By Ken Ryan
Even amid a dreadful 2008 for the flooring industry, Royalty Carpet Mills has weathered the storm better than most. The Irvine, Calif.- based mill has no debt on its balance sheet, according to executives, and has not been forced to lay off any of its employees.

Although the company experienced an 18% decline in sales from 2007, Royalty was coming off a seven-year stretch in which it posted double-digit gains every year. “We’re probably the most sound company in the carpet industry,” said Paul Engle, vice president of marketing.

Dalton may be the carpet capital of the world, but Southern California in the 1970s was a bustling area for carpet manufacturing with roughly 55 to 60 mills. Today there are fewer than 10.

Royalty, the largest vertically integrated mill on the West Coast, has fueled its growth over the years via acquisitions. In 1992, it acquired Pacificrest Mills, which produces high-style, high-performance commercial carpet. It later acquired Camelot Carpet Mills. Today, both Pacificrest and Camelot are wholly owned subsidiaries of Royalty.

From 1999 to 2006, it acquired other assets and expanded the capacity at several of its manufacturing plants. It started a yarn plant in Porterville, Calif., and has since expanded and re-equipped the facility several times to where it now occupies 44 acres and 400,000 square feet of space.

It also opened a new tufting plant in nearby Santa Ana, giving Royalty five facilities in all— three in Irvine, one in Santa Ana and one in Porterville. “We have 1.5 million feet under roof,” Engle said. Its market concentration entails all corners of the United States, Canada and the Asian and European markets.

“Royalty Carpet Mills is no small company by any means, but you do get the feeling you are dealing with a niche or boutique type of mill,” said Tina Tomei, president and CEO of Home Site Services, a full-service flooring retailer in San Ramon, Calif. “You don’t get lost in the big corporate picture. Royalty truly customizes a program that will work to meet any of our customers’ needs in the marketplace.”

The business

Eighty percent of Royalty’s business goes through residential retail, with about 20% builder related. Of that 20%, 10% to 12% is contract commercial. The company sells to Lowe’s and Home Depot, the Abbey group, Floors to Go and CarpetsPlus. On the commercial side, it sells to ProSource.

“Commercial is still pretty stable for us,” Engle said. “The residential contract/builder business is obviously in the toilet. We took our biggest hit in our builder business.” Most of its retail carpet business is in the $10 and up category, according to Engle. Camelot retails for between $18 and $35 a yard.

Engle noted that the company has done two things to offset the downslide in the economy. The first, which was put into effect two years ago, was to stop using independent reps for its Royalty line, instead going with full-time employees. “It comes at a cost,” he said. “We have to support them with samples and work out some type of compensation to subsidize that effort. The way we look at it is the average agent in a given area—the sales derived from that territory— is about 10% of what I would get if I put my own person in there.”

The second was to move into the multifamily market. “We’re inching our way into it,” he said. “Our plan is not to reinvent ourselves but rather augment our business with multifamily. We’re keeping the harness on it so we don’t get too out of whack. We’re picking and choosing our partners carefully.”

Culture of quality

Royalty and Camelot are known for their trendsetting textures and colors. Everything is made with nylon 6,6. “We have not capitulated and gotten into the cheaper fibers just to be able to produce a cheaper product,” he said. “One hundred percent of what we make is nylon 6,6. We have a great reputation for quality products. Our culture is to make it right the first time.”

As a California mill, Engle said Royalty is closer to the fashion trends; it’s part of the West Coast culture. “Styling is more creative in the West while low-cost production is more fashionable in the East and South.”

Retailers agree. “Royalty is a class act,” said Jodi Cross, co-owner of B&B Mill Sales, Anaheim, Calif. “Its carpets are all top quality with great styles and they have a great California-based color line so when our customers come into our store, Royalty sells itself. Royalty also takes care of any problems that may arise in a timely manner, and the consumer is always satisfied with the outcome.”

Tomei added, “From the top down, Royalty has always been a fabulous mill. The product line has beautiful styles, colors and patterns. Between Royalty and Camelot, all our homeowners’ needs can be met. Their products are made with the best the industry has to offer.”

When it comes to EPA standards, no state is more stringent than California. For a decade, starting with its commercial division, Royalty has made sustainability a core value even before it became the cost of doing business. At Royalty’s facilities, for example, 80% of the water it uses is reclaimed. Each year it saves more than 150 million gallons by using more than 600,000 gallons of reclaimed water in the dying and manufacturing process.

In 1993, Royalty installed two co-generation engines that use natural gas, which produces as little as one-twentieth the emissions of coal or oil traditionally used to generate electricity alone. Through this system, steam is created, which in turn generates the electricity used for Royalty and Camelot’s manufacturing facilities. One clean burning fuel source generates two types of energy—electrical and thermal, thus Royalty and Camelot reduce energy demand on the local public utility company as well as the regional power grid.

Other environmental initiatives include:

• Unusable nylon is collected and sold to be melted down for use in the manufacture of automotive parts. This reduces the demand for virgin raw materials made from petroleum.

• Royalty and Camelot use heat recycling technology that reduces energy and eliminates tons of air emissions each year.

• Royalty/Camelot was named a Clean Air Partner by the South Coast Air Quality Management District for achieving—five years ahead of schedule—the 2004 target levels for nitrous oxide emissions.