Exclusive: One on one with ‘Mr.’ Shaw

As Bob Shaw comes up on his 91st birthday, there are three things that have not changed over the last seven decades: his competitive spirit, his ability to hold his own on the golf course (even if he doesn’t always play a full 18 these days) and, most important, he is still having fun.

FCNews publisher, Steven Feldman, recently sat down for a few hours with one of the few people in this industry who still commands the title “Mr.” as he continues to build his on his legendary career through risk, foresight and innovation. Feldman and Mr. Shaw talked at length about Engineered Floors (EF), the industry at large and global/national dynamics that are shaping the world today. Never one to shy away from a controversial topic, his candid insights and perspective follows.

What drives you when you get up every day?

Contents

If you’re going to play a game, you strive for the gold medal. That’s what being in business for yourself does. But very few people want the competition. Very few people really want to put it all on the line. For me and people like Warren Buffett, it’s not necessarily about the money. I drive a car that’s 13 years old. It’s about success and reputation.

But it’s the competition that really drives you and the idea of winning. You used to play sports, right? It’s ingrained in you.

I played football and was a quarterback. I was also one of the worst students you can ever imagine. I always thought if you mathematically could get there quicker than your competitor, then you had a better chance to see just a little around the corner. I’ve always said if I’m in a poker game, if I can have one peek at their hole card I’m going to beat them. So it really is seeing a little more. Everybody sees a lot of things, but they’re not willing to follow what they see.

As I look back, it’s a lot easier to compete where you’re not dependent on a bank. You become the banker, so you can be more critical of yourself, and you can also take more chances. You don’t want to bat a thousand, because if you bat a thousand you probably haven’t swung the bat enough. You want to have a high batting average but also have some failure. Very few people are willing to be a gambler. Business is a little bit of betting on something you’re not assured of winning.

But isn’t it always better to bet on yourself than on somebody else?

Are you betting on yourself? Are you betting on an industry? Are you betting on a country? I want to know more about my competition than I know about what we do. For example, if we end up saying LVT is going to be manufactured in China, that’s an absolute mistake. You can take a container and put Nike shoes in it, and you get 17 times as much dollar volume as you do by having LVT in that container. Where do you think the cost of the containers are going? What about the ships? You can’t ship clay across the world. You can ship Nike shoes, you can ship clothes, but once you get into heavier materials, then you will have what I call a moat you built around you [producing domestically], because they can’t compete with you. Carpet has always had a moat built around us; [importers] can’t compete.

Let’s talk a little bit about LVT. Soon you’re going to be making your own. When EF started making carpet, the differentiator was the solution-dyed polyester. What is going to be your differentiator on the LVT side?

Digital printing vs. film. Film you got a repeat pattern every 4 feet. If you’re buying your film and you’re buying your base and all you’re doing is putting them together over here, it’s the same principle as when we used to say we were carpet manufacturers but didn’t make our own yarn.

When EF launched with solution-dyed poly, you told me this product was going to be the best value for the dollar in the industry. Is that same philosophy going to hold for LVT?

Holds on everything we do.

Best product out there for the money?

The best product, less expensive, better value, more competitive.

Realistically, when will Mrs. consumer have an LVT product on her floor that comes out of this plant?

Probably a year from now. First or second quarter 2023.

Thoughts on Invista getting out of fiber production?

Invista’s type 6,6 nylon was by far and away the best nylon that was made. We never made type 6 nylon as good as type 6,6 nylon. But the only trouble is type 6,6 nylon found other markets that were more profitable. And the Koch brothers are very simple. They are investors. They don’t fall in love with any business. They fall in love with how much they can make on their investment dollars. Charles Koch said, “Look, I can make more money taking my nylon and putting it in the automotive business, seat belts and all.” And there was only 16 million pounds of that in the world. There’s 115 billion pounds of polyester. Why? Because plastic bottles, clothes, you watch your blend change. Cotton goes up from $0.63 a pound to $1.43 a pound. Polyester has doubled also, but it doubled from under $0.50 to under $1. So the spread between nylon and cotton and polyester changed. A larger percentage of the blend is now going to be polyester.

