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On a blistering September afternoon in Randleman, N.C., Sherrill Shaw stands on the steps of the old brick schoolhouse. The building was abandoned when he and his father bought it in 1959, and then made it the home of a thriving furniture business, Shaw’s Furniture Galleries. Four decades later, the doors are shuttered again as Shaw peers through the windows. "Can I help y’all?" a young security guard asks. "I’m Sherrill Shaw," Shaw responds affably, appearing uncomfortable at having to identify himself. Shaw waits for the guard to make the connection. Sherrill Shaw. Shaw’s Furniture Galleries. The light bulb still doesn’t go on. "The former owner," Shaw finally adds. "Oh, I see," the guard says apologetically. It’s not quite clear whether he’s apologizing for not recognizing the man who had been the biggest employer in town or whether he just feels bad about the company’s current state: bankrupt, doors padlocked, its 63 employees laid off. Shaw’s didn’t become obsolete. During the 1990s, the small furniture business thrived, and, when the Internet Age dawned, Shaw’s didn’t shy away. In 1999, the six-decade-old company sold out to a young Internet multimillionaire who proposed to make Shaw’s the core of an online business that would transform furniture retailing. The problem for the old-line furniture retailer was too much verve, not too little. Shaw’s shows what can happen when New Economy ideas and optimism—some would say naivete—run smack into a hard Old Economy business.
A town of 3,100 people bisected by one main street, Randleman looks like time has stood still since the mid-’60s. The downtown area still consists of mom-and-pop retailers and restaurants that sell barbecue lunch plates for $6. But even people from outside North Carolina know Randleman. Racing fans know it as the home of legendary driver Richard Petty and the museum that bears his name. Avid furniture shoppers from all over the country came to know it as the home of Shaw’s Furniture Galleries, discounter of fine home furnishings. When Sherrill Shaw stepped into his father’s business in 1956, the company specialized in selling low-end furniture on generous credit terms. Through the ’60s and ’70s, business grew slowly but steadily, and the company moved into selling high-end furniture. In the mid-’70s, Sherrill’s wife, June, came to work at the store, and the two put thousands of hours into making the business an even bigger success. They were in the right place at the right time. Their store was only 15 miles from High Point, which was becoming a major center for furniture manufacturing. With transportation costs at a minimum, nearby stores could sell at deep discounts. So many did just that, that the area became known as the furniture-retailing capital of the country, and buyers came from all over. From 1980 to 1990, Shaw’s grew from $1 million to $12 million in annual sales. "It was all word-of-mouth," Shaw recalls. "You sell to some people in Cleveland, and they tell their friends, and their friends tell their friends." By the late 1990s, Shaw’s had records of more than 300,000 customers and had annual sales of $20 million. It also had a good reputation with manufacturers and had amassed an enviable collection of top furniture brands. The company’s success attracted the attention of Andrew Busey, whose father, Jay, had 30 years of experience as a manufacturing executive in the local furniture industry. Fresh out of Duke University, Andrew Busey had worked with a start-up company that developed one of the first Internet browsers in the early 1990s. In 1995, he borrowed money from friends and family to start an online chat and message-board company, originally called Ichat but later known as Acuity. Though the company never turned a profit, Busey sold it in 1999 for $47 million, leaving him free to pursue a new business idea—selling furniture online. To have even a chance of success, Busey needed top brands. To get what he wanted quickly enough, Busey’s only option was to buy his way into the furniture business. As it happens, by the late 1990s the Shaws wanted out. They were in their mid-60s and often imagined what it might be like to wake up one day and not be consumed with sales figures and shipping delays. Finding a buyer seemed like a long shot—but then a representative of Busey’s called out of the blue in December 1998. The idea of selling furniture online was intriguing, but Shaw says he had misgivings. Manufacturers wanted to protect retailers outside North Carolina from being overwhelmed by the state’s mass of discounters, so manufacturers banned or restricted advertising outside a retailer’s local area. Translation: no advertising on the Internet. Besides, Shaw couldn’t imagine that selling over the Internet would ever replace the visual and tactile experience of buying furniture in person. Still, it’s hard to argue with success. E-commerce had turned minions into millionaires overnight, including the 28-year-old man who wanted to buy him out. Shaw says: "I figured if anyone could make it work, [Busey] could." By February 1999, the deal was done. Busey’s start-up company, Living.com, agreed to purchase Shaw’s for $5.6 million. The Shaws agreed to make themselves available as consultants for six months, but they say Busey never called. (The executives at Living.com declined to comment on this or any other aspect of this article.) After all, who needed the Shaws? By the time Busey took control in July 1999, he had assembled a veritable Who’s Who of executives from Irish beer maker Guinness, food giant Kellogg, consumer-products heavyweight Gil-lette, and high-tech powerhouses IBM and America Online. To provide industry expertise, Busey’s father agreed to become president and chief executive of the furniture business. No executive other than Andrew Busey had ever worked at a start-up, and only Busey and the senior vice president of technology had any Internet experience, but, in the white-hot dot-com world, the possibilities still seemed endless. Busey, who had $41.5 million of backing from venture capitalists, was able to convince even once-cautious Shaw employees of his vision. They say he projected $50 million in sales the first year and $1 billion in the fourth. Eventually, he vowed, his online furniture business would have 1,500 employees and a stock-market value of $10 billion, more than that of J.C. Penney and Kmart combined. "I was really excited," says Delores Ashby, who was head of the shipping department at Shaw’s for six years. "I thought the Internet would help grow the business." Even though salaries remained the same, many employees bought stock and believed it would make them financially secure when the company went public. All they had to do was wait.
