The Maxim Group
The Maxim Group
210 Town Park Drive
Kennesaw, Georgia 30144
Fax: (770) 590-7709
Sales: $365.13 million (1998)
Stock Exchanges: NASDAQ New York
Ticker Symbol: MAXM MXG
SICs: 5713 Floor Covering Stores; 6794 Patent Owners and Lessors
Headquartered in Kennesaw, Georgia, The Maxim Group is North America’s largest—and only—publicly traded retail floor covering franchise. The company offers a variety of floor covering products, merchandising programs, and human resources and administrative consultation to its franchises and outlets. Its products include carpets, hardwoods, area rugs, vinyl, and ceramic tile. A leading floor covering distributor, the Maxim Group operates two retail chains: full-service stores under the name CarpetMAX and cash-and-carry discount stores known as Georgia Carpet Outlets (GCO). The company also manufactures floor coverings through its subsidiary Image Industries, Inc., one of the larger makers of polyester carpeting in the United States.
Beginnings in 1989
The Maxim Group was founded in 1989 as a floor covering retailer, and its franchising operations began in 1991. The company’s franchise service involved up-front membership fees; ongoing royalties or product brokerage fees; advertising; employee training; and fees for other services. The Maxim Group’s franchise network grew quickly, establishing an integrated retail infrastructure comprised of store development, marketing, advertising, credit, sales training, and product sourcing. The company issued its initial public offering on the NASDAQ stock exchange in 1993.
With successful franchised outlets, the Maxim Group was committed to a store acquisition strategy for its CarpetMAX Division by May 1994. The company aggressively developed its own outlets, as well as acquired other retailers. Within the year, the Maxim Group opened its first company-owned Carpet-MAX store, with additional company-owned stores in Tampa, Florida, following later in the year. By July 1995, the Maxim Group had purchased nine floor covering retailers. The company’s tenth acquisition, Las Vegas-based Cloud Carpet, put 54 company-owned stores in operation. (Cloud Carpet earned about $8 million in revenues and operations from two sites.) A. J. Nassar, the Maxim Group’s president and chief executive officer, explained that “the Cloud Carpet acquisition will immediately give us sizable market share in one of the fastest growing markets in the country. We will use Cloud Carpets as our springboard in Las Vegas. Cloud will serve as our hub in this quickly developing part of the country.”
The following month—August 1995—the Maxim Group finalized its acquisition of Carpet Country, Inc., a Des Moines, Iowa, company with $14 million in sales for 1994. Maxim’s 11th purchase in 16 months, this acquisition marked the Maxim Group as a leader in the consolidation of the floor covering industry. At this time, the Maxim Group maintained 600 franchised outlets and earned $12 million in annual sales from 63 company-owned stores. In addition to acquisitions and new stores, Maxim created a new infrastructure within the company, added to its management team, and developed its information systems. The company also built a new 100,000 square foot distribution center.
In October 1995, the Maxim Group filed a registration statement with the U.S. Securities and Exchange Commission for more than one million shares of common stock. The company then bought existing CarpetMAX franchises and opened more of its own CarpetMAX outlets throughout fiscal 1995 and 1996.
Now itself attractive as an acquisition, the Maxim Group entertained a merger offer. The Dalton, Georgia-based company Shaw Industries sought to expand its line of services to the commercial carpet market in 1996. Shaw Industries signed letters of intent in January to purchase a commercial carpet contractor—Bill-Mann, Inc., headquartered in Doraville, Georgia—and the Maxim Group. The companies could not agree on terms, however, so negotiations ended. Yet both the Maxim Group and Shaw Industries expected to continue their relationships as contractor and supplier after the deal soured.
Growth Plans for the Future
The Maxim Group also established a corporate goal of 25 percent market share in 1996. Relying on its extensive infrastructure and industry expertise, the company instituted a growth initiative centered around the development of a network of company-owned stores and the development of franchises based on a Masterpiece Store concept. To achieve this goal, James W. Inglis, formerly the executive vice-president of strategic planning at Home Depot Corporation, was hired as chief operating officer, senior executive vice-president, and president of the CarpetMAX Division. Nassar reported to Business Wire that the Maxim Group “recently embarked on several important growth initiatives, including the franchising of our highly successful Masterpiece Store Concept. Our two-year plan is to franchise hundreds of Masterpiece stores in existing franchise markets and continue to develop our network of company stores. Jim Inglis’s unique experience makes him invaluable to us as we pursue these goals.”
