by Company’s business model has shifted to more special orders as it grows its customer base
HILDEBRAN, N.C. – When Baker announced a new management team just over three years ago, it marked the start of a new business model for its wood segment that affected everything from how it utilized its case goods production facilities to the materials it used in new collections.
Today, officials say, the company and its customers are reaping the benefits of those changes, not only with new fashion-forward designs, but with a line that is more moderately priced and is a higher perceived value.
The executive team includes Mike Jolly, who was named named president and chief operating officer; Erica Wingo, vice president, merchandising and Jay Paschall, the former vice president of Baker showrooms, now senior vice president, sales. In addition, the company promoted Mike Kuo to vice president, showrooms.
Jolly recently added the role of CEO to his title and Wingo also recently was promoted to senior vice president, merchandising and marketing.
Jolly, Wingo and Paschall, along with Chris Caraway, vice president, manufacturing, recently had Home News Now in for an exclusive interview and tour of the Hildebran factory, where many of the changes have taken place.
Perhaps the biggest shift has been a reduction in finished goods inventory once built at the Hildebran plant. Made from various domestic and sourced wood components, the finished product was warehoused in and outside the plant, hoping that it eventually would sell.
The idea of heavy inventory might sound like a good idea to many in the business today. However, it wasn’t a good model for Baker, particularly when many of those didn’t sell, which drove up costs in the process.
“I can say that when you walked the building…there was inventory everywhere,” Jolly said. “Plus we had another warehouse that was about 100,000 square feet. It was massive.”
“The thing that shocked me the most was the low number of sales per SKU,” he added, noting that the line also was too high priced. “That is what really jolted us.”
Today the business has shifted to more of a made-to-order model, where product is built from a specific order.
“The whitewood was made to inventory and they guessed at what people would buy, and that didn’t work,” Jolly said of past practices. “So now our inventories are down substantially as well as our work in process. We are not pulling the trigger until we know what has been ordered.”
This has also changed the way the company utilizes its 700,000-square-foot plant in Hildebran, which employs around 100.
In the past, in addition to holding finished goods inventory, much of the plant was used for wood working and assembly.
While the plant still machines many parts such as chair legs and bed posts, much of the actual production of wood pieces is being done overseas as goods — such as a dresser or credenza — are shipped in whitewood or that come in a standard finish. Meanwhile, the Hildebran plant is primarily used for custom work, including processing goods ordered in a custom finish or size.
“That is what custom is all about,” Jolly said. “We get things that are drawn on a napkin.”
Some of the climate-controlled plant in Hildebran is also used to store boxes of assembled cases either finished or in whitewood, coming in from places like Vietnam and Indonesia, India, the Philippines and Italy. Yet, unlike before, these are sold orders waiting for shipment or some type of customization. And while the company is not doing as much woodworking inside the plant as it did it did in years past, Jolly said the facility is still being utilized for the other tasks.
“We are using the one building for both finished goods and for machining and finishing of whitewood,” he said. “So the building is much more utilized, and the turns are much higher than they were, and our work in process is much lower, so it helps your cash flow.”
This mix of whitewood and finished goods is marrying with a dramatic mixed materials story seen in the company’s Baker Luxe collection. In addition to Arabescato marble, pieces in the collection feature bronze, faceted glass, acrylic, white quartz, mother of pearl, pyrite, graphite and other semi-precious stones, plus veneers such as figured walnut, English sycamore and quartered oak. Launched in April 2020, Baker Luxe has grown to about 116 pieces, including the 20 introduced this past October.
“We don’t limit ourselves to a certain price point or material,” Jolly said. “It is basically what Erica (Wingo) and our guest designers working in conjunction with Erica decide what it is going to be made of that steers you to where you are going to go to get these different materials.”
“And that’s how we developed Luxe,” Wingo said. “We were traveling overseas doing product development for another collection and we found so many new materials at the various factories. So you kind of pick the skin and figure out how to apply it…so the material often dictates the form.”
She added that many in the marketplace still view Baker as highly traditional in nature, featuring highly ornamental and carved details.
“Part of what we are trying to do is change that perception,” Wingo said, noting that she has seen a shift in demand for cleaner and more transitional and modern forms.
“And that is what we are selling,” Jolly said of the new design and materials story. “It is not just a wooden box at our level that is going to move anything.”
Case goods remain an integral part of the business, with roughly 60% of the volume on the wood side, compared to 40% for upholstery, a mix the company ultimately wants to see at 50/50. Roughly 35% of the company’s overall volume also includes McGuire, which includes indoor and outdoor furniture.
In addition to McGuire and its standalone Milling Road collection the company also has a relatively large number of designer lines, including high profile names such as Barbara Barry, Thomas Pheasant along with Kara Mann, Laura Kirar, Darryl Carter, Bill Sofield and others. Each of these lines have their own unique product and pricing.
