One woman's dream ends in bankruptcy
By Jenn Abelson, Globe Staff | March 9, 2008
After a sleepless night, Judy George sent a frantic e-mail at 5:52 am to Domain Home employees to tell them the Norwood furniture chain would collapse unless she quickly found an investor to save the company she started 22 years ago.
The message displayed the trademark dramatic flair of a businesswoman known as a public relations whiz, a design guru, and a mentor to women entrepreneurs in Boston. But it was missing the unwavering confidence that had brought George back from failure before, and fueled her rise to the top of the furniture industry.
"I was told late last night that . . . the company has no money," George, 67, wrote in the Jan. 17 e-mail. "I've been sobbing lately and I'm afraid I couldn't compose myself. You see Domain is the other half of me and I feel like I'm being torn apart."
Weakened by a slow housing market that sapped furni ture sales, and saddled with debt after the 2007 purchase of the company by a New Jersey investor who failed on promises to turn the chain around, Domain filed for bankruptcy protection on Jan. 18. Three weeks later, when George was unable to find a new investor, liquidators took control of the company. Within weeks, its 27 shops will shutter.
The demise of George's business closes the latest chapter of a career marked by dramatic responses to setbacks. When Hamilton's, the former Braintree furniture store, initially refused to hire her in 1975, George paid for a plane to buzz the place while trailing a streamer that proclaimed: "Hire Judy George. She'll make you money." It worked.
In 1985, when she was dismissed as president of Scandinavian Design after asking for a raise, George raised $3.5 million to launch her own upscale furniture chain, with the first store opening in Chestnut Hill in 1986.
She impressed investors, including Bain Capital, with her straight talk, unabashed ambition to succeed, and a plan to make high-fashion furniture available at affordable prices.
"Her business strategy was very compelling," one early investor, Mitt Romney, who cofounded Bain Capital, recalled during a 1994 interview with the Globe. "Part Two was Judy herself, her flair. Everything said she was a leader who could make it happen."
By 2000, Domain had 25 stores in the Northeast and $60 million in annual sales, and a coveted niche of affluent female customers looking to make their homes sumptuous nests. George earned numerous accolades and awards, and was the only female chief executive officer among the furniture industry's top 100 retailers.
Domain's downward spiral began in 2002, when George started looking for a way to pay back Domain's venture capital investors. In early 2002, Aga Foodservice , a British appliance company, approached Domain and the two struck a deal. Aga offered about $25 million in cash for the chain and $4 million, to be divided among Domain's four top executives, if they stayed through April 2005.
The new ownership was awkward from the outset. Domain's small shops, used to making about $400 in sales per square foot, had to turn over coveted space to accommodate Aga's large, $15,000 cast-iron ovens. The intricate stoves required extensive employee training; customers shopping for sofas generally weren't looking for pricey kitchen appliances, and sales of Aga products lagged. Competition from imported knock-offs at rival shops also threatened the business, and a plan to cut costs by having Domain furniture produced in China floundered.
By 2006, Domain was losing money for the first time, and Aga, a public company, was pressured to sell the chain. "It was doomed from the start," George Whalin, of Retail Management Consultants in Carlsbad, Calif., said of the Aga deal.
In early 2007, as the housing market continued to erode, George met with several potential investors, but they were reluctant to invest in the struggling furniture industry. She received one offer from Jim Schaye, a liquidator with Hudson Capital Partners in Newton, and Gary Nacht, a New Jersey investor who ran a private equity company called Synergy Enterprises and specialized in turning around struggling businesses. Schaye and Nacht had worked together several years earlier on a potential buyout of toy merchant FAO Schwarz, but never proceeded.
George found new hope in Nacht, who promised to expand the chain nationally and internationally. Using Wells Fargo to finance the deal, they negotiated a much lower price than Aga had paid for the company, handing over just $4 million in cash and $4 million in loan notes that the new owners promised to repay. As part of the deal, Domain had access to a $10 million line of credit from Wells Fargo that was based on the value of its inventory. George received a 10 percent stake in Domain and stayed on as chief executive.
Nacht lauded the business, saying in a statement last June: "We are enthusiastic about the company's tremendous growth potential with more focused and dedicated support."