So Invista getting out of the carpet fiber business doesn’t really impact this industry that much?

We always said nylon wears better than polyester. That’s not the case anymore. And again, nylon is always able to find other markets. Polyester has to be in the clothing business, or it’s got to be in the bottle business, or the wrapping business. And guess what? We use only 1% of the world’s polyester in the carpet business, and we think we are big users of polyester.

Last year EF had a record year in terms of sales. What channels drove it?

The growth was not in the carpet business; the growth was in solution-dyed polyester. That’s all we were doing, and it was growing at a pretty fast rate.

Did multi-family come back after the eviction moratorium was lifted?

Of course. Our biggest problem right now on multi-family is labor. Your big property management people today are changing their carpet. But we lost about six to eight months where people didn’t have to pay their rent. So they didn’t change the carpet; 90% of the time you change a tenant you change the carpet. Last fall was not good because of the delay of people moving out of apartments.

Has that changed?

Sure. They no longer can stay there for free.

So that segment has been really good?

There’s another thing. On the commercial side, we are finding ways to not have to locate everybody in an office building. I use this building as an example. Coronet never got over $200 million and this office building was full. We’re using about 20% of this building and doing 10 times as much business as Coronet did. You don’t have to gather together anymore. And quite frankly, we are not going to have as much office space. I think we’re going to be [transforming] a lot of office space into [residential spaces]. Goldman Sachs wanted their people to [return to the office]. The people said, “No, we’re not going to do it.”

So what’s driving the business is relocation? People moving from big cities into Florida and Georgia and Texas?

That’s driving the retail. But apartment replacement business—at one time we were turning over apartments every three and a half years. Remember, we built 2.3 million houses in 2005. We thought we were doing well last year when we built 1.1 million. And our population is over 100 million more than it was. So what we really need are houses of 1,000 feet. And you don’t need to have the property that’s under you costing more than the construction of what you build on it.

One economist said there is a five-year runway of demand for new homes.

I think more than that. Because if we had the labor…remember, building a house still has some skilled labor to it. And yes, I think we will start modularly building homes. And, in fact, taking mobile homes, but we are not going to put them on wheels. We’re going to put them in sections and we’re going to move the sections. And that’s going to be a cheaper way of manufacturing a home.

A lot of companies had growth last year, but for some it was mainly because of the price increases. You had unit growth, too?

Of course. But again, the polyester piece was growing at a very fast rate last year and continues to grow, and we are 95% polyester. That’s how it was from the beginning. The equipment is very expensive. Other manufacturers are not going to say, “I’m going to now put in extrusion for solution-dyed polyester.” The same extrusion machine that made nylon doesn’t make good polyester. So you would have to replace yourself with something you were going to get less money for. That’s a hard decision to make. If you’re Shaw Industries, spending a billion dollars when you were nylon to put it into polyester and then your sales are going to go down after you do that—well, that’s a hard sell to Warren Buffet.

How does EF get to $3 billion?

By getting to $2 billion first.

You’re almost there.

I think as a private company we have a tremendous advantage over public companies. It’s being able to make quick decisions. We want to make the decisions that make our business better. If I’m at Berkshire Hathaway and have to make a decision, the question is always, can I take that billion dollars—and it’s called corporate half lives—that I’m making here and move that somewhere where I can make more money? And anytime a business within Berkshire Hathaway is not growing at the same rate as the GNP, then it hits that corporate half life and they don’t invest. They take the money and invest it where they can get a better return. I knew that philosophy because I sold to that philosophy.

Let’s talk about record inflation for almost two years now. How has that impacted EF and this industry?

It is so simple in my mind. What are the most inflated costs we’re going to have? All I need to do is reduce those costs, whatever business it is. The two costs that have the most inflation are labor and energy. And they won’t be a straight line. But if you take a 10-year period, that’s where your inflation is. We can talk about how expensive oil is; that’s energy. And then, how much production can you get out of people? That’s people. Those are the two things that are going to inflate. They have to inflate together. If not, you’re going to have an impossible situation.

Energy costs eventually come down. I don’t know if labor costs ever come down.

