Pacific Coast Feather Company

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Pacific Coast Feather Company

1964 4th Avenue South
Seattle, Washington 98134
U.S.A.
Telephone: (206) 624-1057
Fax: (206) 625-9782
Web site: http://www.pacificcoast.com

Private Company
Founded: 1924
Employees: 2,400
Sales: $350 million (2003 est.)
NAIC: 314129 Other Household Textile and Product Mills

Privately owned, Seattle-based Pacific Coast Feather Company (PCF) is the market leader in the pillow and down comforter industry, selling products under its own name and other labels, such as Sealy, Calvin Klein, and Dockers. The company maintains manufacturing facilities throughout the United States, Canada, and China, as well as a showroom in midtown Manhattan. In addition to pillows and comforters, PCF offers feather beds, covers, protectors, and pillow shams. PCF is owned by the Hanauer family. Gerard "Jerry" Hanauer serves as co-chairman and his son Nick Hanauer acts as chief executive officer and co-chairman.

Family Ties to Feathers Dating to 18th Century Germany

The Hanauer family became involved in the feather and pillow business when Jerry Hanauer's grandfather, Joseph Hanauer, founded Cannstatter Bed Feather Company in Stuttgart, Germany, in 1884. Because the Hanauers were Jewish, they were looking to flee Nazi Germany during the 1930s. Fritz Hanauer, Jerry Hanauer's second cousin, wrote to a number of feather companies in the United States. Seattle's Pacific Coast Feather Company replied, saying it had a job for him. The company had been founded in 1924 by F.W. Cutler and a Mr. Van Faklenburg but was now suffering through hard times. When Fritz Hanauer joined the company in 1939 he started out washing chicken feathers. Nevertheless he encouraged his cousin Sigmund, Jerry's father, to relocate to Seattle. Due to problems leaving Europe during the early months of World War II, it was not until 1940 that Gerard's family managed to make it to America's Northwest. By this time Pacific Feather had gone bankrupt, and Fritz had acquired the business. Upon his arrival, Sigmund bought a partnership stake from his cousin. After World War II was over Fritz Hanauer decided to return to Germany, and Sigmund bought him out, becoming sole owner.

Under the management of the Hanauer family, PCF focused its efforts on serving the Pacific Northwest. At the same time, the pillow industry underwent a revolutionary change following the 1941 introduction of Dacron, which could serve as a substitute filler for feathers.

In 1953 PCF opened a plant in Kinston, North Carolina, to produce Dacron for use in clothing and pillows, and two years later the company began manufacturing its own polyester pillow. During this period, while PCF was content to be a small regional player, national pillow manufacturers emerged, including Purofied Down Products and Dallas-based Pillowtex.

A third generation of the Hanauer family became involved in the pillow business in 1965 when Jerry Hanauer joined the company, forgoing a financial career in New York City. At the time, PCF was generating annual sales of only around $850,000. In 1972 he succeeded his father, who died two years later. By now Purofied and Pillowtex were large enough to feel threatened by the very existence of PCF, prompting Hanauer to look for a niche in which PCF would be able to compete. He found it in down comforters, supplying Scandia Down, which during the late 1970s and into the 1980s aggressively expanded across the country. PCF took advantage of the retailer's success to begin competing with its larger rivals on a national basis.

By now a fourth generation of the Hanauer family, in the form of Jerry's sons Nick and Joff Hanauer, were very much involved in growing the business. They were instrumental in revamping the company's manufacturing operations and marketing strategies. Instead of following the industry practice of supplying products under the retailer's brand name, PCF began building up Pacific Coast Feather as a quality brand. Sales grew to $22 million in 1985, and the company's success attracted the attention of Pillowtex, which attempted to buy PCF for $16 million. Hanauer turned down the bid and when asked to name his price quoted a figure so high that Pillowtex walked away. During the 1980s Pillowtex acquired five other companies as it grew into a dominant market leader and expanded into areas such as mattress pads. PCF in the meantime established manufacturing operations in Maquoketa, Iowa, in 1984; Lebanon, Pennsylvania, in 1986; Pico Rivera, California, in 1988; and Marysville, Washington, in 1989. It also established Pacific Coast Feather Cushion in Los Angeles in 1988. Purofied, on the other hand, began to struggle, filing for Chapter 11 bankruptcy protection in 1984 and closing its Brooklyn manufacturing plants. Several years later Purofied filed again and this time went out of business.

