Buyout to bolster Beacon biz

Don Hogsett, August 3, 2001

Swannanoa, NC — In a second strong dose of good news for a battered U.S. textiles industry — following last month's resuscitation of Crown Crafts — Beacon Mfg., the century-old blanket manufacturing arm of bankrupt Pillowtex Corp., has been sold to a group of managers and industry veterans determined to restore the company to its former glory as the nation's largest producer of blankets.

The buyout group, led by an Asheville, NC, investor and three Beacon veterans, is paying $16.8 million in cash for two manufacturing plants, an acrylic blanket plant in Swannanoa, and a cotton blanket plant in Westminster, SC. The buyout team has also struck a deal to license a powerful portfolio of Pillowtex brands, including the Cannon, Fieldcrest, Royal Velvet and Charisma nameplates. The deal is subject to bankruptcy court approval and is expected to close early in September.

The deal comes as a win/win for both companies — with the blanket business losing about $3 million a month, it removes a huge drain from the strained Pillowtex operation; and at the same time it provides the Beacon business with a tightly focused, ferociously dedicated management team fired up to rebuild a business which had withered under the weight of financial and management turmoil at Pillowtex. Over the past few years, Beacon sales have fallen sharply, dropping by more than half to $90.6 million last year from a high of $203 million in 1997. Sales are forecast to fall even further for all of 2001, to a level of $70 million to $72 million, for a four-year free fall of 66 percent.

Heading up the buyout team as its financial keystone is Asheville, NC investor John Kuklenski, who will function as ceo of the newly independent Beacon. Industry veteran Tedd Smith, former Beacon head of sales, and most recently sales chief of rival Charles D. Owen Mfg., will be named president of the new company. A third Beacon manager, Kenny Hines, with Beacon since 1990, will become executive vp, sales and marketing. Completing the buyout group is Steve Good, a six-year Beacon veteran, who will head the company's manufacturing operations.

Kenny Hines, one of the equity partners and new sales and marketing chief, told Home Textiles Today, "We're feeling good. We're excited about it."

At the same time, he noted, he and other managers are keenly aware of the challenge that lies ahead in rebuilding sales and profits. "It's not going to be easy, and we've got a lot of work to do."

Beacon sales, he acknowledged, "are down dramatically" for a number of reasons. "The company lost the Disney license, which was a considerable amount of sales," said Hines. Another important factor was the consolidation of the Beacon and Pillowtex sales forces after Pillowtex acquired Beacon from California financier David Murdock in 1997.

Careful not to criticize Pillowtex, Hines said, "Pillowtex made a lot of decisions that were in the best interests of the parent company. When they consolidated the sales forces, the Beacon operation was suddenly at the bottom of the food chain. All those Pillowtex sales people went after the bigger business and spent most of their times selling sheets and towels the way they always had. So we lost a lot of sales to people who had a dedicated blanket sales force."

As a further consequence of the sales force consolidation, said Hines, "the non-traditional channels of distribution" took a back seat at Pillowtex, damaging Beacon's considerable infant's and institutional businesses. "They didn't go after those non-traditional retail channels, so the infant's business declined from $35 million in 1997 to less than $2 million last year. The institutional business went from $13 million in 1997 to under $2 million last year," said Hines.

"It was really a focus issue, where they put the emphasis." And now, said Hines, Beacon is out to rebuild its sales base by retrieving some of the infant's and institutional business that had withered under neglect. "I think we have a terrific opportunity to rebuild the business."

Over the next two years, Hines said he expects Beacon to rebuild sales past the $100 million mark. "That's well within the cards within the first two years — not necessarily from the retail market, that's tough and very competitive; but from the channels we had turned away from."

Another powerful tool to build sales, he said, "is the very impressive assortment of brands. We will continue to build our sales with those, and under our deal with Pillowtex, Beacon products, at least those with the Pillowtex brands, will be in the Pillowtex showroom during market."

At least for the near term, said Hines, the new Beacon will be showing at New York City market out of a hotel showroom. "I don't think we want the overhead of a permanent showroom right away, so we'll be in a hotel suite."

And importantly, he added, "We'll be showing a lot of new product at market. There will be new product under the Pillowtex brands, and you'll see the Beacon name come back with some of the classic heritage looks that made it a household name."

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