By now, the Maxim Group included 700 franchise locations in the United States and Canada and 70 company-owned stores generating $120 million in annual revenues. The Maxim Group continued searching for a merger partner throughout 1996, only now as a buyer. In April, Maxim purchased Manasota Carpet, Inc., a chain with four Florida locations and $10 million in annual sales. The acquisition established a business base in Florida for the Maxim Group, as well as ensured growth opportunities in the market. According to Nassar, the Maxim Group developed its “infrastructure to grow contiguous markets on an accelerated basis. Geographically and strategically, Manasota is a logical fit for Maxim.”
The following month, the Maxim Group announced a planned merger with Image Industries, Inc., a residential carpet manufacturer since 1976 and a polyethylene terephthalate (PET) recycler. Image Industries became a wholly owned subsidiary of the Maxim Group, bringing the company “a captive source of high quality products styled and priced to meet the particular needs of our customers,” Nassar reported to Business Wire. “Image Industries,” Nassar said while explaining the importance of the merger, “will stabilize a fluctuating product source while we continue to aggressively grow our retail network. The merger with Image also guarantees us a low-cost position in proprietary carpet products for our 700-store retail network. We expect Image to fill a small but important portion of our merchandising needs, allowing us to continue to grow key manufacturing alliances.”
The Maxim Group went on to purchase Classic Tile and Ceramics, Inc., and Flint’s Carpet Center, Inc.—both of Albuquerque, New Mexico—in June 1996. With combined annual revenues of $8 million, the added companies advanced the New Mexico market for the Maxim Group. “Classic Tile and Flint’s will give us the infrastructure that we need to develop the attractive Albuquerque market,” Nassar told Business Wire in 1996. “We expect to quickly open new Masterpiece store locations to enhance a profitable and very well-run operation.”
The following September, Maxim closed a $125 million commitment from the First Union National Bank for credit facilities. The merger of the Maxim Group and Image Industries brought on the credit facility, which was utilized in refinancing the debts of both companies. In addition, the refinancing equipped Maxim with working capital.
Shortly after refinancing, the Maxim Group expanded into yet another area of opportunity with the purchase of Baily and Roberts Flooring, Inc. Headquartered in Knoxville, Tennessee, Baily and Roberts provided the Maxim Group with a presence in the specified contract sector of the floor covering industry. (Baily and Roberts earned about $14 million in annual sales.) At the time, Nassar commented through Business Wire that “Baily and Roberts focus has been in the specified contract area, a segment of the industry where we see significant opportunity. Under the leadership of Doug Baily and Mike Roberts, we feel confident that we will see rapid and profitable growth in this important segment of the floor covering industry.”
The Maxim Group also acquired Sexton Floor Covering, Inc., in September 1996. With $5.5 million in sales annually, this profitable and well-managed firm represented yet another opportunity in the Knoxville, Tennessee, market.
In November 1996, the Maxim Group began converting its CarpetMAX stores to a Gallery store concept. According to the company’s 1997 annual report, “Historically, shopping for floor covering has been confined to warehouse-type environments or to small retailers with limited selection, pricing, and customer service options. Neither scenario particularly appeals to today’s consumer, who values quality, convenience, and superior selection. The CarpetMAX Flooring Idea Gallery was designed to exceed customer expectations in these important areas.” This “category killer” featured a full line of floor coverings: carpets, area rugs, hardwood flooring, ceramic tile, vinyl flooring, laminates, and stone. Located in prime retail areas, Gallery stores relied on high consumer visibility and specialized sales staff, including interior design consultants and delivery and installation personnel.
From its inception, Maxim’s primary goal has remained clear—to capture dominant market share by achieving first-of-mind awareness in the floor covering industry.
In order to decrease outstanding amounts under Maxim’s credit facilities, the company initiated another public offering of more than three million shares of common stock at $16 per share in February 1997. With finances secure, the Maxim Group sought to expand the Flooring Idea Gallery Store concept to additional stores. In March, the company acquired McSwain Carpets, a Cincinnati, Ohio-based company, and the Flooring Center, Inc., of Orlando, Florida. The purchases solidified the Maxim Group’s presence in five major markets—four in Ohio (Cincinnati, Toledo, Columbus, and Dayton) and one in Florida. As Nassar revealed: “Both McSwain and the Flooring Center give us the basic infrastructure to support a full-scale rollout of our Flooring Idea Gallery stores in most of Ohio and Orlando east to the Atlantic coast. Both strategic markets are contiguous to existing company-owned territories. McSwain and the Flooring Center will give us the required infrastructure and distribution resources to open up 25 to 30 new gallery stores.”
