Telling it like it is: Industry legend, Bob Shaw, candid assessment of carpet’s evolution through the years
It was DuPont vs. the mills for control…
“Nobody had any real capital in this business. The woven manufacturers—the Lees and the Bigelows—had some capital but they were not in the real mainstream of the tufted industry. We had a few public companies—Coronet, and I think Galaxy had gone public. But no one really had serious capital. Who had the serious capital? DuPont. They could furnish us the yarn, and we would struggle with how to make a piece of carpet out of the yarn.
The biggest problem was how do we dye it? How do we put color on it? We started by putting it in a dye beck, but then we went to continuous dye ranges. We were changing a lot of things during that period of time. We were changing how we were heat setting the yarns. We were twisting and heat setting the yarns rather than using single yarns.”
Was Stainmaster a new fiber, or was it more of a marketing tool?
It was a marketing tool. It was the same product. I think we give the credit to a name, but the truth of the matter is DuPont had the best yarn; type 6,6 yarn was the best filament nylon to make carpet. It was more the fact they had Antron in the commercial end of the business already. They had already gone in on Antron and said, ‘If it’s going to be commercial, we’re going to have to go to solution dyed.’ So, all the Antron on the commercial side went to solution dyed. Well, one by one by one we were taking white nylons, and that’s what DuPont can make regardless of what we called it.
Tell me about going direct as opposed to selling through distribution
Shaw went public in 1971 and had gotten to be close to a half-billion dollars at that time. Most of our business was through distributors. One of the major things we did at Shaw was become our own distributor. I think you had to because of the styling—you no longer could keep the amount of downstream inventories at retail. We were making too many products. We had whole samples, and you couldn’t inventory the samples. What we ended up doing was saying, ‘OK, put samples out and buy pieces, cuts.’ The cut order business was probably a major change that nobody really knew about. But we no longer had the downstream inventories that were being held by the distributors.
When did you decide to start buying other mills, and was that a result of DuPont gaining more control?
In those days, staple still was playing a major part, so we were buying up the individual staple mills. Staple was at least a third of total market sales. It was primarily nylon staple. Polyester really hadn’t gotten there yet. You were adding value in your spinning mills, but you were adding much less value by buying a filament, and you were twisting it and heat setting it so your value was much less.
What would you say was the first sea change post-1986 for this carpet industry?
You know we gave Stainmaster a lot of credit, and I think rightfully so because it spent a lot of money advertising. But Stainmaster did not change anything. The tufting machine had more to do with change than Stainmaster did.
Did it become a big part of the Shaw business?
No. It was a part of our business, but we joked about it. What DuPont would do is give you X number of pounds of unbranded nylon for X number branded of Stainmaster.
What made you want to buy Queen?
Nothing made me buy it. It was a business owned by the Saul family. They were probably close to a half-billion-dollar company. I think Julian had to make up his mind if he wanted to be a public company because he was going to have to raise capital to expand his business. Julian decided rather than raise capital and continue as a public company he preferred selling.
There were a lot of things happening all at once. But the biggest thing, if you were going to survive over the long term, you were going to add more value—meaning, you were going to make your own yarn. Of course, that put Shaw and DuPont against each other. As they said, ‘We’re not sure whether you’re a customer or a competitor.’
Let’s talk about the decision to go into retail.
Nobody quite understood that. The fact is that we were breaking the Stainmaster tie on the retailer. It was designed to be able to control our own destiny. The only way we could do that was go downstream and buy the customers—the New York Carpet Worlds, the Carpetland USAs, etc.—because DuPont wanted to keep the carpet industry separated at size; they didn’t want any concentration of the carpet business. We even had to call the carpet Stainmaster carpet. They didn’t want a Shaw name or Queen name on the carpet. The battle really was between Shaw Industries and DuPont at the time. We believed we needed to add more value, meaning we needed to buy nylon chip and make our own yarn. DuPont believed they were yarn manufacturers and were advertising their product, and we were converters for DuPont. DuPont was making about 90% of the money. Our battle was with DuPont. The only way to do it was to buy the downstream.
You decided to buy the biggest one first?