Labor costs, no. Have you ever seen labor costs come down? Maybe over very temporary periods of time in a very isolated situation. The other thing we did was make retirement too attractive. Look at China right now. Fifty years ago China said you can only have one child. And right now the average age of their population is 38.4.

Is the solution immigration? How do we get more people to do these jobs?

I will tell you how we did it in Dalton. We have a 74% Latino population in our school system. Now they’re third generation, and they speak English well. But they also have another thing—they are having the children. We started training people in Mexico 35, 40 years ago because we didn’t have enough labor.

So what’s the solution?

First of all, productivity per employee becomes the key to the whole situation. The solution is producing more units per person than your competitors do. And you don’t want to make yarn in one place and then put it on a truck and carry it to another place.

All these interest rate hikes that are coming down the pike. What will that do for our industry? Will it hurt demand?

It’s going to affect housing. But housing is a very small percentage of our business. It’s going to affect traveling. But if people are not traveling, they’ll spend more money decorating. Office buildings are going to shrink. Retail stores are going to shrink because we are going to buy more over the Internet. The Amazons have proven that. So what we are going to do is rethink how we put carpet on the floor. Often, in the greater New York area or greater New England area, it costs more for padding and installation than it does for the carpet. So how do you eliminate the highest cost? The highest cost you have is in installing, not manufacturing. Now from this standpoint, the more you can put under one roof, where you make yarn and ship carpet out of the same building, you eliminate some of the people costs. You don’t load it on a truck and carry it to another place, then load it on another truck and carry it someplace else. Our SAM plant is 2.4 million square feet and does that. Our competitors knew what we were doing. In a small town like Dalton, they knew we were constructing 6 million square feet of new building and acquiring another 4 million. It was no secret.

It opened up their eyes for sure. I mean, you pioneered the solution-dyed poly movement.

Well, it’s 85% of the business. Isn’t that kind of late?

Were they a little slow to react?

Well, it takes 18 months if you start today. Because there’s no place where you can go to buy yarns. You either are going make it or you’re not going to be in business. If I want to add a plant and start today, I won’t get any real production for two years. How many people are going into what they consider a mature industry? It’s mature because nylon’s going away and polyester’s coming up.

Why can’t they make as good a solution-dyed poly product as you?

They have the wrong equipment. Their equipment was designed to make white yarns. And you don’t have the same extrusion machine on nylon as you do on polyester. It doesn’t make the quality.

So with inflation and the interest rate hikes, you really don’t see so much of a slowdown for our industry at least in 2022?

No.

How do we get more installers? I’ve always said it needs to be a grassroots effort. You have to go into the high schools and let these kids know that the profession exists.

It’s too hard a job. The way we are installing carpet, we’re ruining knees. If you think football is bad on knees, go and start kicking in carpet. And then putting it on the power stretcher. We need a better way to install our product.

Is it manufacturing? Do you have to manufacture a product that is installed differently?

We are installing something in units that they get five times what we get per unit. That works fine, but how often are you going to repeat that sale? Let’s take ceramic. Worst thing in the world is to have old ceramic that you have to replace in a house.

Why don’t people want to work anymore? And why do we keep giving them free money?

The way you socialize any community is to make them totally dependent on the government. That’s as simple as it is. If they can live without working, then it’s socialized. If you look at countries like Belgium and England, you have 50% working, 50% on the dole, as we call it.

But the U.S. has always been a capitalistic society. You grow up working and seeking a better life.

We’re the only capitalistic nation in the world, though. Maybe South Korea, and we have some smaller countries that are capitalistic. England is not capitalistic. Germany is not capitalistic. They are socialistic. If you have the ability to increase your capacity by working harder or having an invention, you can do it in a capitalistic society. If they’re unable to do that, you take the ambition out of people. And what if their standard of living can’t go up by working harder or inventing something? Then there is no incentive.

I went to college back in the ’80s and worked full time.

And the reason you worked full time was because you wanted to eat while you went to school.

I wanted to eat. I wanted better things. I wanted a better life.

