Seaman Furniture Company, Inc. Business Information, Profile, and History

Company Perspectives:

Seaman's pledges to remain among the best full-line retailers in the United States.

Seaman's pledges to offer to our customers a pleasant and exciting shopping environment, with a wide selection of quality and value-priced furniture and accessories. We also pledge to enhance the shopping experience with quick, courteous delivery and, when needed, professional follow-up service.

We pledge to provide our employees with a friendly but challenging workplace where each individual's ideas and skills will be fostered and developed.

We pledge to continue to deal with our valued suppliers with openness and integrity.

History of Seaman Furniture Company, Inc.

Seaman Furniture Company, Inc., a high-volume retailer targeted to appeal to the price-conscious middle-income consumer, believes itself to be the largest specialty furniture retailer in the northeast United States. Its more than 40 stores are located in the New York, Philadelphia, and Cleveland/Akron metropolitan areas. Seaman stocks a variety of living room, dining room, bedroom, and other home furniture and accessories. By offering few alternatives to items shown on the retail floor, the company is able to purchase in large quantities and pass on the savings to the consumer.

Rise to Riches: 1954-87

Julius Seaman left his Brooklyn school in the seventh grade to help his family make ends meet, eventually opening a furniture store in 1933. This enterprise gradually increased to an annual $150,000 in sales and allowed Seaman to send his two sons to the University of Pennsylvania's elite Wharton School of Business. 'His big goal in life,' Morton Seaman later told Burr Leonard of Forbes, 'was that his boys would follow him and build up his business.'

Julius Seaman was only 48 when he died of a heart attack, leaving Morton--the elder son and a recent Wharton graduate&mdashø help his mother save the business, while Carl, still in school, did what he could to pitch in on weekends and vacations. One lesson the sons had learned at Wharton was that it paid to advertise, and so in 1955 they spent $1,000 for the store's first ad, a full-page spread in a local tabloid. When sales tripled that week, Morton remembered another piece of Wharton advice&mdashhieve economy of scale--and decided to open a second store to reduce advertising costs per unit. By 1971 there were seven Seaman outlets.

The next big move--and one that established Morton Seaman as a merchandising genius in the furniture retailing field--came in 1980, when the brothers gave up the traditional practice of ordering piece by piece from manufacturers and wholesalers and began buying in bulk instead at discount prices. They took a risk by anticipating demand but were able to offer shoppers bargain packages of coordinated furniture, with immediate delivery. Heavy use of television commercials successfully promoted the business with the jingle, 'See Seaman's First.' Sales soared from $44.1 million in fiscal 1981 (the year ended April 30, 1981) to $101.6 million in fiscal 1984, when there were 22 stores, all in the metropolitan New York area. Nearly all of Seaman's furniture came from domestic sources until 1983, but by mid-1985, 19 percent of its merchandise was being imported from the Far East, Europe, and Canada.

Seaman entered the Philadelphia area in 1986 and rose to seventh place among U.S. furniture retailers with sales volume of $186.7 million in the fiscal year. The company had gone public in 1985, raising $47 million from sale of stock and about the same amount in 1986 from a secondary offering. The Seaman family, which retained about 43 percent of the shares, pocketed most of this money and used the rest for the expansion into Philadelphia, new corporate offices in Uniondale, Long Island, and the opening of a furniture factory in Conover, North Carolina. In 1987 Seaman opened its first Connecticut store and a new warehouse in Central Islip, Long Island. Morton Seaman was planning to open more suburban stores, stock them with higher-end furniture, and step up advertising to as much as $24 million a year.

The Seaman formula for success seemed unstoppable. Sales rocketed to $224.8 million in fiscal 1987, when net income reached $15.2 million. The firm's sales per square foot was second among furniture retailers and about three times the industry average.

In September 1987 the cumulative value of Seaman stock was more than $400 million, nearly twice the company's annual sales level. Before the end of the year the leveraged buyout firm Kohlberg Kravis Roberts & Co. (KKR) had agreed to purchase 77 percent of Seaman for $26 a share, or $354 million. The Seaman family collected about $150 million in cash and bonds and still remained in managerial control, retaining some 17 percent of the stock. KKR, in keeping with standard leveraged buyout practices of the era, took out huge bank loans and also issued high-yielding but speculative-grade 'junk' bonds to finance the purchase, putting up only $40 million in cash.

Road to Ruin: 1989-92

During fiscal 1989 Seaman was the nation's second largest furniture retailer, with 31 stores and annual revenue of about $275 million. Nevertheless, its sales gains were falling far short of the average annual rise of about 20 percent that it had achieved for a decade--and short of even the five to ten percent gain that KKR more realistically anticipated. Consequently, its fiscal year operating profit of $23 million was not enough to pay the $39 million or so due in interest on the heavy debt that had been incurred to take the company private.

When Seaman was unable to meet an interest payment due in August 1989, restructuring negotiations began, with a settlement reached three months later. The 29 participating banks agreed to reduce the debt from about $275 million to $125 million in return for 46 percent of the company's shares. Most junk bond holders accepted an exchange of their securities for lesser-valued ones at a lower interest rate and an aggregate stake of seven to eight percent in the firm. KKR, its buyout fund, and the Seamans contributed a $42 million cash reserve to tide the company over.

