Fieldcrest Cannon, Inc.

views updated May 14 2018

Fieldcrest Cannon, Inc.

Pillowtex Corporation
4111 Mint Way
Dallas, Texas 75237
U.S.A.
Telephone: (214) 333-3225
Fax: (214) 333-6016
Web site: http://www.pillowtex.com

Brand Name and Assets Acquired by Pillowtex Corporation
Incorporated: 1953 as Fieldcrest Mills, Inc.
Dissolved: 1997
Final Sales: $1.1 billion (1996)
NAIC: 31321 Broadwoven Fabric Mills; 314129 Other Household Textile Product Mills

Prior to its acquisition by Pillowtex Corporation in 1997, Fieldcrest Cannon, Inc. was a leading producer of towels, bed sheets, bath accessories, bath rugs, and furniture coverings. Formed by the union of Fieldcrest Mills and Cannon Mills in 1986, the giant home textile company sold its products under an array of brand names, including Cannon, Fieldcrest, Monticello, Royal Velvet, St. Mary’s, and Caldwell. After enduring a difficult period during the early 1990s, Fieldcrest Cannon regrouped and made several important acquisitions. However, in 1996, the company was over-extended and sold its blanket-manufacturing operations to Dallas-based Pillowtex, which then acquired the remainder of Fieldcrest Cannon the following year. Although Fieldcrest Cannon was wholly subsumed into Pillowtex—and ceased to exist as a corporate entity thereafter—Pillowtex remained committed to maintaining Fieldcrest Cannon’s strong brand names.

The History of Fieldcrest Mills

The early histories of both Fieldcrest Mills and Cannon Mills center on determined industrialists. Fieldcrest started with aspiring empire-builder, Benjamin Franklin Mebane, who launched an ambitious plan to open one mill a year on and around 600 acres of land he had purchased in Spray, North Carolina, in 1893. By 1905 he owned six mills in the area, renamed Eden (after a surveyor’s comment that it resembled the garden of Eden). Mebane had gone to Chicago retailer Marshall Field for help in financing his plan, and after Mebane started having trouble repaying his debt, Field decided to take over. By 1910 Field had gained voting control of Mebane’s Spray Water Power & Land Co. and had installed new managers; by 1912 the takeover was complete and the company had become a subsidiary of Marshall Field & Co. Field invested in improvements and expansion projects for the subsidiary, which was renamed the Thread Mills Company. In 1916 the company acquired a 1,600-acre site near Martinsville, Virginia, for a huck (flat weave) and terry towel plant and employee housing; the facility in the newly created community of Fieldale, started operation in 1919. It would continue operating into the 1990s.

In 1935 the mills were reorganized. Previously part of Marshall Field’s wholesale division, they became part of the manufacturing division, and sales departments distributed their products nationally at both wholesale and retail levels.

During World War II shortages hampered the mills’ ability to meet consumer demand. Nevertheless, they did produce a variety of goods for the armed services, including silk cartridge cloth, camouflage net, parachute cloth, and mosquito netting. In 1947 the division’s name was changed to Fieldcrest Mills, to clearly identify them with the nationally advertised products that it manufactured.

By 1953 Marshall Field & Co. was eager to expand its stores, especially in the emerging suburban landscape. To raise enough capital, the company sold its mill operations (including its carpet mills, which manufactured the well-respected Karastan brand of carpets) to Amoskeag Co. Fieldcrest Mills, Inc., was incorporated in September of that year; its sales were $39 million.

Amoskeag Co., an investment trust based in Boston, also owned the Bangor & Aroostoock Railroad in Maine and various real estate and mining interests. Amoskeag, in turn, was controlled by the Dumaine trust, a family trust organized by F.C. Dumaine, Sr., a textile mill baron who had become the head of Amoskeag in 1905. Upon his death in 1951 stewardship for the trust passed to his son F.C. Dumaine, Jr., who had started working for Amoskeag in 1922. By 1961 sales had reached $77 million, and the following year Fieldcrest became a publicly owned company, with Amoskeag holding about 40 percent of the stock. In 1967 Fieldcrest was listed on the New York Stock Exchange.

Fieldcrest grew through the mid-1960s via a series of acquisitions and improvements, and by 1967 those costs totaled $82.3 million. At that time the Fieldcrest division, which produced blankets, bedspreads, sheets, and towels, comprised 65 percent of the company’s sales, while the Karastan division, which produced Karastan and Laurelcrest carpets, contributed 20 percent. Sales that year were $175.3 million.

Fieldcrest produced goods under its own name as well as private labels, with customers Sears, Roebuck & Co. and J.C. Penney accounting for almost 15 percent of total sales. Field-crest’s strength came from strong showing of its medium- and upper-priced lines, which made up almost two-thirds of total sales. These lines, carrying the Fieldcrest label, appeared primarily in department stores; its Royal Velvet towels, introduced in 1954, were known for their luxury. The lower priced St. Marys brand was sold through mass merchandisers.

The 20th anniversary of Fieldcrest Mills, Inc., in 1973, saw sales reach $290 million and annual growth since 1961. By 1977 volume had grown to $417 million. Profits had generally followed this upward trend as well. During this time, Fieldcrest tried to meet the growing consumer demand for more fashionable styles for bed and bath products, entering the “designer” sweepstakes. In 1976 it introduced its first designer line, the Halston collection, and the following year a Geoffrey Beene line was introduced, as well as the Carleton Varney line for the St Marys brand. The market responded favorably, and Fieldcrest saw a 43 percent gain in its bed and bath products in 1976–77. Carpet sales also increased, due to a boom in housing as well as an aggressive promotional program and a successful entry in the contract carpeting market. Halston rugs were introduced in 1977.