The first doubts surfaced because of Living.com’s free-spending business practices. Former sales manager Donna Dickens describes the company’s business plan as three-pronged: spend, spend, spend. While Shaw’s in Randleman occupied the same building as always, Living.com rented three floors in a swank tower in downtown Austin, Texas, and had an office for computer equipment in California. Living.com housed its merchandising team in the Empire State Building in New York. The company launched a $30 million national advertising campaign with prime-time network television spots and bought advertising on popular Internet portals such as Yahoo! and AOL. "They bought advertising like there was all the money in the world," Dickens says. In January 2000, Living.com agreed to become the "Home Living" tab on Amazon.com. The price: $145 million, payable over five years, plus 27% of the company. Living.com executives predicted the deal would catapult the company into the stratosphere of e-commerce. Others weren’t so sure. "To make that payment, they would need annual revenue of $200 million on standard margins," says Brian Carroll, who covers e-commerce for the trade publication Furniture Today. "No one in the online furniture world has revenue even approaching that." For the long term, Living.com apparently hoped to raise money for the payment by going public. For the short term, the company made a curious move: It raised prices 20% across the board even though the Internet was known for low prices and even though Shaw’s had made its name as a discounter. Customers were already expressing displeasure because orders were delayed or arrived damaged. Former employees say a contractor that was supposed to inspect and deliver furniture around the country had a computer system that simply wasn’t adequate for handling all the special orders of an online retail business. (Edward Tracey, the president of the contractor, HomeDirect USA, declined to comment on specific allegations about Living.com but said his company is being used as a scapegoat.) The ex-employees also say that many workers in the Living.com warehouse were inexperienced at handling furniture. With customers not knowing when their furniture would arrive, or whether it might resemble a box of firewood, complaints began to drift into Randleman’s Better Business Bureau. In the furniture business, the retailer only replaces damaged furniture if it cannot be repaired to "first quality"—in other words, made like new. However, former employees say, Living.com appeased angry customers by allowing furniture to be returned for almost any reason. When the ex-employees offered suggestions, they say they were ignored. "The whole group [of new managers] was very, very arrogant," says Dickens, the former sales manager. "To them, we were rednecks, a bunch of hicks who didn’t know anything. I couldn’t make any decision without filling out a form and having upper management approve it." In the meantime, Living.com continued its barrage of public relations and advertising, insisting it was transforming the furniture world and e-commerce. But then the stock market did an about-face in April, crushing dot-com stocks. Living.com had to shelve plans for an IPO, so it had to rethink its heavy spending. Busey went searching for financing and talked to companies about possible mergers. By midsummer, he landed $26 million more in venture capital. But it was too little, too late. Without a steady flow of money to paper over its problems, Living.com had to face a harsh fact: It simply wasn’t selling much furniture. Despite the alliance with AOL, despite the ad spending, despite all the visionary talk, Living.com had made so many missteps that it sold less than $9 million of furniture online in the first seven months of 2000, according to a former employee and a published report. That is about what Shaw’s had done (profitably) a year earlier. Living.com tried to temporize, laying off employees and delaying payments to manufacturers. But many manufacturers eventually refused to ship new orders. Jay Busey resigned from his son’s company on one day’s notice, according to people who were at the company when he walked out. One year after it began selling furniture, Living.com was finished.
On Aug. 15, both the Internet site and Shaw’s Furniture Galleries went dark. Two weeks later, Living.com filed for Chapter 11 bankruptcy protection listing its assets at between $1 million and $10 million, with debts totaling between $10 million and $50 million. All of the furniture retailer’s employees have lost their jobs, and thousands of customers are also out in the cold. Some had made payments of more than $15,000. Their only recourse is to get in line behind all the other creditors in bankruptcy court. The Shaws say Busey still owes them $1.1 million of the purchase price and have sued to get it. "Who would have thought something like this would have happened?" June Shaw asks. "We knew Jay before [his son] bought the company. That’s why we felt pretty comfortable selling to them. It wasn’t like a pure stranger. It was someone in the industry. "Our reputation has been in customer service all these years. Now we’re worried that our customers won’t be taken care of. That’s what really hurts."
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