Nebraska Furniture Mart faces new challenges with Texas store - Omaha.com
Published Wednesday, September 26, 2012 at 12:00 am / Updated at 12:19 pm
Nebraska Furniture Mart faces new challenges with Texas store

Nebraska Furniture Mart broke ground Tuesday near Dallas on a project more ambitious than any it has attempted before, risking its resources and reputation to create a shopping experience it says will be unique in the country.

Not only is the Mart building its biggest store yet, with 20 percent more showroom space than its sprawling Omaha campus, but it's also taking the lead role in developing a 433-acre retail, dining, hotel and entertainment destination. That's an area approximately twice the size of its Omaha store, Village Pointe shopping center, Crossroads Mall and Westroads Mall combined.

The estimated $1.5 billion project, announced in November, has inspired optimism in the furniture industry and excited leaders in fast-growing The Colony, Texas, the Dallas-Fort Worth suburb that stands to gain thousands of new jobs when the development is built out. Even Omaha will benefit, as the Mart will add about 175 jobs and office space to its headquarters here to support the expansion.

Mart executives say taking charge of the entire project gives the company something it hasn't had in any of its other locations: control of its surroundings.

“We can mold this thing,” said Bob Batt, Mart executive vice president. “We want to be the master of our own destiny.”

But there are risks, too. The Mart is taking its familiar and successful brand — built on company founder Rose Blumkin's philosophy of “sell cheap and tell the truth” and now mostly owned by Warren Buffett's Berkshire Hathaway Inc. — and extending it to a massive development in the nation's fourth-biggest metro area.

The retailer is striking out far from its distribution network in an unproven development, in a new state with a different culture and with new competitors that include IKEA and Crate & Barrel.

“We are assuming all of the financial risk, but the biggest risk is our reputation,” said Jeff Lind, the company's chief strategy and development officer. “We have to deliver an outstanding customer experience across all 433 acres. It needs to ‘wow' visitors in ways no one else is doing.”

Because so much is riding on the project, Lind said, he is taking it slow, concerned more about doing things right than doing them quickly.

There is still no official name for the overall development, and no tenants have signed leases, Mart executives said. They believe that will happen closer to the time the store itself is completed and opens in spring 2015. Marketing messages aimed at potential tenants will focus on the “critical mass” of shoppers the new store will draw, along with the access to and visibility of the site with 1.7 miles of highway frontage. The completed development is expected to attract an estimated 8 million to 10 million visitors a year.

The Mart will work with “best-in-class development partners” on the project, Lind said, although the details of partnerships have yet to be announced.

At today's 10 a.m. groundbreaking, the focus will be on the furniture store itself, to be called Nebraska Furniture Mart of Texas. The Mart will donate five years' worth of smoke detectors to the local fire department for its fire prevention education efforts.

The Mart is appealing to Texas' oversized pride by putting the state name on its sign.

Whether to keep or change the “Nebraska” name was the source of some discussion, said The Colony city manager Troy Powell. But he assured store officials that there would be no negative connotation.

“I'm glad they decided to keep that prominent, in having it be Nebraska Furniture Mart of Texas,” Powell said. “To me, Nebraska is associated with wholesome values, American ingenuity and hard work. I think people will embrace it.”

Still, it's probably good timing, Batt said, that the University of Nebraska no longer competes in the Big 12 against Texas schools.

Nebraska Furniture Mart won't be a household name yet in the Dallas area, even though at 75, it's more than twice as old as The Colony, incorporated in 1977.

No one will have heard about how a Russian immigrant nicknamed “Mrs. B.” founded the store in the basement of her husband's shop, opened a west-side location, rebuilt and expanded after a tornado, and worked in the business until she was 103.

The Mart will have to tell its story and introduce its lines of home furnishings to a new community and customers.

75 THINGS TO KNOW ABOUT 'THE MART'
As Nebraska Furniture Mart turns 75 this year, test your knowledge about the store Mrs. B built.

But in size, the Mart will fit right in in Texas, and Batt believes even the Big D will be impressed by the Mart's operation: “Even as big as Texas is, and the size of the market, there's nothing like this.”

The Colony city officials visited the Mart's stores in Omaha and Kansas City, Kan., before approving the development, Powell said, and were impressed with the size of the operations as well as how well-maintained the older Omaha store was.

“I think it's hard to grasp what Nebraska Furniture Mart is if you've never seen one or been in one,” he said.

The Colony, a city of about 38,000 situated 21 miles northwest of Dallas in fast-growing Denton County, was chosen as the site for the development after store officials considered numerous locations.

“We were looking to be in the path of growth,” Batt said.

Denton County is only a piece of the sprawling Dallas-Fort Worth “metroplex,” home to 6.5 million people.

Batt said the site selection process was as much art as science. He said the company studied demographics, business trends, locations and highway systems. But executives also looked around and talked to regular people.

“You look at how full of life a neighborhood is, or how empty it is,” Batt said. “What's the economic vitality? You ask people — not just old fogeys — is it fun here?”

The Colony officials proved easy to work with.

“We developed trust immediately, and that's so important,” Lind said.