That year the company formed a 50 percent joint venture with the Bank of Ireland and P.J. Carroll & Co. Ltd.— Fieldcrest Ireland, Ltd.—to build and operate a Fieldcrest towel plant in Kelkenney, Ireland, in an attempt to penetrate the European market.

Profits crested at $24.8 million on sales of $517.7 million in 1979. Thereafter profits began to slide, falling to $10.4 million in 1982 on sales of $492 million. The recession had affected the company’s performance, but other mills proved able to sustain earnings during that period. Market analysts pointed to ill-conceived and expensive expansion attempts; Fieldcrest had spent $100 million expanding or updating its facilities between 1978 and 1981. Furthermore, Fieldcrest had responded to a surge in blanket sales in 1977 and 1978 due to unusually cold winters and high energy costs by modernizing its blanket mill in Eden for $40 million, but blanket sales had begun declining after 1978. The plant in Ireland closed in 1982 after high inflation in that country priced the towels out of the European market, and Fieldcrest lost $8 million.

Most troubling for Fieldcrest were attempts by other manufacturers to encroach upon its ensconced and lucrative position at the head of the premium towel market. Fieldcrest had decided aggressively to expand its St. Marys line, and this triggered attempts by J.P. Stevens, West Point-Pepperell, and most notably Cannon Mills to move into the upper end of the market as well. Cannon added a Royal Touch towel to its Royal Family line that directly competed with Fieldcrest’s Royal Velvet. Fieldcrest found itself defending its territory at the top, where the profits were highest, while trying to advance farther at the other end of the market. As the recession took hold, rounds of discounting began and inventory was reduced.

Amoskeag Co., whose earnings were largely sustained by those of Fieldcrest, grew concerned, and in 1982 the chief executive of Amoskeag, Joseph Ely II, was brought in to head Fieldcrest, for which he had served as a board member since 1976. In December of that year, Fieldcrest wrote off its half of a Canadian joint venture, Crossley Karastan Carpet Mills, Ltd., which had lost $1.2 million in 1981.

Soon thereafter, Fieldcrest shifted its marketing strategy. Instead of trying to increase profits through high volume of its lower end products, it sought to broaden its range of items built around the Fieldcrest name. By reemphasizing the Fieldcrest lines, which it had neglected to update while the effort had been on the designer lines, the company chose to retain profits and avoid price cuts at the expense of expanding its market share. Fieldcrest was the only towelmaker that continued to use its name solely with its premium products; Cannon Mills, for example, sewed its name into all of its towels, regardless of the price category. Fieldcrest promised department stores carrying its line that they had the protected use of its name, thereby hoping to seal their loyalty and expand its carriage trade. Fieldcrest also hoped to grow its private-brand business, of which Sears was its biggest customer, contributing $75 million in sales in 1983.

Key Dates:

1888:: Cannon Mills is founded.
1898:: Benjamin Franklin Mebane builds mills in North Carolina.
1910:: Thread Mills Co. (unit of Marshall Field) takes over Mebane’s operation.
1935:: Thread Mills renamed Fieldcrest Mills.
1953:: Fieldcrest is sold to Amoskeag Company.
1962:: Fieldcrest becomes a public company.
1986:: Fieldcrest Mills acquires Cannon Mills; company renamed Fieldcrest Cannon.
1993:: Unsolicited buyout offer from Springs Industries threatens Fieldcrest Cannon.
1994:: Fieldcrest Cannon acquires Amoskeag.
1997:: Fieldcrest Cannon is acquired by Pillowtex Corporation.

In 1986 Fieldcrest took the bold step of acquiring Cannon Mills, which it purchased for $321 million. With that acquisition, Fieldcrest, which became Fieldcrest Cannon, Inc., gained 12,900 employees, 12 plants, and 14 sales offices, thus doubling its size and becoming the country’s fifth largest publicly held textile company.

The History of Cannon Mills, Co.

Towards the end of the 19th century, James William Cannon, a 35-year old partner and manager of a general store, became intrigued with the textile business and decided to open a cotton mill. He raised $75,000 and built a mill in Concord, North Carolina, which started business in 1887 as the Cannon Manufacturing Company. Cannon also managed the plant. He evidently brought some knowledge of the retail business with him when he decided to put his name on the fabric that his mill manufactured, reasoning that sales could only increase if customers could ask for a product by name. The popularity of “Cannon cloth” spread throughout the south, and thus the Cannon retailing philosophy was born.

Realizing that the South had no towel manufacturing plants, Cannon opened a mill that produced huck towels in 1894 and another mill that made terry towels four years later. In 1906 Cannon bought a 600-acre parcel of land, previously a cotton plantation, and started developing the community that became Kannapolis. The mills there started operation in 1908 and were able to produce more towels than any other group of mills, due in part to automatic terry looms. The mills also produced a variety of “gray goods” such as cotton cloth and woman’s hosiery.

By 1916 Cannon had decided to try to market as well as manufacture his products, and so a new sales force, Cannon Mills, Inc., was established in New York City. James Cannon died in 1921 at which time he controlled 12 mills with over 15,000 employees and an estimated $40 million in annual sales. Kannapolis was considered a “model mill city,” and its mills could turn out 300,000 towels daily. His youngest son, Charles Cannon, who had quit college at the age of 19 to start work in his father’s mills and had become a vice-president at the age of 23, became the company’s president.

Charles “Mr. Charlie” Cannon ran the company for the next 50 years. Under his stewardship, Cannon Mills maintained its dominant position in the U.S. towel market, regularly producing half of all towels purchased. It also carried one-fifth of the sheeting business. Much of Cannon Mills’ success was due to the very high efficiency of its mills, which were virtually all within a 20-mile radius of one another, affording close supervision; only a few steps separated the back door of the CEO’s office from Plant No. 1. The company’s production was vertically integrated, from the spinning of the cotton to the finished product.

