Wickes Inc.

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Wickes Inc.

706 North Deerpath Drive
Vernon Hills, Illinois 60061
U.S.A.
(847) 367-3400
Fax: (310) 452-9509
Web Site: http://www.wickes.com

Public Company
Incorporated: 1854 as Genesee Iron Works
Employees: 3,766
Sales: $884.1 million (1997)
Ticker Symbol: WIKS
Stock Exchanges: NASDAQ
SICs: 5211 Lumber Retail and Building Materials; 5099 Importers

Wickes Inc., most recently known as Wickes Lumber Company, is a staple in the building supplies retail and wholesale market, operating 101 sales and distribution facilities in 23 states in the Midwest, Northeast, and South. The company also operates 10 component manufacturing plants throughout these regions to produce and distribute pre-hung door units, roof and floor trusses, and framed wall panels. While the company’s largest market is in the U.S. Midwest, Wickes has also expanded internationally and does business in the Baltic States, Egypt, Japan, Panama, Poland, Russia, and Turkey. Wickes is 52 percent owned by the Jacksonville, Florida-based Riverside Group Inc.

The Beginning of the Wickes Empire: 1850s to World War I

The first version of the Wickes company was founded by brothers Henry Dunn Wickes and Edward Noyes Wickes, in Flint, Michigan. The Wickes family had left New York state and settled in Flint in 1854, and were soon modestly established in the area’s burgeoning lumber business. Michigan possessed some of the thickest and choicest pine forests in the United States, and land could be purchased at the bargain price of only $1.25 per acre. The Wickes brothers, along with H.W. Wood, established the Genesee Iron Works, a foundry and machine shop specializing in repair work and the casting of odd metal parts for equipment used in the logging and lumber business. Yet the pig iron the company used had to be hauled in from Saginaw, Michigan, by ship and wagon; conversely, the equipment the foundry manufactured was being hauled back to Saginaw for shipment. As the company’s business increased, it became obvious that the closer the foundry was to Saginaw—a boom town at the time—the more efficient and profitable the operation would be.

Life in Saginaw did not appeal to H.W. Wood, however—the landscape was composed mostly of the swampland and mosquito-infested marshes adjacent to Lake Huron—so in 1864 he sold out to the Wickes brothers. That same year, the company’s name was changed to the Wickes Bros. Iron Works. During these years, Henry Wickes developed and marketed the Wickes gang saw, a steam-powered mill saw capable of ripping two or three logs into boards simultaneously. In 1869 the company made some basic improvements to the gang saw’s design, which revolutionized the lumber milling business. The new saw had an oscillating motion, allowing the teeth of the machine’s parallel saw blades to cut evenly. In addition, the saw’s speed was increased and thinner-gauge steel blades were used to cut down on waste. The new design’s success created a national market for Wickes Bros. And international saw sales enabled the company to survive as Michigan’s lumber business slowly dried up. By 1887 there were more than 300 Wickes saws in operation.

In another move towards diversification, Wickes bought equipment from troubled sawmills, reconditioned it, and resold it to mills in other parts of the country. Wickes also expanded its repair and resale business to include all kinds of machinery. As the new business grew, the Wickes brothers noticed industrial boilers were one of the most frequently bought and resold items. After developing the machinery necessary to manufacture new boilers, the Wickes Boiler Company was founded. At this time, two of Henry’s sons, Harry and William, took over management of the family’s enterprises. Harry headed Wickes Bros. Foundry, and William led the boiler business.

In 1901 the original founders of the burgeoning Wickes empire died: Edward died first and was followed just a month and a day later by older brother Henry. Henry died in Guadalajara, Mexico, where both brothers had traditionally gone to spend their winters. It was on just such a trip to Guadalajara that the third Wickes business, the United States Graphite Company (U.S. Graphite), had been born.

While vacationing in Mexico, Henry and Edward had heard of a huge graphite deposit not far from where they were staying. Upon further exploration, they discovered an enormous workable vein of about 85 percent pure graphite in the desert mountains below La Colorada, Mexico. They passed the information on to Henry’s sons, who incorporated U.S. Graphite in 1891. After acquiring an abandoned shed next to a railroad depot back in Saginaw, and having some luck—both the Mexican government and the Southern Pacific Railroad were in the process of building rail lines that permitted easy and inexpensive shipment of the raw graphite back to Michigan—U.S. Graphite began to mine, import, and sell the black powder as paint coloring, a lead substitute for pencils, and an industrial lubricant. At one point, U.S. Graphite supplied the graphite-based lead substitute for at least 90 percent of the world’s pencils; it achieved even greater success in the years preceding World War I as the demand for electricity grew. Graphite was the major component in the manufacture of carbon brushes, or contacts, necessary in the operation of electric motors.

