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Hearth & Home May 2014

Tides Sled Leg chaise lounge.

Making a Splash!

By Tom Lassiter

In south Florida, entrepreneur Gerald Schvartsman has built a factory to manufacture outdoor furniture (Source Outdoor) – no one told him it couldn’t be done profitably.

The evidence is all over Miami Beach and South Florida. A newcomer is making waves in the contract outdoor furniture business.

From the W Hotel to the St. Tropez condos to Trump Tower to the Mellow Mushroom pizza restaurant, the outdoor furniture bears the Source Outdoor brand.

Never heard of it? You’re not alone.

The brand didn’t exist until 2008, when Canadian Gerald Schvartsman turned a personal shopping experience into his next career move. He needed outdoor furniture for his family’s Florida condo rooftop patio, and he wanted nice stuff. The prices, however, floored him. A wheeler-dealer since boyhood, the 30-ish Schvartsman was taken aback by sectionals with a list price of $15,000.

Why should an aluminum frame wrapped in plastic strapping cost as much as a decent used car? And if he bought a car, he could drive it off the lot. Why should a customer have to wait weeks, perhaps months, for delivery?

Entrepreneur Schvartsman smelled opportunity.

Source Outdoor’s quick penetration of the contract market in its own backyard makes veteran sales representative Miles Fenn shake his head in wonder.

Custom Day Bed at the W Hotel in South Beach, Florida.

“If you go to South Beach, everywhere you go – from your beachfront hotel to a restaurant on Biscayne Bay – you’re going to see Source Outdoor furniture. It’s wild. I don’t know how he did it.”

Schvartsman, says Fenn, is “a non-conventional thinker. He didn’t grow up in the Thomasville Furniture factory, like I did. He didn’t work for Brown Jordan, like I did.”

Schvartsman doesn’t just break the unwritten rules of the casual furniture business. He thumbs his nose at them.

Had Schvartsman sought the advice of industry veterans, they would have told him that his approach was doomed. Had he heard that advice, Schvartsman would have ignored it. He trusts his experience and instincts over conventional wisdom.

“I have an overwhelmingly large amount of common sense,” he says.

Modesty? That’s another subject.

So Schvartsman plunged forward, smashing all the rules.

“He didn’t know you couldn’t do it that way,” Fenn says. In the reserved casual furniture industry, Schvartsman is like a hockey player at a croquet match.

Schvartsman has made a believer of Fenn. The rep works Florida, selling for Winston Furniture, Barlow Tyrie and Ancient Mosaic Studio. His newest line is Source Outdoor.

“Source Outdoor,” Fenn says, “is hot as a firecracker.”

Lifelong Salesman

Photo: ©2014 Steady 70.
Gerald Schvartsman.

A native of Toronto, Schvartsman as a child helped his parents sell jewelry at Sunday flea markets. He skipped college and opened a nightclub with his older brother, Michael. Other ventures followed. In the heady days before the economy derailed in 2008, the brothers set up a credit card processing business, which they still operate. Its name says something about the Schvartsman business attitude: Conquest Financial.

Schvartsman’s furniture-shopping experience sent him on a personal research mission. He looked at brands, prices and who sold what. He focused on wildly popular resin wicker, noticing that it was available at a wide range of price points. Even so, much of it – especially the contemporary styles – looked rather similar.

He talked to furniture storeowners. What would they like to see? Buy short and deep they told him, maybe 20 SKUs. Keep it simple.

Schvartsman also listened to his inner shopper. He saw no need to pay more to be unique.

“I did this from the consumer standpoint,” he says. “All the weaves look alike to me.”

The casual furniture industry sees newcomers enter the marketplace every year. Some are under-funded and ill prepared. Some just hope to make a quick buck and bail. That’s not Schvartsman.

“I want to do it long-term,” he says.

He theorized that a solid product sold at an affordable price, (wholesale, contract or retail) would have staying power.

“I figured out what is good and what is not pretty quickly,” he says.

He next needed a supplier, and all signs pointed to Asia.

“I went to China. I knew nothing about anything. I just knew how to sell.”

Schvartsman foraged until he found a manufacturer of resin wicker furniture that had designs, quality and prices that appealed to him.

“I wanted to have a good reputation in this industry,” he says. “I spent a little more money and found a good manufacturer that offered me a good warranty.”

A deal was struck. Eight containers of furniture soon were on their way to Miami.

“I bought as much as I could afford,” he recalls, “and I went out and hustled those items.”

Schvartsman needed sales literature and took the photos himself. His initial target market was South Florida retailers.

“I started knocking on doors,” he says. “I had a heavy hand, and I knocked hard. I don’t take no for an answer.”