Consolidation in the Pillow Industry in the 1980s

PCF and Pillowtex began pursuing opposite strategies in the 1980s. The latter diversified its product offerings and used its size advantageously, pursuing a strategy akin to a virus: Once able to sell one of its products to a retailer, the company then maneuvered to elbow out all of its competitors by inducing the retailer to buy the entire Pillowtex line. As a result there was a significant shakeout in the pillow industry, which saw a dozen healthy regional companies reduced to just four national rivals and several regional competitors struggling to hang on. Because of its relationship with Scandia Down, PCF was one of the national players that emerged. In 1988 sales reached $55 million. At this point, Pillowtex had a 50 percent market share in pillows and 40 percent in down comforters.

To compete with Pillowtex, PCF narrowed its focus. Rather than diversify like Pillowtex and another rival, Hollander Home Fashions Corp., PCF trimmed its offerings to just pillows and comforters. Eschewing a merchandising approach that was commodity-driven based on price, which would have directly pitted PCF against Pillowtex in a game it could not hope to win, PCF concentrated on designing quality pillows and comforters to compete with Pillowtex on terms of its own choosing. PCF even conducted tests on Pillowtex products, as well as the pillows and comforters of other competitors, and learned that they did not meet the specifications listed on the packaging. Rather than take advantage of this research to convince retailers to switch to PCF, the company decided instead to build on its own reputation for quality. A major innovation was the introduction of the ComfortLock comforter, which employed a U-shaped stitch along the perimeter of the bed to prevent the common problem of down drifting to the sides and bottom. PCF patented the stitch in 1994, prompting a complaint from Pillowtex, which maintained that something as simple as a stitch was not patentable. Three years later, however, the U.S. Patent Office reaffirmed its decision.

Initially, PCF attempted to convince retailers to buy its pillows and comforters because of their high quality, but quickly realized that the retailers were more interested in profitability than anything else. The company had to learn now to use the quality of its products to make more money for its customers. By focusing on just pillows and comforters, PCF, despite being much smaller than Pillowtex, was able to bring more resources to bear on their product lines. PCF helped to educate both retailers and customers. All too often, retailers offered a wide range of choices at the low-end price points while offering only a small number of products priced at the upper range. The PCF approach was to convince retailers to reorganize their shelf space and reallocate their inventory dollars by offering products at price points that were evenly spaced out, creating what the company called a vertical hierarchy of quality, value, and benefits. Customers who came into the store to buy the cheapest pillow possible did not require a dozen choices: They would buy the cheapest pillow if only one was available. By offering so many options at the lowest price point—and providing the least amount of profit—retailers simply encouraged customers to buy a less expensive product that did not necessarily serve their needs. By offering a range of products in terms of quality and price, customers would trade up. The more expensive the pillow, the more health benefits it offered and the longer it would last. Thus the product mix on the retailer's shelves told a compelling story to the customer: In short, the higher the price, the smarter the purchase. The result was that retailers now made higher profits and were pleased to do business with PCF.

In 1991 PCF controlled a 10 percent share of the pillow market and 17 percent in down comforters. Over the course of the 1990s the company enjoyed strong growth, as it increased its sales of pillows and comforters while adding a limited number of new products. Unlike its rivals, however, PCF would not wander far afield and offer items such as bath towels: It was content to stick to bedding. In 1993 it established a new division and brand, National Sleep Products, to market its pillows and comforters that relied on synthetic materials rather than feathers. Because PCF was so well associated with feathers, it was having difficulty marketing polyester pillows under the Pacific Coast label. The goal now was to create a synthetic product line that followed a strategy similar to that of the company's feather pillows and comforters, with products under the new name falling in a range of price points.

Company Perspectives:

At Pacific Coast we've learned that satisfying our customers comes only from hard work, good service and providing the highest quality products available.

Expanding Market Share in the 1990s

PCF sales totaled $60 million in 1993, $106 million in 1996, and $127 million in 1997, as the company continued to focus on pillows and comforters and promoting the Pacific Coast brand. Pillowtex, on the other hand, expanded into blankets, acquiring a number of blanket companies as well as the blanket business of Fieldcrest Cannon. In 1997 Pillowtex paid $400 million in cash and stock and assumed some $300 million in debt to acquire the rest of Fieldcrest Cannon. Although the deal turned Pillowtex into an industry giant, it became a lumbering one. Sensing that Pillowtex was not paying close enough attention to its pillow and comforter business, PCF increased its spending on marketing to take advantage of the situation. Within two years, PCF's market share in pillows grew to 21 percent while it controlled a similar share in the comforter market. Also in 1997 PCF set itself up for increased growth by reaching an agreement with mattress powerhouse Sealy to produce Sealy branded pillows, down comforters, and synthetic-fill comforters and mattress pads. It was PCF's first licensed deal and opened the door to future licensing arrangements with Calvin Klein and Dockers. At the same time, the company continued to heavily promote its own Pacific Coast Feather brand.

