,' " he continued.
"You're not going to come in here like a bunch of cowboys and
change the way we've been doing business for 100 years."
Or in the case of Shaw, for 59 years. George F. Shaw started the
company in 1940 to sell inexpensive furniture to mill workers who
lived near the Deep River. It became a fixture in Randleman, the
hometown of the Petty family of stock car racing fame. Shaw grew
steadily, and became a discount hub. Out-of- towners arrived in
Lincoln Town Cars and Range Rovers to peruse showrooms full of oak,
pine and maple bedroom and dining room sets, sofas and chairs made
by top furniture lines, then order the pieces for delivery. Shaw
did much of its sales by phone to out-of-state buyers.
As it had been for 58 consecutive years, Shaw was profitable in
late 1998 when Sherrill W. Shaw, George's son, who owned the
company and was nearing retirement, received an offer from
Living.com. In March 1999, Living.com took ownership of the gallery
for a price that Mr. Shaw said was over $5 million; he declined to
be more specific.
A father-and-son team was also behind Living.com. Andrew Busey,
29, who had already started and sold a successful Internet
business, was chief executive. His father, Jay Busey, 60, who had
spent 37 years in furniture business, became the chief of the Shaw
subsidiary.
The Buseys deemed the Shaw acquisition crucial because they
figured it would give them access to top furniture lines.
Manufacturers had resisted selling on the Internet, acceding to
dealers who said they should not have to compete against virtual
entities that did not have to spend millions on showrooms.
Meanwhile, the Buseys were also courting investors, with marked
success. They attracted about $70 million from sources like
Benchmark Capital, a Silicon Valley venture capital fund, and
Starbucks, and signed a deal to become the exclusive home
furnishings retailer on Amazon.com.
As part of the deal with the venture capitalists, the younger Mr.
Busey stepped aside as chief executive of Living.com and became
chairman. The new chief was Shaun Holliday, the former chief
executive of Guinness Ireland. Former executives from Kellogg and
America Online joined them at the company's headquarters in Austin,
Tex.
Asked for his account of the demise of Living.com and Shaw, the
younger Mr. Busey declined to comment. His father cited the failure
of the financial backers to pay close attention to the inner
workings of the furniture business. Company backers, including
Benchmark Capital and Amazon.com, did not respond to requests for
interviews.
In any case, even after Living.com started its site in July 1999,
there was no immediate sense that the old and new businesses were
on a collision course. At first, some of the impact was even
welcomed in Randleman.
Under Mr. Shaw, employees say, they wore ties to work. Under
Living.com, dress was casual. Living.com stocked Shaw's break room
with free snacks and sodas. Living.com also gave a few hundred to a
few thousand stock options to Shaw employees. Mr. Canoy, who joined
Shaw in 1984 working in the warehouse, received several hundred.
A tall, earnest man, who drove a company delivery truck before
hurting his back carrying an armoire and then moved to sales, Mr.
Canoy said he planned to use the options to save for college
tuition for his 5-year-old daughter. He figured sales calls
referred from Living.com's Web site would bolster the $4,000 he
typically earned each month in commissions, and help pay expenses,
like the $400 a month he owed in child support.
But the warm feelings between the companies did not last long.
Within two weeks of the site's introduction, most major furniture
makers, under pressure from retailers, refused to let Living.com
sell their products. The Web site was able to carry a mere 20
percent of the inventory that Shaw was allowed to sell over the
phone, leaving Living.com to sell inexpensive, lower-quality lines,
Mr. Milligan said.
Shaw was still allowed to sell all lines if, that is, it
could
fill the orders. The trouble was that Living.com upgraded Shaw's
computer, telephone and shipping systems and sought to integrate
them with a huge call center that Living.com built 16 miles away in
Greensboro. The results were disastrous.
Shaw's old computer system, designed for furniture industry sales
people to check prices, place orders and track inventory, was
replaced with a state-of-the art Oracle database system.
Unfortunately, sales people often could not find an item's price in
the computer. The system also falsely reported whether an order was
in stock or had been shipped.
"It was a nightmare trying to track things," said John Timothy
Shepard, 46, a salesman. He recalled one incident where he could
not find the status of a $19,000 order. "We found a part of the
order to ship, but not the rest. The next week we found the second
part of the order, but couldn't find the first part."
Living.com sent help lots of it. During one two-month period,
Oracle sent 10 consultants to Randleman, who worked seven days a
week at a cost of $150 to $200 an hour to try to fix the system,
Mr. Milligan said.
When orders were successfully placed, the real trouble began. To
speed deliveries, Living.com decided to change Shaw's shipping
company. But according to Mr. Milligan, the new company was
inexperienced in shipping furniture. Dressers were returned with
holes, desks with sides ripped off, headboards split in two. The
company wound up with a return rate as high as 30 percent, he said.
In addition to sharing Living.com's computer system and delivery
service, Shaw was also sharing its expenses. Mr. Milligan said
Shaw's revenue was siphoned off to pay the parent company's bills.
This is hardly atypical of a subsidiary, but the result was that
Shaw found it lacked money to pay furniture manufacturers. Several
cut off shipments.
Worst of all, Mr. Milligan and the elder Mr. Busey, who resigned
in June, said the Living.com executives in Austin would not listen
to any counsel from Randleman about how to operate a furniture
business. "They wanted to strategize and theorize and not listen to
what really went on," Mr. Busey said.
Mr. Milligan said that one day on a conference call to Austin, he
played voice mail messages from three Shaw customers irate they had
not received orders or had received damaged goods. He quoted Mr.
Holliday, the chief executive, as saying, "We really have to make
some changes." But, Mr. Milligan said, "It was forgotten the next
day."
Living.com declared bankruptcy on Aug. 29. The parent company laid
off 275, in addition to Shaw's staff. Left in the lurch were 300 to
400 customers who say they have not received either furniture or
reimbursement for payments they made. Their claims are being
reviewed as part of the bankruptcy proceedings.
Many Shaw employees have found new jobs, in some cases joining
Shaw's competitors. Sales people who earned $4,000 a month say they
are scraping by with incomes of less than $1,000. Several may lose
homes and cars.
To cut costs, Mr. Canoy is moving out of the farmhouse he rented
for $250 a month. He has told his daughter they "won't have a
Christmas this year."
In the end, Mr. Canoy said, what galls him is that Living.com
spent so much money to accomplish so little. "They destroyed us,"
he said.
"They walked in here with $70 million and couldn't make it
happen," he said. "Think about it: $70 million. And within 13
months, it was gone."
The New York Times on the Web
http://www.nytimes.com
New York Times
front page November 24, 2000
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