Shaw Industries

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Shaw Industries

P.O. Drawer 2128
Dalton, Georgia 30722
U.S.A.
(706) 278-3812
Fax: (706) 226-6654

Public Company
Incorporated: 1967 as Philadelphia Holding Co.
Employees: 19,100
Sales: $1.75 billion
Stock Exchanges: New York Pacific
SICs: 2273 Carpets & Rugs

Since 1987, Shaw Industries—based in Dalton, Georgia, which is also known as “The Carpet Capital of the World” —has been the world’s largest carpet manufacturer. The company designs and manufactures about 800 styles of tufted carpet for residential and commercial use. Among the name brands produced by Shaw Industries are Philadelphia, Cabin Crafts, Shaw Commercial Carpets, Stratton, Networx, Shawmark, Evans Black, Salem, and Sutton. The majority of the company’s products are made from tufted nylon yarn. The production process, according to the company, involves a series of needles which form loops in a synthetic backing. Approximately 98 percent of carpeting produced today is made with such a tufting process, and approximately 99 percent of carpeting produced in the United States is made from nylon or some other synthetic fiber.

Shaw Industries is run by brothers Robert and J.C. Shaw, who founded the company in 1967. Robert Shaw oversees the day-to-day operations as president and chief executive officer and J.C. “Bud” Shaw serves as chairman of the board of directors. According to a profile in the Atlanta Journal and Constitution, the brothers were born in Dalton to the owner of Star Dyeing Co., a subcontractor serving the carpeting industry. As young men, they went their separate ways and left Dalton. Upon their father’s death in 1960, the brothers returned home to decide whether to sell or close the business. They did neither, deciding instead to retool their father’s company as a supply firm to the industry, which they called Star Finishing Co. The small company—with ten employees and four machines—dyed and finished carpeting for other companies.

The Shaws first entered carpet manufacturing in December 1967, when they acquired the Philadelphia Carpet Company of Cartersville, Georgia. In order to make the purchase, the company incorporated as Philadelphia Holding Co., Inc., but adopted the name Shaw Industries when the company went public in 1971. The company was listed on the American Stock Exchange in March 1972.

The 1970s posed a number of challenges to the young company as it faced the oil embargo, and the consequent energy crisis and inflation. At that time, housing starts slowed and the construction industry suffered. The embargo also affected the availability of petrochemical products used in producing the synthetic carpet yarns. Despite those pressures, the company continued to grow. In June of 1972, the company acquired New Found Industries, Inc., a spinner of fine gauge carpet yarns. In the same year, the company started up its own heat-set and twisting operations for processing the continuous filament nylon yarn used in making shag carpeting. They also built a new carpet finishing plant in suburban Los Angeles, California in order to help supply West Coast markets.

In the 1974 fiscal year, Shaw acquired Elite Processing Co., Inc. of Dalton, Georgia, and Syntex Yarns, Ltd of Calhoun, Georgia. The former purchase allowed the company to increase its capacity for dyeing tufted carpeting, for Elite had newer “beck dyeing” equipment than Shaw then possessed, as well as “TAK” dyeing equipment, which manufacturers use to create designs by sprinkling flecks of dye onto the carpet material. The Syntex acquisition, renamed New Found Yarns, Inc., added approximately 150,000 pounds per week to the company’s yarn-producing capacity. That increased capacity added both to Shaw’s in-house production and the materials they sold to other producers.

By 1975, however, the energy crisis began to catch up with the company, decreasing orders and backing up inventory. Sales and revenues decreased 11.8 percent, primarily due to downturns in the construction and home furnishing industries. This year was the first and only year when Shaw’s revenues declined. In 1976, while inflation continued and housing starts remained sporadic, matters improved for the company, which showed a 16.2 percent increase in sales and revenues, which was offset partially by a decrease in the sales price of the products due to the slow market. At the same time, Shaw Industries was able to spend five million dollars to upgrade and expand its production facilities.

