Shaw Industries, Inc.
Shaw Industries, Inc.
Wholly Owned Subsidiary of Berkshire Hathaway Inc.
Incorporated: 1967 as Philadelphia Holding Co., Inc.
Sales: $4.1 billion (2000)
NAIC: 31411 Carpets and Rug Mills
Shaw Industries, Inc. is the largest carpet manufacturer in the world. The company designs and manufactures more than 3,100 styles of tufted carpet for residential and commercial use, selling its wholesale products to retailers, distributors, and commercial users. Shaw Industries’ brand names include: Philadelphia, Cabin Crafts, Shaw Commercial Carpets, Stratton, Net-worx, Shawmark, Trustmark, Cumberland Evans Black, Salem, Sutton, Tuftex, Queen Carpet, Designweave, Redbook, Minster, and Invicta. A vertically integrated company, Shaw Industries participates in every stage of the manufacturing process, from the production of yarns through the finishing of carpet. The company ranks as the largest producer of polypropylene yarn in the world. Shaw Industries also provides installation services and sells laminate flooring and ceramic tile. The company operates as a subsidiary of Berkshire Hathaway Inc., the publicly traded holding company controlled by famed investor Warren E. Buffett.
Brothers Robert and J.C. Shaw founded the company that was to be known as Shaw Industries in 1967. According to a profile in the Atlanta Journal and Constitution, the brothers were born in Dalton, Georgia, 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 it 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 subsequent 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 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. Shaw 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 it 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 $5 million 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, Shaw determined that the New Found Yarns Division did not have sufficient capacity to meet internal demands as well as those of outside buyers, so it discontinued yarn sales. All of Shaw’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 streamlined management structure in its Dalton offices for greater efficiency. 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-to-day 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 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.
1980s: The Rise to Dominance
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, “[CEO Robert] Shaw … accepted an unpleasant truth about his industry: Carpets are a commodity.” That is to say, brand loyalty and brand-name recognition were 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 Iacocca” 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 is noted in the carpet industry for innovation, leadership, product performance, quality, service, and value. In order to maintain its leadership position in the industry, Shaw has invested 10 times the industry average in capital dollars for yarn processing, dye techniques, and advanced manufacturing equipment. With a production the equivalent to 528,000 miles of carpet, Shaw Industries’ U.S. operations comprise 373 acres of buildings and over 300,000 rolls of carpet in its “Just In Time” inventory. Behind the company’s unrivaled technology, operations, and growth stand dedicated employees who share an exceptional sense of teamwork and desire to remain the industry’s most successful and influential leader.
Shaw Industries’ ownership of facilities at all levels of carpet production, or vertical integration, was common within the industry, according to a 1986 article in Barron’s. “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 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-Pepperell 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,” CEO Robert Shaw told Forbes.
In December 1989, Shaw acquired the property, plant, equipment, inventories, and businesses of the carpet divisions of 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, with 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.” That control, the company had shown, came largely from its willingness to put profits back into the company toward the continual updating of equipment. For this reason, Fortune estimated, Shaw paid 10 percent less for supplies than its competitors, further increasing its edge.
Miscues and Recovery in the 1990s
In May 1992, the company acquired Salem Carpet Mills, Inc., the fourth largest carpet maker in the world, 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 its 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 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 was the producer of the well-known brands Kosset and Crossley . By 1994, Shaw Industries had spent $100 million acquiring three carpet manufacturers in the United Kingdom, as it sought to exploit a highly fragmented market. Company executives believed they could increase productivity at the U.K.-based production sites by introducing Shaw Industries’ tufting technology, which was considered to be more efficient and more advanced than the manufacturing processes used in Western Europe.
