Looking back: Vance Bell – Floor Covering News
Acquisitions, Consolidations, Pioneering Products – Vance Bell, Chairman of Shaw Industries, has seen it all over the course of his storied career
Setting the tone in the 80’s…
“In the early 1980s, distribution was the go-to-market structure for carpet factories. But in 1981 Shaw developed a direct distribution model. There were two reasons for this. First, we saw that distributors controlled the go-to-market and, of course, bought from different manufacturers. We felt that we couldn’t get what we considered our fair representation and the part that we wanted our production capacity to run through distribution, because they divided the manufacturers and had their own model.
I noticed that all these small retailers coming out of the woodwork during that period started to grow. And I wrote a paper that said this really should be our focus. So we decided to launch that direct model where we hired our own sales team and started setting up regional distribution centers.”
Question and answer
What was the result?
It was very successful in the 1980s. Shaw grew two to three times more than anyone else in the industry. And it put pressure on many other carpet manufacturers. So there would be consolidation anyway during this period. In fact, we acquired Cabin Craft in November 1987. That whole thing was already building before Stainmaster. And I think that consolidation phase happened because of the pressure we put on other manufacturers by taking so much market share through that direct distribution model.
So direct distribution led to the idea that companies needed to get more scale?
Not necessary. It just led to other manufacturers not being able to do it. They lost their position and said, “Okay, maybe it’s time to sell out.” And also in the ’80s you had the business owners in the market – West Point Pepperell owned Cabin Craft; RCA owned Coronet for a long time; Armstrong owned E&B and other businesses besides carpeting. I think they all said to some degree, ‘We don’t want to stay here. In time we have to get out.”
Then Stainmaster hit and what it did was pull back the market leverage, profitability and branding to the fiber producers. And it was actually Stainmaster; it had certain weights and certain price points. For the manufacturers, it turned Stainmaster into a commodity. There was not much profit for the manufacturers. That also started the consolidation phase. And if you look at that consolidation phase, we bought Cabin Craft in November 1987. We bought E&B in December ’89. We bought Salem in 1992. At the same time, Mohasco, which had not yet acquired Aladdin, acquired Horizon Industries.
And the other offshoot of Stainmaster was the manufacturer who said, “I can’t make money off Stainmaster; it just becomes a commodity. All the profits go to DuPont.” This spurred manufacturers on to backward integration and extrusion, but the industry didn’t have the expertise and knowledge at the time, but we started it in 1991.
Was there anything special about Cabin Craft and E&B and Salem? Or was it just to get bigger?
They all had good names and positions, but it was really about acquiring stock. It was meant to consolidate the industry from a production level so that we would have more leverage than we had because of Stainmaster or because production was very fragmented in the early 80’s.
Every industry is going through consolidation. As I said, when we came up with another model (directly), we could share a lot and put pressure on the other manufacturers. But if it wasn’t, it would have been something else. Either way, the industry would consolidate.
We talk about DuPont and Stainmaster, but what about Monsanto and Allied. Has that really made a difference with their fiber?
Yes, it made all the difference that they had a lot of profit in the branded fiber. And it set the industry standard. Each of them had certain specs, certain weights, certain spin levels, and certain price points. And those specifications forced all manufacturers to compete; they had to offer a Stainmaster opening prize or a Wear-Dated opening prize. It made everyone compete on the same spec, and that just made it a commodity. Again, all the gains were in the brand fiber.
Were those branded fibers better than the unbranded fibers out there?
No, it was just all marketing.
So the first sea change after 1986 was consolidation?
Certainly consolidation driven by both the Stainmaster launch and the change in distribution models and some of the companies trying to get out.
Apart from consolidation, how did the industry change in the 1990s?
There was a downturn from a recession, but companies started to go into backward integration. We did it, Aladdin did it in polypropylene.
Was that the result of Stainmaster?
Yes, I think it was a result of the people saying we had to control production. We needed to be in control of our own destiny and be able to control our fiber supply and not be dictated by fiber brands which, for us, led to commoditization and less profit.
What else about the 90s?
We bought Amoco…that’s 1992 or 1993. Another important thing, of course, was when Mohasco merged with Aladdin, and they had bought Horizon 12-18 months before that. So, it put them at over a billion dollars or a billion and a half dollars in carpet. And if the question was how the world changed in the 1990s, a big part of it was that Shaw entered retail in December 1995.
Let’s talk about that. It’s been 26 years. The Dark Ages. The simple question is, “Why?”
We started with the commercial contractor because of a supposed DuPont move into the contractor world, perhaps in an effort to control them somehow. I’m not sure if that was entirely true or not. But we have responded to that. And the first one was Bell-Mann in Atlanta.
Obviously, for Shaw and the carpet and the world at the time, that was a really big sea change, which frankly hurt us and helped other manufacturers grow.
Then it was residential. The first was New York Carpet World. Dan Carpetland USA. From one day to the next you had about 160 locations.
If you really look at it, between late ’95 and ’97, between all these different acquisitions and the startups of the stores that Shaw built, I think we had almost 450 locations at the peak. But that was clearly not a good time for Shaw Industries. We lost wholesale business. And this should have been understood – some understood – that it was impossible to consolidate the store piece as fragmented as it was.
Why did Shaw do it?
Damn if I know why.
In the end you got all those things back. How did you do that?
We really never got it back. We started to get it back and we developed what we called a matched retail program where we went out and got 1,400 or 1,500 retailers, and we actually pay a discount. It was the beginning of manufacturer-level discounts. We had to do it to get some people back into the herd. But we never recovered from it until we bought Queen. That was really the recovery of retail
What was the reason to buy Queen?
We had come from retail. We were hurt in the market. And we just needed something to get our momentum back in our traditional business, which is carpet production, sales to retailers in the marketplace. And with Julian it worked.
Queen also had a more expensive company, Tuftex, of California.
They had Tuftex, they had Sutton, the Berber trade, which was a very good thing at the time.
Would you say Queen put you in the higher game?
Yes. Queen certainly had some more expensive products. And look, we’re all very close to Julian Saul. Julian is just an amazing person. And he had very close relationships with many retailers. That takeover of Queen and the fact that Julian came on board helped rebuild many of those relationships.
What could the sector have done better in recent years?
Warranties got out of hand. I think they are confusing to consumers and there are a lot of holes and outs in those guarantees. Manufacturers just try to keep pointing that out to each other. Also the differentiation of the product. Take the base class – it’s one spec and you have to meet that spec and everyone has it. That’s where there’s a lot of volume, but there’s not a lot of profitability. It addresses how the industry has been unable to effectively differentiate product to brand and merchandise product so that the dealer channel and end user understand the difference and why they should pay more for certain benefits and features. We just didn’t get it right with that.
What’s the best decision you’ve made in the past 35 years?
Certainly in the last 15 years I think it’s our decision to go all-in on LVT early in the game. Even before the USFloors acquisition, we were quite big and had made a lot of bets on resilience and LVT. I think we went faster and wider than any other manufacturer. The acquisition of USFloors built on that.
What’s the happiest decision you’ve made.
When I first entered the industry, I worked for Cabin Craft and as a production intern at their Newnan, Georgia yarn factory, which we later bought. But I decided I wanted to go into sales. I came here and interviewed with three companies. I interviewed Bob Shaw. I interviewed Cabin Craft. I interviewed with Rollins Jolly at Jolly Textiles. And I pretty much had offers for all three. And I took Shaw’s mostly because my wife’s family knew the Shaws at the time. I had no idea which one to take. But if I’d taken one of the other two, I wouldn’t be sitting here today.