Levitz Furniture Inc. History

Company History:

A pioneer of the warehouse-showroom concept, in which both facilities are within a single building, Levitz Furniture Inc. is one of the largest furniture retailers in the United States. Because Levitz buys in bulk, customers can get good value, and because the warehouse is on the premises, they can take merchandise home immediately instead of waiting for delivery. In May 1995 Levitz operated 72 warehouse-showrooms and 62 satellite stores located in 26 states and 22 of the 25 largest metropolitan areas in the United States. A holding company with headquarters in Boca Raton, Florida, its only material asset in the mid 1990s was the common stock of Levitz Furniture Corp.

The origins of Levitz lay in the opening by Richard Levitz of a furniture store in Lebanon, Pennsylvania, in 1910. With $20,000 borrowed from their father, his sons Ralph and Leon opened a store of their own in Pottstown, Pennsylvania, in 1936. According to one account, it was not until 1963 that the Levitz brothers hit upon the idea that turned their business into a financial bonanza. In that year Ralph went to Tucson, Arizona, to help Sam Levitz--another brother--try to save his own struggling furniture business. To raise quick cash and save on costs, they organized a giant warehouse sale that required the customer to carry away the merchandise. (According to another account, Ralph and Leon helped Sam establish the Tucson store in 1956 and began experimenting there with selling low-cost discount-type furniture the following year.) In either event, Ralph and Leon Levitz decided to try warehouse sales on a permanent basis because it seemed likely to bring in many new customers while reducing operating costs. Although the warehouse-showroom concept was not new, the Levitz brothers put it into operation on a grander scale than ever before.

The first Levitz warehouse-showroom store opened in Allentown, Pennsylvania, in September 1963. A second one opened in Phoenix the following month and a third in Miami in October 1965. Sales reached $12.2 million in the fiscal year ending January 31, 1966, and increased to $18.7 million and $26.5 million, respectively, in the following two years. The business, previously a partnership, was incorporated in 1965 as the Levitz Furniture Corp. Another store, in Dallas, opened in 1967, and two more, in Tempe, Arizona, and Santa Clara, California, during 1968, the year Levitz went public. In the fiscal year covering 1968, sales reached $39.5 million, and in the following year, during which five more stores were opened, to $67 million.

The Levitz concept of supermarket furniture shopping called for a gross markup of 50 percent on brand-name furniture instead of the normal 100 percent. Increased volume would enable it to save money in purchasing, selling, handling, and transporting merchandise because of economy of scale. By 1970 Levitz was averaging more than $120 in sales per square foot of selling space, compared to the industry average of $26.54 in medium-sized stores and $54 in large stores. As a result, Levitz was able to earn, in net income, nearly $1.7 million in fiscal 1968 and $2.8 million in fiscal 1969.

By the end of 1971 Levitz was operating a chain of 27 stores, each one generally with a warehouse the size of several football fields and a showroom with 260 model-room "vignettes," both incorporated into a single building. The stores were located in population centers of at least 750,000, along expressways where land was cheap and railroad sidings were available. Free parking was generally available. Sixty percent of sales were pickup, with almost all the remainder including, in a day or two, delivery and set up, which each cost the buyer an additional four percent. Each store was expected to yield a profit margin of 4.5 percent on sales. Ralph supervised the eastern stores from Miami, and Leon oversaw the western ones from Phoenix.

Levitz was receiving its merchandise from about 300 suppliers, but the top 10 furniture makers provided about half the stock. The stores typically opened with well-advertised fanfare, including prizes and loss leaders. Other companies complained that Levitz's advertising campaigns included misleading comparisons between its prices and those of its rivals. The Federal Trade Commission ordered Levitz in 1976 to cease several deceptive advertising practices, including exaggeration of price reductions and misrepresentation of furniture materials.

During fiscal 1971 the 34 Levitz stores had sales of $183.8 million and a net profit of $9.2 million. The company had accumulated at least $47 million from retained earnings and stock issues by August 1971. Its stock had moved up from the American Stock Exchange to the Big Board, the New York Stock Exchange. Between the original 1968 offering and May 1972, the price of Levitz shares rose almost fifty-fold, when adjusted for three stock splits. Members of the Levitz family realized an estimated $33 million from publicly reported sales of Levitz common stock during the period from 1968 through 1971.

