THE current financial turmoil has caused many companies to run for cover, abandoning expansion plans. Not Star Furniture.
The company, which manufactures, retails and exports furniture, is expanding into the furniture retail market in Malaysia, where it opened its first retail store in Kuala Lumpur just a few days ago.
It also launched its wholesale model in China in September this year, allowing it to supply its furniture to a chain of specialty furniture stores in a bid to grab a slice of the Chinese market.
All of this comes despite the group's expectation of a 5-10 per cent fall in revenue for the current financial year. The company, which does not disclose exact profit and revenue figures, says that it generated revenue of more than $46 million a year for the past two years.
For a company that is used to rising revenue - it recorded a 4 per cent increase in 2007 from a year ago, and posted double-digit growth in the last six years before 2007 - a reversal might be discouraging. But the bosses of the furniture company are not letting it get to them.
'Of course, we can't be unscathed from the current slowdown, and have to be more cautious on expansion. We can't overstock, and we have to be more cautious about payment terms. But I see it (the economic crisis) as an opportunity for us,' Kenny Koh, group managing director, tells BT.
'When there's an economic downturn, there's a higher chance of us getting better prices in areas such as rental.'
The younger brother of the two founders of Star Furniture also says that the group has gained new customers because of the crisis, as some of its competitors have gone under water. He joined his brothers to build the business in 1989, eight years after the furniture company was founded.
Amid this talk on expansion plans and ways to make the most of economic crisis, it is hard to imagine Star Furniture as a shop that is smaller than a one-bedroom apartment, but that's how humble its beginnings were in 1981, when no bank was willing to lend them the money for their business.
Armed with just $5,000 in savings, Richard Koh and his brother, Kian Huat, set up their furniture shop - then called Ngoh Hock Furniture - in Pasir Ris. Then 20 years old, Richard was in charge of scouting for business, taking orders and delivering the goods, while 17-year-old Kian Huat made the furniture.
Business was brisk from the start, given strong demand for furniture in Singapore during the early 1980s, with people buying new furniture as they moved into flats built by the Housing and Development Board. The move was part of a government scheme to clear the squatters and slums that were sprouting across the island-state due to a housing shortage that began in the 1960s.
Their booming business prompted the brothers to venture into wholesaling in 1983, hiring workers and renting a factory in Loyang to make furniture for the mass market.
But trouble struck. In June 1984, an overnight fire razed their factory. While the brothers had another production site to work from - the building of their second factory had just been completed to accommodate the growing business - the loss of their main production plant severely affected their business. Suppliers feared that the brothers could not deliver the ordered pieces of furniture on time, and so the Kohs had to work doubly hard to ensure that their commitments were met.
'The fire flattened the whole factory. We had to start from scratch. Revenue was affected, and suppliers were wary about our ability to pay,' recalls Kenny.
The trust that the brothers had built with suppliers tided them over, though there were some who shunned them and did not want to have anything to do with their business.
'Through the crisis, we really saw who were those we could depend on, and who were those we could not,' says Kenny.
This was, however, not the end of their problems. The economic crisis in 1985 forced many companies to shut down. Many businesses, including those that had dealings with Star Furniture, went bust. The crisis taught them a valuable lesson: be very careful about long payment terms.
'We realised that we were at the mercy of retailers. If they go bust, we can't collect payment,' said the youngest of the Koh brothers.
His elder brothers refused to be daunted by their setbacks. Instead, seizing on the cheaper rentals as a result of the slowdown, they took the opportunity to venture into retailing to reduce their exposure to third-party retailers. The furniture company opened its first retail outlet that year. Despite the cheaper rental, space was scarce.
'We had to sell things through photos. There was no luxury of space,' said Kenny.
Despite the hostile environment, things began to look up from then. In 1986, Star Furniture rented a warehouse in River Valley to start the first warehouse furniture business in Singapore. Five years later, the company entered the furniture wholesale business in Taiwan, exporting its furniture to the country. A chain of retail stores soon followed. In 1994, the company entered mainland China, where it signed a long-term lease at a state-owned factory in Fuzhou in Fujian province. Since 2000, however, Star Furniture has been operating out of a factory in Dongguan.
Knowing that the furniture business is more than simply making and selling furniture, the group began to sell what Kenny describes as a 'lifestyle'. Rather than simply selling sofa sets and dining tables, the company began to transform its warehouses into showrooms depicting how homes would look like with their furniture. Dining room showpieces came complete with lighting fixtures, vases, table mats, glasses and cutlery, and shelves, on top of dining tables and chairs. Customers get to buy exactly what they see, if they want, right down to the last detail in the showpiece.
Also, spotting an opportunity in the upscale market, the company began to create furniture that catered to the needs and desires of this niche sector under its Lucano brand, which it launched at the end of 2007.
Despite its success, the company has no plans for a listing on the Singapore Exchange in the near term.
'We have been approached by bankers, and discussions have been held. But right now, there are no plans to list because the time is just not right. It's not clear when that will happen,' says Kenny. Brothers Richard and Kian Huat are now executive chairman and executive director respectively of Star Furniture.
This article was first published in The Business Times on December 23, 2008.
