Hearth & Home September 2017

Photo Courtesy: ©2017 Dan Routh photography. www.danrouth.com.

Meet Derek Ritzel

By Tom Lassiter

The new CEO of Pride Family Brands is a numbers guy, and his crunching has already improved the company’s distribution system.

The new CEO of Pride Family Brands says that his best preparation for leading a casual furniture company was the more than two decades that he spent in the sleep industry.

Seriously.

Casual furniture industry veterans who have focused their careers on a deep understanding of sling, cushion, various frame materials, and performance fabrics might wonder what the mattress business has in common with casual.

The common denominator, says Derek Ritzel, is that it’s all – more or less – furniture.

Ritzel’s last post in the sleep industry was leading Tempur Sealy International’s Canadian business unit. His first job in the sleep business was as a roving, pinch-hitting salesman for the pre-merger Sealy Corp., which was headquartered in his hometown of Cleveland. He was 23 years old.

That experience, he says, “taught me an amazing amount about the furniture business in a short period of time. One day I was a key account manager calling on Woodward & Lothrop in Washington, D.C. The next day I’m working on a showroom floor in Manhattan, at a Macy’s one-day sale. I was just all over the place.”

Napoli deep seating by Castelle.

Ritzel had contact with all sorts of retailers, from some of the nation’s best-known department stores to mid-size and small independent stores. He got hooked.

“Retail finds you,” he says. “I love this business.”

Seriously. He means it.

“It’s a great business. The retailers make a decent buck. The manufacturers make a decent buck. The suppliers make a decent buck, and, it’s kind of fraternal. You’ve got nice people in it. There’s camaraderie in this business that’s pretty special. I never really wanted to leave the furniture business.”

As president and chief operating officer of Tempur Sealy Canada, Ritzel was in charge of a $300 million business. All aspects of the operation – from engineering to manufacturing to distribution, sales and marketing – fell under his purview. But it was not a long-term assignment. Canada’s work permit regulations meant that he had to return home to the United States after three years.

The only logical step up for him within the company, he says, was the CEO’s job, and that wasn’t open. So it was time to look elsewhere.

Ritzel has nothing but praise for his experiences with Tempur Sealy in the sleep industry.

“I gave them every bit of hard work I could possibly do,” he says, “and they rewarded me with giving me the opportunities to do more. I am proud of who they are and what I did while I was there. And it really equipped me for the opportunity to do something different.”

Ritzel’s introduction to casual furniture came when a former mentor recommended him to the new owners of Pride Family Brands. The Florida-based company, which manufactures its Castelle-branded furniture in Costa Rica, in 2015 had been sold by the Lowsky family to New Water Capital, a private equity investment firm. Ritzel assumed the CEO post on Feb. 1, 2017, replacing the departing Steve Lowsky.

People entrenched in the casual furniture industry tend to view “mattress guys” as a little different, Ritzel says.

“And we are different,” he explains, “in that we are very data oriented, very data analytical.”

Data plays such a big role in the sleep industry because mattress makers must “convince furniture retailers why they need to expand the footprint for our category. The only way to do that,” Ritzel says, “is to use data.”

The numbers give analysts insights into what practices translate into higher revenues. Similarly, studying the numbers can identify points of weakness, leading to strategies to strengthen or eliminate those weaknesses.

Sometimes data justifies what seems on the surface to be a little crazy. For instance, more than a few people have questioned the wisdom of placing stand-alone mattress stores – sometimes of the same brand – relatively close to one another.

Mattress guys have the benefit of sales data. The data show that sales increase overall when mattress stores are in close proximity to one another. It’s the same phenomena that cause restaurants to cluster.

“It’s a textbook case study in category awareness,” Ritzel says. “The category grows by sheer presence of people seeing it.”

Field research and analysis led to Ritzel making a major change in the way his company manages its supply chain and gets product to retailers.

Inside Pride’s Costa Rican Foundry – workers pour molten aluminum into molds; Bottom Row – welders at work.

Pride Family Brands has been unique among manufacturers in that it builds its main line of furniture in Costa Rica Shipping over the Gulf of Mexico to company headquarters in Fort Lauderdale takes one week, as opposed to six weeks from Asia to West Coast ports.

This meant that retailers could expect to receive frames and cushions in stock finishes and fabrics in as little as four weeks. Special orders for custom frame colors and fabrics usually could be completed in six weeks. This arrangement served Pride Family Brands and its Castelle brand well for years.

But when Ritzel spent his first weeks on the job traveling about the nation, visiting retailers, he says he discovered a flaw. The four-week window to order, manufacture and deliver – while admirably short – was a bit too long for some consumers.

When given the choice between a Castelle group, available from Costa Rica in four weeks, and a competitor’s group, available from a U.S. warehouse in less time, salespeople told Ritzel that consumers tended to opt for quicker delivery.

Ritzel says the issue was compounded by dealers who knew they could receive orders in around four weeks, as a result, they didn’t depend on stocking their warehouses to fulfill orders.

The four-week window “was long enough that it was hurting us,” he explains.

The month-long delivery time frame was never an issue for designers, Ritzel says, because designers and their customers tend to be involved in longer-term projects. But the couple shopping for a chat group and a fire pit often wants more immediate gratification.

Ritzel’s solution: Build domestic inventory of Castell’s three best-selling groups, stocked with the best-selling frame colors and fabrics. Orders will be filled within 48 hours and shipped anywhere in the continental United States, with anticipated delivery within 14 days.

The Castelle groups to be stocked at a third-party logistics warehouse in Houston are Monterey, Park Place, and Roma.