Despite Levitz's success, continued rapid growth could be sustained only by substantial infusions of outside capital. However, it was beginning to encounter opposition from rivals like Wickes Corp. and Unicapital, Inc., thereby putting pressure on its profit margins. The bubble burst on September 29, 1972, the day after Ralph Levitz announced that the latest quarterly earnings report would be disappointing after a long string of quarterly gains on an annual basis of 50 percent or more. In 23 minutes of frantic trading on the New York Stock Exchange, Levitz stock plummeted from about $47 to $33 a share before further business was suspended because of too many sellers and too few buyers.

Compounding Levitz's problems were charges by the federal Securities and Exchange Commission in June 1972 that the company had broken the law by agreeing to allow the United Brotherhood of Teamsters to organize its employees on condition that the union drive would not be announced or commenced until a 1972 stock issue had been completed. The SEC suspended trading in Levitz stock for 10 days. Leon Levitz immediately resigned as president, but Ralph remained as the company's chairman.

In spite of these problems Levitz's expansion continued through fiscal 1972, when sales from 49 stores reached $326.8 million, and fiscal 1973, when sales reached $380.4 million from 55 stores. Net profits reached a new high of $12.1 million in 1972 but fell to $8.6 million in 1973. With its stock falling below $5 a share in 1973, Levitz not only lacked the means to finance further growth but developed a cash-flow problem. Saddled with expensive leases, the company had a net profit of only $3.9 million in 1974. In 1975, a recession year during which the housing market was hard hit, it lost $142,000 on sales of $326.3 million.

Robert M. Elliott, a Montgomery Ward & Co. executive, was brought in as president and chief executive officer of Levitz in 1974. He immediately imposed stringent economies, reducing inventory by 25 percent and employment by 38 percent, and also brought the stores, which had been operating autonomously, under central command. Sales rebounded in 1976, and the company returned to the black. In 1977 Levitz announced it would place its primary expansion emphasis on gaining deeper penetration in its existing markets rather than venturing into new ones. Accordingly, in that year it acquired six furniture warehouse-showrooms from R.H. Macy & Co. operating under the J. Homestock name in New York, New Jersey, Connecticut, and Boston.

For fiscal 1979 Levitz had record sales of $546.6 million and record net income of $20.6 million, but high interest rates and a consequent recession in the early 1980s dealt a severe blow to the housing industry. Company sales and profits dropped in 1980, 1981, and 1982; in the last year sales came to only $485.7 million and net income to only $8.8 million. Elliott's continued tenure was opposed during this period by the Levitz family, which charged that he had abandoned the company's founding philosophy: deep discounting and rapid expansion. He had the crucial support, however, of Chicago's wealthy Pritzker family, which in 1979 acquired about 23 percent of the company stock. The holdings of Levitz family members fell from 22.5 percent to only 5.5 percent by 1983, the year Ralph Levitz retired as chairman.

Levitz remained the nation's top independent furniture retailer and kept its basic strategy of warehouse selling but increased its store total only to 80. Furniture manufacturers who once saw the company as a destructive force now, with obvious relief, regarded it as unlikely to initiate new price wars. One manufacturing executive, for example, told Business Week: "It's not the cheap discount anymore. The stores are clean, have a broad range of goods, tasteful accessories, and well-trained salespeople." Future Levitz stores were scheduled to be smaller ones in smaller markets, and some would be satellite units for display only, within a 25-mile radius of an existing store.

Sales jumped to $644.4 million in 1983 and $761.8 million in 1984, while profits soared to $27.4 million and $34.4 million, respectively. In 1984 Levitz was operating a nationwide chain of 84 retail facilities located in clusters of 10 to 14 each in primary metropolitan areas within six regional areas covering 26 states. Store size ranged from 64,000 to 155,000 square feet. Late that year the company went private by means of a leveraged buy out. A group that included members of the board and of management, Citicorp Capital Investors Ltd., and Drexel Burnham Lambert Inc. paid $318 million, or $39 a share, in cash to stockholders. A bid in cash and securities by Dalfort Corp., a company controlled by the Pritzkers, had been rejected earlier. The new private company, which had no participation from Levitz family members, took the name of LFC Holdings Corp.

The investors who initiated LFC rewarded themselves with cash payments of about $215 million from $257 million obtained in new financing during late 1986. Burdened by debt payments, the private company never reached the prior earnings level enjoyed by Levitz. After fiscal 1989 (the fiscal year ended March 31, 1989), in which sales came to $929.8 million, the sales volume dropped for three consecutive years. Net income hit an LFC high of $17.9 million in fiscal 1989. In the next year net income fell by half, and the company then lost money for four consecutive years. No dividends were paid on common stock after 1987.

