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HEILIG-MEYERS: REQUIEM FOR AN AMERICAN ICON

By Gregory J. Gilligan

Once a mainstay in small-town America, Heilig-Meyers is now just a memory.

The commercials for years told the story about Heilig-Meyers Co. Its catchy “We Furnish America” tune could be heard on television and radio stations from the retailer’s home base in Virginia all the way to California.

It was more than just an advertising gimmick. It was true. Richmond, Va.-based Heilig-Meyers, which grew from one store in 1913 into a national powerhouse, was the nation’s largest home furnishings chain, and the retailer set its heights on becoming even bigger.

But the chain’s financial house came crashing down in 2000, when it filed for bankruptcy protection. Today the once grand company is virtually gone. It has shut its more than 800 namesake stores dotting small and midsize towns across the country. Thousands of employees lost their jobs, and hundreds of storefronts remain vacant. All that is left of the onetime darling of Wall Street, besides hundreds of millions of dollars in debt, is the company’s 67-unit RoomStore division.

At its peak in 1998, Heilig-Meyers had revenues of $2.73 billion, generated by 1,250 stores in 31 states operating under various names besides Heilig-Meyers and The RoomStore: Berrios, Mattress Discounters and Rhodes. It has sold these last three.

“It just evaporated. It’s unbelievable,” said Wallace W. Epperson Jr., a furniture industry analyst with Richmond, Va.-based investment banking firm Mann, Armistead & Epperson, who followed the firm for 30 years. “I would have never thought this would have happened, or happened as quickly as it did; I still have a hard time believing it.”

Rather than attempt to resuscitate its money-losing stores, Heilig-Meyers executives decided last year to focus attention on the profitable RoomStore division, which it bought in 1997. The RoomStore sells furniture in group settings aimed at middle- and higher-income consumers, mostly in large urban markets, including Dallas and Washington, D.C. The division should generate about $320 million in 2002, said Curtis C. Kimbrell, The RoomStore’s president.

“It is still a very good concept for us,” Kimbrell said. “We’re ready to make it happen.”

Liquidating the namesake Heilig-Meyers stores was the best alternative for the company and its creditors, company officials said. Heilig-Meyers sold mostly midpriced furniture on credit to consumers in small towns.

Executives said they could see no reversal to the company’s downward spiral. The chain was suffering from slumping sales, combined with an economic slowdown that was hitting big-ticket items such as furniture particularly hard.

Heilig-Meyers had already shuttered about 300 locations in the fall of 2000, during the first round of store closings. A second round took place in early 2001, and the remaining 375 stores closed in late spring of last year.

Heilig-Meyers got into problems two ways: The chain embarked on an ambitious expansion program about six years ago, gobbling up other furniture retailers. But those acquisitions failed to produce the financial returns the company projected and Wall Street expected.

Secondly, while expanding and trying to fix the acquired chains, company executives took their eyes off the retailer’s core Heilig-Meyers stores division. Their customers, meanwhile, who lived mostly in rural or small-town America, were changing in what they bought and how they paid for it.

Credit played such an important role at Heilig-Meyers that it once generated as much as one-third of the chain’s profit. But consumer bad debt began rising at about the same time as the company started to expand. And a growing number of Americans were gaining access to more credit cards and were using those rather than Heilig-Meyers’ credit program.

Heilig-Meyers tried remaking itself; it sold off divisions it had bought and began changing its credit program. After filing for bankruptcy, it stopped offering in-house credit to customers altogether.

But the initiatives came too late, experts say.

Liquidators have sold more than 150 store leases at various auctions over the past year, with most going to other retailers. Aaron Rents, the nation’s biggest rent-to-own chain, acquired the bulk of these former Heilig-Meyers stores. The Atlanta-based company picked up 82 locations, mostly in the Southeast (SCT, September 2001).

“Their former customer base is basically our customer base,” said R. Charles Loudermilk Sr., chairman and CEO of Aaron Rents. “Small-town America is where we operate best.”

Aaron Rents had considered buying the entire Heilig-Meyers chain in mid-2000, months before the bankruptcy filing, but dropped the idea because Heilig-Meyers’ debt was too much to absorb, Loudermilk said.

Aaron Rents opened about a quarter of the acquired locations, with the rest expected to open sometime later this year, he said.

Sales at those former Heilig-Meyers locations are performing better and faster for Aaron Rents than other new stores the retailer opens, Loudermilk said. “The customer knows the place.”

Some of the stores are too big for Aaron Rents, though, so they are being divided and leased out to others.

Among the other retailers that have acquired former Heilig-Meyers locations is Premier Home Furnishings, Santa Monica, Calif., which took 17 former Heilig-Meyers stores in Arizona, California, Nevada and Washington. W.S. Badcock Corp., Mulberry, Fla., got about six locations, and Farmers Furniture, Dublin, Ga., picked up five North Carolina stores.

Still others that have taken over locations include Furniture Fair, Furniture Liquidators and Schewel Furniture. But retailers aren’t the only ones occupying the old Heilig-Meyers stores. One North Carolina store, for instance, was sold to a public board that serves people with disabilities and special needs.

The home furnishings sector has grabbed about 15 percent of the properties, according to Julius Feinblum, owner of Julius M. Feinblum Real Estate in Bethpage, N.Y., a real estate consulting group for the furniture industry. Eventually, it should recapture as much as 30 percent of the former Heilig-Meyers stores.

“The closing has created a lot of space that can be utilized by other furniture retailers,” Feinblum said. At press time Heilig-Meyers still owned about 25 properties, including two warehouses that the chain was trying to sell. Its remaining staff of about 25 was expected to dwindle to 10 by late spring.

With the namesake stores closed, Kimbrell will focus on the RoomStore operations. The company is planning to convert 65 former Heilig-Meyers stores to a RoomStore format and is expected this year to file a plan of reorganization detailing how it will pay back creditors.

Still, Kimbrell is confident that the RoomStore operations can succeed.

“They’ve got to,” he said. “This is our last chance.”

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