The founders of La Z boy originally intended the company to control every part of the retail process, from manufacturing to distribution to sales, in order to maximize margins and revenue. La Z Boy’s rapid expansion in the 2nd half of the 20th century, however, presented opportunities for La Z Boy to sell franchised retail stores and expand into new territory. A recent look into La Z Boy’s distribution chain reveals that of the 312 officially licensed La Z Boy furniture gallery stores, only 94 are currently owned by the company through its subsidiaries. In addition, many of its distribution centers are privately owned. This strategy of franchising stores has worked well in the past, but there are signs that La Z Boy’s management may looking to change this dynamic by buying back stores from owners.
A recent Yahoo Finance report released that La Z Boy is buying 2 La Z Boy retail stores from their private owners this fall. Is this part of an overall trend to take back the entire distribution process or just an isolated incident? In the case of the Ohio stores, the owners, Ron and Marisa D’Alesandro, are retiring, and La Z boy is only stepping in to ensure that operations and sales continue to go smoothly in these two stores. The article quotes Kurt Darrow, CEO, as saying, ” We are pleased to acquire the two Youngstown, Ohio stores and I would like to thank Ron and Marissa, who have run a great operation since 1975… Given the Youngstown stores’ proximity to the company-owned La-Z-Boy Furniture Galleries® stores in southern Ohio and Pittsburgh, Pennsylvania, they are a natural extension of our retail footprint in the region. In addition to realizing various synergies with our retail management team, we will service the stores from our Ohio-based, company-operated Regional Distribution Center, which will provide for efficiencies as well as giving the stores access to a greater in-stock position, ultimately enhancing service to the end consumer.”
It seems that the model of franchising retail stores is working effectively, and La Z boy is only buying stores when there is a vacancy in qualified ownership or other extenuating circumstances. La Z Boy has bought 5 other retail stores in the past year in the Las Vegas and Ohio areas, but these are all cases where owners are retiring.
Taking more control of retail stores does not seem to be a corporate strategy of La Z Boy’s. It becomes apparent in La Z Boy’s statement to shareholders that the corporation’s strategy for growth includes more privately owned retail franchises. The corporation is only stepping in when needed to keep profitability and operations going in individual stores. La Z Boy’s management would rather keep the status quo with regard to operational retail stores and instead focus on expanding into new territory and creating new product lines, all the while collecting lucrative franchise fees from the privately owned retail stores.
Sources:
http://www.monroenews.com/news/2012/aug/22/la-z-boy-acquisition-will-add-more-galleries-store/
http://finance.yahoo.com/news/la-z-boy-acquire-two-201000247.html
http://www.la-z-boy.com/Files/AnnualReports/annualReport10/annual_report.html
http://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-newsArticle&ID=1853969&highlight=