THE WOODLANDS, TEXAS – Three years back it wasn’t a question of if, but when Conn’s would close its doors for good.
Beset by steepening losses and facing an imminent loan default, the multiregional electronics, majap and mattress chain appeared ready to join the industry’s long list of departed CE dealers.
But all that changed when board member Theo Wright stepped up to the plate as chairman, president and CEO. A former senior manager for Deloitte & Touche; president of Sonic Automotive, one of the nation’s largest car dealers; and principal of his own farm machinery rental business, Wright engineered one of the most dramatic comebacks in retail history by closing underperforming stores, overhauling the in-house credit operation, refinancing the company’s debt, and eschewing low-margin promotional products for more lucrative premium goods.
A year after he assumed the reins, comp sales took off, profitability returned and Conn’s hasn’t looked back since. Indeed, Wright and company are now firmly focused on the future – one in which the chain becomes a major player on the U.S. retail scene.
Building upon its Texas, Oklahoma and Louisiana base, the 74-store business has drawn up a road map that could take it to some 200 big-box locations, stretching across the southern tier of the U.S. from Nevada in the West to the Carolinas in the East.
The build-out began in earnest late last year when Conn’s opened its first stores in Arizona and New Mexico, and will next extend to Denver and Las Vegas.
Fueling the expansion is an asset-based revolving credit facility of $585 million, although the real engine of growth is furniture and bedding. The high-margin categories presently comprise a quarter of all product revenue – nearing the long-term goal of 35 percent – but generate more than 35 percent of total product gross profit.
During its most recent quarter, ended July 31, furniture and mattress comps increased nearly 34 percent, unit volume rose 47 percent for furniture and 38 percent for mattresses, and average selling prices (ASPs) increased for both.
Conn’s considers furniture and bedding a highly fragmented segment among retailers and vendors, which along with a seemingly limitless supply of derivative SKUs, makes it less susceptible to show-rooming and comparison shopping. The products also align with the company’s distribution and delivery model, which is already geared for big-box products like appliances and large-screen TVs, while opportunities abound for direct sourcing from manufacturers.
Even more enticing, the furniture and mattress market is as big as the TV and majap categories combined, providing a long runway for growth.
To showcase the segment, Conn’s has developed a new, larger Home- Plus store format that averages about 35,000 square feet in size and devotes most of the 25 percent increase in sales floor space to the burgeoning businesses. Comp-store sales have increased 10 to 15 percent after existing locations were updated to the new format, the company noted, and all new locations will adhere to the HomePlus model.
Conn’s remodeled 20 stores last year and plans to update another 10 to 12 locations this year. Meanwhile, it expects to close 2013 with an equal number of new stores, including those in the new markets of Phoenix, Tempe and Mesa, Ariz., and Las Cruces, N.M., and will up the pace next year by opening upwards of 20 new locations.
During a conference call last month, Wright declared the first wave of Phoenix metro area stores “successful” and said the company is planning to open four more locations within that market over the next several quarters.
Conn’s is also upping its advertising game, employing TV, print, direct mail and digital marketing to capture new customers and keep existing ones, and continues to leverage its 45-year-old in-house financing operation, which provides affordable credit – and aspirational tier-one products – to subprime borrowers.
Its on-the-spot financing and third-party rent-to-own offers have contributed to significantly higher TV ASPs for Conn’s compared with its market competitors ($1,041 vs. $460, according to NPD Group data), as does a stepped-up training program for its commissioned sales associates. New hires receive two weeks of initial training, and all sales staffers receive regular monthly training and testing, which helped push average sales per associate up 29 percent year over year, from $59,000 to $77,000 in the last quarter.
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