LFC went public in mid-1993 under the new corporate name of Levitz Furniture Inc., with 13 million shares of common stock sold at $14 each in its initial public offering. By then the company held 67 warehouse-showrooms and 51 satellite stores in 25 states. Although it was highly leveraged, with $284 million in long-term debt, and had sustained a string of consecutive losses under the LFC banner, it found one big buyer in the government of Singapore, which paid $23.3 million at prices between $11.50 and $14 a share for 6.5 percent of the company.

For fiscal 1994 (ended March 31, 1994), net sales increased to $983.6 million from $922.4 million the previous year. Net income came to $17.4 million, but this turned into a loss of $27.8 million with a payment of $37.7 million for early retirement of debt. During 1994 the company bought John M. Smyth Co., a retailer with six Chicago-area Homemakers Furniture stores, for about $47 million. It also opened eight new satellite showrooms and five warehouse showrooms.

In fiscal 1995 (ended March 31, 1995) Levitz passed the $1-billion mark in net sales and had net income of nearly $4 million. Long-term debt increased, however, from $286.6 million to $348.9 million, which did not include $89 million in lease obligations. Figures for the first three quarters of fiscal 1996 indicated that the company would lose money for the completed year.

Levitz's stock turned sour after reaching a peak of $20.25 a share in early 1994, and it traded as low as $2.50 a share in 1995. The work force was reduced by 10.5 percent in the first six months of the year, and a reorganization consolidated the company's six geographic regions into only two, east and west. A 1995 Financial World article calculated the company's long-term debt at $430 million, more than its equity. Elliott, who had been chairman and chief executive officer of the company since 1985, retired in 1995. He was succeeded by Michael Bozic in November 1995.

In 1995 Levitz was offering a wide selection of brand-name furniture and accessories, including living-room, bedroom, dining-room, kitchen, and occasional furniture and bedding. It was purchasing merchandise from more than 350 independent manufacturers and was not manufacturing any of the merchandise sold in its stores. Its 72 warehouse-showrooms ranged in size from 62,000 to 250,000 square feet within a single building. Merchandise was typically displayed in 175 to 260 model-room settings occupying 50,000 to 83,000 square feet within the building. The 62 satellite stores were free-standing showrooms ranging in size from 25,000 to 60,000 square feet, although one store had about 100,000 square feet of space. These stores were utilizing the warehouse and delivery functions of nearby warehouse-showrooms.

Levitz was selling merchandise for cash or under customer installment purchase or revolving charge plans but generally did not accept credit cards. During fiscal 1995, 38.4 percent of all sales were for cash and 61.6 percent under customer credit plans. Customer credit obligations were being sold to General Electric Capital Corp. The company's properties at the end of May 1995 included 25 owned warehouse-showrooms and eight owned satellite stores. Another 47 warehouse-showrooms and 54 satellite stores were being leased. Levitz also owned its 94,000-square-foot corporate headquarters in Boca Raton, Florida, and a 35,000-square-foot facility in Pottstown, Pennsylvania, used for accounting offices.

Principal Subsidiaries: Levitz Furniture Corp.

Further Reading:

• Anreder, Steven S., "All in the Family," Barron's, January 24, 1972, pp. 5, 16, 18.
• "Death Valley Days," Forbes, February 1, 1975, pp. 36-37.
• Fruhan, William E., Jr., "Levitz Furniture: A Case History in the Creation and Destruction of Shareholder Value," Financial Analysts' Journal, March-April 1980, pp. 26-44.
• "Levitz Board Clears Proposal for Buyout of $318 Million," Wall Street Journal, November 7, 1984, p. 8.
• "Levitz Furniture: Sitting Pretty As It Waits for the Recovery," Business Week, February 7, 1983, p. 76.
• "Levitz: The Hot Name in 'Instant' Furniture," Business Week, December 4, 1971, pp. 90-91, 93.
• Paul, Bill, "Levitz Thinks Internal Flaws That Spurred Investors' Sell-Off Are Getting Corrected," Wall Street Journal, October 19, 1972, p. 42.
• Ritz, Robert, "Has Levitz Furniture Lost Its Glamour on Wall Street?" New York Times, June 6, 1972, pp. 49, 52.
• "The Sad Saga of Levitz," Financial World, July 11, 1973, p. 10.
• Sparks, Debra, "Levitz Furniture: Sell on the Rumor," Financial World, June 20, 1995, p. 20.

Source: International Directory of Company Histories, Vol. 15. St. James Press, 1996.

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