The push overseas occurred at roughly the same time Shaw Industries made an even bolder move back on the domestic front. Having registered remarkable success in its efforts to vertically integrate its operations, the company decided to take the ultimate step towards absolute control over the carpet market by diversifying into retail sales. As with the U.K. carpet market, company strategists perceived a weakness they believed they could exploit. They considered carpet salespeople in the United States as being inexperienced, guilty of spreading misinformation, and creating a less than desirable atmosphere for carpet shoppers. The first Shaw Carpet Showplace opened in mid-1996 in Pittsburgh, marking the beginning of a $200 million expansion program that eventually gave the company a chain of more than 400 retail outlets.
- Company is incorporated as Philadelphia Holding Co., Inc.
- Concurrent with conversion to public ownership, the company changes its name to Shaw Industries, Inc.
- New marketing strategy substantially increases sales force and direct sales, igniting growth.
- Acquisition of West Point-Pepperell makes Shaw Industries the largest carpet manufacturer in the world.
- Salem Carpet Mills, Inc., the fourth largest carpet manufacturer in the world, is acquired.
- Shaw Industries’ retail division and its U.K. business are sold.
- Queen Carpet Corp. is acquired.
- Company is acquired, for $2 billion, by Warren Buffett’s Berkshire Hathaway Inc.
After several years, it became clear to Shaw Industries executives that the expansion into the United Kingdom and the diversification into retail were mistakes. In Europe, U.K. sales dropped 20 percent within two years, as the company fell victim to a price war waged by local competitors. Belgian carpet manufacturers, benefiting from a weak Belgian franc, proved to be formidable adversaries, in particular. The company’s retail operations suffered as well. Shaw Industries’ management was undeniably adept at overseeing the production of carpets, but it seemingly possessed little experience in managing the retail side of the business, at least according to one Forbes reporter. The company’s lack of experience was compounded by the reaction of its largest customers. Customers such as Home Depot, Carpet One, and Abbey greeted Shaw Industries’ entry into retail as an attack on their businesses. They stopped buying carpets from Shaw Industries, which had turned from being a supplier to a competitor in their eyes, and handed their business to Shaw Industries’ wholesale competitors.
By 1998, Shaw Industries realized it had overreached. Between 1994 and 1998, earnings plunged from $120 million to $20 million. Perhaps equally distressing, the company’s market share dropped four percentage points, enabling Shaw Industries’ closest rivals to close ground. In April 1998, Shaw Industries sold Carpets International, Pic, its U.K. subsidiary. In August 1998, the company’s retail operations were also sold; those stores not included in the sale to The Maxim Group, Inc. were closed.
Refocused on manufacturing and wholesaling, Shaw Industries concluded the 1990s on a more positive note. Not long after the divestiture of the retail operations was completed, Shaw Industries’ largest customers renewed their business relationships with the company. In August 1999, the company more than made up for the loss of market share earlier in the decade by completing a massive acquisition. Dalton-based Queen Carpet Corp., an $800 million-in-sales carpet manufacturer, was purchased for $470 million in cash and stock. The acquisition increased Shaw Industries’ market share from 27 percent to 35 percent and, for the first time, gave the company a manufacturing presence on the West Coast. The addition of Queen’s Los Angeles-based Tuftex division was perceived as a valuable asset for the company’s distribution network.
As Shaw Industries entered the 21st century, it embarked on a new era of existence. In late 2000, famed investor and multibillionaire Warren E. Buffett announced his intention to purchase Shaw Industries. In February 2001, the $2 billion deal was concluded, making Shaw Industries a subsidiary of Buffett’s holding company and investment vehicle, Berkshire Hathaway Inc. Chairman and CEO Robert Shaw welcomed the acquisition, which left Shaw Industries’ management intact. No longer a publicly traded company, Shaw Industries entered a new era as a private subsidiary of a public company, but its prominence as the influential leader of a $10 billion industry promised to keep the company in the public eye.