Powell said that's because Mart officials were forthright about their plans and about being newcomers to the development role. The city wasn't concerned about that because the Mart plans to work with experienced developers and because of its own sales success and its backing from Berkshire Hathaway, Powell said.

The developers, the city and Denton County agreed in November on an extensive economic development incentive package. Of the Mart's estimated $1.54 billion project costs, plans call for $802 million to be paid by local government, financed upfront through revenue bond sales and repaid by capturing future gains in sales and property taxes. The tax-increment financing is the first ever approved by The Colony and one of the largest in the state, city officials said.

“It's a common process in Texas, with an uncommon scope,” Assistant City Manager Tim Miller said.

But city officials say it is a good bet. The land is currently valued for tax purposes at just $663,603. The construction of the Mart store is expected to boost the assessed land value included in the TIF to $45 million in the first year alone.

In return for the financing, the Mart must open its furniture store by Dec. 31, 2015, and have the equivalent of 850 full-time employees by the following Jan. 1. The Mart also must complete millions in additional development by certain benchmark years. If the Mart doesn't meet these targets, its incentive package is reduced.

Also, city and Mart officials said that if sales and property tax revenue isn't enough to repay the bonds, the Mart itself is responsible for making up the difference.

“If we don't produce the income to fulfill this deal, it comes out of our pocket,” Batt said.

Powell said that the city will issue the bonds by the end of this year and that Berkshire Hathaway might be an investor but has not yet announced a decision. “The option is there if they want to exercise it,” he said.

Local governments more often agree to incentives for manufacturing or industrial projects, as opposed to retail, but Powell said The Colony doesn't view the development as just retail.

“About 70 percent of the Nebraska store is warehouse, which is a traditional use for the TIF,” he said. With room in the development for corporate office space and entertainment uses, he said, “We see it as a lot more than just a store.”

The development is also expected to serve as a sort of city center in a town too young to have a historic Main Street.

Powell said the project is already generating interest in land around the site. “Since we announced the Nebraska project, the interest in our community has probably gone up five or six times,” he said.

It's the first new store for the Mart since its Kansas City, Kan., location opened in 2003. Plans for the Texas store's interior aren't complete, but Batt said the Mart will continue to step up its game to attract the most demanding of customers: women.

“Women are the decision makers in our business,” he said. “Women understand taking care of the family and the home better than men do. Single men will bring in their mother, their sister, their ex-wife. They need someone to validate their choices.”

Women demand spotless stores, look for exemplary customer service and enjoy interactive events such as kitchen product demonstrations, he said, which the Mart will plan more of in its Texas store. When it comes to the latest thinking in creating customer experiences, Batt said, “We're going to be five generations from (the Omaha store) and three generations from Kansas City.”

The retailer, which set an earnings record in 2011, is counting on those Texas women to help it reach its goal of boosting overall sales by 75 percent. The Mart projects $600 million in annual sales in Texas, compared with more than $400 million at each of its stores in Omaha and Kansas.

The Mart's investment and anticipated sales growth in the face of the nation's slow recovery from recession has inspired optimism in the furniture industry.

“The expansion has gotten people in the industry talking about growth and expansion versus doom and gloom,” wrote Mike Root, president of wholesaler Furniture Sales of Mid-America, in the industry publication “Furniture Today.”

Lind said the company believes this is the best time to invest.

“We believe in the future, and what better way to show it than kicking off a huge project such as this,” he said.

In preparation, the Mart is ramping up and refining its human resource and business processes.

It will hire approximately 2,000 employees for the Texas store, sending them to “Furniture University” for product and customer service training, and will offer transfers from Kansas for employees who have experience opening and operating a new store in a destination shopping center. (The new hires will be in addition to the 2,800 current employees.)

The Mart is using new software to improve supply-chain management, helping it forecast and meet demand for the thousands of different items in its lines of furniture, electronics, appliances and flooring. Better planning is required in part because Dallas is too far from the other Mart stores for the retailer to send merchandise daily by truck the way it does between Omaha, Des Moines and Kansas City.

The Mart is also putting into practice lessons learned from its experience opening the Kansas store. Known for its meticulous preparation for big events such as the weekend of the Berkshire Hathaway shareholders meeting, not even the Mart was ready for Kansas. Batt said market research underestimated the pull factor of the store and surrounding development.

“We got slammed from the get-go,” he said. “The first nine months were really tough.”

This time, they're planning for more — more parking, more restrooms, more employee training and more merchandise pickup points.

But Batt, 64, a grandson of Blumkin's, emphasizes that the Texas store and the larger development around it are not “growth for growth's sake.”

He said the Mart is expanding the brand in a calculated way while treating it with respect. The Texas development will likely be the last major project for the cousins and other family members in Batt's generation.

“If you fail at the moment of truth — we don't want to do that,” he said. “It's too dear to us.”

Contact the writer: 402-444-1336, barbara.soderlin@owh.com

Contact the writer: Barbara Soderlin

barbara.soderlin@owh.com    |   402-444-1336

Barbara Soderlin covers food safety, ConAgra, technology and employment/unemployment issues.

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