(First of two parts) A transition has begun at Shaw Floors as Vance Bell recently announced his retirement as CEO. Bell remains chairman for a year as Tim Baucom, president, now assumes the added responsibilities of running the business. Bell said the timing is right for a number of reasons, not the least of which is projections of solid business over the next several years. On March 22, Bell and Baucom sat down with Steven Feldman, publisher of FCNews, for a wide-ranging interview that takes a look at industry dynamics in general and Shaw in particular with a look to the past, present and future, along with the things that make Shaw a valued partner for retailers.
Vance, the first question I have is the timing. Why now?
Bell: Well, there are probably a lot of reasons, but one is if I stay too long in the organization that limits other people’s growth and development. I want to see the organization mature and develop many of the people down below me. And Tim is ready. Another reason is the business is in really good shape. And I believe we have several years of strong business ahead of us. So, it helps give some tailwinds to the next generation. Obviously, I’m not going out the door today. I’m going to be around for a year and stay engaged in the company even beyond that as chairman. It’s a great industry, and I want to maintain the relationships I have both here at Shaw and in the industry.
How does your role change over the next year?
Bell: Tim becomes CEO April 5. He will have the operating decisions, the daily decisions and responsibility for the results. I will be here to help advise and guide Tim and the team. In some of the larger issues around capital—like if we’re in acquisitions or really large capital expenditures—I would have an influence along with Tim. And any big corporate strategy changes I would be involved in. But Tim’s got the ball in terms of running the business and being responsible for the results.
A year from now, do you see yourself doing anything else within this industry?
Bell: No. I will stay chairman going forward, so I will still be engaged and attending some board meetings, and maybe in other events or meetings. I may come to a market just to see people and keep those relationships. But outside of that, I won’t do anything else in the industry.
With Tim holding the joint titles of president and CEO, this represents a change from what has always been a separation between the two positions. Correct?
Bell: Not necessarily. When Randy [Merritt] left, I did not replace that position for probably a year and a half. So, I think it really is based on the circumstances, the needs, the requirements of the organization and the business. And Tim will look at that over time and see what the needs are.
Baucom: I’m very honored to step behind Vance and also very fortunate that Vance is going to be here and available in this consulting role. It’s very different when you’re the last person in the room and you’re the decision maker. So, I want to take this time where he’s still very close to evaluate things and how we want to go forward in terms of how to pick that next partner in the room.
When you look back at these last 45 years, what are you most proud of?
Bell: I got the opportunity to be at a pretty high level of responsibility at a very young age, and I think I helped build the company through some of the most important growth spurts that we had. I kind of describe the decade of the ‘80s as probably the most fun because we embarked on a different strategy from the rest of the industry. That’s when we started going direct to the retail base, building out distribution centers, expanding our sales force. A lot of young people were involved. It was a very exciting time. We basically took a lot of share in the industry and it culminated in the acquisitions of Cabin Craft and [Evans & Black] and Salem in the late ‘80s and early ‘90s. I think over the last 15 years as CEO, I’m proud of being able to really reposition the company from what we were. We’re dramatically different today than we were.
How is this company different over the last 15 years?
Bell: I think there are a couple of things. No. 1, we’re more diversified. Our product mix is more diversified; the markets we participate in are more diversified. When I took over, we were basically a carpet company—over 90%. Today, we’re still the leader in residential carpet, and we are the leader in commercial. In total, whether it’s carpet, resilient, whatever it is, we’re the leading entity in commercial here. We’re the leader in the LVT category, which was a really big move and transformation for the company. We probably saw that and took advantage of it on a scale that most competitors did not during that period of time. We have a very strong turf business. We’re very significant in the wood business. So, it’s just a different profile than what we had.
The other thing is we’ve taken a good organization and made it a great organization. We have improved our talent, the quality of our people, our culture, the way we relate to people and the way people engage with the company. And our performance as an organization is really just on a different level from where it was.
How has the culture changed under your leadership over the last 15 years?
Bell: One of the strongest things about Shaw through downturns, upturns and the last 15 years—and the most important thing—is associate engagement. If you have high associate engagement, then you’re going to have a high-performance organization. And we’ve built a lot of passion in the business for our people to be engaged.
I think we’re more inclusive. I think we have a more diverse organization. We have a lot of things that we’ve built into what we call “The Shaw Way.” We put together our culture, our business strategies, our leadership behaviors so everybody in the company and any new person can understand what to expect. This is how you treat people. This is how I need to behave and how I need to lead.
Would you say associates have more input into decision-making today?
Bell: For sure. That’s [what I mean when] I say more inclusive. [We’ve allowed for] the empowerment of people.
Baucom: Vance has done a marvelous job in creating that empowerment and accountability so we’re making decisions faster and closer to the customer and then evaluating it on the backside. It’s that spirit of candor, ‘Hey, what did we learn? Why did we do that differently? What are we doing well? Where do we need to go?’
Is there one CEO from outside the flooring industry that you admire or maybe you try to emulate or find you respect?
Bell: I was really interested in the book that Robert Iger wrote, “The Ride of a Lifetime.” He was the CEO of Disney Corp. And he seemed to be a really inclusive, people-oriented CEO who transformed that company.
Over the 45 years, who’s the toughest customer you’ve ever had to deal with?
Bell: I think the quintessential toughest customer was Marv Berlin in New York Carpet World. It was a very well-run outfit. Marv was a master of detail. He knew everything and every product, every price. Very tough negotiator. So, I’d say that’s probably the toughest I’ve ever seen.
