Pillowtex Corporation
Address:
4111 Mint Way
Dallas, Texas 75237-1605
U.S.A.
Telephone: (214) 333-3225
Fax: (214) 330-6016
http://www.pillowtex.com
Statistics:
Public Company
Incorporated: 1954
Employees: 4,250
Sales: $490.7 million (1996)
Stock Exchanges: New York
SIC: 2392 Housefurnishings, Not Elsewhere Classified; 2221 Broadwoven Fabric Mills-Manmade
Company Perspectives:
"We are committed to being a market leader in home textiles and providing a superior return on the investment of our shareholders. We will strive to achieve unparalleled customer satisfaction by assessing, understanding and fulfilling the needs and desires of our customers, and providing the best marketing and merchandising support in the industry. We will provide the highest quality and most competitive products available. We will seek to achieve measurable annual improvements in operating productivity and cost control. We will grow revenues through customer-focused product development, expanding distribution of current products and acquisitions. We will maintain a stimulating work environment that offers opportunities for challenging professional growth, and retains and motivates our employees. We will actively seek to enhance the quality of life in those communities in which we have operations and offices. We will adhere to the highest ethical business practices."
Company History:
With nearly half a billion dollars in sales in 1996, Dallas-based Pillowtex Corporation is a leading manufacturer and distributor of what it calls "top-of-the-bed textile products." That year, the company ranked number one in bed (or sleep) pillows, with more than 50 percent of the U.S. market. It also led the down comforter and blanket markets and ranked among the top five producers of mattress pads and throw blankets. These top stakes in key segments of the home textiles market helped position Pillowtex fourth in the overall industry, according to a survey published in the January 13, 1997 edition of Home Textiles Today.
Diversifications through more than a dozen acquisitions over its nearly five decades in business had kept Pillowtex in the bedroom, but expanded its product offerings from basics to more fashion-oriented goods. By the mid-1990s, it made everything from basics like pillow protectors and comforter covers to decorative throw blankets and pillows as well as coordinated pillow shams, dust ruffles, and window treatments. Its products were sold under such well-known licensed brands as Ralph Lauren Home Collection, Fieldcrest Cannon, Royal Velvet, Disney, and even the U.S. Postal Service. They were distributed primarily through department stores and mass merchandisers. Known by some competitors as "the mill of pillows," its Dallas facilities included what was arguably North America's biggest feather and down processing plant. Following a 1993 initial public offering, the firm accelerated its long-held strategy of growth through acquisition. While its shares were publicly traded, company insiders continued to control a majority stake through early 1997.
Postwar Origins
Pillowtex was founded in 1954 by John H. Silverthorne to manufacture bed pillows in Dallas. The company soon began acquiring manufacturing plants in Atlanta, Chicago, Connecticut, and Los Angeles, forming the basis of what would become a "hub and spoke" manufacturing and distribution network, one of the most sophisticated systems in the industry. Sales mounted slowly, but steadily, from 1958 on, reaching $4 million by 1965 and $7.5 million in the early 1970s.
Notwithstanding its relatively modest growth in the early years, Pillowtex developed a reputation as a potent competitor. According to a 1990 article in trade journal HFD-The Weekly Home Furnishings Newspaper, one customer went so far as to nickname it "the gorilla." Rivals had no choice but to concede the company's preeminence in pillows. One unidentified competitor told HFD's Sharyn Bernard, "They're an excellent company. ... Everyone thinks of Pillowtex [when they want bed pillows]." The firm also garnered a reputation for having a creative sales force and for establishing, rather than following, product trends.
John Silverthorne would continue to own and operate Pillowtex throughout much of its first four decades in business. In 1973, the founder established a long-range succession scheme by promoting Charles "Chuck" Hansen, Jr. to president. Hansen had joined the company in 1965 at the age of 25 and quickly advanced from the ranks of sales representatives to the executive offices. Although he had not originally expected to make a lifetime career at Pillowtex, he told the Dallas Business Journal's Sean Wood that he hoped to make it "the largest and most profitable maker and seller of pillows, comforters and bed pads."
Hansen and Silverthorne believed that the best way to achieve that goal was to "buy" market share. The company averaged one acquisition about every four years from 1970 to 1981, adding Perl Pillow, Synthetic Pillows, Inc., and Globe Feather & Down during the period. By 1982, organic growth and acquisitions had boosted the pillow company's sales to about $56 million and made it the leader of the industry.
Diversification into Other "Top-of-the-Bed" Goods in the 1980s
Having achieved dominance in its core business, Pillowtex sought growth through other avenues in the 1980s. Acquisitions throughout the decade both supplemented Pillowtex's pillowmaking operations and added mattress pads to the product line. The company purchased two mattress pad companies--Los Angeles-based Bedcovers, Inc. and Acme Quilting Co., Inc., America's oldest mattress pad producer--in 1983 alone. The Acme purchase also gave Pillowtex the capacity to manufacture comforters, throw pillows, moving van pads, and such decorative goods as dust ruffles and pillow shams.
