Telling Formica's Fascinating Story

I'll admit that I was shocked when I heard on the radio March 5 that the Formica Corp. had filed for Chapter 11 bankruptcy protection.

To me, Formica always seemed formidable. One of the most recognized brand names in the kitchen and bath industry, Formica epitomized the emergence of the modern kitchen that became a universal feature of U.S. housing in the years immediately after World War II.

The company's history is worth recounting in this column, because it parallels the modern history of countertop fabrication in general. Further information can be found on the company's Web site, www.formica.com, and in the book Top Sellers USA by Molly Wade McGrath.

In The Beginning
Plastic laminates, which gained enormous mass-market appeal as a decorative, durable and reasonably priced tabletop and kitchen countertop surfacing material, have been at the core of Formica's business since the company was founded in Cincinnati in 1913. Interestingly, though, decorative uses were not the original market for plastic laminates.

Formica's founders, Daniel O'Conor and Herbert Faber, were former Westinghouse employees who were experts in electrical insulating materials. O'Conor had developed a process of manufacturing electrical insulating materials by coating fabrics with plastic resins. They concluded that there was a growing market for such products in the rapidly expanding electrical industry, but believed that Westinghouse was doing a poor job of serving that market. So, they quit their jobs with the firm and started their own company.

A layered, translucent mineral called mica had been used as an electrical insulator in those early years, and the product from Faber and O'Conor was initially marketed as a substitute "for mica." That phrase became the name of the company.

The initial big market was manufacturing insulators for automotive electric starter motors, which were beginning to replace hand cranks with in the luxury car market. Interestingly, the National Electrical Manufacturers Association (NEMA) still controls technical standards for plastic laminates.

Defense orders during World War I caused another boom in business, and included insulating parts for military radio systems. The company's engineers also discovered that plastic laminates could be machined into lightweight, durable pulleys and gears, which were used in the aircraft industry.

After the war, the consumer radio industry took off, and developed into a good market for the young company. Plastic laminate gears were marketed to rapidly growing automobile companies, and also to textile machinery manufacturers.

Formica's relationship with the radio industry led to the first decorative application for plastic laminates. In 1927, the company patented a rotogravure process that enabled them to print a realistic wood grain pattern onto the surface of a sheet of plastic laminate, and they began selling this product for use in manufacturing radio cabinets. Wall paneling was the next logical market that offered increased volume potential.

During the Great Depression, the company gradually gained acceptance of this new decorative product, which was less expensive and more durable than real wood paneling. It was used extensively in the construction of New York City's Radio City Music Hall. Britain's Cunard Lines used it on its new luxury cruise ship, the Queen Mary. Such prestigious applications gained the company invaluable publicity.

Enter Melamine
A major breakthrough occurred with the introduction of melamine resins in 1938. Used as a topcoat layer, melamine was more transparent, durable and moisture-resistant than earlier resins used for this purpose. Plastic laminates were now practical for tabletops and kitchen countertops, and melamine's clarity meant that a wider variety of colors and patterns could be offered. However, World War II caused the company to place decorative products on the back burner for the duration, and return to products with obvious military benefit.
In late 1945, Formica was blessed with enormous pent-up demand for the decorative products it had perfected just before the war started. No new homes had been built during the war, and millions of veterans were returning to civilian life to begin families. By 1952, six million new homes had been built, and two million of them featured the
latest trend Formica kitchen countertops.

The 1950s and 1960s were the Golden Era for Formica, exemplified by the futuristic idea house the company built at the 1964 World's Fair in New York. Postforming of plastic laminates became practical with the development of appropriate resins. This is a process of applying heat to the material after manufacturing, allowing it to become pliable and bend to form shapes such as coved backsplashes and the famous "no drip" edge that characterizes mass-produced plastic laminate countertops.

As it prospered, the company also gained formidable competitors. Westinghouse, the former employer of Formica's founders, manufactured plastic laminates under the Micarta brand name. Other successful brands included Wilsonart, Nevamar and Pionite.

