After a near-death experience, the Brick furniture chain is back

Turns out the jingle, "Nobody beats the Brick" was far from the truth
Canada’s Ottoman empire
Captain’s chain: Konkle set about fixing the company’s critical but ailing back-end systems. Photo: Andrew Tolson.

The Brick is known across Canada for its overstuffed furniture, gleaming appliances and commissioned sales staff. The home furnishings retailer’s merchandise is neither high-end, nor particularly trendy—and it’s often touted in television ads by a breathless announcer who gushes about limited-time sales. The straightforward formula was pioneered by an unlikely businessman: would-be professional hockey player and Edmontonian Bill Comrie (who is father to not one, but two former NHLers). And it hasn’t changed much over the past four decades.

That is, until recently. Eagle-eyed shoppers may have noticed a few differences in the Brick’s stores over the past few years. The furniture looks more modern, the colours more current, the selection improved. And, odds are, the marked-down sofa advertised in the flyer will actually be in stock.

Much of that is the handiwork of Violet Konkle, who was appointed CEO in January. A former Wal-Mart Canada executive, Konkle was brought in two years ago to help oversee a turnaround of the 41-year-old company. At the time, the Brick was just recovering from a financial near-death experience brought on by a combination of the recession and, experts say, a case of poor management. The effort to rescue the tired chain was initially led by Bill Gregson, now the Brick’s executive chairman, who is also credited with salvaging the once struggling Forzani Group (now owned by Canadian Tire). “He had asked me to join to tackle a number of issues,” says Konkle before listing off virtually every element of the Brick’s business, from its vast inventory and supply chain to customer service.

With 230 stores, including 29 United Furniture Warehouse locations, it was no small effort. But somehow it worked. Debt is being paid down, same-store sales are up and profit is returning. And Konkle promises much more to come, including an overhaul of the shopping experience, although she is reluctant to discuss details.

But while the Brick has managed to give itself a second chance—exceedingly rare in retail—there’s still a long way to go. The chain’s image remains dated in most Canadians’ minds and it is facing an advancing army of big-box retailers, from Wal-Mart and Target to Home Depot, Lowe’s and Ikea, that are increasingly selling bigger ticket items like flat-screen TVs, major appliances and small furniture.

When most people think of the Brick, the company’s catchy “Nobody beats the Brick” slogan comes to mind, a testament to the power of relentless advertising. But as recently as three years ago, nothing could be further from the truth. The company’s creaky supply chain and spotty purchasing had left it in a financial mess—and it was far from clear whether a turnaround was possible. “I think it’s fair to say management lost sight of the changes in the marketplace,” says Jim Danahy, the chief executive of consulting firm CustomerLAB. “Their supply chain system was notoriously antiquated for a very long time. And, quite frankly, it still is.”

Such problems were easy to ignore prior to the 2008 crash when the economy was booming. At the time, the Brick was one of dozens of Canadian firms that had converted into an income trust, taking advantage of generous tax rules (it reverted back to a corporation last year after Ottawa clamped down on the practice). That meant the Brick was pushing most of its available cash out to unit holders instead of reinvesting it in operations. It also created an incentive to open new stores since the added sales boosted the all-important cash flow.

But sales at the Brick tumbled by as much as 30 per cent during the recession—a situation made worse by outdated inventory systems and poor product forecasting. Popular items were constantly out of stock and warehouses were crammed with dinette sets and sofas that couldn’t be moved. It wasn’t long before the company was in trouble with its creditors, who, in turn, were unwilling to lend it more money to buy new inventory. A downward spiral ensued. “You want to sell the sofa before you have to pay for the sofa,” explains Danahy. “And with high-value goods like furniture, you can easily get stuck and be in trouble. Plus, there’s a tendency in the mid- to lower-end category occupied by the Brick to buy a bunch of stuff that just fills space.”