In 1923 Cannon had the Cannon name sewn into all of its towels, becoming the first company to do so. By unabashedly identifying with what had been seen as purely a “commodity” product, Cannon was to develop an intense brand loyalty among consumers, who came to identify the Cannon name with afford-ability and quality. Cannon, unlike other mills, used its name on its top-of-the line goods as well as its more affordably priced items. Most of Cannon Mills’ products were distributed through mass merchandisers.

Cannon’s tenure was marked by an entrenched fiscal conservatism. He made no effort to diversify, eschewing the idea of growth for growth’s sake. While Cannon was in control, the company did not acquire any long-term debt. Furthermore, Cannon’s reign over Kannapolis—which remained unincorporated—also reflected his paternalistic style. Kannapolis had no mayor, town council, or legal charter. Cannon Mills paid for the community’s police and fire services and was responsible for its water and sewerage system, trash collection, and street maintenance. It also owned approximately 1,600 houses that were rented to mill employees. Moreover, Cannon owned virtually all the property within the one-square-mile business district. Later, in the 1930s, Charlie Cannon returned from a business trip to Williamsburg so impressed by its colonial architecture that he had facades for the business district constructed to mimic their colonial style, and downtown Kannapolis was thus transformed into a Georgian village. A massive sign on the edge of town, lighted by 1,800 bulbs and visible from the highway and the railroad, proclaimed that Cannon Mills was the “World’s Largest Manufacturer of Towels.” (After World War II, the sign was altered to read “Leading Manufacturer of Towels” and updated with neon.)

In 1927 Charlie Cannon brought his company to the New York Stock Exchange, becoming the first southern mill owner to do so. The following year he consolidated the mills into a single entity, the Cannon Mills Co.

In the 1930s Cannon Mills started manufacturing sheets. For many years Charlie Cannon resisted turning out sheets in anything but white. Over time they became more colorful, but prints were disdained, except for one featuring a tightly closed rosebud introduced in 1953. “It took another 13 years to get that rosebud opened,” a marketing vice-president told Forbes.

In 1962 Cannon Mills was removed from the New York Stock Exchange, when Charlie Cannon refused to solicit proxies from all of the company’s shareholders, preferring to solicit only those who held voting stock. Cannon felt the required disclosure of information was intrusive and unnecessary. At that time the Cannon family and relatives held 40 percent of the voting stock and 27 percent of the total stock.

Charlie Cannon died in 1971 after suffering a heart attack at his office. At that time, Cannon Mills owned 17 plants and employed 24,000 workers, making it the largest employer in the Carolinas. The population of Kannapolis was 36,000, ten percent of which lived in company housing. Sales in 1971 reached $323 million. Cannon left no long-term debt and over $60 million in cash and marketable securities. The Cannon name was recognized by a remarkable 90 percent of consumers. However, growth had been very slow; in the five years prior to Cannon’s death, sales figures had increased only two percent a year.

The neon sign remained unlit after Cannon died, but Cannon Mills stock soared on Wall Street as investors believed that new management would fully take advantage of the company’s cash-rich, debt-free position. Nevertheless, Charlie Cannon’s hand-picked successor, Don Holt, continued his mentor’s policies of neither diversifying nor broadening its market appeal. As other mills were bringing in well-known designers to update their look, Cannon continued to resist. “We have the Cannon name. We don’t need designers’ names,” the president of Cannon’s merchandising subsidiary told Forbes in 1972.

For much of the 1970s Cannon was able to hold onto its share of the towel market, although its sales growth barely matched the rate of inflation and was far outstripped by its competitors. In 1975 its earnings were less than those of 1965, $2.66 a share, although its sales volume had grown 42 percent since that year to $395 million. A new chairperson, Harold Hornaday, was installed, who conceded to Forbes that “the times require that Cannon be more market oriented.” Nonetheless, Hornaday hesitated to change strategies as its share of the sheet market dropped from 20 to 15 percent. Sales in 1979 reached $609 million. In that year, Cannon was reinstated to the New York Stock Exchange, having given voting rights to all public shareholders and begun publishing more detailed annual reports. Hornaday, however, was asked to leave in October 1980 after several embarrassing missteps led to Cannon’s first money-losing quarter in over a decade.

Cannon attempted vigorously to catch up with its competitors, under the youthful leadership of its next chairperson, Otto Stolz. The company diversified into the manufacture of various items for kitchen and bath, including mats and rugs. Luxury fabric designer Robin Roberts was also hired to create a fashionable and upscale line of sheets and towels. Cannon had difficulty changing its old-fashioned image, however, and its share of the towel market fell to below 35 percent.

Cannon Mills was to experience dramatic change in 1982, after David Murdock, a self-made millionaire and takeover artist from California, disclosed his intention of acquiring the company. Charlie Cannon’s son William was the first to sell, and the other trustees followed his example. After the $413 million leveraged buyout, Murdock took the company private.

Murdock set out to reshape the way Cannon did business. As other mills were reporting slowing growth or declines, Murdock sought to increase Cannon’s sales by updating the company with a glamorous and trendy image. The design department was doubled in size, its manager released, and most of the existing towels and sheets discontinued. The Japanese designer Issey Miyake and the Swedish designer Katja were hired to create their own lines. A racy advertising campaign was launched featuring various celebrities between Cannon sheets with the tag line “Two of the most famous names in America sleep together.” Towels were marketed at all price levels, including a line that competed directly with Fieldcrest’s Royal Velvet. Efforts were also made to expand profits at the mass merchandisers; to that end, an agreement was signed with the producers of the nighttime soap opera Dynasty to produce a Dynasty collection, patterned after the sets used on the show.

Murdock quickly invested $200 million in upgrading mill equipment. Furthermore, he immediately laid off several hundred employees; mill workers who lived in company-owned homes were informed they would have to buy their houses or leave. And Murdock spent $30 million to raze businesses, move homes, build a highway, and refurbish the Georgian business district so as to turn it into “Cannon Village,” a factory-outlet shopping mall.