Schvartsman’s insistence and attractive prices initially got the attention of storeowners. His closer was snappy delivery. Source Outdoor had the goods ready to go.

In 2008, it was a terrible time to launch a new business. Consumers weren’t buying, commercial credit was drying up, and nervous retailers pulled back on early-buys, sending shockwaves through the casual industry.

Circumstances conspired to the advantage of Source Outdoor. A retailer that needed fresh product could get a little or a lot, pronto. Terms: cash on delivery.

“If they needed my product right away, they needed to pay right away,” Schvartsman says.

Broken rule example: “Somebody a long time ago started this silly thing called dating. I looked at this business model and said, this is not something we want to get into. We give really aggressive pricing, so we get paid up front.”

Schvartsman turned his product and ordered more containers. His collections were limited to one weave and one color, an ever-popular shade of brown he calls Espresso. He was pleased with the quality produced by his manufacturer and let his retailers know that Source Outdoor guaranteed satisfaction.

“We stand behind it, no matter what,” he says.

Selling only to and through retailers was not enough for the hard-charging Schvartsman.

“Once I got a bunch of retailers on, I started calling on designers. Then we started doing the hospitality shows. We had instant gratification, because I had inventory.” That’s when Source Outdoor furniture started showing up at some of South Florida’s trendiest vacation venues.

Schvartsman claims his company is on the way to becoming “the largest distributor to the hospitality industry in the state of Florida. We’re very aggressive in our sales strategy. We are definitely going to be there very shortly.”

Another channel Schvartsman explored was home shows. These expositions for builders and home furnishings suppliers usually set up for a long weekend and attract tens of thousands of consumers. Schvartsman saw a ready market and made excellent margins selling direct to the public.

He quickly learned in 2010, however, that his retailers took a dim view of that practice. His experience was chronicled in a two-part The New York Times “case study” published in spring 2013. Schvartsman eventually decided that breeding ill will with his dealer base was not worth the quick profits offered by home shows.

Source Outdoor had about $17 million in revenues last year, Schvartsman says. “This year, company-wide, we’ll do about $25 million,” he says. “I think we’re on our way to becoming one of the big guys. My projection is $100 million in eight years.”

Aqua Day Bed.

Multiple Channels

Source Outdoor, still a relatively small player, has an unconventional multi-channel sales approach. Some companies toil for decades to cautiously penetrate the channels that upstart Source Outdoor has functioning in its sixth year.

In addition to the contract market (“which has kind of become big volume,” says sales rep Fenn), Source Outdoor has placed its products in the showrooms of conventional furniture retailers such as City Furniture, which has 17 locations throughout Florida.

Specialty retailers are another channel.

“I have signed up two or three of the top retailers in Florida,” Fenn says.

The company has about 20 sales reps, Schvartsman says. Outside of Florida, most Source Outdoor retailers are located in the Northeast and California, he says. Industry veteran Lyle Ecoff (who headed the expansion of Florida-based Carls Patio into California) runs the West Coast operation. The company currently has about 40 retail accounts.

Schvartsman expects to add more retailers in the Southeast and Midwest as the line expands to include more traditional and transitional looks. He understands that the contemporary looks that won the attention of the hospitality market need tempering to win the attention of middle America.

“We do not concentrate on retail,” Schvartsman says. “We are pushing the contract/design side.”

Source Outdoor can act as an OEM supplier for volume retailers who want to put their own brand on products.

“We have the ability at our factory in China to do special things,” Schvartsman says. “We can do one-offs.”

Another market is export. The company, with its proximity to the Caribbean, is finding acceptance in the island resort and vacation market, Schvartsman says.

Last but not least, Source Outdoor sells through online vendors, including some heavyweights. The company’s dot-com vendors include Hayneedle, Wayfair, Sears, Lowe’s and Wal-Mart.

Each channel is managed by a designated person in the Miami headquarters, Schvartsman says. He calls his system “verticals,” in that it allows a concentrated, narrow focus on a finite area.

City Furniture picked up the Source Outdoor line after turning away from the outdoor market for a number of years, says supply chain manager James Conway. Source Outdoor, he says, is “right down the middle of the road for us. We try to stay below the niche patio guys and above Home Depot and Lowe’s. The top of our line is Agio.”

Conway says Source Outdoor is “not Brown Jordan, but they are a good value. We haven’t had any problems with quality.”

Hiring Experience

Photo: ©2014 Steady 70.
Jim Levine.

Jim Levine met Schvartsman when he was knocking on doors that first year. Levine, a former patio retailer CEO, at that time was running the patio business for Robb & Stuckey, the well-known Florida retailer. It wasn’t long before he joined forces with the young Canadian.

