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Share award plan for workers pays off for Livart firm

[Survivors Beating recession] 5 Livart

May 06,2010
Kyoung Kyoo-han, the chairman of the furniture company Livart, announced in March a dividend rise. That would not be considered particularly unusual except for the fact that Livart is partly owned by employees and last year’s dividend payment amounted to twice normal salaries.

The workers’ dedication is considered a key reason why Livart, located in Yongin Gyeonggi, reported record sales last year of 378.2 billion won ($339 million). Operating profits were 22.2 billion won, up 7.7 percent from a year earlier, and net profits rose 12 percent to 20.1 billion won.

Livart was spun off from Koryo Industrial Development, becoming an Employee Stock Ownership Plan (ESOP) company in June 1999. It was once an affiliate of Hyundai Group. It then had assets totaling 47 billion won and debts of 320 billion won.

It was the large debts that forced the company to be sold to Koryo Industrial Development. About 3,000 employees were laid off through restructuring. In the following year, the company started anew as Livart with 300 employees owning the company’s shares.

Because employee pay was cut by 20 to 30 percent, the company was competitive in terms of cost. As a result, it posted a profit only one year after it was spun off, and its sales and operating profits steadily grew.

Many start-ups begin as an ESOP company, but Livart is one of the few that has fared well, Kyoung claimed.

“Our employees have the power to change the company. Some of our subcontractors say, ‘Livart employees work as if they are the owner.’ When Livart was a Hyundai affiliate, it managed to pay its employees even when it was losing money. But everyone felt insecure because they had no trust in the company. Now everyone feels a sense of responsibility,” said Kyoung.

Last year’s record profits were a surprise even to the chairman.

“As early as last January, I was worried that the fall in share prices and a sluggish consumer market would lead to lower sales,” said Kyoung.

But Livart has relied on its brand strategy to maintain high profit margins. Livart is known as a “no discount” brand. However, it was not easy to maintain that strategy last year when construction companies, which buy Livart products in bulk to furnish apartments, were suffering from a depressed property market. The builders were demanding low-priced supplies to cope.

“I decided not to sell our products at those prices. When sales decreased, I proposed taking some time off,” Kyoung said.

It was a frustrating decision for the sales department, which decided not to bid for some contracts. But the company decided to diversify by focusing on office and home furniture. The situation totally changed after two years. When competitors went out of business due to the low prices they were forced to accept, construction firms returned to Livart in acknowledgement of its high-quality products.

“No business area can escape the absolute importance of quality. Mistakes are acceptable, but as the Toyota incident revealed, customers cannot accept dishonest failures,” Kyoung said.

Adhering to the “no discount” strategy caused conflict with branch offices at first. They said the policy amounted to “no sales.” In response, Livart agreed to introduce a “home-delivery system,” in which it assumed full responsibility for the storage, transportation, delivery and installation of products. The new system helped cut costs for branch offices and satisfied customers with standardized services.

In addition, Livart increased attention on design. Kyoung thought that since customers pay full price for products, they should get good designs. Kyoung now holds monthly design meetings. “I want to let employees know that I am interested in the aesthetics,” he said.

A decade ago, when the company was going through painful restructuring, Kyoung did not make any changes to the design department. Livart employs about 90 designers, about 20 percent of the workforce.

Another value Kyoung deems important is “eco-friendliness.” It adopted environment-friendly materials in 2004.

Speaking from experience, Kyoung places emphasis on stable growth. At the same time, he is ready to face any crisis.

“Like skaters who speed up at corners, we have to outpace rivals when the times are tough for everyone else to become the winner,” said Kyoung.

Choi Bo-geun, an analyst at Dongbu Securities, expects Livart will fare well as the sluggish property market begins to revive.

“Livart, which mainly relies on bulk orders, is greatly influenced by the property market. As the market has begun to recover this year, Livart can expect a better year,” Choi said.

“While Livart’s careful decisions have merit, analysts hope to see a more aggressive Livart. It’s time for Livart to find a new future growth engine,” he advised.


By Ha Hyun-ok [ebusiness@joongang.co.kr]



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