Despite Murdock’s attempts to invigorate Cannon with splashy designs and heavy advertising, Cannon continued to lose money. The import-battered market had led to further layoffs (reaching 3,000), the closing of three mills, and a $31 million drop in exports. Under these conditions, the Amalgamated Clothing & Textile Workers Union (ACTWU) attempted to organize Cannon employees, which culminated in a vote in October 1985. The union had failed previously, most recently in 1974 in a 44 to 56 percent vote. Murdock, by that time seeking a buyer for Cannon, fought the union in a venomous campaign in which he jetted frequently into Kannapolis, touring the factories and shaking hands with virtually all of the company’s 10,000 employees. The movement to unionize was defeated in a 37 to 63 percent vote.

Several months later, in January 1986, Murdock sold approximately 75 percent of Cannon Mills to Fieldcrest Mills for $321 million. He retained the real estate holdings, which included most of the commercial real estate in downtown Kannapolis, worth approximately $100 million, as well as several other mills. The sale to Fieldcrest did not mark the end of Murdock’s involvement with Cannon or the union, however. Murdock had also left Kannapolis with around $25 million from the Cannon pension fund, which had been terminated shortly before the sale was consummated. In October 1986 the ACTWU filed suit, charging that Murdock had mishandled the funds and thus violated his fiduciary duties as a trustee of the plan.

The point of contention was Murdock’s use of the funds while he was battling for control of Occidental Petroleum. Murdock had started acquiring Occidental stock in 1981. In February 1982 he was elected as a director of that company under conditions which barred him from acquiring more than five percent of its stock. Late in that year the Cannon pension fund began to purchase Occidental stock, which by 1984 accounted for 7.8 percent of the fund’s holding. In 1984 Occidental repurchased its stock from Murdock-controlled entities—including the Cannon pension fund—with a $60 million premium attached. After the fund was terminated late in 1985, the fund’s excess assets—including the profits from the Occidental deal—were folded back into Murdock’s other entities. The union’s suit charged that Murdock had used the funds to either “greenmail” or take over Occidental, as opposed to managing the funds for its participants and beneficiaries, and that he had used the funds similarly in actions against Kaiser Cement. The case was settled out of court in 1989 for a reported $1 million.

Upon the liquidation of the pension plan, Murdock invested the funds with Executive Life Insurance of California. The company, which had invested heavily in junk bonds underwritten by Michael Milken of Drexel Burnham Lambert during the 1980s, suffered sharp losses after the junk bond industry collapsed in 1990. In April 1991 state regulators seized its assets, and monthly pension payments were cut by 30 percent. In August, Murdock announced he would “personally pay all Cannon retirees the full amount of reduction they suffered.” The payments were to be in the form of personal checks and were to compensate for the shortfall from May 1 to September 30, when full payments were to resume.

Fieldcrest Cannon is Formed

The acquisition by Fieldcrest of Cannon catapulted the company to the number one position in the towel and blanket market and the number three spot in the sheet market. Observers wondered how Fieldcrest and Cannon, two textile powerhouses with very different market strategies, would work together, especially on the retail floor. The erstwhile rivals’ various lines seemed poised to continue to compete against each other for market share and counterspace. Fieldcrest’s flagship brand still prevailed in the department stores, where Cannon’s Royal Family line vied against it. Cannon was the number one brand with discounters, where Fieldcrest’s St. Marys always placed behind Cannon’s Monticello line. There were tactical differences as well. Fieldcrest had chosen to not expand its market share to avoid price cuts, while Cannon had elected to cut prices to generate sales. Fieldcrest executives felt that it was best to keep the lines separate to hold onto precious counterspace as the retail industry consolidated. Fieldcrest had also quickly moved out some of Cannon’s management team, replacing them with Fieldcrest staffers. Some observers felt that Fieldcrest lost much-needed experience with high-volume, low-margin mass merchandising.

Less than one year after the purchase of Cannon, Fieldcrest bought Bigelow-Sanford, Inc., a manufacturer of residential and industrial contract carpeting. Bigelow-Sanford had been purchased by a group of its executives in 1981, who in turn sold it to Fieldcrest Cannon in December 1986 for $129 million—$4 million in cash and 460,727 shares of Fieldcrest common stock. After the acquisition, Fieldcrest Cannon merged Bigelow-Sanford with its Karastan division and dismissed the Bigelow-Sanford executives. Soon thereafter, DuPont introduced its Stainmaster fiber, which was enormously popular but proved to be very difficult to dye into the carpet colors that consumers wanted. Lacking knowledgeable staff at the top of its carpet operations and still heavily in debt from its acquisitions, Field-crest Cannon committed to big capital outlays in an attempt to master the process.

In 1987 Fieldcrest Cannon lost $3.7 million on sales of $1.4 billion, and much of the loss was attributed to problems with Bigelow-Sanford. By 1988 Fieldcrest Cannon announced that it wanted out of the carpet business altogether and was looking for a buyer. Profits rebounded to $11.3 million that year and reached $23.4 million in 1989. However, 1990’s economic downturn exacerbated internal problems, and the company posted a $38 million loss on $1.24 billion in sales. The company’s stock value, which had peaked in 1986 at $43, dropped to below six dollars per share.

Restructuring and Takeover Threats in the 1990s

Several analysts pointed to Chairperson Ely as directly responsible for the troubles at Fieldcrest Cannon. They cited an overly rapid expansion financed with heavy debt commitments, the exorbitant price paid for Cannon, ill-timed cotton purchases, and difficulties with Bigelow-Sanford. Moreover, critics reasoned that Ely had been able to remain at Fieldcrest Cannon as long as he had by virtue of his position as treasurer of the Dumaine trust, holding ultimate power over an elderly board on which remained several members from F.C. Dumaine, Sr.’s, era.

