Conn's Sees Furniture As Growth Category

By Alan Wolf On Apr 9 2012 - 4:01am




BEAUMONT, TEXAS – Conn’s foresees its burgeoning furniture and bedding business to comprise as much as 50 percent of its sales mix over time at the expense of CE.

Chairman/CEO Theo Wright said the category may also eventually occupy 40 percent to 50 percent of the chain’s sales floors while CE revenue and real estate “will diminish proportionately.”

Wright assured analysts during a fourth-quarter earnings call last week (see financial report on page 30) that electronics will remain a core category which the company is “not pulling away” from. Nonetheless, he acknowledged that CE is a challenging business and one that Conn’s is becoming increasingly less reliant upon for gross profits.

Despite the growing dominance of furniture and mattresses, Wright stressed that major appliances remains “our most important category” and represents a key growth opportunity.

CE is still the company’s largest merchandise profit driver, generating 33 percent of product gross profits in its fourth quarter, ended Jan. 31. However, that figure fell from 46 percent during the year-ago period while furniture and mattresses rose from 19 percent, to 25 percent, of product gross profits, and white goods’ contribution edged up from 27 percent, to 29 percent.

Furniture and mattresses also outpaced all other product categories in same-store sales growth, showing a 46 percent spike in the fourth quarter compared with a 21.2 percent increase in major appliances and a 9.8 percent decline in CE comps.

Furniture and mattress margins are also the richest for Conn’s, at 38.5 percent, compared with 27.5 percent for majaps, 18.1 percent for CE and 12.6 percent for home office.

Driving the growth of furniture and mattresses at Conn’s is a shift to better goods, an ongoing store remodeling program that devotes greater showroom space to the category, and the launch of a container-sized direct-sourcing program that will allow the company to increase margins while remaining promotional.

Conn’s said the gains in furniture and bedding contributed to a sharp reversal of its fourth-quarter fortunes, which included a nearly $8 million profit compared to a $3.6 million year-ago loss.

Conversely, Conn’s has reduced its CE exposure by moving away from low-profit products and focusing on “higher-ticket TVs with new technologies and larger screen sizes that will provide a reasonable profit,” Wright said.

He added that Conn’s supports vendors’ new uniform pricing policies and stands to benefit from them if they hold, although the changes make it difficult for the retailer to plan its TV business.

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