The 1977 and 1978 fiscal years marked a significant change of course for the company, as it consolidated all levels of operations. The company had been producing yarn and providing finishing services for its own products and for those of other manufacturers. During this period, however, it was determined that the New Found Yarns Division did not have sufficient capacity to meet internal demands as well as those of outside buyers, so they discontinued yarn sales. All of the company’s other dyeing, printing and tufting manufacturing facilities were set aside exclusively for the company’s own use as well. On the administrative side, the company brought senior management together with scheduling, product development, and other support functions in its Dalton offices to make the management structure more efficient. In the course of this restructuring, Bud Shaw, who had been running the Philadelphia Carpet division, assumed a less active role in the corporation’s day-today operations.

Shaw restructured through acquisitions and sales as well. In 1977, the company acquired the Magee Carpet Company’s tufted residential and commercial carpeting operations and sold its own finishing facilities in California. At the end of that fiscal year, it sold its Philadelphia, Pennsylvania carpet-weaving facility to Pennsylvania Carpet Mills, Inc. Neither holding fit into the company’s long-range plans, Senior Vice-President for Operations W. Norris Little wrote in a letter to the stockholders, and the two sales “allowed us to concentrate our efforts more fully on our Dalton and Cartersville carpet operations,” referring to the company’s two major centers of production in Georgia.

Over the next few years, the company continued to consolidate as well as grow in the face of fluctuations in the larger economy which affected the price and availability of raw materials as well as the market for new carpeting. In an industry commonly regarded as cyclical, with its dependence on economic fluctuations and even less controllable factors such as the effect of bad weather on the construction business, the company continued to stay one step ahead.

The next pivotal point in the company’s trend toward consolidation came in 1982 at the nadir of the most recent industry cycle. CEO Robert Shaw decided to eliminate the middleman—in the person of outside carpeting distributors—from its sales structure. The company added eight regional warehouses to its original two and expanded its sales force, taking the further gamble of putting the salespeople on salary rather than compensating them through straight commission. In 1982, according to the Atlanta Journal, 55 percent of the company’s sales were to national or overseas distributors, while 45 percent went directly to retailers. Three years later retailers accounted for 80 percent of sales. In the intervening years, Shaw had become the largest carpet manufacturer in the nation. At the end of 1985, Shaw was the first company ever to sell more than $500 million worth of carpet in the United States in a single year, and that figure was more than double the company’s 1982 sales.

In the decade that followed, Shaw’s transition to direct sales would be seen as pivotal to its move to world leader. With the benefit of hindsight, analysts could see the change in strategy in more abstract terms. Fortune contributor Brian O’Reilly wrote in 1993 that, at that time, “Shaw … accepted an unpleasant truth about his industry: Carpets are a commodity.” That is to say, brand loyalty and brand-name recognition are practically nonexistent in the industry and price had become the major concern of consumers. Apparently this truth, like so many others, came as no surprise to Robert Shaw, who was called “our lacocca” by one industry observer. Shaw told the Atlanta Journal: “we’re not really concerned with the normal cycles in the carpet industry because we’re in better control of our marketing strategy through the number of customer accounts we have.... We’re turning over the inventory at the same rate— even though the regional distribution system is larger. The risk factor you face is running your inventory out of control, whether it’s in one place or 12.”

In the next few years, Shaw Industries continued to grow, expanding its yarn-spinning capacity to meet the increased demand of its own tufting operations. In 1984, it acquired the spinning facilities of Avondale Mills in Stevenson, Alabama. In 1986, the company followed up by acquiring the spinning facilities of the Candlewick division of Dixie Yarns, Inc., also of Dalton.

