Designing Men in This Economy, Can an Upstart Furniture Store Really Persuade People to

(FORTUNE Small Business) - Even if you're not a design snob, you can look around and see other people in the country leaning that way. Target sells housewares by Michael Graves and Philippe Starck. The new Disney Concert Hall in Los Angeles was designed by avant-garde architect Frank Gehry. And on the TV show Queer Eye for the Straight Guy, slobs get their apartments redone using furniture you formerly might have seen only in Scandinavian hotels. Now an upscale retailer called Design Within Reach is trying to go one step further by selling modern furniture to the masses. (Yes, those are some of its products on Queer Eye.) Based in Oakland, DWR has 14 retail locations--eight opened in the past year--with another 25 envisioned by 2005. According to the company, which is privately held, revenue has gone from $23 million in 2000 to a projected $80 million this year. DWR turned profitable within 18 months of launching. The company says its growth comes from making artfully crafted, high-quality furniture accessible--classic pieces by designers such as Ludwig Mies van der Rohe or Charles and Ray Eames. For decades, if you wanted modern furniture for your home, you had to go through interior designers or visit a boutique shop where the price of a single chair would exceed most credit card limits. Those Armani-clad jet setters who could afford it faced a three- or four-month wait for products that were custom-ordered from Europe. DWR takes a different approach, as the "Within Reach" part of its name indicates. Walk into one of its locations, and you'll be invited to sit on the couches, let your kids climb around, even bring in your dog. The sales reps are friendly, and many have degrees in design. Most important, virtually all its products can be at your door in less than ten days. The company ships from a central warehouse in Union City, Calif., and says it sends out 97% of orders within 24 hours. One thing the name does not imply, however, is "inexpensive." The classic black leather chaise from Le Corbusier will cost you $1,250 (though even that seems reasonable compared with the $2,275 that the Museum of Modern Art Design Store charges for the same piece). And that leads to perhaps the biggest question for the future of Design Within Reach. Its products are clearly beautiful and its customer service superlative, but are enough people really willing to spend that much on a chair? If you wanted to start a business in a high-growth industry, you probably wouldn't pick this one. Americans allocate less than 1% of their income to furniture each year. Maintaining inventory is extremely expensive, and the logistics of delivering a 200-pound sofa across the country undamaged require serious know-how. In that context, DWR's success so far is even more impressive, in that the founder didn't have that kind of knowledge when he started. Rob Forbes, now 50, spent 12 years as a potter, winning a National Endowment for the Arts grant and showing his work in national exhibitions before getting an MBA at Stanford. After that he worked at Williams-Sonoma and Smith & Hawken, but he couldn't shake the memory of furnishing his San Francisco apartment in 1991. He had wanted modern furniture, but everything about the process--finding it, paying for it, waiting for it to finally show up--was a headache. Forbes thought there had to be a better way, so he left his job in 1997 and spent a year talking to just about every major figure in modern design, from Frank Gehry to Michael Graves. When he had a rough business plan, he started looking for financial support. He was rejected by 13 VCs but did line up enough backers to get the company started. Significantly, he got $50,000 from his old boss at William-Sonoma, Wayne Badovinus, who took a seat on the board. In 1999, Forbes sent out his first catalog of 52 chairs and seven tables ("Essentially 'chairs within reach,' " he jokes). The early orders came in twice as fast as he'd projected, and Forbes realized he needed a partner to run the financial and managerial end of the business. He talked to Badovinus, then quasi-retired and teaching business, and persuaded him to sign on as CEO. Badovinus wasn't a natural fit for selling $999 Noguchi coffee tables. The son of a nomadic construction worker, he didn't live in a house with a foundation until college. He was, however, a retail veteran. He spent the first half of his career at Nordstrom, where he became the first VP outside the Nordstrom family, and later served as CEO of Eddie Bauer. From 1987 to 1992 he took that company from 18 stores to 200 and oversaw a revenue jump from $230 million to $1 billion. Still, he knew that DWR would require a different approach. "The top managers here have all had bigger jobs at much bigger companies," says Badovinus. "This is fun for all of us to say, 'Let's make a highly profitable business and keep our egos out.' For me, this is the final exam of a 40-year career." Early on, DWR had three sales channels: a catalog, a website, and a sales force that visited architects and interior designers. Badovinus was clear: There would be no bricks and mortar. Between rent and inventory, retail is cash-intensive, and cash is one thing the company didn't have. (In