That said, the executives noted that Baker has sharpened price points throughout the line, the goal being to create a mix with a higher perceived value.
“For a luxury brand, we have become a little more moderately priced,” said Caraway, the vice president of manufacturing. “When Luxe came out, it wasn’t Baker price tagged elitism. It was actually scaled towards a bigger, broader audience.”
The previous pricing structure largely accounted for the cost of manufacturing and the amount of inventory being built, all part of the “cost roll” that ultimately had to be recouped. Today, a higher rate of sale on made to order goods is helping the company to absorb overhead, which Paschall said “doesn’t negatively affect the margin you are trying to achieve. So there is a business model around the volume.”
Wingo also described the mix as being more attainable than it was previously.
“When we came in, you just kind of laughed at the prices that were on these products,” she said. “So we rebuilt our costing model. We have a margin target we try to hit, but it’s more attainable now.”
The strategy apparently has been working. Jolly said sales are up 40-50% year to date compared to last year, which partly accounts for the pandemic-induced slowdown in the spring of 2020.
Much of the growth has been on the domestic side of the business versus international, where executives say the company previously seemed to be focused in both its designs and its extremely high price points that helped cover Baker’s costs.
Retaliatory tariffs China imposed on goods such as furniture didn’t help as they raised the prices on finished goods the company was exporting to China, ultimately impacting business at Baker’s China showrooms.
Observations about Baker’s product mix and prices – including an upholstered bed in the line that is priced at $30,000 — came not just from company executives but also some industry retail sources.
“The volume went down and the prices went up,” Paschall said. “It’s the opposite of what you think of in economics…In a lot of ways we were just gearing things towards an international crowd.”
One retailer put it more bluntly.
“I haven’t bought Baker in a while, but I have to say that a few years back what they were trying to do I hated. It was horrible,” said Michael Uvanni, of Rome, N.Y.-based Michael J. Uvanni Interiors. “I thought the look was off and they were trying to be something they are not.”
More recently, he said he has liked what the company is offering.
“The new stuff, I do like it, but it is for very specific jobs,” he said, adding that he also believes the line has become a better value than it was previously.
Indeed, Baker’s new focus in design, development and pricing appears to based on the needs of the domestic market.
“When you lose that balance the draft is going in the wrong direction,” Paschall said. “So I think what we are doing in a lot of ways is putting the balance back in it. That is why we have emphasized so much of our domestic business. I don’t think you can be healthy in Shanghai, Beijing and Bangkok if you are not healthy in New York, Miami and Dallas.”
Largely what’s driving the domestic business are designers, including designers on staff of upper end retailers. And while lead times are longer for custom product, the company said designers typically work on longer schedules and thus expect to wait a little longer for the order to arrive.
“Our goal is to not say no,” Wingo said. “We want to be able to fulfill those client requests.”
Paschall said that the U.S. customer base has grown five times in the past few years, due to all these initiatives, not to mention the fact that it also has grown its independent sales force from three to 12. This is in addition to its sales manager and its international and contract hospitality sales teams.
“We have massively increased our domestic business,” Paschall said, noting that this is not just a pandemic bump that others have experienced. “We are getting (an increase) from a restructuring of sales, sales training, new product development, new inventory methodology – we are getting all of that.”
Looking back at the changes made in the past few years, Paschall said it was almost like starting from the ground up.
“In a lot of ways, we were like a 127-year-old start up,” he said. “We have this history and we have this name, but to go back to rebuild it, the phrase I use with my team is “it’s just furniture normal.” We have this beautiful stuff, but then we have to listen to customers and ask ‘how do you want it.’”
Other retailers interviewed for this story have said they believe the company is heading in the right direction.
Kevin Bowman, president and CEO of Hickory, N.C.-based retailer Good’s Home Furnishings, said that importance of the China market, including sales through its own stores there, likely fueled some of the company’s product development in the past.
“Baker is one of the most well-known brands in China by far,” Bowman said.
He applauded Jolly and his team for the changes they have made in recent years.
“Mike is a renowned operator in the furniture business,” he said, having worked with him at Thomasville and also noting his more than 10 years at Bernhardt. “Obviously, Mike has made changes in their operations to support their level of customization, but also very likely to bring more value to their offerings. I like where they are headed.”
At the same time, he said, he would like to see Baker retain its stature as an aspirational brand at the high end.
“You always have to be a value in the marketplace, but you can be that no matter what your price point is,” he said, noting that Baker continues to have a very specific audience that has historically purchased furniture at high end retail stores or through a designer…”We have always loved Baker’s position in the marketplace, whether it is contemporary or traditional product. It has always had that classic look.”