As luck would have it, the groups “represent the three different segments in the marketplace,” Ritzel says – traditional, transitional, and contemporary.

Houston was chosen for its central location in the continental United States, and because the same shipper that ferries Castelle furniture to Florida from Costa Rica also serves the port of Houston.

The Houston warehouse will be stocked with the three Castelle groups in time for September’s Casual Market Chicago, Ritzel says.

The Houston facility also will distribute the company’s new value-priced line, Elements by Castelle. The Asian-manufactured line of 14 groups “for the value-priced consumer” is in stock in Houston and “ready to go now.” Elements products – including goods constructed of resin wicker, wood, aluminum and other metals – arrive at the port of Long Beach, California, and are trucked to Texas.

Skilled craftsmen meticulously apply finishing touches.

Castelle’s unique Costa Rican manufacturing plan ultimately presented a conundrum. While it offered fast production and shipping to the U.S., it wasn’t quite fast enough in some cases. “How did my benefit become a detriment?” Ritzel asks.

The infinite choices available via customization, designed to spur sales and satisfy any taste, create another quandary, he says.

“I love our product,” Ritzel says. “It is beautiful, well-made, and you can get it anyway you like it. It is so customizable that it will never be bought by a consumer. It will be sold by a retail associate.”

Listen carefully as Ritzel repeats himself.

“Our products are sold; they are not bought.

“A lot of people just can’t visualize things,” he says. Upselling consumers and getting them to see the possibilities among myriad choices requires a “passionate advocate, whether that’s the retail associate or the designer. Great associates know how to do it well.

“The luxury consumer does want somebody to help them figure it out and do it well.”

Specialty retailers are, of course, ideally positioned to serve luxury consumers interested in Castelle and other high-end brands. Yet those same retailers “are in a state of transition,” Ritzel acknowledges.

Many did not weather the Great Recession, and there are not many newcomers entering the retail space. Consumer trends continue to evolve, with overall online sales enjoying massive growth. Yet no one can say what percentage of casual furniture sales are via online retailers. The general suspicion is that online sales are taking a huge chunk of overall casual sales, and that number is continuing to grow.

“The distribution channels are in a bit of flux,” Ritzel says. “We want to focus our distribution strategy around the new dynamic” of specialty stores, designers, and an increasing number of full-line furniture stores picking up the category.

This fluid environment may prove to be either “a great opportunity or an existential threat.” The latter scenario becomes a possibility when lots of new players enter the marketplace, begin scrapping for business, and “try to kill each other in a race to the bottom.”

It’s happened in many product arenas, he says. A “race to the bottom” mentality killed the casual industry’s injection-molded plastic furniture category in the mid-1980s.

“It probably wouldn’t be a wise idea for anybody to think they’re going to have longevity by attempting to be the cheapest guy around,” he says.

Savvy casual furniture retailers will ride out the changing environment and do fine, Ritzel says, as will leading manufacturers. He believes that luxury casual furniture is such a high-touch, choice-rich product that online stores will never supplant the need for brick-and-mortar stores. He also holds that, for most consumers, there’s a limit as to how much they will spend online for “a high-experience product.”

That’s another lesson from the mattress business.

“A lot of people are just not going to pull the trigger” on a high-experience product like fine casual furniture, “until they try it,” he says. “Pure Internet players can’t do what they do, above a certain price point, unless the consumer is ‘showrooming,’” or shopping brick-and-mortar stores against online sellers.

“There’s a reason Amazon is looking to get into retail stores,” Ritzel says.

Among the tasks before Ritzel is crafting an online sales strategy that will send business from online shoppers through existing retailers.

“I would rather (send) my best customers closed sales than take business away from them,” he says. “For me to survive and the retailer to not” survive is “not a sustainable position. It gets back to my point: These products are sold, they are not bought.”

The Many Stages of Production: Painting, colorizing, antiquing, cutting, sewing and creating cushions.

Products made by Pride Family Brands can be found for sale online through merchants such as Wayfair. These products, and those built for mass merchant channels, don’t carry the Castelle name. The company recently rebranded itself as Castelle for the luxury market – specialty retailers and designers – as a means to further enhance its position in the high-end market.

Pride Family Brands also manufactures product for the mass merchant channel. Ritzel points out that the company got its start serving mass merchants, and that channel today remains “a focus for the company” producing “significant” business. Merchandise for the mass merchant channel originates in China, where Ritzel says the company has numerous partners.

The U.S. mattress industry had more than 850 manufacturers when Ritzel entered the business in 1993. “Now you’ve got two major players that control most of the market share,” he says, Tempur Sealy and Serta Simmons. “Those two nameplates now swing the stick,” he says.

No industry seems to be immune from consolidation. It’s evident in banking, healthcare, insurance, transportation, and many other business categories. Ritzel says he expects consolidation eventually to become more of a factor in the casual furniture business.

In recent years the industry has seen Woodard absorb Whitecraft, while Brown Jordan International purchased Tropitone, adding it to a portfolio that already included Winston and other brands. Consolidation may also come at the retail level, he says.

“I think retail channels are to be determined. Where are they going to shake out? Nobody knows. But you can kind of see where they are moving now. It’s almost like tectonic plate-shifting; slow moving for a while, and then it gets real fast.”

Ritzel saw it happen in the sleep industry, and he feels the tremors in the casual industry.

“As I sit back and look at it, there are a lot of parallels between when I started in the furniture business 24 years ago and where things are today, in the category I’m in now.”

Ritzel’s ready for a seismic shift.

Seriously.

Castelle’s Barclay Butera collection.

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