Magic Carpet

When Philip Gutierrez escaped Cuba at age 17 in 1960, his first job was as a bellman at the White House Hotel in Miami Beach.

But you know how this story goes: From humble beginnings, Gutierrez today owns and oversees one of the largest companies on the Gulf Coast, Abbey Carpet Co.

Abbey's annual $1.8 billion in revenues last year eclipsed better-known Gulf Coast-based companies, including Rooms to Go ($1.5 billion), Beall's ($1.2 billion) and Arthrex ($1.1 billion). Abbey is the 14th largest company headquartered on the Gulf Coast, according to a revenue-based ranking of the top 500 companies from Tampa to Naples by the Business Review.

Abbey has more than 1,000 stores that sell carpet and other flooring products through a system of franchisees who are devoted to the company. Besides Abbey Carpet, the company also owns the Floors to Go and The Floor Club brands.

Gutierrez and a team of about 60 people at the company's headquarters in Bonita Springs give the franchisees the buying power they need to maintain the profit margins to make it in the tough real estate economy. It's a testament to Gutierrez' skill that the company's revenues have remained flat even as the industry got mauled in the downturn. “It's coming back now, slowly,” he says.

Gutierrez is a private man and shies from the limelight even at industry trade events, preferring to turn the podium spotlight over to Stephen Silverman, Abbey's president and chief operating officer. A soft-spoken man whom friends characterize as shy, Gutierrez rarely grants media interviews except to trade publications. But franchisees say Gutierrez always answers calls and is quick to help any owner, chatting with them one-on-one about their business.

There are plenty of reasons why Abbey stands out, but one key is that Gutierrez gives franchisees leeway to be entrepreneurial. While many retailers fret over data such as store size or sales per square foot, Gutierrez worries more about how satisfied his franchisees are with maintaining profit margins.

“He believes in the entrepreneur,” says Silverman. “This country has been built by people like our members.”

Plus, as the owner of the company, Gutierrez says he can make decisions quickly without a committee or shareholders. “I answer to my wife, and a few other people,” he smiles. That gives Abbey an advantage over publicly traded rivals. “We don't have to worry about next quarter,” Gutierrez says. “It does give you the opportunity to do long-term planning.”

Smart and lucky
When Gutierrez arrived in Miami from Cuba in 1960 as a 17-year-old, the first job he got was as a bellman at the fancy White House Hotel in Miami Beach. He moved to South Florida with his mother. “My father died when I was young,” he says.

Not long afterward, Gutierrez landed a job selling cameras in a department store. He moved to selling sporting goods, luggage and carpet, and then honed his sales skills with Miami Rug Co. from 1967 to 1973.

In 1973, Gutierrez joined Abbey to help the small company sell franchises. Milton Levinson founded the company in California in 1958 and picked the name of the company because the first three letters would guarantee it would be listed first under carpets in the phone book's yellow pages (Gutierrez later got rid of the monk that adorned the company's logo).

But it became harder to sell franchises with the economic crisis of the Jimmy Carter presidency. The oil shortage combined with high interest rates of those years halted growth. “That hurt the company quite a bit,” Gutierrez remembers.

Despite the downturn, Gutierrez and several partners bought out Levinson in 1980. “We had 45 franchisees then, mostly on the West Coast,” he says.

Ron Codron, a longtime franchisee in California, remembers those days. “While Milt was a genius, it took a Phil Gutierrez to grow this into the largest carpet and flooring franchise.”

It was a huge gamble. In 1980, Gutierrez says the company had a negative net worth of $3 million. At the rate it was growing, Gutierrez says he estimated it would have taken 50 to 100 years for a payback. “When you're young, it doesn't scare you,” Gutierrez says.

But 1980 was also the start of what would be a two-decade economic expansion, and Gutierrez invested heavily in marketing, merchandising and advertising. “We set up products under our own brands,” he says. “The only money we spent was on ideas.”

Silverman sums it up this way: “Smart and lucky are a great combination.”

Gutierrez moved Abbey Carpet to Bonita Springs in 1995, in part because most of the carpet manufacturers are located on the East Coast. “We wanted to be in the same time zone,” he says.

Plus, Gutierrez says he's partial to Florida. “We just like it here,” he says.