With the national economy falling into recession and Long Island especially hurt by military cutbacks in the wake of the end of the cold war, however, Seaman's sales fell to about $259 million in fiscal 1990, and its operating income dropped to $11 million. Morton Seaman resigned as chief executive officer in February 1990 and soon was running a Florida-based furniture company called Rooms To Go. He was succeeded by Matthew D. Serra, president of a department store chain. Serra brought in many of his own people, reduced the number of employees, hired a contractor for the company's inhouse finance program, and dropped the firm's delivery company, opening a warehouse in Woodbridge, New Jersey. But the news remained bad in fiscal 1991, with revenue dropping to $255.8 million, despite the opening of eight new stores, bringing the total to 38. Operating income fell to $2 million, and the company incurred a net loss of $12.8 million.

Seaman filed for Chapter 11 bankruptcy protection from its creditors in January 1992, announcing that it planned to close the 15 of its 37 stores that were collectively accounting for only 20 percent of current sales. Nine months later, the company emerged from bankruptcy with its long-term debt cut from $370 million to $14 million. In return for accepting stock in place of debt, three Wall Street investment firms now owned 51 percent of the company. The bank lenders received 24 percent of the stock, with the remainder allocated to bondholders, trade creditors, and KKR partners. A total of 21 stores remained after those in Connecticut, the Philadelphia area, and some in New York were shed.

Recovery: 1993-98

A new management team, now based in Woodbury, Long Island, and headed by former Seaman executive Alan Rosenberg, vowed to get the company back to basics. The chain had been relying less on room sales and more on big sales days and events, but Rosenberg said he would return it to its former focus and, indeed, to an emphasis on even bigger assemblages of furniture. Futures sales, he said, would give the customer a reason to return by offering only certain items, rather than just about everything in the store. The company went public again, and its shares had tripled in value by the summer of 1993, trading at about book value.

Seaman opened three New York stores in 1993 and reentered the Philadelphia market the following year with three more outlets. It also opened a Connecticut store. By the end of 1994, 13 stores had been renovated, featuring a new, brighter, and more colorful lifestyle-oriented interior design. A no-money-down revolving line of credit replaced installment loans. Updated new options included a special price on five-piece living room packages with an additional two lamps, $100 off the boxspring and mattress and a free frame when buying the bedroom package, and $100 off the wall unit for the living room.

Seaman started spending a larger proportion of its advertising budget on television than in the past. A new soft-sell advertising campaign aimed to improve the company's image while continuing to draw in value-conscious customers. Rosenberg appeared in some television spots emphasizing a one-year 'peace of mind' full warranty on everything Seaman sold and up to five years' limited warranty against structural defects. 'This should be a campaign that doesn't end,' he told Clint Engel of Furniture Today. He said the spots were getting people to thinking about furniture 'without the sickening message of sale, sale, sale.'

Seaman entered the Midwest for the first time in 1995, when it opened stores in four Cleveland suburbs. The company added a Cleveland warehouse to its existing ones in Central Islip and Woodbridge. Fiscal 1997 sales reached $251.2 million, with net income of $4.1 million. Continuing expansion had raised the number of stores--all leased&mdashø 41, with 27 in the metropolitan New York area, eight in the Philadelphia area, and six in the Cleveland/Akron area. The company, profitable in every quarter since emerging from bankruptcy, ranked 15th or 16th among U.S. furniture retailers. The Ohio and Pennsylvania stores had yet to turn a profit, however.

Despite Seaman's successful resurrection, the three investment firms that now owned 80 percent of its stock--M.D. Sass Associates, T. Rowe Price Recovery Fund, and Carl Marks Management--were disappointed at the failure of the publicly held shares to rise above the 1993 level. In the summer of 1997 they took the company private again, paying $25 a share, or about $22 million, for the remainder of the stock. The speculation was that another public offering would be made in about three years, when higher profits had raised the value of the company. In 1998 the chain opened two Seaman's Kids stores on Long Island to sell furniture and accessories for minors ranging in age from post-crib toddlers to teenage youths. These stores also carried lines of extra-bedroom furniture. Each showroom displayed more than 20 sets of affordable, midrange merchandise.

In 1999 Seaman was offering a two-year peace-of-mind warranty and a five-year fabric and leather protection warranty. It was requiring a one-third deposit at the time of purchase by cash, credit, or personal check. The company also offered a credit plan with minimum purchase of $300. Delivery was promised within seven to ten days of purchase on most items, based on routing schedule. Of Seaman's 43 stores, 19 were in New York, ten in New Jersey, six in Ohio, five in Pennsylvania, and three in Connecticut.

Principal Competitors: Heilig-Meyers Co.; IKEA Holdings Inc.; Levitz Furniture Inc.; Wickes Furniture Co. Inc.

Chronology

• Key Dates:

• 1933: Julius Seaman opens a furniture store in Brooklyn.
• 1971: The number of Seaman stores reaches seven.
• 1980: Seaman begins featuring sales of furniture by the room.
• 1985: Seaman becomes a public company.
• 1988: The firm goes private again in a leveraged buyout.
• 1992: Seaman files for Chapter 11 bankruptcy.
• 1993: The company emerges from bankruptcy and goes public again.
• 1997: Seaman once more becomes a private company.