Rebuilding an Empire, Brick by Brick

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

Sep 1, 2010  

by Cheryl Mahaffy

Thanks, perhaps, to his fresh take on the scene, Gregson realized that purchasing decisions had shifted out of sync with sales, gumming up the supply chain. Slow sellers cluttered the showroom while advertised items were out of stock. Recognizing the extent to which advertising drives demand, the new CEO instituted a more collaborative process that brings advertising and purchasing crews together to decide what to buy, and when.

Violet Konkle, one of several new members of the management team, will lead the work needed to make the supply chain hum and rethink such areas as customer service and IT. “Those are huge change initiatives for us, and sometimes change is tough to do from the inside,” Gregson says. Most recently chief operating officer at Walmart, Konkle will also oversee the Brick’s growing in-house warranty and insurance businesses as president of business support.

Also new to the Brick (and also from Walmart) is Jim Caldwell, senior vice-president of operations. Caldwell is the first member of the executive team to be based in Ontario. It’s not a slow shift east, Brick leaders say, but rather recognition of the fact that 65 per cent of sales hail from Ontario and Quebec, due in part to the commercial division headquartered there to serve hotels and other large-volume customers.

In the chief financial officer position, which has had a revolving door since Comrie left, David Merkley joined the Brick from Sears. “He’s very experienced at retail and in the businesses that we operate in as well, so it’s great for us,” Gregson says.

The new faces on the team bode well for recovery, Rivett says. “They’ve managed to attract some of the best talent in the country, quite frankly.” But Gregson is quick to point out that most of his senior staff came long before him and exude a passion for the Brick that can’t be bought.

“We didn’t need to clean house, which was great; we had a great group of people who are knowledgeable, creative and open to ideas,” Gregson says. On a walkabout of the head office in west Edmonton, the lanky executive introduces a half dozen of them, including Paul Comrie, the founder’s son.

There’s no doubt Gregson’s assignment includes challenging the entire team to adopt new ideas and approaches (including hiring enough women to match customer demographics, if Barbaro has his way). Some tweaking of the brand will also occur, particularly to take advantage of digital opportunities. But the Bill Comrie buzz that attracted lineups and spread the Brick from coast to coast to coast in less than four decades will remain part of the Brick mix, the CEO says. Midnight madness, no money down, volume-driven value, fun-focused events – those Comrie staples (now widely imitated) will not be tossed. “You certainly won’t see me doing Brick commercials,” Gregson says. “You can’t copy someone else. But we recognize the past, we embrace it, and we take the best things from it to meet today’s realities. Bill wanted to win every day, and we like that too.”

Early wins in Gregson’s book include ending March with $9.6 million in the bank while avoiding asset-based borrowing for two consecutive quarters. “Our liquidity position is night and day from a year ago, and that’s key,” he says. “I want to make sure we have enough reserves, so we don’t get into the situation we were in before.”

Closely tied to improved liquidity are double-digit increases in same store sales, which continued into April. (Turnaround is slower in the West, and visits to two downtown Edmonton stores found staff still talking of slow sales.) The Brick’s market share is also edging into the double-digit zone after dropping below, Gregson says. “And the industry we’re in is pretty open still. Other than Future Shop and Best Buy, there are no incredibly dominant players in any of the categories we’re in.” The goal, he adds, is to become “the dominant choice” by matching what customers want in store environment, inventory, value and ability to deliver.

Not that the job is done. “We’re in the blocking and tackling stage,” Gregson says. “We’ve identified all the areas that need work, and we’ve had some quick wins, but we’ll be at it for the next few years.” Near term, the number of stores will remain somewhat static at 237 stores, with some opening and closing of storefronts in response to local markets, he predicts. “Our focus now is on building a really strong infrastructure.”

The Brick Group is also laying out plans to convert to a tax-paying corporation. Back in 2004, Comrie’s decision to form an income trust upon retiring from the Brick held appeal as a way to sidestep corporate taxes and provide investors with consistent income. But even as the outflow of cash distributions hastened the Brick down its rocky road, the federal government was devising a strategy to stem the outflow of taxes caused by an explosion of business trusts. The resulting rules erase the tax benefits of being an income trust while allowing conversion to corporate status by January 2011 without tax penalties. The Brick’s conversion will occur before the end of 2010 and will not affect day-to-day operations, leaders say.

Ironically, the retailer’s recent turmoil reduces uncertainty about what its shares will be worth under the new regime. “They’re in an interesting position,” says BMO’s MacLeod. “As an income trust that doesn’t pay distributions, that fact is already priced into the units.” What’s more, the investor base has already shifted to individuals who are looking for long-term appreciation in value and care less about monthly distributions.

With a potential for 35 per cent control to Bill Comrie’s 28 per cent if all warrants are purchased, the Fairfax investment in the Brick is bigger than ever. “This is the only bricks-and-mortar retailer Fairfax is invested in,” Rivett says. “We feel really strongly that Bill Comrie created a great business; he’s the reason we initially invested in the Brick. But Bill Gregson has taken the enterprise to a new level. From our perspective, it’s a Canadian success story. And it’s the type of business we like: it generates a lot of money when it’s working well.”

It should be noted that investors still are not receiving cash distributions, and cannot under the Brick’s current debenture agreements. But Barbaro already anticipates pulling out from under those constraints. “We’ll try to get back into dividend mode as soon as we can – as soon as is economically sound for the company. And we don’t think that’s far away.”

What’s behind that confidence? Besides economic improvements and the evidence of the past two quarters, there’s the fact that Gregson has signed on for a 2.5-year turnaround, Barbaro says. “He’ll get the job done he was hired for.”

By his own admission, Gregson hadn’t stepped inside a Brick store for quite some time before taking the helm, not unlike many customers, given recent events. The last year has been an eye opener, he says, and he means that in a good way, as crews preparing for his store inspections will be happy to hear. “As a retailer, you have an appreciation for other retailers, but getting inside, your appreciation might go down. Mine skyrocketed. The people here truly are a special group. There’s tons of appreciation from where I sit for what they did to come through what they came through – and now to turn things around quickly and connect to the consumer again.”

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