Tim Baucom, president of Shaw industries, joined us this month to field questions on a variety of topics: COVID-19, changes in the retail sector, and the company’s branding strategy. You can hear this conversation in its entirety here. The following are excerpts from the interview.
TF: The coronavirus lockdown has changed everything. Talk about events and decisions made during the lockdown at Shaw and the process of getting back to normal.
Baucom: The events surrounding COVID have really been something that has been consuming all of our time. We are doing things we used to plan on a quarterly or a monthly basis on a daily or weekly basis now. Is just so dynamic. I think, as we talk about COVID, we really have to take these three points of view, starting first with consumers and end users, and then how do we react to it, and how do we help our customers react to it? I think when it first came out, all of us were a little bit locked down because it was a novel situation. I have read somewhere that the difference between uncertainty and risk is data. We just didn’t know enough about the situation.
We were dealing with uncertainty, and uncertainty just kind of paralyzes you. As more data gets layered on, you start understanding more and you can convert that uncertainty to risk and— let’s face it—business is about managing and mitigating risk all the time. We are now seeing consumers going through that same journey. They have different levels of comfort with the knowledge they have and the risk they are willing to take. But I think it’s safe to say, we know we have to operate at a middle ground. Society cannot afford to shut down completely, but society can also not just ignore the CDC guidelines and just rush back as if everything is like it was before. This trend really sets the stage for everything. It feels like society is comfortable with a steady range of cases, but surges jolt people again.
And these surges are what impact people’s confidence to shop, return to work, send their kids to school, visit older family members, let people in their homes, and those types of things. And that is certainly not the same everywhere.
At Shaw, we are dealing with it in that same way. We have always had a steady focus on safety, a culture of safety, and a culture of risk mitigation. We have had the advantage that we have remained an essential industry throughout all of this, so we have been operating with this and learning as we go. We quickly adhered to the CDC guidelines and marry those into our Shaw safety systems. We started early on practicing social distance and enhanced hygiene. We changed our processes through the flow to create more space, plexiglass separations where we needed to contract tracing and isolating. From a sales standpoint, we took our salespeople off the road early on, training them on things like Zoom and how to contact their customers differently. After about six weeks, we let them cautiously go back into the market, though we are still not flying around.
We have limited outside visitors, limited travel, and we try to keep groups small. We have been very impressed with how agile we have been in our ability to pivot to the work-at-home environment. That has really worked better than we thought.
And you can extend that further to consumers. Early on, many of them in some areas did not have access to specialty stores because they were closed. These stores are now starting to reopen with guidelines and we are helping our customers communicate how to both be safe but also express to the customer that they are safe as well. In fact, we were emphasizing and helping our customers emphasize appointments either for in-store or in-home presentation.
Early on we saw home centers gain a little share because they were able to stay up through this whole situation. It may be that customers were trying to limit their shopping trips, but now customers are more comfortable. We are seeing them going back into small retailers with abandon. Even the home centers were limiting early on in-home installations and home measurements, but they are back at a more normal pace at this point. COVID continues to be a very dynamic situation, but it feels like every day we are getting a little better handle on this which I sometimes call the next normal.
TF: How was product demand affected by COVID-19?
Baucom: It’s interesting—it has shifted three times. At the end of the first quarter, there was a fear of supply. As we went into April, there was a crisis of demand and now we are wrestling with recovery. So when we looked at late March, because of both the impact of the virus in Asia and Chinese New Year, which is an annual shut down timing, there was a scramble to make sure that people had material and the right material. We quickly got a handle on that just as demand started falling off here because of the government mandated shutdown. So, I’ll say April was a pretty scary time. April saw an unprecedented reduction in sales, both at the depth of the falloff and the speed, but, you know, quite candidly, May was dramatically better than April, and June was dramatically better than May. We are feeling that the third quarter will be back to pre-COVID levels, but not to the traditional third quarter that we saw say at 2019, but in a good steady area.
TF: It seems like that has been a trend towards more outsourcing. How do you see that playing out?
Baucom: The way I look at it is really in-house versus contract manufacturing. One of the things we see in the flooring business is that we have a range of maturity in this very dynamic industry. When the tufted carpet industry was very young, the industry was not highly vertically integrated. So, there was a lot of contract manufacturing and a lot of that coordination. We are seeing some of those same things taking place today in the LVT market, because it is such a dynamic, fast moving market. We, as the guarantor of quality though are still driving the branding, the innovations, the design, the quality, the supply chain. So, we are leveraging both in house manufacturing and contract manufacturing to manage this pace of change. And I think that as things become more known, you start to bring more of that in, in order to control and mitigate supply chain risk supply chain interruption, try to manage the changing environment with a lower levels of inventory. This is a very exciting time to be in the flooring business, in my opinion.