During the 1990s PCF opened manufacturing plants in Hebron, Kentucky, in 1997, and Henderson, North Carolina, in 1999. In addition, it launched Pacific Coast Feather Canada in Toronto in 1992, and in 1998 started a mattress pad business in Wayne, Nebraska, called Restful Nights. By the end of the 1990s PCF was generating sales around $245 million. As it enjoyed robust growth, however, PCF experienced some changes in the top ranks of management. Tragically, in 1998 Joff Hanauer was killed in an automobile accident. In 1999 Jerry Hanauer, now in his 70s, relinquished the CEO position to Roy Clothier, a longtime officer of the company. According to Hanauer, Clothier had been instrumental in the rapid rise and maintained, "All we're doing here is making factual what has been reality." Clothier joined the company in 1981 as chief financial officer, was named chief operating officer in 1988, and added the presidency in 1993. Having a nonfamily member in a top post was a conscious decision by Hanauer, who believed that executive talent would shy away from a company if they felt that opportunity for advancement was limited.

In 1999 PCF acquired Southern Quilters, a North Carolina subcontract manufacturer. The deal added 250,000 square feet of plant space to PCF, an important factor in the company's effort to further its growth. Also in 1999, PCF established a new home fashions division to offer duvet covers, and coordinated dust ruffles, pillow shams, and sheets. Nevertheless, the focus of the company remained on pillows and comforters. In 2000 PCF eclipsed Pillowtex as the market leader in pillows and comforters. Losing more than $300 million in 1999 and 2000, Pillowtex filed for Chapter 11 bankruptcy protection in November 2000. Some 20 years after Pillowtex's attempt to acquire PCF, the roles were reversed: in 2002 PCF attempted to buy part of Pillowtex, but the rival's management team refused, insisting on a sale of the entire company. Eventually the assets were sold off in bankruptcy court.

With the downfall of Pillowtex, PCF solidified its position as the leading pillow and comforter manufacturer. With sales topping the $300 million mark, PCF moved into a larger showroom space in Manhattan in 2001 to help support the company's growth in a number of areas. Although it was now the number one company in its industry, PCF was determined not be become complacent but to retain a spirit of innovation, despite a change in leadership. In May 2003 Clothier died of liver disease at the age of 64. He was replaced as president by Eric Moen, who joined the company in 1989 after working for several fashion sportswear companies. Nick Hanauer was named CEO and co-chairman of the board.

PCF's pattern of growth fell off, due to the effects of a poor economy and trouble in the bedding industry that caused struggling companies to slash prices in hopes of hanging on. "Having your competitors in financial trouble is always bad, because companies in bankruptcy can behave irrationally," Nick Hanauer explained to the Puget Sound Business Journal in June 2004. "The industry becomes the victim of the stupidest, most irrational players." The industry was also likely on the verge of a sea change. Unlike other textile companies that moved all of their manufacturing operations offshore, companies that produced feather pillows and comforters continued to produce them domestically because feathers had to be transported compressed into bricks. For years, China had been the leading producer of duck and goose feathers and down, as well as the manufacturer of most comforter shells, which were then filled and finished elsewhere—primarily due to tariffs and taxes imposed on goods manufactured in China because the country was not a member of the World Trade Organization (WTO). PCF, which was the largest Western consumer of Chinese feathers and down in China, maintained a presence in the country, but with the admittance of China to the WTO in 2001, it became clear that China would now be competitive in the bedding industry. It was very likely that within the next decade all of PCF's manufacturing would move from the United States and Canada to China, leaving PCF as more a marketing and distribution company than a manufacturer. The impact of such a change on the quality of products and speed of distribution, not to mention the 2,400 people employed in PCF factories across the United States, remained to be seen.

Principal Subsidiaries

Pacific Coast Feather Cushion; Pacific Coast Feather Canada, Inc.; Restful Nights.

Principal Competitors

Hollander Home Fashions Corp.; Spring Industries, Inc.; Westpoint Stevens Inc.

Key Dates:

1884:: The Hanauer family becomes involved in the feather and pillow business in Germany.
1924:: Pacific Coast Feather Company is founded.
1940:: The Hanauer brothers acquire Pacific Coast Feather Company.
1972:: Jerry Hanauer succeeds his father as CEO.
1994:: The company patents the U-shaped stitch in com-forters.
2000:: The company becomes the market leader in pillows and comforters.
2003:: Nick Hanauer is named CEO and co-chairman.