Shelfgenie Franchise Helps People Upgrade Their Homes

Thursday, December 25, 2008

Matt Ferguson builds homes, but his next job is a retrofit.

The Hanover County builder saw a good year turn sour in August and September, so he and his wife, Beverly, went looking for other options to survive the economic meltdown of the real estate industry.

They found one in their backyard - a franchise based on making the most of what people already have in their homes instead of buying new ones.

The Fergusons signed a franchise agreement on Thursday for the Richmond region territory to sell ShelfGenie, a multistep service for designing and installing pull-out shelving in existing cabinets, pantries and cupboards. It's not recession-proof, but the Fergusons think it's close.

"Out of all the options we had, this is the one that has the most potential in this economic climate," said Matt Ferguson, who looked at four alternatives that could be complementary to his house-building business, Forest Homes of Richmond.

ShelfGenie is based on what the company calls glide-out shelving that makes cabinet space easier to use. The shelving, made of Baltic birch wood, is milled and assembled to custom specifications. The manufacturing and distribution side of the business operates in a 7,300-square-foot building in the Hanover Air Park.

The product was developed eight years ago out of a Goochland County home garage and marketed until now through affiliated dealers. A year ago, ShelfGenie Franchise Systems was started in the Atlanta area to convert the company's sales to a franchise system. The company has 41 franchises in major urban markets nationwide and expects to add 10 shortly in San Francisco.

"A lot of franchise companies don't work well in this environment, but ours does," said P. Allan Young, a Mechanicsville resident and chief executive officer of ShelfGenie, which emerged from a Richmond area company he helped to expand.

. . .

The franchise company is based in Marietta, Ga., an Atlanta suburb, where its president, Barry Falcon, lives. But the company's heart remains in the Richmond area. Its holding company, Cabinet Essentials Group, is based at the Hanover Air Park, where the trademark shelving is manufactured by a sister company, G-O Manufacturing.

The company grew from Shelf Conversions of Virginia, established in 2001 by Andrew Kerwin and his mother, Joyce Burgess. Kerwin, who now runs a ShelfGenie franchise in Minneapolis-St. Paul and remains part-owner of the parent company, devised the custom shelving products in his mother and stepfather's garage. Before then, he worked for eight years in Southern California, where the retrofit-shelving industry was born.

Young, a Fredericksburg native, originally was a business consultant to Shelf Conversions. After a six-month stint in the Middle East for the Army Reserve, he returned to the Richmond area in late 2005 and joined the company. He became a part-owner of Shelf Conversions in 2006.

About the same time, the company changed its name to G-O Manufacturing and split the retail business into individual Shelf Conversion dealerships, including one owned by Young in Richmond. The company grew quickly to a distribution network of more than 30 dealers. Young, Kerwin and another partner created Cabinet Essentials, which owned a number of the dealerships and, in spring 2007, purchased G-O.

The company - now owned by Young, three business partners and three outside investors - established ShelfGenie as a franchise company a year ago to build a stronger network for marketing its products and services. Each franchise covers a territory of about 250,000 households.

ShelfGenie supports the franchises through a business center in Georgia and proprietary software that handles every step of the sales, design and installation processes.

. . .

As a result of the changes, the company's revenue grew 136 percent from 2005 to 2006, and 275 percent to 2007, according to Young. "A lot of it comes from being very, very small . . . and growing into a national organization." Revenue growth dropped to 30 percent in the past year as the company has shrunk its dealer network and switched to a franchise system, but Young expects sales to increase 40 percent to 50 percent in the next year as the franchises get established. "Next year is going to be huge," he said.

ShelfGenie and its backers think the business has an opportunity to do well in a bad economy. Kristen Iurillo, an independent designer for the company in the Richmond area, said people generally spend $800 to $3,000 on a kitchen upgrade, but the average sale has risen from $1,600 to about $2,200.

"It's been people who have decided not to move and to stay in their homes and to upgrade," she said. "It's been people who are putting their homes on the market who are putting money into them, as well as some Realtors who are putting money into homes trying to get them to move." People are retrofitting pantries and master bathrooms, as well as kitchens, according to Iurillo, who said close to 75 percent of the people she sees are buying and not just shopping for estimates.

Retrofitting existing cabinets costs considerably less than buying new ones. "In this economy, it may even be more attractive," said Charlie Horner, a retired engineer from Philip Morris USA who is an investor in the company. "You can do a lot with ShelfGenie for a fraction of what you can do with renovating an entire kitchen." . . .

David Hood, a Chicago consultant for the company and other franchise businesses, thinks ShelfGenie is well-positioned as a franchiser in an economy that is tough on companies with big needs for capital and credit.

"Recessions are generally good for franchising," said Hood, president of The iFranchise Group Inc., which advises 80 franchise companies, including ShelfGenie. "What's hurt in this environment are the restrictions on credit availability." ShelfGenie is considered a mobile business, with relatively low operating costs. It requires an initial franchise fee of $40,000, as well as requirements for investments in advertising and marketing, and other fees. Young estimates the total initial franchise investment at $75,000 to $100,000.

Franchising carries risks, so it is regulated by the Federal Trade Commission and, in Virginia, the State Corporation Commission. ShelfGenie recently registered as a franchiser in Virginia.

The Fergusons said they took their time before deciding to buy the Richmond franchise. They spent six to eight weeks researching the company and other options. They visited the headquarters in Georgia for a daylong orientation with potential franchise owners.

"We did our due diligence," Matt Ferguson said.

He said he sees the franchise as a good fit with his home-building company. He is a small-volume builder who works out of his home and relies on subcontractors, just as ShelfGenie does. His wife will administer the business while he focuses on sales and marketing. The company handles all of the scheduling through its business center.

"This is a winner," he said.

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