This End Up Furniture went bankrupt 3 years ago, but customers want more

This End Up Furniture went bankrupt and closed three years ago, but demand for the warehouse-chic furnishings never went away. Customers drove across the country to clearance centers and scoured eBay and Internet swap sites for the bunk beds, sofas and desks that looked like they were made from old packing crates. Kevin Kelly, a retired specialist in corporate turnarounds, tapped into that loyalty when he started rebuilding the company two years ago. The resulting demand has led Kelly to open a small factory in Sanford and fueled plans to open a store in Durham in the fall. His strategy sounds similar to that of the two N.C. State grads who started This End Up in 1975: grow responsibly, take on little debt and make sure customers get the right furniture the first time. "The value of the brand is so much, there's nothing I've done here that's rocket science," said Kelly, 49. By the time Kelly heard about This End Up from a friend, the company had shrunk from the 29th-largest furniture chain in the country, with factories employing about 500 workers in Lillington and Sanford and a huge distribution center in Benson, to a liquidation venture that owed banks $16 million more than it was worth. But Kelly saw a business worth saving. In its last year of operation, This End Up had $140 million in sales, with nearly half that coming from bulk contracts to hospitals, universities and government buildings. In bankruptcy, sales centers sold $1 million a month in heavily discounted furniture. "I figured if these clearance centers can sell $1 million worth of damaged or obsolete furniture a month, I ought to be able to sell a couple of million a year from the factory," Kelly said. So he paid creditors $200,000 for the company's names and designs in late 2000. A few months later, he hired contract manufacturers to make new cushions for customers who wanted to replace worn originals. He contracted with a furniture manufacturer in Chile to build the furniture and started recruiting friends to help set up sales and manufacturing operations. He also found customers eager to see the company back. "The first day we put up a one-page Web site, before we were registered on any search engines, we got 117 hits just from people who typed in thisendup.com," Kelly said. After the Sept. 11, 2001, terrorist attacks, Kelly moved production to Sanford to keep delivery lines open. The furniture is now made in a 50,000-square-foot factory with 25 workers. Moving furniture jobs to North Carolina from abroad is not how business usually works. The state has lost thousands of jobs in furniture-making during the past decade, as companies opened factories in China and South America where labor costs are lower. But Kelly said This End Up has advantages over other furniture makers that help it stay local. It sells directly to customers through its Web site, rather than through independent dealers, which keeps its profit margins higher. And the design and finish of the furniture is so simple that workers can produce goods relatively quickly. Local production also helps another goal of the resurrected This End Up: Deliver goods to customers quickly and undamaged. The company uses its own trucks to take orders directly to customers or hires companies that specialize in furniture delivery. Kelly said he heard horror stories about the company's old distribution chain. Sofas and beds passed through several regional warehouses before reaching buyers, with each stop increasing the odds that a cushion would be ripped or a corner splintered. "All it takes is five or six returns, and you're erasing your profit," Kelly said. By the time This End Up went bankrupt, it had changed ownership twice. Under its founders, N.C. State grads Randall Ward and Steve Robertson, the company grew from its N.C. Fairgrounds flea market origins to a fixture in malls. Its simple, packing-crate-style furniture was a particular hit with parents. The partners sold to Rye, N.Y.-based Melville Corp in 1985 for $47 million in stock and retired. In 1996, the company was resold to Citicorp Venture Capital, which spent millions building a giant, computerized warehouse in Benson. But when the warehouse opened, the software ignored orders from its 135 stores and delayed delivery for months, which cut off the company's cash flow. With less money coming in, This End Up started missing its debt payments. The owners pulled the plug on the company in early 2000. Kelly said that sales were never a problem for the company. Instead, the management made expensive bets on the company's growth that didn't work. Since he has restarted operations, Kelly said sales have been strong, but would not give specifics. During seven months of operation in 2001, he said This End Up sold a little more than a million dollars worth of furniture. Last year, sales were several times that, he said. The next hurdle for Kelly is preparing for an expected increase in demand and cutting delivery times from six weeks to two weeks or less. New equipment is expected to double production and, if sales increase as he expects, Kelly said he'll add 10 workers by next year. "It's really hard to make a comparison between what the company was and what we are," Kelly said. "They were a $150 million company with huge debt; we're just a small startup right now."