Lumber Takes a Back Seat: World War I to 1959

In the years following World War I, Wickes introduced the straight-tube vertical boiler. These new boilers lasted longer than any previously manufactured boiler and did not require a shutdown to be cleaned. The phenomenal success of the Wickes Vertical Safety Boiler propelled the company to the forefront of the institutional heating and steam-plant business. As orders for hundreds of the new boilers flowed in, the company had trouble keeping up with demand. During the Depression the boiler business, like most others, suffered heavy losses. But the advent of World War II and the resulting increases in production needed to equip the U.S. military helped Wickes pull out of the doldrums. The U.S. Maritime Commission purchased 360 Wickes 1,000-horsepower boiler units for use in Liberty ships. Wickes also built boilers used in many Navy vessels. The company increased its work force to 500, built its first production line, went to three shifts, and in 1944 was awarded the Maritime Commission Award of Merit.

In 1947 the three Wickes operations—Wickes Bros. Foundry, Wickes Boiler, and U.S. Graphite—were merged to form The Wickes Corporation. Under the terms of the merger, the newly-formed corporation had an authorized capitalization of $10 million, consisting of two million shares with a $5 par value. Some 770,000 of these shares were used in the exchange of stock with the companies that had been absorbed. The remaining 1.23 million shares stayed in the company’s treasury for use in future purchases of other manufacturing companies. With the end of the war, Wickes capitalized on its newly-acquired production techniques and upgraded capabilities of its bent-tube boilers to 350,000 pounds of steam per hour and experienced great success in selling the redesigned unit to factories, refineries, schools, hospitals, and municipal utility companies.

The company’s increased sales volume, however, brought with it new problems: malfunctioning boilers occasionally exploded, and in the late 1950s a spate of damage suits from some of the new, more powerful units resulted in settlements for millions of dollars. This was a major turning point for Wickes, who discontinued pushing the growth of its boiler business and instead concentrated resources toward expanding its highly-profitable lumber division. As a result, Wickes later sold the boiler operation to Combustion Engineering Company in 1959.

Wickes in the 1960s

The post World War II years were typified by a tremendous housing shortage. The lumber business as it existed in the United States was not equipped to handle the increased demand. Lumber was sold by small, independent dealers to builders who completed construction of one dwelling at a time and purchased the materials to build these houses in small quantities, resulting in high prices that were often passed along to the home buyer. Home builders were at the mercy of the local lumberyard owner, and in many instances, lumber stock needed to complete construction was not available when needed. Wickes’ lumber division had taken advantage of this tense situation back in 1952, when it fashioned a building supplies retail outlet from part of a former grain terminal in Bay City, Michigan.

Under the supervision of Joseph S. McMullin, who ran Wickes at the time, the Wickes retail outlet carried a full range of lumber and construction materials needed by builders. By always having a healthy supply of product, Wickes created a one-stop store to which builders’ simply sent trucks for loads of materials. There were rarely delays in obtaining necessary materials, and there were often lower prices than were found at small independent or neighborhood lumberyards. The new Wickes venture was called the Bay City Cash Way Company. The idea was such an overwhelming success that Cash Way soon found itself selling to independent lumberyards, who found they could buy lumber at Cash Way for less than the cost to mill the lumber themselves. The key to Cash Way’s success was high volume, and McMullin realized that as long as the company was willing to turn large amounts of product at relatively low profit margins, high sales would take care of the company’s bottom line.

Company Perspectives:

The Wickes Mission: To be the premier provider of building materials and specialized services to the professional segments of the Building and Construction Industry.

The company opened additional Cash Way stores, and in 1962—the year Cash Way was renamed the Wickes Lumber Company—sales topped $66 million nationwide. The division had become responsible for more than half the business of the entire Wickes organization. A year later, the lumber division was doing about two-thirds of the company’s business, and its growth seemed to be out of control. The company pulled Smith Bolton in from U.S. Graphite to head the lumber division and tighten up the Wickes corporate framework. Bolton took a hard look at the lumber division’s organization, inventory distribution method, and the process used to decide where new lumber centers were to be located. He discovered that the vast majority of Wickes Lumber profits were being generated by its more established stores in Michigan and other Midwestern states, and that many of the newer ones in the South and Southwest were losing money.