After Ely was forced out, Fieldcrest Cannon underwent a series of cost-cutting measures in 1990 under its new chairperson, James Fitzgibbons, which included reducing its workforce by 1,700, discontinuing its unprofitable automatic blanket operations, and unloading inventory. Unable to find a buyer for its rug and carpet division, the company consolidated those operations and was able to turn a profit in 1991. That year Fieldcrest Cannon as a whole was able to claim $3.2 million in profit, although sales were reported at $1.21 billion, less than those of 1990. Income in 1992 exceeded that of the previous year, aided by lower cotton prices and higher sales. In mid-1992 the company refinanced its loan agreements, reducing its interest payments. Nevertheless, Fieldcrest Cannon had experienced lower sales from 1988 to 1992, largely because of a decline in carpet and rug sales from $371.1 million in 1988 to $235.5 million in 1992. Total sales in 1992 were $1.22 billion.

In January 1993 Amoskeag announced that it was considering selling off its shares of Fieldcrest Cannon, disclosing that the Dumaine trust was reviewing its own investment in Amoskeag. At that time the Dumaine trust owned approximately 76 percent of the voting power of the equity of Amoskeag, and Amoskeag controlled about 80 percent of the voting stock and 30 percent of the equity of Fieldcrest Cannon. Some of the trust’s beneficiaries had criticized the trust’s management, but the Dumaine heirs had no say in the management of the trust unless Amoskeag failed to provide a dividend, which was largely furnished by Fieldcrest Cannon. Long-simmering dissension and rivalry ruptured into several legal battles attempting to break the trust, each of which ultimately failed.

The ownership issue came to a head again in May 1993 when one of Fieldcrest Cannon’s chief competitors, Springs Industries, Inc., offered to purchase the company for $330 million. The unsolicited bid came at an especially bad time. With its new management in place since 1990, Fieldcrest Cannon was “turning around nicely,” according to the Daily News Record. Earlier in the year, Fieldcrest Cannon had obtained the lucrative manufacturing and distribution operations for Caldwell, Canada’s leading towel brand. Though Fitzgibbons tersely met Springs’s takeover bid with the warning that “Fieldcrest Cannon is not for sale,” rumors flew about the possible acquisition.

Fieldcrest Cannon’s apparent weakness emboldened others to try to make inroads. Various competitors hungrily eyed the company, including Bibb Co., which made its own unsolicited offer for a controlling interest in the company. At the same time, the Amalgamated Clothing and Textile Workers sensed an opportunity to once again approach Fieldcrest Cannon workers and sent representatives to the company’s mills in Rowan and Cabarrus, North Carolina, to attempt to unionize employees.

In the face of these challenges, Fieldcrest Cannon finally was able to divest its carpet and rug business in June 1993. The company raised over $140 million with the sale of the division—including the Bigelow and Karastan brands—to Mohawk Industries Inc. Fitzgibbons announced that Fieldcrest Cannon would thereafter focus on its core bed and bath operations. Springs’s acquisition efforts continued, with a proposal to purchase Amoskeag, an offer the Dumaine trust rejected. Field-crest Cannon finally put an end to all acquisition efforts when it purchased Amoskeag—its largest shareholder—in August 1993 for $137.6 million.

After withstanding this period of turbulence, Fieldcrest Cannon turned to new ventures. In 1994 the company entered the bath fashions market, debuting a line of shower curtains and bath ceramics. That same year, the company signed on as the official supplier of bedding and towels for the 1996 Summer Olympic Games in Atlanta. In 1995 it acquired Sure Fit, a division of UTC Holdings. Sure Fit was the leading producer of furniture coverings, especially slip covers. Fieldcrest Cannon swiftly converted Sure Fit’s “Decor Express” and “Home-scapes” to its own recognizable Cannon, Cannon Royal Family, and Fieldcrest labels.

Yet 1996 proved to be another difficult year for the company. Though Fieldcrest Cannon’s sales reached $1.09 billion, profits flagged at $1.1 million. In an effort to reign in costs, the company closed a number of manufacturing facilities, including a towel-weaving plant, a towel-yarn plant, and two sheeting-yarn plants. The company also sold its blanket-manufacturing operations for $30 million to Pillowtex Corporation, a firm which made pillows, sheets, and blankets under the Ralph Lauren, Disney, and Martha Stewart labels.

Pillowtex happened to be eager to gain access to the bath textile market. On September 11, 1997 it acquired the remainder of Fieldcrest Cannon’s assets for $400 million. Fieldcrest Cannon’s operations and assets were folded into Pillowtex, and Pillowtex’s chairman and chief executive officer pledged to cut costs at its new facilities by $30 million. In keeping with this goal, he fired 20 percent of Fieldcrest Canon’s salaried employees, six days before Christmas. Pillowtex then shed two Field-crest Cannon home furnishing fabrics plants in 1998, and closed a factory that made decorative bedding as well.

Though Pillowtex had abruptly reduced Fieldcrest Cannon’s workforce, it had no similar desire to decimate the company’s roster of brands. Cannon, Fieldcrest, Charisma, and Royal Velvet were the industry’s most recognizable labels, and Pillowtex stood to gain from their popularity. In 1998, Pillowtex resolved to expand the brand names into new product lines to boost sales. Although Fieldcrest Cannon had ceased to exist as a company, its name remained valuable to Pillowtex.

Fieldcrest Cannon, Inc.

views updated Jun 08 2018

Fieldcrest Cannon, Inc.