two rounds of financing, DWR raised $10 million, not a lot during the peak of the dot-com bubble.) However, the industry customers clamored for a showroom to touch and feel the products. As a test, Badovinus agreed to put some furniture samples in DWR's street-level office for designers to see. He was surprised to find regular folks walking in off the street and wanting to buy things. A fourth sales channel was born: stores without inventory, dubbed "studios" because they let you see the furniture and even buy it, but you couldn't take anything home with you. That saves on overhead, because there's no on-site storage and no worrying about whether each location has enough Eames lounge chair and ottoman sets ($2,919). So far DWR has boasted some impressive metrics. According to the company, its studios bring in between $600 and $1,000 per square foot in sales, compared with an average of $442 for the top 100 specialty-furnishings retailers. Some of that difference comes from the higher-priced items DWR sells and from the type of real estate it prefers. Most stores average 3,400 square feet, as opposed to, say, Pottery Barn, whose stores typically range from 8,000 to 12,000 square feet. Badovinus recently passed on prime space along Manhattan's Madison Avenue, in part because he thought the price was too high. The company has other ways of making its name known, especially among architects and designers, who account for about half of all its sales. Unlike retailers such as Crate & Barrel, which brands the furniture it sells as its own, DWR gives credit to the designer wherever possible, often placing her photo next to the product in the catalog. (The famous ones even get a biography on the website--how else would you learn that Philippe Starck dropped out of school?) San Francisco designer Ted Boerner started selling sofas and chairs through DWR in 2002. "After ten years of doing business under my own name," he says, "one page about me in the DWR catalog, and calls jumped 30%. It's like I've been knighted." Not so thrilled are independent modern-furniture store owners, who are DWR's only direct competition. Says one Southern California merchant, who asks not to be named: "Have I lost business because of DWR? Of course." DWR also uses its studios--which are always on city streets, never in malls--to hold evening seminars on design, such as a session with rug designer Angela Adams or a fitting clinic for Niels Diffrient's Freedom office chairs ($895). "We want our studios to be neighborhood hangouts for design junkies," says Badovinus. Forbes sends out a weekly e-mail newsletter to 250,000 subscribers, with topics ranging from architecture in Venice to the design of the Portland mass-transit system to the 60 new items on sale at DWR. So far the newsletter's unsubscribe rate is just 0.02%. "Everyone I know who is interested in design reads it," says Andrew Capitman, an investment banker who in 1976 launched the renovation of the art deco district in Miami's South Beach. "They really cater to the design community," says Keven Wilder, who founded Chiasso, a housewares retailer, in 1985 and is now a retail consultant at Wilder & Associates. "The newsletter is pitched to people in the design industry and aficionados and wannabes. They're going after influencers." Design Within Reach's early success notwithstanding, are those influencers enough? DWR's market research suggests that only about 10% of Americans have a taste for modern furniture. (In Europe that number is around 40%, in part because of the rebuilding after World War II.) Modern design is primarily an urban phenomenon among well-educated, high-income consumers. Twenty percent of DWR customers earn more than $250,000, with the majority exceeding $75,000. Badovinus concedes that modern design is still an "esoteric niche" but feels that is in part because it's much easier to find a Chippendale chair than a Mies van der Rohe day bed (which DWR sells for $2,995). By making Mies more available and presenting his work in a less intimidating context, Badovinus hopes to expand the market. The market is certainly watching with keen interest. Alan Heller, whose company, Heller, manufactures chairs for DWR, worries that DWR's efforts to appeal to a broader audience may lead the company to design that looks more like "Pottery Barn Within Reach." Says Heller: "Rob Forbes speaks to the design community with tremendous credibility. If that gets watered down, it's a different company." Competitors also seem to be watching. In April 2002, Williams-Sonoma, which owns Pottery Barn, launched West Elm, a catalog of modern-inspired furnishings and housewares with prices seemingly aimed at the post-college crowd. (The first West Elm store is set to open this month.) Badovinus is less worried about competition--anything that moves modern toward the mainstream, he says, is good for DWR--than about establishing the formal policies and systems to carry his firm past the $100 million mark, when he says a company can no longer be fueled on enthusiasm alone. To do this, the 60-year-old CEO returns to lessons he learned from his mentor, Lloyd Nordstrom. Like good modern design, he says, winning in retail is all about simplicity: "Know the customer. Have what they want when they want it. And kill them with kindness."