Craft-oriented fabrication of countertops gave way, in the mass market at least, to automated, efficient production of enormous volumes of countertop blanks at exceptionally low prices. Plastic laminate technology was now mature, and the only way to gain market share was through innovations in design and marketing. This added significant costs to a product that was once seen as innovative and modernistic but increasingly was perceived by many as outdated and generic. Whether or not entirely justified, such shifts in customer perceptions are difficult to reverse. The seed of Formica's current problems had been sown.
Formica's greatest strength in those years was consumer brand name recognition far higher than any of its competitors. This advantage was challenged in 1978 when the Federal Trade Commission's Denver office filed a petition to cancel the registration of the Formica trademark. The FTC claimed that "Formica" had become a generic name for all decorative laminates, and should no longer be considered a valid trademark. The company contested this vigorously, and eventually prevailed in protecting its famous trademark.

The last major technical innovation in plastic laminate manufacturing was the introduction of ColorCore laminates in the mid-1980s, which eliminated the characteristic black line visible at exposed edges of the laminate. Although ColorCore was technically elegant, it cost several times as much as conventional laminates, and was available only in solid colors. Accordingly, it was able to carve out only a limited niche market.

Competing Surfaces
It was another upscale, niche product that presented Formica Corp. with its greatest challenges in recent decades. Introduced on a limited basis by DuPont in the late 1960s, Corian was the original solid surface material. In the 1970s, it seemed to represent little threat to the plastic laminate industry. However, introduction of a successful joint adhesive system and integrated kitchen sinks allowed sophisticated custom fabrication to proliferate, and Corian gained both a luxurious reputation and a steadily growing market share.

In the 1980s, national competitors such as Avonite and Fountainhead entered the solid surface market, colors and patterns proliferated, and it seemed that almost every issue of every shelter magazine featured articles on solid surface materials. Despite the competition, or maybe even because of it, Corian sales soared.

Formica entered the solid surface market in 1986 with great fanfare, offering a product called 2000X. Unfortunately, the company encountered a variety of problems with 2000X, and it was soon withdrawn from the market. It was later replaced with Surell solid surface material. Years later, after a reorganization of Nevamar, Formica acquired that company's solid surface brand, Fountainhead.

From 1957 to 1985, Formica was a subsidiary of American Cyanamid. Since then, the company has undergone mergers, buyouts and corporate reorganizations in 1989, 1994 and 1998. Despite these efforts, the Formica Corp. has lost money every year for the past seven years. It has tried to stem the tide by introducing a variety of new products real wood laminates, metal laminates and plastic laminate flooring. In each case, the products were copies of those pioneered by other companies.

Last year, Moody's Investors Service twice downgraded Formica's credit rating, citing "seven consecutive years of losses, its excessive balance sheet leverage, thin interest coverage and negative tangible net worth and its constrained liquidity."

On January 8 of this year, longtime CEO Vince Langone was terminated and replaced by Frank Riddick III, formerly of Armstrong World Industries and Triangle Pacific. Major owners of the company, which is privately held, include Credit Suisse First Boston Private Equity, Citicorp Venture Capital, Ltd. and CVC Capital Partners Limited. The company retained the services of Lazard Freres & Co. LLC to assist in another corporate restructuring.

After the Chapter 11 bankruptcy filing on March 5, Reuters News Service quoted Riddick as saying that the niche for Formica products had been "eaten away over the last 20 years" by changing consumer tastes leading to increased demand for "solid surfacing, granite and other natural stone products."

However, in a statement released by the company, Riddick said, "Formica has a brand name that is truly an American icon, and it has the designs, innovative products and dedicated employees to propel its growth." Riddick added that Formica's operations would continue as usual, without interruption, during the restructuring process.

Time will tell whether this latest restructuring will save this famous company. I certainly hope that it's successful.

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