Hansen noted that these additions not only boosted Pillowtex's sales volume, but also helped to shield it from downturns in individual categories. A desire to gain manufacturing and marketing synergies was another motivation behind the acquisition strategy.
Pillowtex grew so fast in the late 1980s that one competitor filed suit against it, charging that the company had violated antitrust laws and was becoming a monopoly. The lawsuit arose from Pillowtex's 1987 acquisition of Sumergrade Corporation, a North Carolina manufacturer. The $9.3 million purchase of this bankrupt business made Pillowtex the nation's leading producer of down comforters and boosted its capacity in decorative throw pillows, a fast-growing, high margin segment. (The Texas company would further augment its decorative pillow business with the 1991 acquisition of Nettle Creek Corporation.) Sumergrade also gave its new parent a valuable Ralph Lauren Home Furnishings license and enhanced its presence on the East Coast. The antitrust suit was unsuccessful, and Pillowtex's growth continued unabated.
Some competitors speculated that Pillowtex's rapid expansion would be its downfall, making it a slow-moving giant. The company combated that tendency with a quick response (QR) program that incorporated electronic data interchange (EDI). QR coordinated information shared by the merchandiser and the manufacturer such that when a sales clerk scanned the inventory number of a given product, the network automatically reordered the item from Pillowtex. The system reduced paperwork and lead time, thereby cutting costs for both parties and creating a "just-in-time-like" operation. By the mid-1990s, all but about ten percent of the company's customers placed their orders through EDI, leading analysts with Wheat, First Securities to call Pillowtex "one of the most technologically integrated and advanced" of pillow and blanket manufacturers.
Rapid Growth Marks the Early 1990s
Chuck Hansen advanced to chief executive officer and chairman when the founder died of cancer in December 1992. The new leader quickly prepared Pillowtex for an initial public offering (IPO) in 1993. The floatation offered about one-third of the company's equity to the public, while Hansen and Silverthorne's widow, Mary R. Silverthorne, split most of the remaining interest. This arrangement permitted the company to raise funds for both the Silverthorne estate and Pillowtex's growth, while maintaining control among corporate insiders.
Pillowtex moved boldly into the blanket segment in the ensuing 30 months, using part of the $53 million proceeds of the IPO to bankroll the acquisition of three blanket companies and two pillow/comforter manufacturers. The growth-hungry firm bought two old-line blanket manufacturers, Tennessee Woolen Mills, Inc. and Manetta Mills, Inc., in 1993 at a total cost of $20.9 million in cash. A year later, Pillowtex shelled out a whopping $112 million ($101 million cash and $11 million debt) for Beacon Manufacturing Company, then the largest player in the blanket segment.
Other acquisitions diversified Pillowtex internationally. Torfeaco Industries Limited, a well-established producer of pillows, mattress pads, and decorative bedding, came on board in 1993. In 1994, the growing firm paid $3.6 million for Imperial Feather Company, a pillow and comforter manufacturer. With overseas sales totaling about ten percent of total revenues in 1995, Pillowtex laid plans to launch production and distribution operations in Europe and South America.
Pillowtex's pro forma sales nearly doubled in the early 1990s, from $259 million in 1991 to $474.9 million in 1995. Operating income increased from $19.1 million to $36.5 million during the same period, due in part to rising productivity. The company's selling, general, and administrative expenses (already ranked among the industry's lowest) declined from nearly 13 percent of sales in 1991 to nine percent of sales by 1995. Nevertheless, net income declined from $13.2 million to a low of $7.7 million in 1994. The decreases in bottom-line profitability were attributed to debt service from Pillowtex's mid-decade acquisition spree, rising raw materials costs, and difficulties in reconciling its new affiliates. The decline in net earnings pushed Pillowtex's stock, which had risen from an introductory price of $14 per share in 1993 to a high of more than $21 early in 1994, down to less than $9 by the end of the year.
The company tried to alleviate some of its raw materials problems with the $6 million acquisition of Newton Yarn Mills, a North Carolina cotton yarn spinning factory, from Dixie Yarns Inc. in 1995. In addition, a savvy acquisition in 1996 gave Pillowtex Fieldcrest Cannon's $71 million blanket and throw business at a cost of $30 million.
Pillowtex's revenues rose to $490.7 million in 1996, and its net climbed to more than $14 million. Though in 1995 Hansen had told the Dallas Business Journal's Wayne Carter, "We don't control the stock price; I just try to run the company," by the end of 1996 he took a more considered approach to shareholders' concerns, noting in that year's annual report that "the heart of Pillowtex's mission is the commitment to provide a superior investment return to our shareholders." Buoyed in part by the late 1995 institution of a dividend, the stock rose from less than $12 to $18 over the course of 1996.
The Mid-1990s and Beyond
A major management shift that started in 1995 reflected Pillowtex's transition from an "entrepreneurial" firm into a diversified corporation and telegraphed possible management succession scenarios. That year, the company reorganized into two operating segments, the Pillowtex division, in charge of pillows, mattress pads, and comforters, and the Beacon division, manufacturing woven blankets. This transitional phase soon yielded to a second shuffling. In 1997, the company reorganized along functional lines, appointing former Chief Financial Officer and Executive Vice-President Jeffrey Cordes as president and chief operating officer, former Pillowtex division President Christopher Baker as president of the manufacturing division, and hiring Kevin Finlay away from Fieldcrest Cannon Inc. to serve as president of the sales and marketing division.