Schaye said he had a small stake in the company, but Nacht ran the show. Schaye asked for and received sales numbers from Nacht for the first few months, but by the fall Schaye's requests went unanswered. Nacht, through a spokesman, declined requests for comment.
Ultimately, Nacht never put a dime into Domain. Instead he put himself and his girlfriend on Domain's payroll, spent more than $10,000 total for a Marina Bay apartment he never lived in, paid thousands to lease a BMW, and took a business trip to Italy with his girlfriend, as the chain sunk deeper into debt, according to Schaye, company executives, and records filed with a Delaware bankruptcy court.
"I never should have done a bank deal. I should have found a real investor who was willing to put in equity," George said recently in an interview, weeping. "I needed a turnaround operator. I'm an entrepreneur. It was impossible for me to survive."
By the fall, George was trying to steer Domain back to its original formula for success. Domain began purchasing new products from domestic manufacturers, as well as from Italy and France, to separate it from the cheap imitations flooding the market. In October, it sent consumers mailings featuring a new casual and upscale modern look instead of the formal French and English inspired furniture Domain was known for selling.
Nacht managed day-to-day finances and cash flow, George and Schaye said. And that was the way George wanted it. In her 2000 book, "The Intuitive Businesswoman," George acknowledged: "I liked drama and showmanship, but I was bored with utilitarian tasks necessary to run a successful business."
Soon, signs of the company's troubles began to surface. Vendors said Domain was taking about 90 days to pay them, twice as long as usual. During the business trip to Italy with his girlfriend in October, Nacht met with a vendor who was having trouble getting credit insurance for shipments to Domain because the chain was not releasing financial information, according to Susan Black, one of Domain's former merchandise managers, who was also on the trip.
Other vendors faced similar problems, and soon began curtailing shipments to Domain. Meanwhile, through the fall, Domain offered a discount to customers who paid orders in full. Now, customers are owed about $5 million for furniture they never received, according to bankruptcy records.
"Judy was so focused on keeping Domain going and being the fashion leader that she didn't have the time to have her finger on every aspect of the business," said Tim Paladin of Paladin Furniture, one of Domain's vendors. Paladin has $300,000 in unpaid orders and cut its workforce after losing business from Domain, one of its biggest clients.
Most company executives were unaware when, in November, Wells Fargo reduced Domain's available credit line from $10 million to $6 million. At a regional managers' meeting that month, Nacht was asked about the company's financial situation.
"It's exactly where I expected it to be at this point," Black recalled him saying. "We took that to mean, life was fine and we were moving along."
But furniture sales slipped and customer complaints about delayed deliveries piled up. And a new appraisal of Domain's inventory ordered by the bank in December led Wells Fargo to cut the credit line again. Appraisers cited the weakening housing market and significantly reduced traffic volume in major malls where Domain stores are located, Nacht explained in an affidavit filed with the Delaware bankruptcy court.
Schaye, the minority investor, said he learned of the financial problems facing Domain in early January. By that time, Nacht had already hired bankruptcy counsel and a restructuring team.
"I probably should have tried to be more involved," Schaye said.
For two weeks, Domain crunched numbers to see whether the chain could survive with fewer stores. Meanwhile, Schaye and George unsuccessfully sought another investor who could buy out the bank's loan and save Domain.
And then came George's early morning e-mail on Jan. 17.
Later that day, Domain's human resources director told the chain's 250 employees that Domain was closing, it couldn't afford to pay severance or vacation time, and the doors would be locked later that day at the Norwood headquarters, employees said.
"It was horrible, horrible," said Sue Beddia, Domain's former marketing director.
Now, Schaye's liquidation company is working with another business to clear out the stores. Schaye dismissed allegations from former vendors and employees who say he always intended to liquidate Domain.
"I wanted this business to work," he insisted.
George, meanwhile, is already planning her next venture, a Judy George furniture line. But even if she makes another comeback, any new success will be bittersweet.
"I broke a lot of barriers for women, and now to have this happen," she said. "It's not about ego. It's just breaking my heart."
Jenn Abelson can be reached at abelson@globe.com.
© Copyright 2008 The New York Times Company
|