Shaw Industries’ ownership of facilities at all levels of carpet production is common within the industry, according to a 1986 article in Barron’s. The practice is known as “vertical integration,” and Shaw is one of the best integrated in the business. “The carpet business … is affected significantly by trends in fashion, principally color. Many variations in style of tufted carpet are created by the various ways color is applied through dyeing or printing. Shaw’s dyeing facilities rate is among the most modern and versatile in the industry,” noted Barron’s. That versatility came in handy in the fall of 1986, according to Forbes magazine, when the Du Pont and Monsanto companies “turned carpet retailing on its head with the first genuine technological innovation in carpet fibers in five years.” That innovation, as most consumers know by now, was the stain resistant fiber most carpets are sold with today. The breakthrough may have thrown the whole industry for a loop, but Shaw Industries was able to respond quickly, purging its outdated stock and changing over its machinery.

In late 1987, Shaw Industries became the world’s largest carpet maker by purchasing the carpet business of West Point-Pepper-ell of West Point, Georgia, the fourth-largest producer in the country. According to the Atlanta Journal, West Point’s sales and profits had been hurt by its slow transition to stain-resistant technology and its inability to produce sufficient yarn for the company’s own needs. Those, of course, were two areas in which Shaw Industries particularly excelled, especially since it acquired an additional yarn-spinning plant in Thompson, Georgia, earlier the same year. West Point then produced Cabin Crafts carpeting, a well-established brand which had been around since 1932.

With the acquisition of West Point, Shaw’s revenues topped $1.2 billion, double its nearest competitor, Burlington Industries. The deal, according to Forbes, bolstered Shaw in three relatively weak areas of its business: luxury high-pile carpets, durable commercial carpets, and pricier wool carpets. From 1981 to 1988, Shaw’s sales had increased fivefold, and income more than tripled. “We just keep adding the zeros,” Chief Executive Robert Shaw told Forbes.

In December 1989, Shaw acquired the property, plant, equipment, inventories and businesses of the carpet divisions of the Lancaster, Pennsylvania-based Armstrong World Industries, Inc. Armstrong’s carpet business was then the fifth-largest in the country, and its acquisition increased Shaw’s share of the domestic market from approximately 14 to 18 percent. The deal included manufacturing plants in Georgia, North Carolina, Tennessee, and Virginia and was viewed by observers as a coup for Shaw.

The company continued to grow through the end of the decade and into the early 1990s. In 1989, the company held 22 percent of the domestic market, sales of $1.2 billion and a 41 percent increase in earnings from the year before. In 1990 an industry analyst told the Atlanta Journal, “They’re in control of their future and I’m not sure if the people they are competing with can say that.” And that control, the company has shown, comes largely from its willingness to put profits back into the company toward the continual updating of equipment. For this reason, Fortune estimated, Shaw pays ten percent less for supplies than its competitors, further increasing its edge.

In May of 1992, the company acquired Salem Carpet Mills, Inc., the second-largest publicly held carpet maker, through a merger agreement. According to the company, that move significantly enhanced the company’s position in the residential marketplace by adding the Salem and Sutton labels, both well respected in the industry, to their arsenal. During the same year, the company also expanded its commercial product offerings, and its seven-year-old modular tile business, Networx, continued to grow in a difficult market. In July of the same year, the company acquired the polypropylene carpet fiber manufacturing facilities in Andalusia, Alabama and Bainbridge, Georgia from Amoco Fabrics and Fibers Company.

In the early 1990s, the company began to turn more of its attention to international markets. During 1992, the company opened a full-service distribution center in Preston, England to serve its U.K. and European markets. In March of 1993, the company acquired the English company Kosset Carpets, Ltd. of Bradford, England. The largest single-site manufacturer of carpeting in the United Kingdom, it is the producer of the well-known brands Kosset and Crossley. Into 1993, Shaw Industries showed no sign of losing its grip on its dominant market position. As the editor of Carpet and Rug Industry Magazine told the Atlanta Journal in 1990: “I can easily see Shaw reaching 40 percent [of the market] by 1995. It’s the class act in the industry right now.”