Entrepreneur leeway
Gutierrez grew Abbey at the rate of about 70 to 90 franchise stores a year, but he never took on neophytes. Instead, Gutierrez sought out seasoned independent carpet and floor entrepreneurs with well-established businesses in towns across the country. It's what's called “conversion franchise” in the business.

“The local operator has a big edge,” Gutierrez explains. Even against big-box stores, he says, “any one of our stores can compete for value. The difference is that the small operator is more hands on.”

Silverman says one of the best ways to find good franchise candidates is by talking to suppliers. “The one thing you can't replace is experience,” Silverman says.

Gutierrez is guarded about what it costs to buy a franchise (there's a franchise fee, plus royalties), but he persuades entrepreneurs to join Abbey by showing them the benefits of the group's buying power with mills, advertising and marketing. Annual rebate checks from manufacturers can total in the five figures, franchisees say.

“What Phil does is he puts a buffet out there; you can choose what works best for your market,” says Ted Gregerson, owner of Abbey Carpet & Floor of Anniston, Ala. “What works in New York might not work in Anniston.”

For starters, Abbey invests about $50,000 to $75,000 in fixtures, samples and signs in each store it brings into the system. “We spend about $3 million in advertising,” Gutierrez says. “We have our own in-house advertising agency.”

Gutierrez says franchisees can choose from more than 10,000 products, many of them branded for Abbey. That's important because exclusively branded products make it more difficult for consumers to comparison shop by price alone. “It allows them to preserve their margins,” Gutierrez says, ultimately helping the company maintain a low franchisee attrition rate of 1.5% today.

Gregerson says that's the most valuable lesson Gutierrez taught him. “It's not how much you buy it for, it's how much you sell it for,” he remembers Gutierrez telling him. “You try to buy as cheaply as you can, but there's always a bottom. The sky is the limit as far as selling it.”

For example, Gregerson sells wood flooring by mounting samples on two-by-four plywood boards, something he's done himself to appeal to local customers. “You can see it installed and it increases the value,” he says.

That's exactly the kind of entrepreneurial spirit that Gutierrez encourages. He doesn't pay much attention to measures like sales per square foot and doesn't tell franchisees how big or small their stores should be, brushing those off as “corporate” measures.

And Gutierrez says he doesn't believe that higher sales are the ultimate measure of success, either. A store that grosses $3 million a year might be better off financially than if it brought in $5 million but had higher expenses and lower margins. “One person's success is another's failure,” he says. “The success of the store is measured by the owner.”

Instead, Gutierrez is more concerned that franchisees maintain their profit margins and have the satisfaction that they're making a good living. “We have no rules about how you should operate,” he says. He asks franchisees instead: “Are they happy?”

The company's reputation is stellar, even after inevitable stumbles that all companies face at some point in their growth. “The most valuable asset we have is our trademark,” says Silverman.

For example, franchisee Codron remembers when some Abbey Carpet franchisees forged a deal to operate within Montgomery Ward stores. “For some of the franchisees who bought into that and lost, he bailed them out and he didn't have to,” Codron says.

“He's surrounded himself with really, really good people,” says Codron, who has owned Abbey Carpet & Floor of El Cerrito, Calif., for 38 years and knows Gutierrez from the company's early days. “When other people would be shutting down, our name gets bigger and bigger. He has spent a lot of his own money that he could have pocketed in order to do that.”

Tied to housing
Clearly, the company's future is tied to improvement in the housing market. When will that happen? “Ask the politicians,” Gutierrez says.

Silverman estimates that if Abbey had continued to grow at the same rate through the recession, revenues could have hit $3 billion annually.

Gutierrez notes that Southwest Florida is ahead of the nation in the housing recovery. “Naples and Bonita Springs are doing better than most places in the nation,” he says.

But Gutierrez is skeptical that the government efforts to lower interest rates will spark a housing rebirth because banks remain tight-fisted. “Interest rates don't matter when you can't get the money,” he says.

Instead, Gutierrez says he and franchise store owners are focused on being as efficient as they can. For example, the lean corporate staff consists of 60 people, all of whom are dedicated to serving the franchisees in one way or another. Seven people work full-time on consumer websites for franchisees, he says.

When he looks back, Gutierrez says Abbey grew by double-digit percentage rates for 17 years. “You get complacent and lazy about your efficiency,” he says. “When we come out of this thing, we'll be much better off.”