Rebuilding an Empire, Brick by Brick

Bill Gregson is turning around Canada’s biggest furniture retailer — with a little help from founder Bill Comrie

by Cheryl Mahaffy
Photography John Gaucher

PROFIT BOUNCE: Brick CEO Bill Gregson has good reason to jump for joy, given the company’s improved showing

There’s a sprucing-up going on inside Edmonton’s original Brick store, the brick building with the bold red lid that launched what is now one of Canada’s highest-volume home furnishing retailers. CEO Bill Gregson is due to arrive for a store inspection in less than 24 hours, and everything has to be just so.

The entire 237-store Brick empire has been undergoing an improvement of sorts since Gregson arrived on the scene a year ago. And none too soon, analysts say. In 2004, when founder Bill Comrie converted the enterprise he’d built brick by brick into an income trust and took up a new life in California, the Brick Group Income Fund (TSX:BRK.UN) began trading at $10 a unit. After rising above $14 in 2005, the trust plummeted to $0.60 by mid-2009 amid a run of red ink that forced cash distributions to cease. Now, with a new CEO at the helm, the Brick Group (whose stores include the Brick, United Furniture Warehouse, the Brick Superstore, the Brick Mattress Store and Urban Brick) shows signs of bouncing back at a pace that just might polish Gregson’s reputation as a turnaround artist.

Although Comrie insists he’s no longer steering Brick operations, and “not even on the board now,” he is responsible for putting Gregson on the company’s radar. With a good chunk of investment in the fund, not to mention pride at stake, Comrie took action when word reached him that Gregson had what it took to turn the Brick around. After checking with John Forzani (whose Calgary-based Forzani Group Ltd. came back from near-death under Gregson’s care), Comrie made sure to connect when Gregson swung south for a consulting gig. Over a round or two in a California clubhouse, the two ex-Alberta retail guys began dissecting the Brick’s failing fortunes. Impressed by Gregson’s intelligence and retail savvy, Comrie made a few calls to key Brick board members. By June 2009, Gregson was consulting for the Brick.

Within a month, Gregson had shifted in-house as president and CEO. He was not looking for a permanent post, having found life as a Calgary-based consultant quite to his liking, but the lure of rescuing what he calls “an iconic brand” reeled him in.
“Turnarounds are challenging and exhausting, but a lot of fun, actually,” says Gregson, whose commute to the Edmonton head office still begins in Calgary. Pointing to Athletes World-Bata and Reebok as well as the Forzani Group as cases in point, he adds, “I’m a retail guy; I like turning companies around and making them grow.”

At the Brick, it seems the 51-year-old CA turned CEO is doing it again. By mid-2010, the fund was trading above $2 on the strength of two quarters of record earnings. Not stellar, but certainly better than $0.60. Sales at stores open for more than a
year (an industry benchmark) gained momentum and by March were up 16.6 per cent from a year earlier.

That’s quite the contrast to the tumultuous first two quarters of 2009, when same store sales dropped 21 per cent and 33 per cent, respectively, notes Stephen MacLeod, retail analyst at BMO Capital Markets. “They’ve done a good job in turning the company around and positioning it to capitalize on improvement in the economy.” In June, MacLeod rated the Brick Group to “outperform,” that “right now, I would say it’s a good one to buy into.”

The Brick can blame some of its recent roller-coaster activity on the recession of 2008. The real estate market was particularly hard hit, and the link between buying a new home and shopping for the furniture, mattresses, appliances and electronics sold by the Brick is a strong one. But the Brick took the hit even harder than competitors such as Leon’s Furniture Ltd., flashing warning signs to anyone willing to look. That included, many investors, who began jumping ship.

As sales dried up and creditors came calling, CEO Kim Yost and his team slashed advertising budgets and axed 400-plus sales staff. Customers were already grousing about out-of-stock items. “It was a combination of a knee-jerk reaction to an economic situation no one had seen in close to 80 years and a business that had grown by leaps and bounds and had to do a little bit of engineering to fix its growing pains,” says Paul Rivett, vice-president of Fairfax Financial Holdings Ltd.

Fairfax stands out as an investor that dug in for the long haul. In May 2009, Fairfax shouldered the bulk of a $120-million recapitalization that, while diluting the fund with purchase warrants kept the Brick out of the penalty box with its creditors. The refinancing which also involved Comrie did nothing to bring the customers back, though, and the red ink continued to flow.

Even Comrie, who had installed the effervescent Yost at the helm in 2004 and left town expressing full confidence in his successor’s ability, saw it was time for a change. “Kim is a great guy, but he kind of ran into a couple of walls,” Comrie says, taking a few minutes to chat while packing his suitcase at a hotel in Indiana. Despite taking the Brick to a record-breaking 2007, and despite being a great guy by all accounts it was time for Yost to take his skills elsewhere. By October 2009, Yost had moved to Michigan as CEO of Art Van Furniture, a post Comrie is proud to say he helped line up.

“Bill Comrie and Kim Yost were strong, creative retailers. I’m convinced if you cut those two guys, blood wouldn’t flow, it would be furniture,” says Ron Barbaro, who has chaired the Brick Group’s board since it formed in 2004, and had the “horrible job” of asking Yost to leave. “But when the recession hit, to turn the dial and have all the executives and buyers turn at the same time, a shock was needed. Kim had been with the Brick 10 years and then that gets harder to do, because you develop relationships. Bill Gregson offers the right mix for the Brick today. He’s no nonsense, he’s committed to excellence and he comes with no luggage and financial acumen. It just works.”

Rivett, who sits on the Brick Group board as chief operating officer of Hamblin Watsa Investment Counsel Ltd. (which manages Fairfax investments), echoes that praise. Gregson, he says, is highly knowledgeable, able to execute and blessed with a high degree of energy – everything you’d want in someone to fix your business. “He quickly identified four to five key things that needed to change, and even before the economy turned around, he was able to turn the business. You could argue the turnaround is done now, amazingly. We thought it would take longer.”

Addressing the Brick’s liquidity issue became Gregson’s first priority. Since becoming an income trust, the retailer had focused on opening stores and maximizing distributions to unitholders. As a result, the downturn caught the company short on reserves – the victim of a gruesome game of musical chairs. “With the focus off the business to refinancing, suppliers become spooked and inventory stops flowing in, so the problems compound,” Gregson says. “We needed to call a timeout, get refinanced, rebuild confidence, put advertising out there and get salespeople back on the floor.”

Again Fairfax was central to the solution, providing a $25-million letter of credit to GE Capital Canada to backstop a maximum $130 million in borrowing. “That was the single biggest thing to break the logjam,” Gregson says. “It’s what we needed to get the right amount of goods so we could get back in the game.”

Agreement and plan in hand, the new CEO romanced suppliers in a whirlwind of meetings and continues to send monthly updates aimed at proving that it’s safe to extend credit to the Brick.

While further diluting the trust units, the line of credit gave Gregson breathing room to not only purchase inventory but redress previous cutbacks in sales staff and advertising. “We actually have more advertising than we used to have, but it costs us less,” he says. Contracts for goods and services such as waste management, janitorial and printing are also being renegotiated to take advantage of renewed supplier confidence as well as the company’s scale as a national retailer, he adds. “We want to use less and pay less for it.”

Gregson readily acknowledges that his previous turnarounds lean more to sports than home furnishings. While arguing that many of the same principles apply, he admits to grappling with one significant difference. “In sporting goods or apparel, customers walk out of the store with their products in a bag. In furniture, appliances and mattresses, they typically don’t. They need to pick their purchases up or have them delivered to their home, probably 30 days down the road on moving day. That makes this a much more complicated business.”

Current Issue