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Rx for little guys: adapt or perish; how an independent survived against the giants.

ALBUQUERQUE, N.M. - Eight years ago, Bob DeGroft, co-owner and vice president of Source One Office Furnishings here, learned first-hand why Office Depot was touted as a category killer. "The day they opened their doors here, they stole about 30 percent of my business," the 20-year veteran of the retail furniture business recalled.

Initially, DeGroft, who runs the business with his wife, Karla, attributed the loss of business to Office Depot's newness to Albuquerque, both in name and concept. However, after the superstore had been up and running for about 90 days, DeGroft knew his days were numbered if he didn't act fast.

"If we were going to survive, we had to make some drastic changes," he said.

DeGroft reasoned that if Office Depot was pushing price, his business, which was then called Budget Desk and sold discount and budget office furniture to commercial offices, would distinguish itself in the area of customer service. "We made a big push to zero in on things like on time delivery and highly trained sales personnel," he noted.

But DeGroft admits now he initially overlooked what turned out to be a key element. "While we boosted service and made sure we had a terrific assortment, we really didn't change out or eliminate comparable lines to those being sold by Office Depot," he said. The oversight almost cost him his business.

DeGroft said the publicity of the Office Depot opening, coupled with the store's prices, "negated virtually every effort we had taken at that point to keep them at bay.

Having faced that cold fact, DeGroft opted to carve his niche as an office furniture specialist that would offer upscale furniture not stocked by Office Depot.

As a result, the company shifted away from many of its commercial sources such as Hon and Anderson Hickey in favor of smaller local suppliers like Horizon Oak Interiors and L.J. Howard.

"I survive on my ability to provide my customers with exclusives and bells and whistles, and these alternative suppliers allow me to do that," DeGroft explained.

He also rechristened the store Source One. "With a name like Budget Desk, we realized that customers were expecting us to be in the same pricing arena as Office Depot," DeGroft noted.

The occasional discount-hunter still comes in. "There's always someone out there hoping to squeeze you, but we just tell them very firmly that our prices are firm," DeGroft said. "If they walk they walk."

DeGroft said his choice of vendors helps him hold prices. "Our vendor selection is critical," he said. "Dealing with a small group of key regional suppliers on an exclusive basis makes it very tough for us to be comparison-shopped."

Currently, Source One customers also can shop for home and commercial office at Office Depot and Office Max - each with two locations in town - Sam's, Price Club and "at least 30 other office furniture dealers," DeGroft noted.

As Source One refocused its attentions on mid-priced furniture from its new suppliers, it also began to bundle in delivery and assembly charges. "In the old days, if you wanted delivery, that was an added charge. The same held true for setup and assembly," DeGroft explained.

Today, Source One has developed a customer base of "mostly upscale professionals, many of whom, not surprisingly, ave a need for home office furniture."

Although DeGroft admits many people buy their computer and home office furniture from an office superstore, he said his customer is often a "second-timer; someone who may have bought the all-in-one $129 computer center a few years ago and is now ready for something better."

DeGroft believes these shoppers flock to his store for two reasons: selection and service. "The superstores certainly have variety [of categories], but their selection [in each category] can be quite narrow. In addition, our customers also shop us because we have developed a reputation for having knowledgeable salespeople on the selling floor," he maintained.

Today, about 30 percent of the company's sales are generated from home office products. "What we are seeing is a trend for shoppers to come in here looking for better quality, solid-wood and wood-veneer home office," DeGroft maintained.

In its previous incarnation, the company had sold particle-board RTA products, but the switch to better furniture marked an end to those assortments, DeGroft said.

"Before we made the changeover, we used to do a good job selling particle-board RTA from key suppliers such as O'Sullivan" he said. "However, we couldn't compete on price with the superstores, especially when we opted to move up and bundle delivery and assembly. "

Right now, DeGroft said, "between 30 and 40 percent of the furniture I sell comes here in a flat-packed form from the manufacturers, who save on freight by shipping it in this configuration. We set it up once it is in the store."

DeGroft said his home office prices range from about $200 for what he described as a fairly simple 24-inch by 48-inch desk, up to $3,000 for a top-of-the-line desk. However, the bulk of his are in the $500 to $1,100 range.

DeGroft relies on a number of promotional tools, including its own catalog and local television advertising, to keep a steady stream of foot traffic making its way to his store.

While admitting that "it is tough being an independent competing against the big boys," DeGroft says his company's diminutive size has its advantages. "We are small, but that's good because we can turn on a dime. And, when we decide to take a new item in, it's not for 423 stores. As a result, if we make a mistake, it is not critical."

While many of the changes DeGroft initiated have kept him in good stead during the last eight years, it may be time to reposition.

"The superstores are going after higher-priced home office furniture, and the contract retailers are looking to capture new business by dropping down to lower price points," DeGroft explained.

While noting the business has survived three recessions and four supestores, DeGroft said, "Even so, I can't tell you that we've made it, and that there is a place for us." Observing that the dynamics of business are constantly changing, DeGroft insisted, "The only way to remain viable is to change with them. "

Recently, Source Onejoined the ranks of companies with home pages on the Internet. "We got started just before Christmas, with about 10 pages that included an overview of our company, our mission statement and about a dozen items that we felt represented the direction we were headed in," DeGroft noted.

So far, the Internet has been a good news/bad news story. The good news was the 8,000 hits the company got. The bad news was, "We can honestly say we only made two confirmed sales from those leads," he said.

However, firm in a belief that successful businesses grow by refinement and experimentation, Source One is modifying its home page to shift to a line of task chairs that can be sent via United Parcel Services.

"You have to keep changing to remain viable. And while some competitors might have held a grudge against a competitor who almost put them out, I maintain that Office Depot did us a hell of a favor by almost closing us up.

"They forced us to make decisions I might not have otherwise ever made."
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Title Annotation:Source One Office Furnishings, Albuquerque, New Mexico
Author:Allegrezza, Ray
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Jun 24, 1996
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