Wheat, First Securities' late 1996 analysis of Pillowtex forecast earnings growth of 22 percent in 1997, as efficiencies from its earlier acquisitions began to take effect and the company paid down substantial amounts of debt. In 1995, CEO Hansen told Dallas Business Journal's Wayne Carter, "We're not obsessed with the need to grow. We're obsessed with being the most profitable." Nonetheless, he affirmed that the company would continue to pursue growth through acquisition in the waning years of the 20th century, noting in Pillowtex's 1996 annual report the firm's "next major milestone: $1 billion in annual sales."
Pillowtex intended to achieve that goal through internal development as well as its ongoing acquisition strategy. Organic growth strategies included a plan to leverage brand equity, especially among its own labels like Health Horizons antibacterial pillows and mattress pads, to boost sales in the late 1990s. The company also boldly mounted a challenge to Sunbeam's utter domination of the electric blanket category in early 1997, hoping to capture 20 percent of this $150 million market. Acquisitions were sure to remain focused on textiles for the bedroom.
Principal Subsidiaries: Beacon Manufacturing Company; Tennessee Woolen Mills, Inc.; Manetta Home Fashions, Inc.; Torfeaco Industries Limited (Canada).
Principal Divisions: Manufacturing Division; Sales & Marketing Division.
Further Reading:
Bernard, Sharyn K., "Pillowtex Prestige: 36-Year-Old Company Builds Strength through Diversification," HFD-The Weekly Home Furnishings Newspaper, December 3, 1990, pp. 40-41.
Carter, Wayne, "Pillowtex Straightens Out Lumps," Dallas Business Journal, September 22, 1995, pp. 8, 22.
Eckhouse, Kim, "Brands Boom in Basics: Adding Names to Pillows and Pads," HFN-The Weekly Newspaper for the Home Furnishing Network, April 21, 1997, pp. 27-28.
Frinton, Sandra, "At Home in Bed; Pillowtex's Growth Stays Close to Basics," HFN-The Weekly Newspaper for the Home Furnishing Network, September 11, 1995, pp. 23-24.
------, "Buy, Pay, Diversify: Companies Map Out '96 Strategies," HFN-The Weekly Newspaper for the Home Furnishing Network, December 11, 1995, pp. 21-22.
------, "Health Push in Pillows and Pads," HFN-The Weekly Newspaper for the Home Furnishing Network, April 22, 1996, pp. 35-36.
------, "Pillowtex '95 Results Up," HFN-The Weekly Newspaper for the Home Furnishing Network, February 19, 1996, p. 32.
Hitchcock, Nancy A., "Business Strategy Speeds Flow of Goods and Data," Modern Materials Handling, March 1993, pp. 54D5-54D7.
"Home Textiles Today Top 15," Home Textiles Today, January 13, 1977, pp. 6-9.
Johnson, Sarah, "Finlay to Pillowtex," HFN-The Weekly Newspaper for the Home Furnishing Network, March 10, 1997, pp. 27-28.
Kinter, Kim, and Schwartz, Donna Boyle, "Pillowtex Aims To Expand," HFD-The Weekly Home Furnishings Newspaper, February 2, 1987, pp. 29-30.
Palmeri, Christopher, "Southern Comfort," Forbes, April 25, 1994, p. 191.
Rush, Amy Joyce, and Johnson, Sarah, "Pillowtex Going Electric in Blankets," HFN-The Weekly Newspaper for the Home Furnishing Network, February 17, 1997, p. 4.
Schwartz, Donna Boyle, "User-Friendly Basic Bedding: Technical Jargon Yields to Lifestyle Marketing," HFN-The Weekly Newspaper for the Home Furnishing Network, October 21, 1996, pp. 41-42.
Slott, Mira, "Sumergrade Acquisition Brings Pillowtex Decorative Pillow Gains," HFD-The Weekly Home Furnishings Newspaper, January 18, 1988, pp. 43-44.
Troy, Colleen, and Schwartz, Donna Boyle, "Purofied Antitrust Suit Fails," HFD-The Weekly Home Furnishings Newspaper, July 13, 1987, pp. 59-60.
Wattman, Karla, "Duties, China Quota Roil Industry," HFD-The Weekly Home Furnishings Newspaper, May 2, 1994, pp. 40-41.
------, "In the Public Eye: Cash Infusion Puts Pillowtex into High Growth Mode," HFD-The Weekly Home Furnishings Newspaper, April 26, 1993, pp. 33-34.
------, "Pillowtex Gains Northern Exposure," HFD-The Weekly Home Furnishings Newspaper, November 15, 1993, p. 48.
Wood, Sean, "Pillowtex Tries To Keep from Getting Comfortable," Dallas Business Journal, June 25, 1993, p. S23.
Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.
