Case goods producer completes multiyear expansion expected to double its capacity
BERKELEY SPRINGS, W.Va. — Solid wood furniture manufacturer Gat Creek has completed a $10 million expansion here that not only is expected to double capacity, but that also renews its long-term commitment to a domestic wood manufacturing model that has long since been abandoned by most in the industry.
The expansion has added about 40,000 square feet of space, bringing its total to 140,000 square feet at its production and distribution facilities.
With the added capacity, the company expects sales to rise from $30 million to $50 million, although the economy will also help determine the extent of its sales growth. Over time, it also is expected to add 65 jobs above the 150 employed there when the project started, bringing the total to about 215 workers.
Occurring in a few major phases, the project started in early 2021 with the expansion of employee parking for additional workers, continuing with the expansion of a wood processing area, followed by an expanded maintenance area. Then the company installed a new dust collection system, followed by a second finishing line, which came online in mid-January, completing the last major phase of the project.
As part of an investment that included steel and building costs, the company also invested in new equipment including the following:
+ $550,000 for a rip/chop optimizing saw system made by Cameron Automation in Paugkeepsi, New York. This system will eventually reduce labor requirements in the panel shop by 50% while improving lumber yield.
+ $400,000 for a fourth Homag five-axis CNC router. Company CEO Gat Caperton describes this as “the technology that is powering a lot of the U.S. manufacturing renaissance.”
+ $1.5 million for the replacement of a 50-plus-year-old dust collection system.
The aforementioned second finishing line designed and built by Production Systems Inc. in High Point cost about $1 million. “This is essentially a mirror system to our existing finishing line and what ultimately allows us to double our capacity,” Caperton said.
By doubling capacity, the company will be able to serve both existing and new customers with improved capabilities that meld the machining of parts with human hands to manufacture a custom line available in four primary wood species — maple, ash, walnut and cherry — as well as 65 finish options and hardware available in three finishes including polished nickel and burnished or satin brass.
Everything in the line is made to order based on customer requests of the various wood and finish options. True custom, where the customer presents a drawing with certain specifications and/or request for a different size or scaled piece, represents less than 1% of what the company produces, although some of these orders end up being what Caperton describes as “a pretty good request. You go ahead and do it because you get a chance to learn from it.”
Gat Creek’s model is similar to some other domestic wood furniture manufacturers in that it relies not only on its own factory, but also the production capabilities of outside manufacturers. Its Berkeley Springs plant handles about 50% of its white-wood production, including the production of all its tables and beds and some accent tables. Meanwhile various privately owned Ohio workshops handle about 40% of its production, including drawer boxes and case pieces with drawers and other storage, along with select items such as bookcases. The remaining 10% includes wood dining chairs that are produced by a number of interrelated workshops.
Started with an overall design concept back in early 2020, the project also showcases the company’s willingness to embark on a major expansion — its first since a $2.5 million expansion completed around 2005 — during a period of increased demand during the pandemic. This demand required it to fill orders at a breakneck pace, while adding square footage in a multiphase effort that encompasses everything from the machining of parts in the wood processing area to wood finishing.
During the process, the company ran into a number of challenges, ranging from obtaining steel for the expansion during a period when steel was in short supply. This could have delayed the start of building by a year. However, the company chose to secure the materials from another supplier, which in turn drove the cost up by about $100,000.
High demand, a good problem in normal times, was also a challenge. Caperton said the plant was running at about 80% capacity before the pandemic. However, starting in early 2020 demand rose significantly as it did for other companies, manufacturers and importers alike.
“We got done with 2019, and that was the last kind of normal year before the pandemic,” he said. “And then we had the chaos of the pandemic and then the sudden rebound post-pandemic, and we went from being at 80% capacity to being 20% over (full) capacity based on the incoming order rate. As we got to the end of 2020, we had gotten through about six to eight months through the pandemic and we realized we were in a position where we just couldn’t build the amount of furniture we were able to sell.”
Ultimately this caused lead times to go from a more typical four to five weeks to 23 weeks.
“The other challenge with doing an expansion was that we had a giant backlog,” Caperton said, of the rising lead times and demand that kept the plant running at full speed and then some. “We needed to produce and add capacity the whole time. We couldn’t shut any part of the shop to rebuild another part of the shop. We had to build part of the airplane while the airplane was still flying.”
Today, thanks in large part to the expansion, and the company’s integration of both new equipment and a second finishing line, it has lowered lead times back down to about five weeks this past summer.
