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Federal agents' raid hits University Loft at tough time

July 24, 2010

Military contracts have helped shore up sagging sales at University Loft Co., the furniture maker federal agents raided two weeks ago.

University Loft specializes in dorm furniture, and colleges still account for the bulk of its revenue. The education market has turned fiercely competitive, however, and University Loft’s work force is almost 50 percent off its recent peak.

“Our peak employment a couple of years ago was 400,” founder and CEO James Jannetides said in an e-mailed response to IBJ’s questions. “Currently we are down to only 210 with hopes of hiring more skilled wood and metal workers yet this year.”

The company issued a press release highlighting its labor needs two days after the July 13 raid.

“Traditionally, our production followed the seasonal demand of schools across the USA,” Jannetides said in the prepared statement. “But now with big box and government orders we are leveling out our need to a year-round work force.”

University Loft currently has one multimillion-dollar contract that lasts into 2014 to supply metal furniture to the Marine Corps’ North Carolina base Camp Lejeune. Two former employees, who asked not to be named, said the federal investigation is related to that contract.

Jannetides said he wasn’t sure what prompted the search, and he noted that no one has been charged. He has also said the company is in full compliance with “all applicable laws.”

U.S. Attorney Tim Morrison’s spokeswoman confirmed that the agents were serving a sealed search warrant. No one was arrested, and as of July 22, the search had not led to any charges.

Agencies represented in the search included the Department of Defense, the Air Force, the Defense Criminal Investigative Service, and Immigration and Customs Enforcement.

In 2009, the company agreed to a $400,000 settlement with the Justice Department over selling Malaysian furniture to military bases, in violation of the Trade Agreements Act. University Loft said it had obtained permission to ship directly to the bases, but government lawyers maintained that was still a violation.

If the recent raid leads to any findings of wrongdoing, it could diminish the company’s military business. Criminal convictions, civil judgments and failure to perform on contracts are all grounds for a federal agency to start proceedings that would make a company ineligible for future work.

University Loft’s current contract is with the General Services Administration. GSA officials refused to comment on circumstances that can lead to ineligibility.

University Loft grew out of a business Jannetides started as a student at Southern Illinois University, where he built a loft for his dorm room. The company grew into a major player in the college dorm market, a subsector of contract furnishings.

University Loft acknowledged the education market’s decline. The company said in its press release that it won contracts with the military, as well as national retailers such as Sam’s Wholesale Club, “when sales began to sag in its normal venues.”

“What we’re seeing right now is, there’s a lot of freeze on spending,” said Amy Kiefer, vice president of education for KI in Green Bay, Wis., the leader in contract furniture for education.

Colleges want new furniture because it helps attract students, but they are putting off those purchases, Kiefer said. At the same time, competitors who typically focus on office furniture are turning their attention to education, which is in better shape than the corporate market because of rising enrollment at community colleges.

The bottom line for KI, Kiefer said, is a decline in sales that will probably last into 2012.

The education furniture market is worth $7.5 billion a year, Kiefer said, but the dorm furniture segment of that market makes up a smaller niche, worth $700 million to $800 million annually, according to KI’s internal estimates. (Kiefer noted that official data on various contract furniture subsectors is scarce, and other companies, including University Loft, may disagree with KI’s estimates.)

According to KI’s research, Blockhouse Furniture of York, Pa., is the leader in the residential submarket with about twice the market share of University Loft, which captures 10 percent to 15 percent.

Jannetides, who answered limited questions via e-mail, said the college market still accounts for 67 percent of his business, while retail and military represent 17 percent and 16 percent, respectively.

The company would not state its annual revenue. If the competitor’s market-share estimates were correct, University Loft would be a $179 million business.

Jannetides also said via e-mail that he expects growth on both the retail side and with the General Services Administration.

“We have been blessed with 35-percent growth in revenue this year and see that occurring over the next three to four years,” Jannetides said.

In 2006, Jannetides bought land off Interstate 70 at Mount Comfort in Hancock County for a $22 million, 508,000-square-foot headquarters and production facility.•

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