With the economy for institutional furniture manufacturers improving, Torrance-based Virco Manufacturing Inc. is shutting down its 25-year-old, 700-employee plant in Sonora, Mexico, and shifting production back to Los Angeles.
The move comes because the 600 workers already in Torrance have $15 million worth of new equipment to work with enhancing their productivity while transportation and other logistical costs of Mexican production were eating into profits, said Robert Virtue, president of Virco.
“A lot of people are asking us why we are moving from there to here,” said Virtue. “But institutional and educational furniture is bulky, difficult to transport, and we wanted to be closer to our Western markets.” (Virco also operates a factory in Arkansas, to serve the East and South.)
All the workers in Mexico will lose their jobs, and none will be transferred to Torrance, Virtue said. He declined to speculate about how many workers will be added at the Torrance plant, but said there is plenty of room in the existing facility for expansion.
Virtue said his company spent a quarter-century learning to manufacture in Mexico.
“We did it as well as anybody,” he said. “But with currency fluctuations, different national holidays, electrical brown-outs, what have you, we decided to come back here.”
Virtue was quick to add that his employees in Mexico were and are hard-working, but the chronically chaotic governmental, economic and infrastructural conditions of the country rendered it less valuable as a manufacturing platform. The plant, which once employed 1,700, will be completely shuttered this year.
Publicly held Virco is a national leader in producing chairs and tables used in schools, convention centers, churches, community centers, hotels and motels, and other commercial settings.
Roughly 60 percent of Virco production is for schools, and 40 percent for commercial uses.
Virco controls more than half of the U.S. market for educational furniture, and an even higher fraction of the California market, according to a recent research report from Wedbush Morgan Securities Inc., the downtown Los Angeles-based securities brokerage.
“If you went to school in the U.S., the chances are one in two you sat on one of our chairs,” said Virtue.
Virco managed to post annual black ink through the 1990s, a very tough period for furniture makers, but both profits and revenues tended to be fairly flat.
But in its latest fiscal year ended Jan. 31, Virco posted record net income of $9.3 million on all-time revenues of $236.3 million. Profits were up 80 percent from the previous fiscal year.
Virco should post another 22.3 percent hike in profits this fiscal year, according to an estimate by Wedbush Morgan. Wall Street likes the AMEX-traded stock; last week it traded to a 52-week high, in the $25-a share range, up from a 52-week low of $8 a share. The company’s market cap is just under $150 million.
“They’ve got this very efficient plant in Torrance, raw material prices had been rising but have stabilized in the last year or so, and they’ve been able to exact price increases of their own from their customers, so it’s all really coming together for them,” said Michael Gardner, an analyst at Wedbush Morgan.
Best of all, Gardner said, “there’s nothing on the horizon of major concern. It looks like they’ve got very good prospects.”
Back in Torrance, the company is gearing up for expanded production. The new equipment, known in industry argot as “CNC,” or computer numerically controlled, and other high-tech machinery is another reason to shift production from Mexico to Torrance, said Virtue.
“We had difficulty finding workers in Mexico who could handle high-tech equipment, and getting it maintained or repaired was worse,” said Virtue.
At times, Virco shuttled repair and maintenance workers to Mexico by airplane, to work on the expensive machinery, said Virtue.
Virco produces in huge volumes, although Virtue declines to reveal specifics.
Still, in the recent past, the company produced 1,000 chairs a day for just a single customer (Wal-Mart Stores Inc.), and it made 35,000 chairs each for the Los Angeles and San Diego convention centers. Virco produces several thousand chairs and tables a day, according to Virtue.
Also contributing to the decision to shift major production to Torrance was the availability of a 13-acre, 565,000-square-foot plant, vacated in the early 1990s by the Harper Desk Co., which moved to Idaho in 1992.
Virco signed a 10-year-lease on the site in 1994, after a year of negotiations. The market was so soft for South Bay industrial space that no rival lessee surfaced. “We got a great deal,” said Virtue. In addition, the city of Torrance kicked in with assistance, and workers compensation rules in California softened due to slightly more-restrictive claims practices, said Virtue.
“We have sensed a real change in state and local governments,” said Virtue. “They seem so much more pro-business than before.”
For the future, Virco plans to stick with its niche in educational and commercial settings. Many school districts acquired furniture in the baby-boom days of the 1960s, and it is high time to replace it, said Virtue. Also, the restless nature of Americans, who move around a lot, opens up new markets, even as overall populations stay steady.
“When people were moving into Moreno Valley, they couldn’t take the schools, the churches, the community centers with them. They had to build new ones and put chairs in them,” said Virtue.