326 E. Stadium Drive
Eden, North Carolina 27288
U.S.A.
(919) 627-3000
Fax: (919) 627-3109

Public Company
Incorporated: 1953 as Fieldcrest Mills, Inc.
Employees: 17,000
Sales: $1.21 billion
Stock Exchanges: New York
SICs: 2211 Broadwoven Fabric Mills, Cotton; 2221 Broadwoven Fabric Mills, Manmade Fiber and Silk; 2269 Finishers of Textiles, Nee; 2273 Carpets and Rugs; 2281 Yarn Spinning Mills

Fieldcrest Cannon, Inc. is one of the leading producers of household textile products in the United States. Upon the purchase by Fieldcrest Mills of competing Cannon Mills Co., the emergent Fieldcrest Cannon became a dominant force in the home textile industry.

FIELDCREST MILLS

The early histories of both Fieldcrest Mills and Cannon Mills center on determined industrialists. Fieldcrest started with aspiring empire-builder Benjamin Franklin Mebane, who launched an ambitious plan to open one mill a year in and around 600 acres of land he had purchased in Spray, North Carolina, in 1893. By 1905 he owned six mills in the area, renamed Eden (after a surveyor’s comment that it resembled the garden of Eden). Mebane had gone to Chicago retailer Marshall Field for help in financing his plan, and after Mebane started having trouble repaying his debt, Field decided to take over. By 1910 Field had gained voting control of Mebane’s Spray Water Power & Land Co. and had installed new managers; by 1912 the takeover was complete and the company had become a subsidiary of Marshall Field & Co. Field invested in improvements and expansion projects for the subsidiary, which was renamed the Thread Mills Company. In 1916 the company acquired a 1,600-acre site near Martinsville, Virginia, for a huck (flat weave) and terry towel plant and employee housing; the facility in the newly created community of Fieldale, started operation in 1919. It would continue operating into the 1990s.

Amoskeag Co., an investment trust based in Boston, also owned the Bangor & Aroostoock Railroad in Maine and various real estate and mining interests. Amoskeag, in turn, was controlled by the Dumaine trust, a family trust organized by F.C. Dumaine, Sr., a textile mill baron who had become the head of Amoskeag in 1905. Upon his death in 1951 stewardship for the trust passed to his son F.C. Dumaine, Jr., who had started working for Amoskeag in 1922. By 1961 sales had reached $77 million, and the following year Filedcrest became a publicly owned company, with Amoskeag holding about 40 percent of the stock. In 1967 Fieldcrest was listed on the New York Stock Exchange.

Fieldcrest produced goods under its own name as well as private labels, with customers Sears, Roebuck & Co. and J.C. Penney accounting for almost 15 percent of total sales. Fieldcrest’s strength came from strong showing of its medium- and upper-priced lines, which made up almost two-thirds of total sales. These lines, carrying the Fieldcrest label, appeared primarily in department stores—its Royal Velvet towels, introduced in 1954, were known for their luxury. The lower priced St. Marys brand was sold through mass merchandisers.

The twentieth anniversary of Fieldcrest Mills, Inc., in 1973, saw sales reach $290 million and annual growth since 1961. By 1977 volume had grown to $417 million. Profits had generally followed this upward trend as well. During this time, Fieldcrest tried to meet the growing consumer demand for more fashionable styles for bed and bath products, entering the “designer” sweepstakes. In 1976 it introduced its first designer line, the Halston collection, and the following year a Geoffrey Beene line was introduced, as well as the Carleton Varney line for the St Marys brand. The market responded favorably, and Fieldcrest saw a 43 percent gain in its bed and bath products in 1976-77. Carpet sales also increased, due to a boom in housing as well as an aggressive promotional program and a successful entry in the contract carpeting market. Halston rugs were introduced in 1977.

That year the company formed a 50 percent joint venture with the Bank of Ireland and P.J. Carroll & Co. Ltd.—Fieldcrest Ireland, Ltd.—to build and operate a Fieldcrest towel plant in Kelkenney, Ireland, in an attempt to penetrate the European market.

Profits crested at $24.8 million on sales of $517.7 million in 1979. Thereafter sales began to slide, falling to $10.4 million in 1982 on sales of $492 million. The recession had affected the company’s performance, but other mills proved able to sustain earnings during that period. Market analysts pointed to ill-conceived and expensive expansion attempts; Fieldcrest had spent $100 million expanding or updating its facilities between 1978 and 1981. Furthermore, Fieldcrest had responded to a surge in blanket sales in 1977 and 1978 due to unusually cold winters and high energy costs by modernizing its blanket mill in Eden for $40 million, but blanket sales had begun declining after 1978. The plant in Ireland closed in 1982 after high inflation in that country priced the towels out of the European market, and Fieldcrest lost $8 million.

Most troubling for Fieldcrest were attempts by other manufacturers to encroach upon its ensconced and lucrative position at the head of the premium towel market. Fieldcrest had decided to aggressively expand its St. Marys line, and this triggered attempts by J.P. Stevens, West Point-Peppernell, and, notably, Cannon Mills to move into the upper end of the market. Cannon added a Royal Touch towel to its Royal Family line that directly competed with Fieldcrest’s Royal Velvet. Fieldcrest found itself defending its territory at the top, where the profits were highest, while trying to advance farther at the other end of the market. As the recession took hold, the rounds of discounting began and inventory was reduced.

Amoskeag Co., whose earnings were largely sustained by those of Fieldcrest, grew concerned, and in 1982 the chief executive of Amoskeag, Joseph Ely II, was brought in to head Fieldcrest. He had served as a board member since 1976. In December of that year, Fieldcrest wrote off its half of a Canadian joint venture, Crossley Karastan Carpet Mills, Ltd., which had lost $1.2 million in 1981.

Soon thereafter, Fieldcrest shifted its marketing strategy. Instead of trying to increase profits through high volume of its lower end products, it sought to broaden its range of items built around the Fieldcrest name. By reemphasizing the Fieldcrest lines, which it had neglected to update while the effort had been on the designer lines, the company chose to retain profits and avoid price cuts at the expense of expanding its market share. Fieldcrest was the only towelmaker that continued to use its name solely with its premium products; Cannon Mills, for example, sewed its name into all of its towels, regardless of the price category. Fieldcrest promised department stores carrying its line that they had the protected use of its name, thereby hoping to seal their loyalty and expand its carriage trade. Field-crest also hoped to grow its private-brand business, of which Sears was its biggest customer, contributing $75 million in sales in 1983.

