NorthCape gaining market share in tough times
Kristine Ellis -- Casual Living, July 1, 2009
Call it serendipity. Already known for its value-priced frames, NorthCape International launched its cushion manufacturing facility and national network of warehouses just in time for the bottom to fall out of the retail market.
As a result, its dealers have been able to make good margins by dressing up its frames, its stocking program has allowed them to make minimum just-in-time purchases, and NorthCape has gained market share in an economy that has many on the run.
"We are picking up dealers who in the past only wanted to sell a $3,000 to $5,000 sofa," said Tom Murray, president of NorthCape. "Now they are happy to sell one of our $1,000 sofas because it'll turn."
NorthCape has gone through a significant transformation since it was launched in 1999 as Chicago Wicker by Murray and his partners, Bill Wenzel, vice president, and Erin Walsh, CFO. Initially, the focus was on having inventory at a good price.
"We were very unsuccessful out of the gate," Murray said. "The first year we ended up with probably four times as much inventory as sales."
Knowing they were approaching the category with a commodity mindset, the partners decided to step back and begin again by asking their customers what they wanted. Then, instead of buying off the shelf, they designed the product and had it made in Asia.
Finding their niche, the partners began to build on their success. By 2003 the company had a national sales force and a new name in recognition of its expansion beyond outdoor wicker, although its headquarters remained in Chicago.
Today, outdoor woven accounts for about 60% of sales; cushions and umbrellas about 25%; sling 10%; and extruded aluminum furniture, furniture covers and other accessories the rest.
Substance before show
NorthCape opened its Chicago-area cushion manufacturing plant in 2007.
"It was a home run for everybody," Murray said. "We had pent-up demand just for our own frames, and our customers got improved product and selection, faster turnaround and better comfort."
The plant triggered several opportunities. For example, Murray expects both the replacement cushion and umbrella categories will take off in 2010 as more dealers realize NorthCape's capabilities in these areas.
The company has been characteristically quiet about the categories as it works out the details.
"We tend to be a little understated in our marketing when we offer something new because we don't want to over-promise," Murray said. "I've seen too many companies fail when they show well and then can't deliver."
Murray calls this approach "putting substance before show" and credits it in large part for the company's success.
"I think putting substance first and being a value player are the two most important things we've done and a good formula for us," he said.
NorthCape operated out of warehouses in New Jersey and Illinois until it acquired a small distributor in Florida in 2007 and added another small distributor in Southern California last year.
As a result of these additions, its sales in these economically depressed areas of the country this season have been exceptional. Specialty retailers who were leery about carrying inventory have been able to keep their floors stocked thanks to NorthCape's no minimum order requirement. In addition, those dealers close enough to the warehouses can pick the order up the day after placement.
"The nice thing about that for us is that we know they are picking up something they will sell for a profit," Murray said. "Their margins might be thinner but they aren't selling our product at cost."
NorthCape also offered its dealers a cross-stock program for 2009 that it will push even harder for 2010 following this year's success.
"For those who want something different than what is in our warehouse program, we'll bring in less-than-container loads if by order by October," Murray said. "The replenishment cycle is long, but the program allows them to get into unique products without having to get into large container buys."
Change is good
Any carryover for 2010 will be early discounts on selected inventory. Typically, like most manufacturers, the company waited until the end of the season to offer promotions on product that wasn't moving. This year it began offering them in February.
"We were very precise in what we discounted, and it worked out really well," Murray said. "We're going to continue to do it in good times and bad."
NorthCape is racing toward 2010 full tilt with several new collections in its woven, sling and extruded categories with particular attention to a "comfy contemporary" style. In addition, NorthCape will introduce five new collections under its license with Southern Living magazine.
"Price points will be focused on what we've seen work this year," Murray said. "We think 2010 and possibly 2011 will have the same buying pattern, so we will continue putting more bang into the cushions and fabrics with our value frames."
With that focus, the partners hired industry expert Kim Golson to step up their 2010 fabric program.
"When I heard that she was available, I jumped at the opportunity," Murray said. "She's going to take our overall cushion and fabric program through the roof in 2010."
Murray's enthusiasm is contagious and intentionally so in light of the economy. While many talk about the opportunities a downturn presents, he and his partners are doing everything they can turn those opportunities into market share for NorthCape and its dealers.
"For us, and other manufacturers, to be down in the dumps now would be catastrophic for dealers," he said. "They have their own set of problems, and if you can't help them get excited, you can actually make things worse."
As he's seen with dealers who are trying NorthCape for the first time as they search for new strategies to remain profitable, Murray believes the industry's success depends on its willingness to change to meet a new paradigm — one his company is well-suited to leverage.
"When you are the new kid on the block, you need change, and we are still the new kid," Murray said. "So change is good."