Drexel Heritage Furnishings Inc. History

Company History:

Based in the foothills of North Carolina's Blue Ridge Mountains, Drexel Heritage Furnishings Inc. has been producing furniture for almost a century. A subsidiary since 1986 of Masco Corp., the world's largest furniture manufacturer, Drexel Heritage is also a retailer of home furnishing accessories.

The Drexel Furniture Co. was founded in 1903 in Drexel, about five miles east of Morganton, North Carolina. At the time this community consisted of little more than a railroad siding built to accommodate a sawmill and flour mill. Both enterprises were operated by Samuel Huffman, who with five Morganton businessmen founded the company. Their initial investment of $14,000 went towards erecting a factory and installing furniture-making machinery within.

Starting operations on a shoestring budget was typical of this era for the furniture industry of the Piedmont region, which relied on ample supplies of hardwood, water power potential, and low-cost and plentiful labor. Burke County, in which Drexel is located, was still about one-third untouched forest in 1903 and had not a single mile of decent road. The finished building, erected on the site of Huffman's sawmill, was accompanied by a second facility for the finishing and shipping department. Production began with about 50 workers making oak dressers, washstands, and chiffonniers. The Drexel plant burned down in late 1906 but was rebuilt with an insurance payment of $25,000.

A pioneer in the furniture industry later conceded that "North Carolina factories in those days were accused of selling lumber and not furniture." During Drexel's earliest period its workers and managers had to learn the trade by trial and error, and the company had to entrust most of its sales to outside agents who designed and priced, in addition to selling, the furniture. Sometimes Drexel shipped furniture to these agents "kd" (knocked down, or in parts), so that it could be assembled elsewhere. Also called "selling in the white," this practice saved money on freight. Low costs enabled Piedmont companies like Drexel to undersell northern competition in their native area. By 1918 the plant had grown by 20,000 square feet, and the Blue Ridge Furniture Co. in neighboring Marion had been acquired by cash payment.

Between the two world wars Drexel and other Piedmont furniture manufacturers in North Carolina and Virginia expanded their markets beyond the South into national furniture markets. Styles offered by northern manufacturers were copied, and the quality of the products improved. Drexel's net worth had passed the $500,000 mark by the end of 1922, and in the following year a 1300 percent stock dividend was declared and a plant acquired in Morganton. In 1928, Drexel's sales were above $2 million and its total assets about $1.7 million. By the following year North Carolina led all states in the production of wooden furniture.

Suffering the effects of the Great Depression, however, net sales at Drexel fell to $1.3 million in 1935, and the company's cash balance fell alarmingly. During this period the company moved away from wholesale distribution, relying instead on retail stores and commission salesmen located throughout the country. National advertising eventually began in 1937.

In 1935 the last of Drexel's four principal founders died, and Samuel Huffman's son Robert O. Huffman was elected president. He delegated authority, declaring his managerial philosophy was to "get good men to the job and leave them alone to do it," Nevertheless, the younger Huffman would make several managerial decisions that would facilitate the company's fortunes. First, he opted to abandon the low end of the market in favor of issuing medium-priced quality furniture. In 1950, when Drexel's net sales reached $18.3 million, its share of the nation's wood household furniture sales had tripled since 1935 to 1.5 percent, an impressive result considering that furniture manufacturing was a highly fragmented field.

Moreover, the company's expansion in the early postwar years could be attributed largely to Huffman's 1947 decision to spend sizable amounts on advertising and his 1950 decision to develop a force of salaried salesmen to replace independent commission agents. By 1957 Drexel's product line included 1,200 different pieces. The aim was to sell 50 to 80 related pieces of living room, dining room, and bedroom furniture in a basic style. Pieces from such correlated groups accounted for 80 percent of sales in 1956. The company's furniture was sold directly to retailers at 50 percent of list price.

During this period the company attempted, in the words of its merchandising vice-president, "to cover every fast-selling style field in the country." In 1948 nearly three-fourths of the company's sales were in the traditional vein (an eighteenth-century inspired mahogany style), but in 1955 traditional accounted for only one-third of sales. Sales of French provincial quadrupled in this period to one-fifth of all sales, and contemporary styles doubled to 36 percent. Sales of early American and colonial pieces increased from four to ten percent. In 1957 the product line also consisted of Italian provincial (a more contemporary look than French provincial) and casual, which included "ranch-type" styles. During these years bedroom pieces replaced dining room furniture as the top-selling group, and Drexel became the nation's largest manufacturer of bedroom and dining room pieces in the middle- and upper-priced brackets.