Caperton said how the company dealt with the increased demand — and ultimately reduced lead times — came down to key decisions any manufacturer faces during challenging times such as the pandemic: One, you can limit the amount of customers you serve or take on. Or you can add capacity.
“We decided to add capacity, which is needless to say, not an easy decision on a couple of fronts,” he said. “One is that no one is adding wood furniture capacity in this country, nor have they done it in a long time. And you know the last time we added capacity was 2003 through 2005 and it about killed us. It was tough. We got it done and then business got really hard the day we finished adding capacity. … It almost took us 13 to 14 years to fill up that added capacity.”
Caperton was speaking of the downturn that began and lasted years beyond the financial crisis. Yet persevering not only through that downturn but also throughout the pandemic shows the dedication Caperton has to the domestic side of the business.
The son of former West Virginia Gov. William Gaston Caperton III, Gat Caperton attended Davidson College in North Carolina where he earned a degree in economics in 1990. After graduating he became an associate at Equity Group Investments in Chicago and during his employment there he attended the University of Chicago, earning an MBA in 1996.
That year began his odyssey in the furniture business when he purchased Tom Seely Furniture, a manufacturer of antique reproductions, which Caperton describes as primarily oak pedestal tables and Windsor chairs along with some companion “giant cupboards” and a line of Chippendale and cottage-inspired furniture.
Caperton said that when he first purchased the business, he assumed it didn’t carry “fashion risk.” In other words, he believed that people had purchased antique styles for years and would do so for years to come.
He said as the ’90s closed, he learned differently and started developing, building and selling product under the Gat Creek name that appealed to a younger set in their early 30s as he was at the time, the equivalent of today’s Gen Z.
“We ran Tom Seely for a while, but the product was getting old,” Caperton said. “It was still selling relatively well but we realized that stuff that I wanted to buy and my friends wanted to buy was different than what we were making. And so we started making a little more contemporary type furniture and we just started calling that something different.”
Around 2008, he noted, Gat Creek sales well overshadowed Tom Seely Furniture sales, and the company started using the Gat Creek brand name solely.
The name of the business harkens back to his days growing up in West Virginia “in a contemporary house surrounded by trees and mountains,” according to a bit of family history in the company catalog. There was also a creek in back in the valley at the back of the house that Gat Caperton claimed to see first, proclaiming to his brother that it was “Gat’s Creek.”
“My brother protested. I boasted,” the entry reads. “Giving in to the fatigue created by chasing two boys under 5, our parents simply relented. “OK, it’s Gat’s Creek.” The name stuck and actually appears on maps now. My brother eventually kindly forgave me. Today Gat Creek lives in our minds as a home of youth, nature and discovery — the essence of furniture you will find in the following pages.”
Clean-lined styling remains a core part of the line, although the company also has some traditional, colonial and cottage-inspired furniture — including some updated Windsor dining chairs — that speak to today’s consumer with updated forms and updated wood and painted finishes. As the line is solid wood, 90% of which is sustainably harvested from a 500-mile radius of its factory, it is sold at upper-middle price points, with queen beds retailing around $2,500 on average and full-sized rectangular extension tables retailing for around $3,000 on average.
But adapting styles to younger buyers was not a guarantee for success. When he purchased the business in 1996, it came during a period of major acquisitions when conglomerates came in and attempted to consolidate the business in an effort to become hugely profitable for their shareholders. This model, while fraught with its own challenges, added a layer of intense competition.
During, and even prior to this period, a wave of imports also began to emerge, first from Taiwan, then China.
The pricing tactics of those Chinese and Taiwanese companies ultimately led a group of domestic producers, including Gat Creek, to seek a government investigation on wood bedroom furniture from China in 2003. The group of petitioners alleged that China was dumping wooden bedrooms into the U.S. market, namely selling finished product below materials costs, a violation of international trade laws.
This ultimately led to a contentious debate that pitted the manufacturers against importers and many retailers that had gotten used to the huge profits of the Chinese-made bedrooms. The debate came to a head when the government ultimately placed duties as high as 200-plus% on the Chinese-made bedrooms, ultimately shifting the category to Vietnam, another low-cost country.
While the issue created some archrivals in the business that may last to this day, Caperton obviously stuck to his manufacturing roots.
