INTERVIEW: Neil Bailey

Englishman Neil Bailey has been president and chief executive of Poggenpohl USA for more than three years. Formerly the company’s UK MD, he tells Tim Wallace how the two markets compare

Q: Kitchen trends in the US have always lagged behind those in Europe. Is that still the case?

A: There’s definitely a move towards more European, contemporary-style furniture. You can see it happening in all the major cities. The style is changing rapidly. The people with money want European brands and there’s a mass influx of them into the US now. Italy, for example, has virtually no home market anymore, so the Italians are doing what they can to find a market for the product. We’re getting so much flooding into the US at very cheap prices.

Q: Which other European brands are popular in the US?

A: Snaidero, Eggersmann, even Alno… though not to any great extent. There are Italian brands all over the place, Bauformat are coming. But the interesting thing is the American market doesn’t understand as easily the difference between a mid-market and luxury product as a European customer would. Most of them don’t know the difference between Snaidero and Poggenpohl, despite Poggenpohl being the best known.

There are lots of places that are now opening fantastic-looking studios all dressed up nicely – it’s mid-market, but the pretence is that it’s as good as a luxury product and they don’t necessarily know the difference. If it goes under the handle of luxury European product, that’ll do.

Q: But handmade traditional brands such as Smallbone and Mark Wilkinson are also making a big play for the American market…

A:Yes, but at an average of £80,000 to £90,000 per kitchen, you don’t need to do many 60- or 70-unit developments to do some good numbers. They’ve certainly got potential, but they’re attacking a market that is already pretty well serviced. If you look at the largest traditional kitchen supplier in the US – Wood-Mode – they have a huge factory in Pennsylvania and around 273 dealers throughout the US. This is higher-end handmade furniture. It’s similar to Smallbone but cheaper and made in America. There’ll always be someone looking for British craftsmanship rather than American, but folks here are quite nationalistic and loyal to their country as well. Europe is seen as the leader in design and style though, whether that’s in cars, kitchens or furniture, so that’s a definite plus.

Q: Having previously been Poggenpohl’s UK MD, have you approached the US market in a different way? 

A:The biggest issues are ones of sheer scale. We have 12 corporate-owned studios in the US. To manage that is very awkward. You’re so isolated. But also the customer density of people who’d want high-end contemporary furniture doesn’t lend itself to putting four or five studios into a city. Poggenpohl has 10 studios in and around London, but throughout New York and New Jersey we have two studios corporately owned and two dealers. So we’re a long way from saturation. When I think of some of the difficulties I have with the size of the country, and the travel, maybe we should have expanded in a slightly more logical way, rather than one showroom in Dallas, one in Washington, Chicago, LA, San Francisco, etc.

Could I have managed the operation by focusing almost entirely on the North-East and Miami? Possibly. But what I have is a legacy of a network that’s in fantastic locations with great possibilities, but almost impossible to market. It’s not like England, where you have a publication that covers the whole of the country. There are only two magazines that do that in the States, and they’re pretty much outside of a typical manufacturer’s budget to advertise in.

There’s also the complexity of business administration. If it’s possible to make it complicated and non-standard, the Americans have found a way to do it. The fact that we’re spread across the whole of North America, and every state has different compliance, taxation and retail legislation, makes it awkward. You end up having a pretty hefty legal bill just to keep you on the right side of the law.

Q: Is Poggenpohl as tailored to the US market as it is to the European one?

A: I wouldn’t necessarily say so. The market is more traditional, so we do better with natural veneers and natural timbers than the lacquers. But the wood-effect laminates are our best sellers over here. That’s just down to taste.

The biggest competition most of the kitchen specialists have here is from custom cabinet manufacturers – basically joinery shops that can do any kind of timber you want. It’s a big section of the market. They exist in the UK, but not to the extent they do over here. You’ll find over here there will be lots of businesses that have a contemporary range, but also a traditional.

If the unions find there’s a non-union installation going on in New York, they’ll inflate a huge rat, 15 to 20ft high, on the sidewalk to designate that non-union labour is being used.

Q: Do the Germans have the same reputation for reliability and functionality in the US as they do in Europe?

A: Absolutely. Poggenpohl has been in the US since 1973 and is by far the best-known kitchen brand, even better known among architects and designers than Wood-Mode. The US is the number-one market for Poggenpohl worldwide and we’re expanding. We’re experiencing phenomenal growth.

We haven’t particularly added new locations in the three years that I’ve been here, but we’ve increased retail sales by nearly 50%. We have a healthy multi-unit position and are doing some fantastic project work with some of the top-end developments like the Millennium Tower in Boston with 440 units, and the Porsche Design Tower in Miami.