The Brick posted a $163-million loss in 2009. That’s when Comrie stepped back into the picture. Though still a majority shareholder, Comrie had left the company prior to its 2004 IPO and moved to California. (The Golden State is also home to his son Mike “the Brick” Comrie, who retired from the NHL with a hip injury last season and gained tabloid notoriety when he married Hollywood celebrity Hilary Duff in 2010. Another son, Paul Comrie, also a former NHL player, continues to work for the family business.) In a bid to save the chain he built from a single Edmonton furniture store in the early 1970s, Comrie sought out Gregson and played a key role in engineering a financial lifeline. The plan included paying down the Brick’s $140-million worth of debt by selling debentures to outside investors, including Prem Watsa’s Fairfax Financial Holdings, which is known for investing in turnaround projects (most recently troubled BlackBerry-maker Research In Motion Ltd.), and GE Capital.

The balance sheet repairs were critical, but it was largely up to Konkle to fix the Brick’s ailing back-end systems. She says the biggest challenge was ensuring stores had the right inventory at the right time. There are also more higher-margin items now. “We’ve added more leather, more specialty mattresses, but I wouldn’t point to any one thing as being a silver bullet,” says Konkle. “We’ve just tried really hard to buy better and to sell better.”

That’s not as straightforward as it sounds. While it’s easy to buy nicer-looking merchandise, Danahy says managing all that inventory across a big chain is best left to sophisticated tracking and sales forecasting systems, which the Brick didn’t have money to buy. “They would have had to be watching the sales of individual product lines, culling the slow movers and ordering more of the stuff that appeared to be going quickly,” he says. “And, in a large chain, that’s highly complex.”

The hard work showed signs of paying off earlier this year when the Brick posted a first quarter profit of $4.7 million, up from $1.1 million during the same three-month period in 2011. And while it posted a $3.1-million second-quarter loss in August, that was mostly due to a one-time payment of $17.1 million to repay an outstanding debenture. Investors like what they see so far. Shares of the Brick are up nearly 70 per cent over the past year to about $3.83, although that remains a far cry from the $14 the income fund’s units hit back in 2005. The results are more impressive when one considers that same-store sales growth has outperformed traditional rivals like Leon’s and Brault & Martineau in Quebec since 2010. The Brick’s “reclamation of share lost in the 2008-09 period has been impressive and it continues,” wrote Tal Woolley, an analyst at RBC Capital Markets in a note to clients last month.

The challenge now facing Konkle is to maintain the momentum in the face of mounting competition. “There’s a lot of category incursion, particularly in major appliances,” says Ed Strapagiel, the executive vice-president of consulting firm KubasPrimedia. “That’s become a pretty major product for stores like Future Shop, Home Depot and Lowe’s. On the other hand, people are still buying furniture.” Although not as much as one might expect. Strapagiel says the sector’s sales were actually down by 2.3 per cent last year despite Canada’s hot housing market, which he interprets as a sign that debt-weary Canadians are close to being tapped out.

Ironically, the trend could work to the Brick’s benefit. “As Canadians feel the pinch, we feel we’re a pretty relevant destination for stylish home solutions,” says Konkle, adding that the plan is to wring more money from existing stores and expand carefully through franchises in smaller, rural markets. There will also be an effort to improve the customer experience and brand. “We’re actually going to launch a totally new Brick store design this fall,” Konkle says. “I can’t give you any more information than that, but we’re really excited. We think it will set the bar in terms of how customers can shop at furniture stores.”

Even so, it’s unlikely the Brick will ever be considered a cool place to shop, let alone to grab lunch, as is the case with global furniture juggernaut Ikea, which continues to expand in Canada. But that probably won’t hurt the Brick’s future chances, providing management keeps its eye on the ball. While Ikea is great for budget-minded people, Strapagiel argues the appeal of flat-packed, cheaply made furniture quickly wears thin once you move to the suburbs with a family. “You know you’ve grown up,” he says, “when you stop shopping at Ikea and go to a place like Sears or the Brick.”