“We wanted to be a manufacturer,” he said. “We are all marketers to a certain degree, but we really wanted to be a manufacturing facility. And when I bought the business, even in those days, there were a lot of folks that were 20-plus-year employees. I wanted to make it work. I just had no desire to fire everybody and become an importer. That’s not who I saw myself being.”
Duties ultimately did not stem much of the imports, as wood bedroom and some dining production shifted to Vietnam.
Where Gat Creek has been successful is in creating a niche based on its use of solid wood species in a custom 100% made-to-order line. It also employs a lean manufacturing model inspired largely by Caperton’s fascination with the Japanese Kaizen business philosophy of a process of continual improvement that involves all team members in an effort to build quality while also lowering redundant or wasteful steps in the process.
This lean model can be seen today in the company’s integration of advanced manufacturing equipment including five CNC machines, several routers and a lathe. The company allows the machines do what they do best, namely shaping parts, while the employees assemble and finish those pieces by hand.
“Waste is what customers don’t pay you for,” Caperton said. “They don’t pay you to move a part from this area to that area, so you want to eliminate that. Machining a part into a nice shape, they will pay for that. Finishing they will pay for that. … So you really want to eliminate the none-value-added parts of your manufacturing process and focus on that. And that’s what we’ve done.”
Its lean model also is seen in low inventories of raw materials that are used in the finished product.
“Capital is a pretty finite thing — you can only get so much of it,” Caperton said. “It’s hard to raise capital in the furniture business, especially when you say I want to build a furniture factory. … The banks and the investors, you know, look at you kind of funny.”
But he said this is where the company’s efficiencies come into play, particularly in the turn of materials inventory. Caperton noted, for example, that Gat Creek has about 12 turns a year on its inventory, compared to some importers in the industry that turn inventory three and a half to four times.
“So to be efficient with your capital is the key to survival, being capital efficient,” he said, adding that investments in technology help the company achieve such efficiencies. “And it’s often lost in the overall business world and often in this industry. So we are very efficient with the capital that we have, and a lot of that goes around working capital, which is basically our inventory and our receivables and our payables. We have designed a manufacturing system designed to keep our inventories low.”
But he also noted that investments in new equipment doesn’t necessarily mean a reduction in headcount. On the contrary, Gat Creek is adding jobs.
“You know there was an old paradigm of robots or technology replacing people, and if you go back to 20 years ago or 30 years ago part of that was true,” he said. “We will get this brand-new machine and it will replace four people for us or five people for us.”
But he said that is not the model with his latest expansion.
Citing another benefit for the business and its customers, Caperton noted that a company can grow its revenues, not to mention compensation for its workers in a couple of key ways: either by raising prices or increasing productivity. It chose the latter.
“It isn’t about bringing in a machine to replace a person,” he said. “We bring in a machine and we advance a person’s capabilities and their productivity. … It is what you hope happens with AI. It’s also what’s happened to us where we can really bring technology in and it makes it a better job, a safer job and a more productive employee. And the best way you can increase raises is to have your people be more productive.”
Once the backlog fell to about five weeks this past summer, Caperton said that the incoming order rate and production rate “moved back into equilibrium at 95% of our facility capacity,” or what he also calls the furniture factory version of a “soft landing.”
“It really wasn’t soft but it was manageable,” he said, noting that it didn’t require layoffs or large reductions in work hours.
With the expansion completed in January, the plant is running at about half its full capacity. This ultimately should allow the company to grow into the facility over time, adding the projected jobs as business and orders demand.
The question facing Gat Creek now is whether the economy will cooperate.
“We certainly worry about the economic slowdown,” said Caperton. “The last time we expanded our factory capacity in 2005, the economy slowed dramatically and it was hard. I believe the economy and our business is in a better place than it was in 2005. We have more bumps ahead, but the trajectory will be up through the decade … as long as a war doesn’t break out in the South China Sea.”
Should that happen, it will certainly impact others in the business, not the least of which are importers bringing in product from that part of Asia.
Now and in the future, Caperton said his plant will provide long-term domestic production for those customers who want that option.
“Obviously I am a little biased, but I think people really like to have onshore capacity,” he said of the value that he believes customers will also see in the plant, which he also noted “is operating in a way they would be proud of sourcing from. It offers a level of security in terms of supply chain and just a commitment that’s pretty unique. And for the consumer, having a newer facility allows us to build better furniture and we are able to provide better service in terms of consistently lower and consistently reasonable lead times. And hopefully with the capabilities, we can do stuff we just couldn’t build before.”