In June 1997, the Maxim Group listed its stock on the New York Stock Exchange under the MXG symbol. Nassar stated at the time, “Our New York Stock Exchange listing is an important milestone for the company and highlights the success of our growth plans since an initial public offering in 1993. We believe that a New York Stock Exchange listing will maximize shareholder interest and enhance our trading visibility and efficiency.”
At the end of the year, Maxim began offering Color Tile brand products in its GCO Carpet Outlet stores. The company negotiated with Color Tile to establish departments in GCO Carpet Outlet stores for hard-surface products such as ceramic tile, hardwood flooring, and vinyl surfaces. Since hard-surface products were the fastest growing industry segment at the time, the Maxim Group hoped to capitalize on Color Tiles’s widely recognize brand name and its ability to obtain and distribute hard-surface products, thus giving GCO Carpet Outlets a commanding position in the hard-surfaces market. As Nassar explained in a press release: “Maxim’s retail divisions including CarpetMAX and GCO Carpet Outlet have achieved product dominance in carpet and seek similar success with its hard-surface products.”
In January 1998, the Maxim Group entered into an alliance with Home Steps, part of the Federal Home Loan Mortgage Company. One of the larger home sellers in the United States, Home Steps sold nearly 20,000 homes annually. According to Nassar, the Maxim Group had “the floor covering products and the national infrastructure to add significant value to Home Steps’ selling process.” Maxim agreed to stock floor covering for Home Steps—about nine million square feet annually. This arrangement allowed the Maxim Group to offer services and to distribute products on a national scale, and Home Steps gained better quality floor coverings for its properties at a reduced cost.
By mid-1998, the Maxim Group grew to 380 franchised territories in 49 states. It maintained 463 CarpetMAX stores—71 of which the company owned and 31 of which were Gallery stores—and 101 GCO Carpet Outlet stores. The company’s future goals included combining proven retailing resources such as marketing, sales training, and strong manufacturing alliances to achieve a dominant share of the floor covering industry’s market and to develop a national retail brand. The Maxim Group intended to rely on Gallery stores as the company’s vehicle for growth. In his 1997 Letter to Shareholders, Nassar revealed: “With a solid retail base in place, the cornerstone of our growth strategy is the CarpetMAX Flooring Idea Gallery, developed as a ‘category killer’ for the floor covering industry. Our Gallery stores are engineered to operate with strong fundamentals, including sales per square foot roughly double the industry standard and operating margins two to three times the industry norm.” Maxim intended to open about 70 Gallery concept stores through fiscal 1999 in its existing markets or in markets contiguous to those in which the company maintained a presence.
Image Industries, Inc.
CarpetMAX; GCO (Georgia Carpet Outlets).
“Maxim Acquires Manasota Carpet,” Business Wire, April 3, 1996, p. 4031043.
“Maxim Closes $125 Million Credit Facility,” Business Wire, September 4, 1996, p. 9041335.
“Maxim Completes Merger with Image Industries,” Business Wire, August 30, 1996, p. 8301117.
“Maxim Completes Purchase of Iowa Retailer,” Business Wire, August 21, 1995, p. 8211210.
“Maxim Group, Image Industries Announce Definitive Agreement,” Business Wire, May 31, 1996, p. 5311325.
“The Maxim Group, Inc., Announces Public Offering of 3.6 Million Shares of Common Stock,” Business Wire, February 19, 1997, p. 2191261.
“Maxim Names New Chief Operating Officer,” Business Wire, May 15, 1996, p. 5151467.
“Maxim to Acquire Bailey & Roberts,” Business Wire, September 5, 1996, p. 9051253.
“Maxim to Acquire Las Vegas-Based Cloud Carpet, Inc.,” Business Wire, July 18, 1995, p. 7181071.
“Maxim to Acquire New Mexico Retailer,” Business Wire, June 27, 1996, p. 6271194.
“Maxim to Acquire Sexton’s Floor Covering,” Business Wire, September 23, 1996, p. 9230234.
“Maxim to Enter Five Major Markets for Gallery Expansion,” Business Wire, March 20, 1997, p. 3201054.
“Shaw Industries, Inc.,” Textile World, January 1996, p. 10. “Shaw, Maxim End Merger Negotiations,” Textile World, February 1996, p. 25.
—Charity Anne Dorgan