By 1957 Drexel furniture was available in about 2,500 retail stores in all parts of the country. A standard franchise agreement stipulated that a representative part of the Drexel line would be kept in stock, displayed to specifications, and locally promoted and advertised. Drexel's policy was to franchise only stores with a reputation for selling quality goods. About half of the dealers accounted for more than 90 percent of total sales.

By 1957 Drexel had ten manufacturing facilities, including six end-product plants located within 30 miles of one another. In addition to the original Drexel plant, these facilities included five factories in Morganton, three producing furniture and the other two for storage, samples, jigs, and fixtures. One plant was acquired when Drexel bought the Table Rock Furniture Co. in 1951. Two Marion plants produced contemporary furniture, with a third supplying parts for the other two. A facility in Kingstree, South Carolina, provided commercial veneers and gumwood panels.

Drexel was employing about 2,300 hourly workers, all nonunion, in 1957. In addition to wages for a 40-hour work week, they received an annual bonus under a company profit-sharing plan that amounted to between five and eight-and-a-half weeks pay a year. These workers, generally drawn from surrounding rural communities, traditionally worked one to each machine, with the operator usually pacing the machine and responsible for its performance. The average hourly wage in the southern furniture industry was $1.32 an hour in October 1956.

Through an exchange of common stock, Drexel acquired control in January 1957 of the Morganton Furniture Co., a producer of case goods (a trade term for wooden bedroom and dining room furniture) and Heritage Furniture, Inc. of High Point and Mocksville, a manufacturer of upholstered furniture. Heritage became a wholly owned subsidiary of what became Drexel Enterprises Inc., and Morganton a division of Heritage. Both acquired companies continued to operate autonomously, producing and selling their own regular brand lines. The purchase of Heritage in particular provided a dependable supply of high-quality upholstered furniture, which Drexel had never offered. Immediately following the merger, plans were being drawn up for a correlated line of bedroom, dining room, and living room furniture under the Heritage name.

The expanded company continued to enjoy robust sales growth into the following decade. A 1966 Business Week story ranked the firm third among U.S. furniture manufacturers, with annual sales of about $76 million. The article also listed Drexel as among the innovators in this traditionally low-tech industry. The company was cited for a process called conveyorized bleaching to reduce variations in natural wood and veneer skins in order to ensure permanence and uniformity of the finish. Conveyorized operations had also been adapted to upholstery, although two Drexel executives agreed that once the frame was made, upholstered furniture remained basically handcrafted.

By early 1968 Drexel was operating 16 plants and employing 6,300 people. Its product line had expanded to include institutional as well as residential products, including laboratory, library, dormitory, hospital, office, church, and hotel/motel furniture. The company's 65-year independent history came to a close on March 7, 1968, when Drexel Enterprises agreed to be acquired by U.S. Plywood-Champion Papers Inc. (later known as Champion International Corp.) for stock valued at $100 million. The agreement called for Drexel stockholders to receive nine-tenths of a share of U.S. Plywood-Champion Papers common stock and four-fifths of a share of $1.20 convertible preference stock for each of the 1.42 million shares of Drexel common stock.

A joint statement noted that the two companies served complementary markets, emphasizing their commitment "to broaden our separate product bases to provide a variety of furnishings and building materials for homes, institutional and educational facilities, hotels and commercial buildings." Karl B. Bendetsen, the newly elected chief executive officer of U.S. Plywood-Champion Papers expressed the rationale for the acquisition more succinctly, remarking, "our building materials create the space, and Drexel will help fill it."

Acquisition by a major building materials supplier--then the second largest manufacturer and distributor of forest products in the world--gave Drexel financial support for expansion. Additions had already been made to the High Point upholstery plant, the Hilderbran office and institutional furniture plant, and the Morganton chair and table factories. A new wood furniture factory was planned for Mocksville, North Carolina, while new automation machinery installed in the Whittier plant, which produced drawer sides and backs for other case goods factories, was said to make that facility one of the most efficient industry operations.