These losses appeared to be twofold—first, all the stores carried identical products, irrespective of climate and local building codes; secondly, a haphazard method was being used to choose new locations. Bolton discovered that location choices were made without any actual market research and believed the existing management team did not realize the complexity of this larger business arena. The changes instituted by Bolton resulted in more than 40 resignations from the lumber division’s management team. The first executive to leave was the division’s president, Dick Wolohan, who struck out on his own and began a competing company. The remaining resignations were, in most cases, defections to Wolohan’s new company. An aggressive internal management promotion program and recruiting from outside the company eventually filled the void created by the mass resignations. By 1966 Wickes had broken the $200 million per year sales mark.

Massive Growth & the Consequences: The 1970s and 1980s

The 1970s brought with it even greater growth for Wickes. In 1971 Wickes Companies, Inc., was formed to be the parent company of the Wickes Corporation. The company expanded its business into Europe and, fueled by the profits generated by the continuing growth of the lumber division, entered into many new enterprises, including the retail furniture, consumer credit, modular housing, and commercial construction businesses. In 1974 the company surpassed $1 billion in annual sales, and in 1978 purchased Builders Emporium, a home-improvement retailer. Another non-core acquisition came in 1980 with GambleSkogmo Inc., a Minneapolis, Minnesota-based retail company consisting of supermarkets, drugstores, mail-order houses, and other outlets valued at more than $200 million. This purchase elevated sales to more than $4 billion per year, but Wickes was weighed down by significant debt.

A worldwide recession, coupled with less than sound planning in its building supplies and furniture lines, put the company in a tenuous situation following the Gamble-Skogmo merger. In April 1982, Wickes and most of its domestic subsidiaries filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. In June 1982 the Securities and Exchange Commission (SEC) began investigating some former Wickes officials for allegedly issuing false data and omitting material information about the company’s deteriorating financial condition in the year preceding the filing. The investigation was prompted by complaints filed by many former Gamble-Skogmo shareholders. The following year, however, the judge presiding over the company’s Chapter 11 case ordered the court-appointed examiner to terminate his investigation, as the cost (already more than $1.5 million) and the sheer volume of work needed to complete the inquiry did not appear to be justified.

A month before Wickes filed for Chapter 11, Sanford C. Sigoloff had been brought in as the company’s new chairman and CEO. Immediately following his appointment, a purge of upper-level Wickes executives occurred as the first step in the new chairman’s reorganization plan. After building up enough capital to see the company through the first stages of the Chapter 11 filing, Sigoloff began to sell off practically all of the general retailing operations in an attempt to make the company less vulnerable to cyclical retail sales. Simultaneously, he began a program for several major acquisitions.

In 1985, Wickes emerged from the second-largest bankruptcy proceedings in U.S. history. After divesting many of its interests, including the company’s vehicle leasing operations, Wickes Machine Tool Group, and the Wickes Engineered Material Division, it acquired the Consumer and the Industrial Products Group of Gulf -I- Western Inc. for approximately $1 billion. Then in 1986, Wickes acquired a group of retail stores from W. R. Grace & Co., which it added to its Builders Emporium operations. The company also spent $1.16 billion to acquire the Collins & Aikman Corporation, a manufacturer and distributor of upholstery, fabrics, and wall coverings for the home, as well as carpeting, upholstery, and seat coverings for automobiles. Also in 1986, Wickes made unsuccessful takeover bids for Owens-Corning Fiberglass Corporation and National Gypsum Company. Though the Wickes organization had recovered from bankruptcy, it had no real identity as a leader in one business or industrial sector. As a result, some divisions suffered, others were scuttled, and Sigoloff still continued to buy in what seemed an indiscriminate manner.

