Against the Grain
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How does U.S. Furniture maker Vaughan-Bassett compete against cheap imports? Start with a tightwad who's averse to hiring software developers.Less than a week after two of the largest U.S. furniture manufacturers ran up a white flag in the face of inexpensive imports, John Bassett III exhorts his troops to keep on fighting.

Pacing the windowless conference room at the headquarters of Vaughan-Bassett Furniture Co. in Galax, Va., sounding as much like a preacher or a football coach as the chief executive of a $160 million company, he reads the news aloud to managers gathered for a June 10 staff meeting. The biggest publicly traded furniture maker, Furniture Brands International—owner of brands such as Thomasville and Broyhill—is cutting back, again, on the domestic production of wood furniture; La-Z-Boy is, too.

Bassett recites the familiar math that has helped imports from China overwhelm many U.S. furniture makers in recent years. "They can hire 33 workers for every one we hire," he says. Then he points to a wall chart showing that Vaughan-Bassett has reduced its head count by 94, to 1,525, since the first of the year (via attrition, not layoffs). "Don't panic," he says. "That means if we eliminate 100 jobs, they've got to cut 3,300 to keep up. I feel sorry for the Chinese."

The speech is classic John Bassett, a mix of bravado and the bottom line. Of course, Chinese factories don't need to track Vaughan-Bassett's head count—it's really the other way around—and imports seem likely to continue gaining market share in the U.S. Almost half of the wood furniture sold in the U.S. is made in China. Sales of Chinese-made wood furniture grew from $139 million in 1993 to $2.9 billion in 2002. The pace is quickening—the dollar value of imports from China has nearly doubled since 2000 and increased by another billion dollars in sales in 2002 alone, according to Richmond, Va.-based Mann, Armistead & Epperson Ltd.

Domestic manufacturers, many of them concentrated in small-town North Carolina and Virginia, have closed dozens of factories. Nationwide, employment at furniture and fixtures companies declined by 73,000 in the two years ended December 2002. Furniture Brands alone has closed 20 manufacturing facilities since early 2001, most recently its Thomasville plant in Winston-Salem, N.C. W.G. "Mickey" Holliman, chief executive of $2.4 billion Furniture Brands, recently told trade newspaper Furniture Today that domestic manufacturing is for companies that are "standing on principle."

Yet Vaughan-Bassett has so far managed to make its stand and tend the bottom line, too. The closely held company is profitable, if less so than it used to be—net income was $4.6 million before an accounting write-off of goodwill last year, with gross margins down to 14.8% from 18.3% two years ago. It has just over $4 million in cash, no debt, and maintains the lowest sales, general, and administrative costs in the industry.

Here's the surprising part: With operating efficiency the key to survival, Vaughan-Bassett largely eschews information technology to manage its business. The company measures its spending for management-information systems in tens of thousands of dollars per year, or a few hundred thousand in a year when office systems need to be replaced. "We do as little as we have to do," says senior vice president Wyatt Bassett, one of John Bassett's sons.

Instead, the company has focused on repeatedly modernizing its production facilities with tools such as computer-controlled, laser-guided saws. This year, Vaughan-Bassett will spend about $4 million on machinery meant to help it save on labor and materials costs. In some years that number has been much higher—for example, the $11.9 million spent in 1998.

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John Bassett says he has no aversion to management-information systems. "I don't differentiate between a router and an addition to a warehouse—if it helps you compete, good," he says. Vaughan-Bassett sold more than $1 million per year of products via Furniture.com before the dot-com bust. The company now has virtually no online sales.

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