(Robb & Stuckey declared bankruptcy in 2011. Under new ownership, the name lives on as Robb & Stuckey International, with three Florida locations.)

“Every business needs to be driven by sales, and he’s a salesman,” Levine says of Schvartsman. “If you’re good at sales, you can probably sell anything. He just happened to sell outdoor furniture.”

Levine, president of Source Outdoor, agrees that Schvartsman turned his unfamiliarity with the casual furniture business into an asset.

“Sometimes when you don’t know what the rules are, you’re able to just go forward. He wasn’t stuck with the limits that some of us in the business think of.”

This is Schvartsman’s version: “The furniture industry as a whole is run by ‘good ol’ boys.’ They have old ways of doing things and an old perspective.”

Schvartsman didn’t ask retailers to commit upfront to a season’s worth of product or even a container load. He delivered exactly as much as the retailer wanted.

Levine says retailers like drawing product from Source Outdoor’s warehouses instead of tying up capital with on-site inventory.

“That got us a lot of retailers very fast,” he says. “It’s good for everybody not to have a lot of inventory.” By avoiding inventory, he explains, a retailer “can work on a smaller margin and be just as profitable.”

Regular shipments of resin wicker from China keep Source Outdoor’s warehouses in South Florida and Southern California supplied with furniture for quick shipment to retailers. The company expects to import about 200 containers of furniture this year.

And what about cushions for all that deep seating? Source Outdoor set up a cut-and-sew operation at its Florida headquarters. Custom upholstery orders usually are shipped in one to three weeks.

Source Outdoor’s catalog is a mix of OEM resin wicker designs from its Chinese factory as well as designs created by Levine and Schvartsman. The Miami office employs a full-time designer/draftsman who turns their ideas into CAD drawings.

Fenn says Levine’s experience and Schvartsman’s aggressive enthusiasm make a potent combination. “They’re an interesting pair,” he says.

Photo: ©2014 Steady 70.
The Source Outdoor cut and sew operation.

Expand and Diversify

Source Outdoor’s initial foray into casual furniture was limited to resin wicker. Retailers and reps asked for more categories, particularly aluminum furniture. Schvartsman found a Chinese source but quickly became dissatisfied with lead times and trying to forecast which frame colors consumers would want.

He made his decision quickly.

“We’re going into manufacturing,” he said.

It was an easy decision, because Schvartsman had already hired some expertise in metalwork when he started an awning division, Source Awnings. Frank Rivero, a third-generation awning contractor, is president of Source Awnings.

Schvartsman says the awning business was attractive because of “crossover – a lot of the same customers need awnings and furniture.”

The crossover apparently influenced design of Source Outdoor’s contract furnishings products. A photo gallery on the company’s website shows shade structures with distinctly awning-like canopies.

Source Outdoor jumped into making aluminum furniture early last year. Schvartsman says the company had no problems finding qualified metalworkers in South Florida. With the addition of more than 30 people in the metalwork department, the company now employs more than 100.

The company’s facility expanded to about 100,000 sq. ft. to accommodate manufacturing, which includes welding and grinding but not paint. Powder-coat painting currently is jobbed out, but Schvartsman foresees installing a paint booth, perhaps within a year. He’s already thinking of how to turn that investment (“maybe $750,000”) into a profit center.

“I will build a whole business around that booth,” he says. “I will turn it into an income generating business as opposed to a cost.”

Six years in, there’s still plenty Gerald Schvartsman doesn’t know about the casual furniture business. But that doesn’t faze him.

“I’m not a manufacturer,” he says. “I’m an entrepreneur. Failure doesn’t exist in my vocabulary.”

Neither does status quo. Source Outdoor, which Levine says won a significant contract order for teak furniture, is exploring bringing that category to retail. The company also is developing a new line of aluminum-framed furniture that will employ techniques from the awning trade to affix fabric to the frame.

“It looks like wicker, but acts much better,” Schvartsman says. “If someone burns a hole in it with a cigarette, we can make a new cover and repair it.”

Schvartsman doesn’t exhibit the typical respectful deference to brands generally regarded as the best in the casual industry. He doesn’t think any particular brand of resin fiber is superior to another. He says he’s seen top-flight furniture brands at South Pacific resorts, where it has broiled under an unrelenting sun, “and it was falling apart.” That convinces him that his resin wicker products are highly competitive in UV-resistance as well as design.

He mentions one brand, calling the designs “amazing, beautiful. But at the end of the day, you put their product next to mine, and the consumer is not going to know the difference.”

The brash CEO of Source Outdoor pulls no punches, makes no apologies.

“I’m a very no-bull---- kind of guy,” Schvartsman says. “I go for my goals, and I don’t stop until I get them. I’m going to do it my way, and it seems to work.”

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