The Factory That Refused to Die (July 27, 2009-2060)

The Norwalk Custom Order Furniture Factory in Norwalk, Ohio, is 430,000 square feet, enough to encompass four football fields. On a rainy June afternoon, though, the facility is quiet¡ªexcept for the sounds of a radio playing 1970s rock classics and the occasional hum of a sewing machine or pop of a staple gun. This time last year more than 300 people worked on the floor, producing hundreds of pieces of furniture a day. Now the headcount is 59.

That Norwalk is still producing furniture at all, however, is a business miracle. The 107-year-old manufacturer has been buffeted by the housing bust, Chinese competition, its own poor judgment, and the credit crunch¡ªa toxic brew if there ever was one. Last year Norwalk's owners, the fourth generation of the founding Gerken family, gave up the fight and closed the factory's doors, unable to meet the demands of lenders. Dozens of retailers who relied on the company stood to go out of business themselves.

But instead of becoming one more piece of bad news floating on a sea of economic disasters, Norwalk has emerged as a survivor of sorts. An unlikely coalition of investors, factory workers, and politicians have joined together to reopen the factory. Now the business is above water, if just barely.

These people and thousands of fighters like them are the difference between 9.5% national unemployment and something even worse. Companies big and small are struggling to deal with the double whammy of slowing sales and restricted credit. U.S. bankruptcy filings surged to 7,874 in May, a 55% rise from a year earlier, according to bankruptcy tracker AACER. With loan delinquencies soaring too, banks¡ªalong with CIT Group  and other other commercial lenders¡ªare raising their credit standards: Federal Reserve figures show that banks have tightened up on small business lending for 10 consecutive quarters. "It's very difficult for banks to embrace lending to smaller businesses," says Robert Coleman, editor of the La Canada (Calif.)-based Coleman Report, which tracks small business loans.

Against that grim backdrop Norwalk has somehow managed to survive. The company was founded in 1902, when upholsterer Charles Edward Gerken first crafted a chair for his son, Raymond. Over the decades, Norwalk came to own all or part of 13 different companies, from wood exporters to low-end furniture makers. None, however, was as profitable as the core custom-order furniture business, which produced its upscale wares in the Norwalk factory in Ohio and sold them through 57 franchises around the country and through independent dealers that carried multiple brands.

Earlier this decade foreign competition in the furniture industry intensified, particularly at the low end. Imports from China rose 154% from 2001 to 2005, to more than $12 billion. But because the strong housing market was fueling demand for high-end furniture, Norwalk kept production steady.

When the real estate market crashed, the company's fortunes quickly changed. Sales plunged from $163 million at the peak in 2005 to $137 million in 2007, according to investment bank Beacon Associates. In the first four months of 2008, the company had revenues of just $40 million and was on track to lose $4.9 million for the year.

Making matters worse, Jim and Bill Gerken, the fourth-generation cousins running the company, were slow to cut costs and pare the losses. Instead they tapped their $13 million credit line to keep the business afloat. "Most of what happened to Norwalk was our own mismanagement," admits Bill Gerken. "I'd love to blame someone else, but we screwed up."

In early 2008 the Gerkens grew concerned about Norwalk's performance. They persuaded factory workers to take a cut in benefits, hired restructuring firm Morris Anderson, and in April submitted a turnaround plan to their bank of 12 years, Dallas-based Comerica

< Back To News >