Independence in the Late 1980s and Early 1990s

In 1987, Wickes Lumber Company was incorporated in Delaware and the following year was spun off from its parent company. As Wickes Lumber began a life of its own, the only other remaining company with the Wickes name, Wickes Furniture, was also spun off. The remainder of the once-mighty Wickes Companies Inc. was taken private by WCI Holdings Corporation, an investment group jointly owned by Blackstone Capital Partners L.P. and Wasserstein, Perella Partners L.P. Some units were divested, others reborn under new names with no Wickes connection: Collins & Aikman took over the home furnishings arm, Orchard Supply hardware stores were acquired by Sears Hardware, and Builders Emporium went out of business. Wickes Lumber, however, was just beginning its new adventure in independence.

At the time of its spinoff, Wickes Lumber consisted of 223 building centers and 10 manufacturing facilities across the United States. Over the next several years, Wickes streamlined its operations to cut costs, and closed underperforming stores and plants. By 1993, the number of company building centers had been reduced to 124, and its manufacturing plants were slashed by 40 percent to 6 facilities. In the fall of 1993, the company completed a recapitalization plan, retired all debt associated with its spinoff, restructured its existing capital stock, and went public on the NASDAQ market with 2.8 million shares of common stock. Year-end net sales totaled $846.8 million with net income of $8.2 million.

In 1994 and 1995, Wickes went ahead with several acquisitions and mergers. The transactions brought another 15 building centers into play, along with 5 additional manufacturing facilities. This brought the total back to 11 plants and 139 retail centers. Its expansion was ill-timed, however, and during the fourth quarter of 1995, the company was again reorganizing by closing or consolidating 21 building centers and 3 manufacturing plants to reduce overhead. The company also reworked its revolving bank credit in early 1996 and issued another 2 million shares of common stock for $10 million. Net sales for 1994 had risen to $986.9 million with earnings of $28.1 million, while the troubles in 1995 brought sales down slightly to $972.6 million but with a loss of $15.6 million.

While the number of housing starts bounced back up in 1996, the figures fell again slightly in 1997. More significantly—in Wickes’ major home market in the Midwest, housing starts were down 5.5 percent for the year. Single-family housing starts, which were the bread-and-butter of the company’s primary customers—builders—experienced a 2.4 percent drop from the previous year. These shortfalls, partially due to extreme weather attributed to El Niño, affected not only the overall new home construction market but especially Wickes, as these sales accounted for 57 percent of the company’s bottom line.

Though the total market for home improvement/new home construction had run just over $212 billion for 1997, the market continued to be highly fragmented and less prone to the merger-mania and consolidation of the late 1990s. With no competitor accounting for more than 12 percent of the market, few companies were unaffected by the industry slowdown. Wickes yearend net sales reached $884.1 million in 1997, but the company still recorded a loss of $1.6 million.

Still struggling amidst high overhead costs and unremarkable sales, Wickes had again overhauled its operations and its name, changing it from Wickes Lumber Company to a more generic Wickes Inc. Once again, the company began closing centers and manufacturing facilities (8 of the former, 2 of the latter), sold 2 retail centers in Iowa, and reduced its headquarters staff by 25 percent. Yet Wickes also set its sights firmly on the future by initiating several innovations, which were designed to take the company not only through the remainder of the 1990s, but into the next century as well. Among these were the installation of computerized design hardware and software at its building centers, so customers could visualize a new deck, kitchen, or addition. Short or long-term specialized equipment rentals at 25 of its busiest sales and distributions facilities were also added, and a new home page on the World Wide Web was introduced. In addition, a new Internet site called “www.toolsonline.com” made its debut, to sell 65,000 different tools 24-hours a day, 7 days a week. Finally, the company remodeled kitchen and bath showrooms within many of its building centers. The latter improvements immediately made a difference, and helped propel sales by as much as 15 percent in those facilities.

In 1998, Wickes was following the same path that it had followed during the previous few years, closing underperforming building and distribution centers while opening new ones in high-yield areas. The company announced its intention midyear to buy Eagle Industries Inc., an Indiana-based manufacturer with 1997 sales of $10.5 million. The sales augmented Wickes’ own manufacturing and distribution of roof trusses, wall panels and other building materials, and was expected to be complete by the third quarter of the year.

Despite its ups and downs, Wickes was still a force to be reckoned with in the home improvement and new home construction market. A company long known for its dependable products, delivery services—with a fleet of over 770 trucks, many of which were specialized to meet builders’ needs as well as lend access to the railway and most of the company’s distribution plants—technical and sales help, and the capability to specially build practically anything needed by builders and do-it-yourselfers.