What are you going to miss most once you’re gone?
Bell: Relationships. People. That’s why I say I hope to keep involved and be at events and be at markets every now and then because it’s a very unique industry. It’s a very close industry. The thing that has always charged us up is the relationships that we’ve built with customers. We have lifelong friendships and relationships, and we want to see their businesses succeed. We see new generations, from parents to kids. So, the thing you miss is just the relationship and the contact with the people you meet.
Baucom: One of the many things I admire about Vance is he has always set the example of enterprise above self. He cares so deeply. It starts with the customer because he knows the enterprise can’t be healthy if our customers aren’t healthy and it’s about them, not him. I think that having his 45 years of experience and wisdom and counsel is a real privilege for me and for our customers to engage that for as long as he’s willing to share it.
Bell: Our foundational values and our culture are not going to change. Tim has been part of building that culture. So, for a long, long time in the future, the values and the culture that we have brought to this industry are not going to change. Obviously, sometimes your business strategy or the markets you’re in or the products you’re in—that changes. But the culture and the values of this company are not going to change, even well beyond me.
Last year posed challenges for everybody, particularly with service. Have those issues been alleviated?
Bell: Yes. If you look at our carpet service and our service metrics today, they’re probably as good as they’ve ever been. So that’s a very strong positive. And I think they should get even better. A lot of that is because we ran our facilities very hard through November and December, and we were able to build inventory. I think we’re back to where we have always been, and I don’t think anything’s going to change that. I think we’re through the worst of the pandemic.
Was the biggest issue COVID-19 in facilities?
Bell: Sure. When you have high absenteeism, you just can’t get the output that you would like within the facilities. But that all changed later in the year. We’ve caught up, and I don’t see that issue on the carpet side.
Baucom: Some of the things that happened during that time, too, was shifting in channels. So that inventory you may have built for this channel that doesn’t go to that channel, now that channel’s surging. Residential and commercial is the most obvious example. You can be long on one, short on the other. So, you’re having to scramble to get that aligned. At the same time, you’re battling absenteeism. One of the things that, again, Vance says all the time, “don’t waste a crisis.” We are more robust and hardened because of what we learned from the experience.
Let’s talk about business in this first quarter of 2021.
Bell: The revenue has been good. Growth has been strong. Costs have been up. So, from a cost standpoint and a margin standpoint, I don’t see it as normal. But we’re very optimistic. If you look at the residential side, the fundamentals and the demographics in place for residential are probably the best I’ve seen in 30 years. Just the demand that’s going to be for housing, for renovation, for everything in the home—I don’t think it’s going away even as the pandemic ends because you’ve got this huge wave of millennials that are going to drive the business for the next five or 10 years. And that’s very positive. I think we’ll see that this year on top of some of the continued pandemic-related ‘get into a home,’ ‘move out to the suburbs,’ all those things that have created housing demand, both new and existing. It’s as strong as anybody has ever seen. It’s just crazy how strong housing is in some of the rural markets across the country.
Biggest challenge right now is with importing, containers at the ports? Have you been impacted by that? How do you solve that issue, if at all?
Bell: Every consumer and industrial product chain everywhere has been impacted by that. And prices have spiked. Containers off contract are costing three and four times [the usual amount]. Our demand has been good, so we’ve needed more quantity coming over. And the way that we try to approach it is we have a very sophisticated global logistics operation. And we have direct negotiations with the largest ocean shippers. We don’t use intermediaries. So, we try to use some of that leverage, and the scale that we have to maybe get more capacity that others might not. And we’re virtually paying whatever it takes to bring material over so that we have the inventory. It’s almost, ‘Price be damned. Let’s get it over here so we can service.’ And that’s driving price increases, which the industry has announced. But I do think there will be some outages in the industry as you go through the second quarter and third quarter. I hope and anticipate we’ll be better than the industry. But everybody’s probably going to have little pockets of outages because of that.
How does this issue get solved?
Bell: Well, I think part of it is just this huge surge of demand. When demand was so good in the third and fourth quarters last year, most retailers—big boxes, too—depleted their inventories. They’re trying to build that back on top of a surge. The only thing that’s going to solve it is for that to normalize as we go through the year.
Do you have any kind of projection as to when this normalization occurs?
Bell: We think it will be improving by the end of the second quarter, maybe into the third quarter. But obviously, it’s a 15- or 16-week supply chain. So, we may feel it a little bit longer than that, but we think it’s going to get a little more normalized toward the end of the second quarter.
Tell me about the laminate strategy.
Bell: We source laminate. And we sell strategically, primarily in the builder market. We’ve gotten more heavily invested in LVT. We think for the long term, LVT provides better options than laminate. And there’s even more innovation coming in LVT, which is going to keep raising the bar on the category.
What about the wood strategy/outlook?
Bell: We’re one of the largest engineered wood manufacturers in the country. We have probably one of the largest facilities in South Pittsburg, Tenn., making wood. And we have other facilities in Tennessee and South Carolina. We got out of solid wood because we saw that category declining, and it was converting to engineered. But the highest percentage for us is domestic manufacturing.
Baucom: And even within solid, we have a strategic relationship with that supplier. They’re in the broad categories of solid wood, not just flooring. We just felt like it was a win-win. But, arguably, we have the highest market share in wood in the industry. It’s a much more fragmented business, but we are really bullish on our wood business.
(Part II of this story will run in the April 12/19 edition of FCNews.)