CANNON MILLS, CO.

Towards the end of the nineteenth century, James William Cannon, a 35-year old partner and manager of a general store, became intrigued with the textile business and decided to open a cotton mill. He raised $75,000 and built a mill in Concord, North Carolina, which started business in 1887 as the Cannon Manufacturing Company. Cannon also managed the plant. He evidently brought some knowledge of the retail business with him when he decided to put his name on the fabric that his mill manufactured, reasoning that sales could only increase if customers could ask for a product by name. The popularity of “Cannon cloth” spread throughout the south, and thus the Cannon retailing philosophy was born.

Realizing that the south had no towel manufacturing plants, Cannon opened a mill that produced huck towels in 1894 and another mill that made terry towels four years later. In 1906 Cannon bought a 600-acre parcel of land, previously a cotton plantation, and started developing the community that became Kannapolis. The mills there started operation in 1908 and were able to produce more towels than any other group of mills, due in part to automatic terry looms. The mills also produced a variety of “gray goods” such as cotton cloth and woman’s hosiery.

In 1923 Cannon had the Cannon name sewn into all of its towels, becoming the first company to do so. By unabashedly identifying with what had been seen as purely a “commodity” product, Cannon was to develop an intense brand loyalty among consumers, who came to identify the Cannon name with affordability and quality. Cannon, unlike other mills, used its name on its top-of-the line goods as well as its more affordably priced items. Most of Cannon Mills’ products were distributed through mass merchandisers.

Cannon’s tenure was marked by an entrenched fiscal conservatism. He made no effort to diversify, eschewing the idea of growth for growth’s sake. While Cannon was in control the company did not acquire any long-term debt. Furthermore, Cannon’s reign over Kannapolis—which remained unincorporated—also reflected his paternalistic style. Kannapolis had no mayor, town council, or legal charter. Cannon Mills paid for the community’s police and fire services and was responsible for its water and sewerage system, trash collection, and street maintenance. It also owned approximately 1,600 houses that were rented to mill employees. Moreover, Cannon owned virtually all the property within the one-square-mile business district. In the 1930s Charlie Cannon returned from a business trip to Williamsburg so impressed by its colonial architecture that he had facades for the business district constructed to mimic their colonial style, and downtown Kannapolis was thus transformed into a Georgian village. A massive sign on the edge of town, lighted by 1,800 bulbs and visible from the highway and the railroad, proclaimed that Cannon Mills was the “World’s Largest Manufacturer of Towels.” After the war, the sign was altered to read “Leading Manufacturer of Towels” and updated with neon.

Charlie Cannon died in 1971 after suffering a heart attack at his office. At that time Cannon Mills owned 17 plants and employed 24,000 workers, the largest employer in the Carolinas. The population of Kannapolis was 36,000, ten percent of which lived in company housing. Sales in 1971 reached $323 million. Cannon left no long-term debt and over $60 million in cash and marketable securities. The Cannon name was recognized by a remarkable 90 percent of consumers. However, growth had been very slow—in the five years prior to Cannon’s death, sales figures had increased only two percent a year.

The Cannon neon sign remained unlit after Cannon died, but Cannon Mills stock soared on Wall Street as investors believed that new management would fully take advantage of the company’s cash-rich, debt-free position. Nevertheless, Charlie Cannon’s hand-picked successor, Don Holt, continued his mentor’s policies of neither diversifying nor broadening its market appeal. As other mills were bringing in well-known designers to update their look, Cannon continued to resist. “We have the Cannon name. We don’t need designers’ names,” the president of Cannon’s merchandising subsidiary told Forbes in 1972.

Cannon attempted vigorously to catch up with its competitors, under the youthful leadership of its next chairperson, Otto Stolz. The company diversified into the manufacture of various items for kitchen and bath, including mats and rugs. Luxury fabric designer Robin Roberts was also signed on to create a fashionable and upscale line of sheets and towels. Cannon had difficulty changing its old-fashioned image, however, and its share of the towel market fell to below 35 percent.

Cannon Mills was to experience dramatic change in 1982, after David Murdock, a self-made millionaire and takeover artist from California, disclosed his intentions of acquiring the company. Charlie Cannon’s son William was the first to sell, and the other trustees followed his example. After the $413 million leveraged buyout, Murdock took the company private.

Murdock set out to aggressively alter the way Cannon did business. As other mills were reporting slowing growth or declines, Murdock’s Cannon sought to increase sales by updating the company with a glamorous and trendy image. The design department was doubled in size, its manager released, and most of the existing towels and sheets discontinued. The Japanese designer Issey Miyake and the Swedish designer Katja were hired to create their own lines. A racy advertising campaign was launched featuring various celebrities between Cannon sheets with the tag line “Two of the most famous names in America sleep together.” Towels were marketed at all price levels, including a line that competed directly with Fieldcrest’s Royal Velvet. Efforts were also made to expand profits at the mass merchandisers; to that end an agreement was signed with the producers of the nighttime soap opera Dynasty so as to produce a Dynasty collection, patterned after the sets used on the show.

Despite Murdock’s attempts to invigorate Cannon with splashy designs and heavy advertising, Cannon continued to lose money. The import-battered market had led to further layoffs (reaching 3,000), the closing of three mills, and a $31 million drop in exports. Under these conditions the Amalgamated Clothing & Textile Workers Union (ACTWU) attempted to organize Cannon employees, which culminated in a vote in October of 1985. The union had failed previously, most recently in 1974 in a 44 to 56 percent vote. Murdock, by that time seeking a buyer for Cannon, fought the union in a venomous campaign in which he jetted frequently into Kannapolis, touring the factories and shaking hands with virtually all of the company’s 10,000 employees. The movement to unionize was defeated in a 37 to 63 percent vote.