You wanted your standard of living. And you were willing to work for your standard of living. If you take away that ability to improve your standard of living, that’s what socialized governments do. They want to put everybody in a standard. They want to have a working class. They want to have a management staff. But they want to make sure they don’t overpay anybody. Now somewhere along the line, I agree that we somehow have to take the multi-multi-billionaires and redistribute that wealth. We can’t have hundreds of billions of dollars.

What happened at Armstrong in your opinion?

Management. They were making all the money in ceilings, so they split the ceilings and flooring businesses and realized they didn’t have any profit left in flooring.

If you were the CEO of Armstrong over the last 15 years or so, what would you have done differently?

Resigned.

Their problems had been brewing for a long time?

We looked at them years ago. They had eight different unions. And a union plays an important part in some industries. But a union will absolutely destroy you if you are locating it in small areas.

That was one of the things that led to their downfall?

That—and adapting to changing conditions. When they were in the carpet business, they couldn’t figure out how you made money. (They owned Evans and Black, which we ended up buying over at Shaw.) It’s why Lee’s is not in the carpet business anymore. Lee’s had the finest wool manufacturing in the world. The only trouble is we don’t use wool carpet anymore. If you’re not willing to replace yourself, you will get replaced. The hardest thing is to convince yourself that you have to replace yourself even though you are No. 1 right now. You have to [adapt] because somebody else will adapt if you don’t.

Take LVT. For $0.60 you could buy your product [overseas], bring it over and store it. But to rearrange your carpet business, you had to start making your own yarn a different way, and you had to spend $3 for every dollar of sales. Now, one is a long-term investment and one’s a short-term investment. Anybody can get in the LVT business by buying film from China and putting it on some mud and they have the product. But not everybody can get in the business of digital print. Remember, I spent 50 years at Shaw understanding that we went from woven rugs to scatter rugs to carpet. If you were not making that change, you became a Burlington or a Lees.

At the end of the day, failure to adapt to changing conditions is what proved to be their downfall?

It’s always the downfall. Anytime somebody can beat you with labor cost and energy cost, it’s just a matter of time before they put you out of business. What has been the most inflationary thing? Labor. Today we are paying an average of $18 an hour. Ten years ago in the carpet industry, it was $7 an hour. Let’s look at another thing. Natural gas was $0.90 per thousand cubic feet. Now, it’s $9. Everything we do has energy involved. So the two things you had to watch was your labor cost and your energy cost because they were going to inflate. And if you were not the low cost in those two things you eventually were going to be obsolete.

Changing gears…West Virginia senator Joe Manchin?

I’m crazy about him.

Did he save this country?

I think he did a heck of a lot to slow down some major things. The obvious thing is he held his ground. When we start talking about not being able to succeed as a capitalist country is the day we will become a communist country.

What is the government’s motivation for a non-capitalistic society?

Power. I’ve yet to find any anybody who wanted to control the thoughts and movements of other people.

Do they want to stifle free speech? They didn’t want Elon Musk to buy Twitter.

If you control what somebody can say or think, isn’t that power? Isn’t that socialism? Any time, even if you disagree, someone should be able to speak. And then, democracy says you have the information to make a judgment. Once we lose the ability to hear both sides, we lose our ability to have individual thought processes.

How do we get this economy back on track?

Since we got out of the [Great] Depression it seems like we always had to go to war to get our economy going again. But what do we always go to battle over? We go to battle over energy. There’s nothing else. It was coal back in World War I. But it’s energy because we cannot operate a society without energy. What is the big battle that’s going on right now? How do you have the energy and also have the health of the people? Heck, we had had a line coming down here from Canada. We closed it down. We had our own oil wells, and the cost of oil at the time was $60 a barrel. Today, it’s $120 a barrel and rising. So we had a government come in and say, “The most important thing is clean air.” Well, we had the cleanest air there is, but now we bring in dirty oil from Russia. All these things are like a pendulum. It always swings one way, at least for our country, and then the pendulum swings back. And the day the pendulum continues to swing all the way in one direction, that’s when we are going to have communism or a dictatorship. So we need the pendulum to swing back and forth.

Comments are closed.