Q: Do US independent showrooms charge a design fee?

A: There are some people that will, but business tends to work on a non-refundable retainer system over here. [A fee is paid in advance to secure a designer’s services]. Designers can take a retainer at any stage in the process – literally as soon as people walk in and ask you to start designing their kitchen, you would try to get a retainer from them, which isn’t refundable. With a retainer, the client would be given the plans and would be free to share them with builders, etc. At the time of placing an order, you’d expect retailers to take a sizeable deposit of something like 50%. So it’s non-refundable and you just try to get that from the customer as soon as you can. Sometimes it’s possible before you’ve even done a design.

Q: So it’s a different approach to the ‘nominal fee’ charged by some UK designers?

A: In the UK people try to get, say, £500 or £250 for a design fee, but it’s not a substantial enough sum of money to mean anything. At the same time, you have the customers walking away with the work as well. But with a retainer, we’d be more used to taking $5,000 to $6,000 off them.

Q: What are installation costs like in the US?

A: That’s where it can be very different from the UK. The cost of installation over here is phenomenal if you live in the cities. That’s because of the unions. You can’t work in certain buildings unless you’re in the union, which has a wage structure of $100 an hour. A union carpenter will be earning $200,000 a year if he’s working 40 hours a week, which is a bit crazy. In New York, it’s not unusual to see installation costs of $8,000 to $10,000, even on relatively small kitchens. When I first came over here, I thought, oh my God, you could fly an English guy over, get him to fit the kitchen and fly him back. You could almost put him in business class. It makes no sense until you start to understand what’s driving that. And if the unions find there’s a non-union installation going on in New York, for example, they will inflate a huge rat, 15ft to 20ft high, on the sidewalk to designate that non-union labour is being used. I guess somehow the wheels of this machine get oiled and greased. With the rat you get the bully tactics certainly.

Q: How does the appliance side work in the US?

A: The way appliances are dealt with is unusual, in that you’re asked to stick to a manufacturer’s retail price. So, in theory, every place you go to has to sell the appliances at that price. There are companies like Abt in Chicago, who are massive appliance specialists, and you’ll be able to see every brand, every variety.

In the UK, the retailer will bundle up an entire package and give you what looks like an attractive price on the appliances in order to lock in that business and maybe load the profits into the furniture.

In the US, people like AMDS will effectively ship the appliances to the customer, fit them, take the sale from the customer and give retailers a commission on it. It helps people with cash flow and they’re rolling it out throughout the USA and Canada. They’ve already done it in Australia (see page 102). You’re reducing your sale value and increasing your profit percentage, because you get more profit on a lower sale.

Q: But doesn’t that mean margins are generally lower on appliance sales?

A: Yes, in the UK you’d be looking at about 33% margin on Miele and maybe as much as 40% if sold at full price. Over here, you have to sell at full price, but you get around 20% to 25%. Even the appliance sheds are the same. The margins are just not there.

With Sub-Zero Wolf, you’ll get about a 10% to 12% margin, which means you can’t afford not to sell at the manufacturer’s suggested retail price. And they’ll back that up with a rebate every quarter of about 8% to make sure people aren’t cutting prices.

On top of that, you have the difficulties of shifting some of these huge appliances into buildings and damaging them. It’s difficult to make money on appliances over here, far more difficult than in the UK.

Q: What about the online appliance market?

A: You don’t get the same cowboy online appliance retailers because you’re just not allowed to sell for less. They’ve got that in order, but you’d never get away with it in England. You’d immediately be accused of anticompetitiveness and price-fixing.

Q: What do you make of new ‘destination’ stores in the US, like Pirch, which offer a more interactive experience to customers?

A: I almost dread the complexity of it. The idea of going to one place, where they’ll deal with all aspects and are experts… good luck to them. A kitchen in itself impacts on so many other design aspects. If someone could do all that, it they’d be a very, very good kitchen retailer. But you have to be careful that you don’t get caught up in the minutiae. Our average sale value is huge over here, but if we chased for another $5,000 to $6,000 we’d probably have to do twice as much work.

I think the proof will come in whether they can do what they do and service it as well as they must. They’re relatively new and very interesting.

What I have found incredibly exciting about the US is the way the NKBA [National Kitchen and Bath Association] handles itself. It has a membership of 58,000, it has learning packages and it’s a great vehicle.

It runs KBIS, which is by far the biggest trade show over here. As an organisation dedicated to increasing the professionalism and benefits for members, it’s way above anything I’ve seen in any other country.

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