In 1971 U.S. Plywood-Champion Papers announced that the Drexel and Heritage lines would expand to include styles ranging from modern to Mediterranean in the upper-middle to high-end price ranges. Moreover, the company was engaged in organizing a full Drexel and Heritage unified retail system. Allen MacKenzie, president of the company's Furnishings Group, said U.S. Plywood would be able, within a few years, to supply an entire Drexel-Heritage retail system in-house, saving both retailer and consumer a considerable amount of money. This system, inaugurated the following year, consisted of distribution through Drexel Heritage stores (built or converted to the company's specifications), conventional stores (many of which installed galleries), and department stores. Sales through other retailers were cut drastically, and more business was conducted with fewer accounts.

Drexel Enterprises had sales exceeding $100 million in 1971. During 1975, in the wake of a nationwide recession, sales were only $86 million, but the company (eventually renamed Drexel Heritage Furnishings Inc.) remained profitable. Two years later, the Drexel Heritage unit was sold to Dominick International Corp. for about $57 million, of which about $40 million was paid in cash and the remainder in preferred shares and subordinated notes, a sales price that amounted to book value plus $1 million.

Under Dominick International, Drexel's retail efforts advanced significantly. In 1983, there existed 70 Drexel Heritage stores and about 330 other outlets for its products, and the unit's management team had drafted a goal of opening 30 more Drexel Heritage stores. The product line was also expanded, following the 1982 acquisition of Frederick Edward Inc., a Morganton upholstery manufacturer.

Annual Drexel Heritage Furnishings Inc. sales were in excess of $200 million when Masco Corp. bought the company from Dominick International in 1986 for an undisclosed cash sum. Once a midsized maker of auto parts and plumbing products, Masco had engineered more than 100 friendly takeovers since 1957, turning the Michigan-based company into three interconnected conglomerates. Earlier in the year, Masco had acquired Henredon Furniture Industries Inc. During the next few years, counting Drexel and Henredon, Masco would bring ten furniture companies for about $1.5 billion.

According to one market analyst, "the move into furniture was absolutely brilliant, but the timing was wrong." A recessionary economic climate between 1989 and 1991 hurt the housing market and consequently hit furniture sales hard. In 1991 Masco's Home Furnishings Group earned only $80 million--six percent--on sales of $1.4 billion, and the company as a whole registered its third straight year of declining earnings.

Nevertheless, Drexel Heritage was making preparations to forge ahead into a new century. Between 1993 and 1994 its outdated showrooms were replaced by a new 100,000-square-foot edifice on Highway 68 in High Point, and construction of a 501,000-square-foot warehouse facility was underway on Causby Road near Morganton. In 1994 Drexel Heritage maintained 11 factories. Ten of these were in North Carolina: at Black Mountain, Drexel, High Point, Hildebran, Longview, Marion, Mocksville, Morganton, Shelby, and Whittier; and one in South Carolina, at Kingstree. Drexel and Heritage wood and upholstered furniture and home furnishings accessories were being offered by about 75 Drexel Heritage showcase stores (which generally sold Drexel Heritage products exclusively); about 150 galleries of 10,000 square feet or more within larger outlets; and about 250 other locations.

Principal Subsidiaries: Southern Dowel Co.

Further Reading:

• "A Dealer Network for U.S. Plywood," Business Week, October 2, 1971, p. 59.
• "Dominick International Buys Unit of Champion International Corporation," Wall Street Journal, August 17, 1977, p. 12.
• Henkoff, Ronald, "Kinder, Gentler Takeover Artists," Fortune, June 18, 1990, p 91.
• Koselka, Rita, "Resetting the Table," Forbes, March 16, 1992, pp. 66-67.
• "Masco Corp. to Acquire Furniture Maker for Cash," Wall Street Journal, September 23, 1986, p. 48.
• Reckert, Clare M., "U.S. Plywood Gets Furniture Maker," New York Times, March 8, 1968, p. 55.
• Skinner, Wickham, and Rodgers, David C., Manufacturing Policy in Furniture Industry, Homewood, Ill.: Richard D. Irwin, Inc., 1968.
• "Technology Restyles Furniture Business," Business Week, November 19, 1966, pp. 94-96.
• Willatt, Norris, "Sitting Pretty," Barron's, April 23, 1968, p. 11.

Source: International Directory of Company Histories, Vol. 12. St. James Press, 1996.