COVER STORY

haw Industries and its holding company Berkshire Hathaway both have always had a penchant for enduring value and long-term thinking. So it figures that Shaw has found retaining buildings in its portfolio can be as promising as holding onto stock.

   That strategy has proved particularly useful for a handful of properties now being put back into commission in the southeastern U.S. territory that has always been the heart of Shaw’s 35 million sq. ft. (3.25 million sq. m.) of operations, centered in around the carpet capital of Dalton, Ga., which economist Paul Krugman once identified as the epicenter of the ninth-most concentrated industry in the nation.

   Headquartered in Dalton, Shaw Industries has more than 70 manufacturing facilities in 32 communities and seven states and distribution in 30 metropolitan areas throughout the U.S.

   One of those communities is South Pittsburg, Tenn. A mile south of I-24 just west of Chattanooga and into the Central Time zone, South Pittsburg was a company town before it was an Interstate town, with plants along either side of the L&N rail line that runs parallel to Main Street, which now may see just one local train a day. Drive down that main thoroughfare and you’ll travel under the walkway connecting South Pittsburg High School to its athletic field house. Planted next door to the Pirates’ football field is an electrical substation. And behind the field loom the works of Lodge Manufacturing, maker of cast iron skillets for 106 years and major benefactor of the town’s annual National Cornbread Festival. Lodge came there because of proximity to two things: iron ore and the Tennessee River.

   Shaw Industries came to the town of 3,300 when it took over the Salem Carpet plant in 1992 with the $65-million acquisition of that company. But the presence of Shaw and its predecessors in the larger region is also a century strong.

   The Salem purchase marked the end of a long and prosperous wave of mergers that had seen Shaw gobble up market share and invest some $600 million in improvements and acquisitions in the late 1980s. Primary competitor Mohawk was doing the same thing, including the 1995 purchase of Galaxy Carpet for $42.2 million, which included operation of a 102,000 yarn plant on the other end of downtown South Pittsburg.

   Then, in 2004, Shaw announced it was closing its plant, meaning the loss of 400 jobs.

   “Spun yarn is where the industry has excess capacity, as consumer preference in carpet styling has shifted production more toward other carpet fiber types,” says Chuck Dobbins, Jr., director of corporate assets for Shaw, during an interview with Site Selection at the South Pittsburg plant. “Plants like this put us in an excess capacity situation. We consolidated into

Carolyn Millhiser, secretary for the South Pittsburg Historic Preservation Society, says Shaw, during its previous incarnation making carpet in town, donated the carpeting for the Chapel on the Hill restoration. Historical South Pittsburg photos courtesy of South Pittsburg, Tennessee Historic Preservation Society, Inc.

fewer larger facilities, which is more efficient than multiple small ones.”

   “I wasn’t mayor when they closed the plant, but I owned a store near there,” says Mike Killian, mayor of South Pittsburg and also proprietor of Mike Killian’s Wholesale Fireworks. “It was some shock to us, and to the outlying towns that were impacted just as much. It was terrible.”

   However, contrary to what has become standard practice in an age of M&A and offshoring, disposition was not pursued. In fact, the ball was rolling toward how to re-use the plant not that long after its closing. Today, 90 new jobs are being pursued instead (with the potential of 200), as Shaw invests US$20 million in the redevelopment of the yarn spinning plant into a hardwood veneer flooring plant, expected to be fully operational by July 2006.

   Mike Stitt is assistant director of economic development for the Southeast Industrial Development Association, a marketing entity for Tennessee Valley Authority distributors that covers southeast Tennessee, north Georgia and western North Carolina. He says the 2004 layoffs were rather devastating to the community, which was anxious to get back any jobs it could, even though the area has seen locations by the likes of Valmont Industries, a TVA supplier that manufactures utility line poles in nearby Jasper. Area unemployment is around 5.7 percent, he says. A large percentage of South Pittsburg citizens now make the quick drive into Chattanooga for work. But now the town will see some of those jobs coming back.

   “Shaw did not like when they had to announce that the facility had to close down, and it was hard to tell the Marion Co. mayor [Howell Moss] that they were going to do that,” says Bob Woods, Shaw’s lead incentives consultant for the project. “So it was always on their minds that, if they could put something there and it made sense, that facility would be on the top of the list. There wasn’t anything wrong with the old operation that was there. It’s just that there was too much spinning going on.”