Article Number: 3189
Randy Merritt Exclusive Interview: Shaw's President Tackles The Issues Impacting Business
It’s been 20 months since the housing slump first slammed the industry, and things have not gotten any better with record oil and energy prices, a shrinking U.S. dollar and waning consumer confidence adding to the woes.
It is during tough times such as these, says Randy Merritt, president of Shaw Industries, when companies at all levels need to concentrate on the positive and work on ways to drive more business through their operations. Merritt shared his views on the state of business, the company’s carpet recycling efforts and more in this exclusive interview with Matthew Spieler, FCNews’ senior executive editor.
Like many other companies, Shaw’s 2007 sales and revenues were down compared to 2006 and, according to your parent company, Berkshire Hathaway, they are expected to decline in 2008. How do you maintain a positive attitude—personally and within the company?
After 32 years in the business, you realize there are going to be peaks and valleys; flooring is a cyclical business. You can approach the downturns positively and see it as an opportunity to improve as you work through it or you can approach it negatively focusing on all the issues that are hurting the business.
While it is dangerous to ignore the reality of the situation, it is just easier to focus on the challenge positively and how to create an environment where we can emerge from this trough stronger and better prepared for the next upturn.
Everyone knew 2008 would be tough like 2007. Compared to what you expected going into the year, has it been tougher?
I would say it has been about what we had expected; there is plenty of news and indicators that give us all a good idea of what to expect: new and existing home sales, consumer confidence, consumer borrowing, credit debt levels, interest rates, mortgage applications, home starts and completions, commercial building and development, corporate earnings— these things all are reasonable indicators of what lies ahead.
And?
We are not out of the woods yet.
During this time, there still have been two bright spots—commercial and high-end residential. Are these bubbles about to pop?
The commercial business has been on a solid up cycle for over three years now after emerging from a two- to three-year down cycle. There are signs that this market is beginning to level off some, but ’08 should still be a strong year commercially.
The higher end of residential is going pretty well, and the very high end is somewhat immune to the slowdowns as these consumers can continue to spend money throughout the economic slowdown.
Since the slump began in August 2006, what’s been the toughest area to control?
One of the toughest challenges has clearly been the continual rise in raw material costs.
Why is that?
In past downturns, raw material prices have always trended down as the business declined but that clearly has not been the case at all this cycle. Every week brings new challenges in this area, and it is frustrating to all because you have little control. These rising prices have impacted the cost of our products and certainly the transportation of the product.
In addition, for all of us as consumers, higher gas prices, higher grocery prices and increasing healthcare costs are all challenging.
Knowing what you now know, was Shaw too leveraged in the building sector (some estimates put it at 35% to 40%)?
Not at all; we love the new home business—especially when it is good! But like with anything, you have to help your customers work through the down cycles just like together we enjoy the up cycles.
Considering how much the cost of oil has gone up since the slump began, as well as how much prices overall have risen, why has flooring— regardless of category—not gone up proportionately?
Clearly prices in most categories have risen over the last five years or so.
You say “most” categories. Is there one that hasn’t?
Perhaps the most obvious exception to that has been laminate flooring.
Can you elaborate?
In this category, there has been excess supply and more vertical integration that has helped manufacturers take cost out of the process. And then there has been the import factor that has had an impact especially on driving lower price—and less quality—at the bottom of that market. All of this has led to declining average prices in laminate overall.
We understand that since last fall the industry’s three largest carpet mills have laid off more than 1,200 employees at various locations. What can you tell us about this?
Shaw is sensitive to the challenging economy and the decline in the housing market. Our industry is currently facing a downturn, and we are saddened for the families affected by this. Our approach during the slower retail and builder climate that we’ve seen in ’07 and into ’08 is to continue what we all do best: keep looking forward while fine tuning our business in the interim.
It is during tough times such as these, says Randy Merritt, president of Shaw Industries, when companies at all levels need to concentrate on the positive and work on ways to drive more business through their operations. Merritt shared his views on the state of business, the company’s carpet recycling efforts and more in this exclusive interview with Matthew Spieler, FCNews’ senior executive editor.
Like many other companies, Shaw’s 2007 sales and revenues were down compared to 2006 and, according to your parent company, Berkshire Hathaway, they are expected to decline in 2008. How do you maintain a positive attitude—personally and within the company?
After 32 years in the business, you realize there are going to be peaks and valleys; flooring is a cyclical business. You can approach the downturns positively and see it as an opportunity to improve as you work through it or you can approach it negatively focusing on all the issues that are hurting the business.
While it is dangerous to ignore the reality of the situation, it is just easier to focus on the challenge positively and how to create an environment where we can emerge from this trough stronger and better prepared for the next upturn.
Everyone knew 2008 would be tough like 2007. Compared to what you expected going into the year, has it been tougher?
I would say it has been about what we had expected; there is plenty of news and indicators that give us all a good idea of what to expect: new and existing home sales, consumer confidence, consumer borrowing, credit debt levels, interest rates, mortgage applications, home starts and completions, commercial building and development, corporate earnings— these things all are reasonable indicators of what lies ahead.
And?
We are not out of the woods yet.
During this time, there still have been two bright spots—commercial and high-end residential. Are these bubbles about to pop?
The commercial business has been on a solid up cycle for over three years now after emerging from a two- to three-year down cycle. There are signs that this market is beginning to level off some, but ’08 should still be a strong year commercially.
The higher end of residential is going pretty well, and the very high end is somewhat immune to the slowdowns as these consumers can continue to spend money throughout the economic slowdown.
Since the slump began in August 2006, what’s been the toughest area to control?
One of the toughest challenges has clearly been the continual rise in raw material costs.
Why is that?
In past downturns, raw material prices have always trended down as the business declined but that clearly has not been the case at all this cycle. Every week brings new challenges in this area, and it is frustrating to all because you have little control. These rising prices have impacted the cost of our products and certainly the transportation of the product.
In addition, for all of us as consumers, higher gas prices, higher grocery prices and increasing healthcare costs are all challenging.
Knowing what you now know, was Shaw too leveraged in the building sector (some estimates put it at 35% to 40%)?
Not at all; we love the new home business—especially when it is good! But like with anything, you have to help your customers work through the down cycles just like together we enjoy the up cycles.
Considering how much the cost of oil has gone up since the slump began, as well as how much prices overall have risen, why has flooring— regardless of category—not gone up proportionately?
Clearly prices in most categories have risen over the last five years or so.
You say “most” categories. Is there one that hasn’t?
Perhaps the most obvious exception to that has been laminate flooring.
Can you elaborate?
In this category, there has been excess supply and more vertical integration that has helped manufacturers take cost out of the process. And then there has been the import factor that has had an impact especially on driving lower price—and less quality—at the bottom of that market. All of this has led to declining average prices in laminate overall.
We understand that since last fall the industry’s three largest carpet mills have laid off more than 1,200 employees at various locations. What can you tell us about this?
Shaw is sensitive to the challenging economy and the decline in the housing market. Our industry is currently facing a downturn, and we are saddened for the families affected by this. Our approach during the slower retail and builder climate that we’ve seen in ’07 and into ’08 is to continue what we all do best: keep looking forward while fine tuning our business in the interim.
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