Bought the biggest one first. Bought the second-biggest one next.
You got into retail and all of the sudden you have 100 stores.
We had 100 stores and sold them as quick as we got in. We were never interested in being in the retail business. We wanted to break the chain between DuPont and the retail business. During that period of time we went from making $100 million a year down to making $30 million-$35 million. Then we came out of it making considerably more money after we got DuPont out of the downstream. We knew it was short term.
So the strategy worked?
Yes, it did. In fact, DuPont sold its business about a year after.
Could the industry have done a better job of marketing this product to the consumer?
I don’t think so. When we get down to it, we had to tie in with wallpapers and upholstery and everything. Then they finally got around to carpet. We never led any trend with carpet. DuPont wanted to believe we did, but we were always tied into decorating a room, and we were not the expensive part of decorating a room. It was wall treatment, window treatment, upholstery and then carpet.
Biggest turning points in the last 35 years?
Over the last 12 years we haven’t been in a recession— we’ve been in a depression. Our depression started in ’09, and we peaked out in 2013, when all of the houses that were sold had to be repossessed. We just about broke our banks during that period of time. Since 2013, this probably will be the first year that carpet is a bigger part [of the flooring market] than it was the year before.
Once the moratorium on evictions is lifted, will the industry see even greater growth?
We have maybe 30% who are not paying their rent. Apartment replacement business has been a big carpet market and continues to be a big carpet market. But you have to remember for a long time now we were only building 600,000 houses when we needed 1.6 million to 1.8 million. Apartments were not turning over. We were turning apartments over in the late ’80s and early ’90s every three and a half years, and 90% of the apartments you would put carpet down. It got to be five years. Why? Because there was no place for people to move, and they couldn’t get loans. The banks were desperately trying to reprocess their balance sheet.
You’re going to see more homes being built, but smaller homes?
I think we have to do that. When you really get down to it, you can’t build a home for $40 a foot or $50 a foot. You’re talking about $200 a foot right now to build just a normal home. You’re going to be building 1,500- square-foot houses rather than 2,400-square-foot houses. You’re not going to eliminate the bedrooms, though. You’ll have the same number of bedrooms.
Best decision you ever made.
You don’t tie it down to a decision—you tie it down to a series of decisions. I think the maturity of the industry requires that you add more value to that. The more value you add to a product the more opportunity to make money. I think that any industry, if you are making a better product at a lesser price, you have a much better chance of having a larger customer base.
At the end of the day, why did you sell to Berkshire?
We had a lot of family. Any time you go through generations…I didn’t own much. I owned a little of Shaw, but we had brothers and sisters and children and grandchildren, and Julian and his sister. We had a lot of people. And all these people were growing up and rather than have a growth company, they wanted a little action on their living.
Can you talk about the issues you had with Warren Buffett?
He’s an investor, not an operator. The problem is he doesn’t fall in love with any company. He is perfectly willing to take capital out of this industry and put it in another industry that’s growing faster. That’s what the corporate half life is all about.
Was there a company that you wanted to buy that you just never did?
No. You don’t force a buy and you don’t force a sale.
Was there ever a company that you bought that almost didn’t happen for one reason or another?
Cabin Craft. West Point owned Cabin Craft at the time. We got involved in the inventory and the inventory was not the same value, but we adjusted that. We also had bought Lees. But then we were outbid. We had a letter of intent. But at any rate Lees went on the block and Mohawk bought it.
Let’s close by talking about your grandsons, Will and Joe, the twins. You trained them. How are they similar to you? How are they different?
First of all, I think they probably worked harder than I worked at their age. They’re identical twins but have two different personalities. One’s more of an insider and one’s more of an outsider. William doesn’t meet strangers. Everybody he meets is his buddy immediately.
Were you more like Joe?
I was always selling something. I wasn’t an engineer. I was not someone who even enjoyed manufacturing. I was selling not a product as much as I was selling a company name. Obviously, you had to have a good product. But I would say that personality, probably I’m halfway in between. I never cared about how a piece of carpet was made. I wanted to know how it sold. If it sold then it was the right piece of carpet.