The point of contention was Murdock’s use of the funds while he was battling for control of Occidental Petroleum. Murdock had started acquiring Occidental stock in 1981. In February 1982 he was elected as a director of that company under conditions which barred him from acquiring more than five percent of its stock. Late in that year the Cannon pension fund began to purchase Occidental stock, which by 1984 accounted for 7.8 percent of the fund’s holding. In 1984 Occidental repurchased its stock from Murdock-controlled entities—including the Cannon pension fund—with a $60 million premium attached. After the fund was terminated late in 1985, the fund’s excess assets—including the profits from the Occidental deal— were folded back into Murdock’s other entities. The union’s suit charged that Murdock had used the funds to either “greenmail” or take over Occidental, as opposed to managing the funds for its participants and beneficiaries, and that he had used the funds similarly in actions against Kaiser Cement. The case was settled out of court in 1989 for a reported $1 million.

FIELDCREST CANNON, INC.

The acquisition by Fieldcrest of Cannon catapulted the company to the number one position in the towel and blanket market and the number three spot in the sheet market. Observers wondered how Fieldcrest and Cannon, two textile powerhouses with very different market strategies, would work together, especially on the retail floor. Its various lines seemed poised to compete against each other for market share and counterspace. Fieldcrest’s flagship brand still prevailed in the department stores, where Cannon’s Royal Family line competed against it. Cannon was the number one brand at the discounters, where Fieldcrest’s St. Marys always placed behind Cannon’s Monticello line. Fieldcrest had chosen to not expand its market share to avoid price cuts, while Cannon had elected to cut prices to generate sales. Fieldcrest executives felt that it was best to keep the lines separate to hold onto precious counterspace as the retail industry consolidated. Fieldcrest had also quickly moved out some of Cannon’s management team, replacing them with Fieldcrest staffers. Some observers felt that Fieldcrest lost much-needed experience with high-volume, low-margin mass merchandising.

Less than one year after the purchase of Cannon, Fieldcrest bought Bigelow-Sanford, Inc., a manufacturer of residential and industrial contract carpeting. Bigelow-Sanford had been purchased by a group of its executives in 1981, who in turn sold it to Fieldcrest in December 1986 for $129 million—$4 million in cash and 460,727 shares of Fieldcrest common stock. After the acquisition Fieldcrest merged Bigelow-Sanford with its Kara-stan division and dismissed the Bigelow-Sanford executives. Soon thereafter, DuPont introduced its Stainmaster fiber, which was enormously popular but proved to be very difficult to dye into the carpet colors that consumers wanted. Lacking knowledgeable staff at the top of its carpet operations and still heavily in debt from its acquisitions, Fieldcrest committed to big capital outlays in an attempt to master the process.

In 1987 Fieldcrest lost $3.7 million on sales of $1.4 billion, and much of the loss was attributed to problems with Bigelow-Sanford. By 1988 Fieldcrest announced that it wanted out of the carpet business altogether and was looking for a buyer. Profits rebounded to $11.3 million that year and reached $23.4 million in 1989. In 1990 the economic downturn exacerbated internal problems, and the company posted a $38-million loss on $1.24 billion in sales. The company’s stock value, which had peaked in 1986 at $43, dropped to below six dollars per share.

Several analysts pointed to chairperson Ely as directly responsible for the company’s troubles. They cited an overly rapid expansion financed with heavy debt commitments, an exorbitant price paid for Cannon, ill-timed cotton purchases, and difficulties with Bigelow-Sanford. Moreover, critics reasoned that Ely had been able to remain at Fieldcrest as long as he had by virtue of his position as treasurer of the Dumaine trust, holding ultimate power over an elderly board on which remained several members from F.C. Dumaine, Sr.’s, time.

Fieldcrest underwent a series of cost-cutting measures in 1990 under its new chairperson, James Fitzgibbons, which included reducing its workforce by 1,700, discontinuing its unprofitable automatic blanket operations, and unloading inventory. Unable to find a buyer for its rug and carpet division, the company consolidated those operations and was able to turn a profit in 1991. That year Fieldcrest as a whole was able to claim $3.2 million in profit, although sales were $1.21 billion, less than those of 1990. Income in 1992 exceeded that of the previous year, aided by lower cotton prices and higher sales. In mid-1992 the company refinanced its loan agreements, reducing its interest payments. Nevertheless, Fieldcrest had experienced lower sales from 1988 to 1992, largely because of a decline in carpet and rug sales from $371.1 million in 1988 to $235.5 million in 1992. Total sales in 1992 were $1.22 billion.

In January 1993 Amoskeag announced that it was considering selling off its shares of Fieldcrest, disclosing that the Dumaine trust was reviewing its own investment in Amoskeag. At that time the Dumaine trust owned approximately 76 percent of the voting power of the equity of Amoskeag, and Amoskeag controlled about 80 percent of the voting stock and 30 percent of the equity of Fieldcrest. Some of the trust’s beneficiaries had criticized the trust’s management, but the Dumaine heirs had no say in the management of the trust unless Amoskeag failed to provide a dividend, which was largely furnished by Fieldcrest. Long-simmering dissension and rivalry ruptured into several legal battles attempting to break the trust, each of which ultimately failed. Some industry analysts noted that in the several years prior, Fieldcrest had invested in a major modernization program, which would ultimately make the company a more attractive acquisition.

Principal Subsidiaries

Fieldcrest Mills, International, Inc.; Delaware Valley Wool Scouring Co., St Marys, Inc.; Encee, Inc.; Cannon Mills International, Ltd; Cannon Mills International Sales Corp.