Shaw Financial Services, Inc.; Shaw Transport, Inc.; Shaw Contract Flooring Services, Inc.; Shaw Contract Flooring Installation Services, Inc.; Shaw Retail Properties, Inc.; Shaw Contract Properties, Inc.; SHX Leasing, Inc.; Shaw Funding; Rug Décor by Shaw Corporation; Queen Carpet Corporation; Pro Installation, Inc.; Terza, S.A. de CV (Mexico; 49%).
Mohawk Industries, Inc.; Beaulieu Of America, LLC; Interface, Inc.
Brown, Elida, “Shaw’s Red-Carpet Status,” Financial World, January 8, 1991.
Burritt, Chris, “Bob Shaw Has Quarterbacked His Carpet Company to No. 1,” Atlanta Journal, December 22, 1986.
——, “Rug Industry Leader Taking a Giant Step,” Atlanta Constitution, October 13, 1987.
——, “Shaw Industries Acquires Vacant Thompson Factory for a Yarn Plant,” Atlanta Journal, August 28, 1987.
——, “West Point Deal Hinged on Several Key Issues,” Atlanta Constitution, November 11, 1987.
Campanella, Frank W., “Clean Sweep: Record Sales, Earnings Year Shapes Up for Shaw Industries,” Barron’s, December 29, 1986.
Flamming, Douglas, Creating the Modern South: Millhands and Managers in Dalton, Georgia, 1884-1984, Chapel Hill: University of North Carolina Press, 1992.
Ghosh, Chandrani, “Floored,” Forbes, November 15, 1999, p. 174.
Hannon, Kerry, “Full Speed Ahead and Damn the Stock Market,” Forbes, January 25, 1988.
Hawkins, Chuck, “Shaw Industries Is on Top, Thanks to Bold ‘82 Moves,” Atlanta Journal, March 17, 1985.
Hendrick, Bill, “Top-Performing Georgia Stock of the Eighties Was Shaw Industries,” Atlanta Journal and Constitution, January 1, 1990.
Lightsey, Ed, “King of Carpet,” Georgia Trend, April 1999, p. 10.
Lillo, Andrea, “Buffett Makes Pitch for Struggling Shaw Ind.,” Home Textiles Today, September 11, 2000, p. 1.
McCurry, John W., “Shaw Industries Nears $3-Billion Sales Plateau,” Textile World, May 1996, p. 40.
Naughton, Julie, “Shaw Grows As Producer and Retailer,” HFN The Weekly Newspaper for the Home Furnishing Network, January 8, 1996, p. 20.
O’Reilly, Brian, “Know When to Embrace Change,” Fortune, February 22, 1993.
Poole, Sheila M., “Carpet Maker Rolling Up Profits,” Atlanta Journal, May 16, 1990.
——, “Shaw to Buy Armstrong Carpet Units,” Atlanta Journal, November 11, 1989.
Rouvalis, Cristina, “Carpet Maker Shaw Industries Chooses Butler, Pa. for First Retailer Store,” Knight-Ridder/Tribune Business News, June 7, 1996, p. 6070016.
“Shaw Approves Sale to Berkshire Investors Group,” Home Textiles Today, October 23, 2000, p. 2.
“Shaw’s Rug Evolution,” HFN The Weekly Newspaper for the Home Furnishing Network, April 28, 1997, p. 19.
Vermillion, Len, “Floor Covering Retailer Shaw Industries to Close 100 Stores,” Home Improvement Market, February 1998, p. 19.
Wyman, Lissa, “Shaw Still Eyes Retail, Despite Soured Deal,” HFN The Weekly Newspaper for the Home Network, January 29, 1996, p. 20.
—update: Jeffrey L. Coveil
"Shaw Industries, Inc.." International Directory of Company Histories. . Encyclopedia.com. (November 20, 2018). https://www.encyclopedia.com/books/politics-and-business-magazines/shaw-industries-inc
"Shaw Industries, Inc.." International Directory of Company Histories. . Retrieved November 20, 2018 from Encyclopedia.com: https://www.encyclopedia.com/books/politics-and-business-magazines/shaw-industries-inc
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