10 Questions With ....

Marty Davis

CEO, Cambria

Ever since Marty Davis brought Cambria quartz surfaces into the market in the eary 2000s, his company worked to expand beyond engineered stone's beginnings of bland looks and junior status in the world of hard surfaces. Over the years, it's become a leader in pioneering sharp-looking interpretations of granite of marble -- along with other original designs -- and maintaining quality production.

And, on the sales side, he's had a knack for getting market attention, from opening the first corporate studio/shorooms for products to hiring celebrity brand ambassadors to luxury suites showcasing the product at North American sports facilities.

For the hard-surfaces industry, however, none of that compared to the focus on the Minnesota company (and its CEO) after it filed a complaint with the U.S. government last April alleging unfair trade practices by quartz-surface producers in China.

Depending on the perspective, Davis became the rallying point or the target of anger as federal agencies ruled in favor of Cambria in a series of decisions.

The last decision in November, imposing a massive tariff on Chinese quartz imports that's back-dated to mid-August, could be finalized this spring and have U.S. importers owing the government more than $300 million.

So how does Davis view what's happened -- as well as what the fugure may bring for his company and the industry in the near future? Stone Update caught up with him in early January.

As the unfair-trading action stands now – is this what you expected when Cambria began the process last April? And that it would happen seemingly without delay?

DAVIS: We didn't know what to expect. It was an entirely new frontier for us and something we'd never been involved in before, but we were told early on that the process moves quickly so we were optimistic about the timing. We knew that the market was being disrupted, so timing was of the essence. We are very much free traders and we believe that you cannot have free trade without fair trade. Tariffs are trade-enforcement tools in most cases. I think it's important for people to understand that. Our trade-enforcement actions will protect the U.S. fabricator long term. It's a very strong opinion, and I think it's close to a fact. Time will tell if it's a fact.

There’s already speculation that Chinese quartz-slab producers will move factories to other countries to evade the tariffs. What’s your response?

DAVIS: That's fine by us, as long as they go to market-based economies and trade fairly. It's always been our position at Cambria that if we're competing on a level playing field, we're anxious to compete. If they go to non-market-based economies, then you'd have to ask why are they going to those economies instead of building in America? The answer is simple: If they're going to non-market-based economies where the government subsidizes manufacturing, then the traders and other people involved get an unfair advantage. If they go to market-based economies and trade fairly, we get to compete with suppliers from all over the world, and we've never had a problem with that. We've never taken issue with it. But when you're competing with a treasury of a government, it's impossible to compete, and so that was the difference with China. If they go to a couple of these other countries that do the same thing, they'll meet the same members of the U.S. government. But if they don't, we'd love to compete. We developed our designs because we were trying to get an edge in the market. We developed the first quartz designs inspired by granite because Caesarstone had a good position in the quartz market. They were a very good company, it had good leadership with Mr. (Arik) Tendler when I got into the business. Silestone had Home Depot. Our way to get in was through innovation, and competition drove us to that.

If there is full enforcement of the critical-circumstances provisions, that’s going to mean a total – based on customs values already reported by the USITC from August-October and a conservative projection for November – that’s likely more than $350 million. Who’s going to pay that?

DAVIS: Well, I would think the traders and resellers will have to do it. They're the ones who took product that's illegally dumped in the country and took the margins from it, huge margins. There's a reason that the traders and resellers who have warehouses and sales reps are so worked up over this. They were gaining huge margins on this illegally traded product. So I would think that they would have to pay. What people need to understand is those sales that were subsidized by the Chinese treasury were taken from the U.S. market, so domestic suppliers like us and other suppliers in this market, we lost that money. For sure we did. Our plant went down to lower capacity. We laid off workers. In addition to that, we had two new lines on the verge of being ordered and we had to stop the orders for it. That was all disrupted by that exact circumstance. Who's going to pay for that? I had to pay for it. I think the point to be made is if it's several hundred million dollars, that's how much the Chinese government and the resellers, these traders, hijacked the American manufacturing marketplace. It's right down the pipe. That's exactly what happened. I think the fact that the critical circumstance sum is at that level should provide proof for everybody of how much of our category was being hijacked by the Chinese treasury and the resellers. The resellers are as complicit in this as the Chinese government.

That effect on Cambria and U.S. quartz manufacturers was cumulative. This is something that looks like it's going to happen to everybody all at once, and due and payable immediately. What's that going to do to the industry?

DAVIS: Who's going to pay are the ones who were trading the illegal goods. They got the money. They have the money. They kept the margin. They didn't give it to the fabricator. The thing that's been hard for me to explain to people unless I can get in a group and talk about it with a back-and-forth exchange – because I certainly don't pretend to have all the answers – but the fabricator was getting cheated by this too. The fabricator likes low cost, high supply, but it’s a fuse that's burning. The biggest piece of that margin, that pie, was being taken by the reseller and that's who's got that money. The fabricator doesn't have that money. The kitchen-and-bath dealer doesn't have that money. The consumer didn't get the money. Whoever traded that product got that money. If you think about what happened to the granite industry in this trading situation, look at all the product that was dumped in here on the granite side of the business and you ask yourself, "Why didn't the MIA do what we just did? Why did they allow that?" You pay a huge tariff to sell granite to Brazil. You pay a huge tariff to sell quartz to Brazil. Why did we allow Brazil and other countries to dump granite into the U.S., eliminating the US domestic industry, driving the price down terribly and often times from subsidized markets like China, non-market-based economies? If you take quartz down this same path that granite went down, the fabricator will get burned just as bad as they were getting burned on granite. It would have happened. Now, we've got the tariffs in place, so we hope that we're going to stop it, but that's where it was going.

Isn’t quartz-surface oversupply in the market going to continue for the first half of 2019? What do you think that will do to pricing and sales overall in the industry?

DAVIS: I think it's created a stagnation in the market and I think it's going to take a while to work out that illegally dumped product. There's nothing you can do about it. Like you said, the government actually moved pretty fast. The reason the critical circumstances got activated is the government noted, after we filed our petition to review the circumstance, how much the dumping increased, and I think that really bothered the people that do the work around this in Trade and Commerce. There's a lot of product in this country, and I think it's going to take time for that to work away. If you think about it, Daltile, LG and Caesarstone all were importing Chinese material knocking off our marble collection designs. We couldn't figure out how they were making this stuff, and then when the (Section 301 general) tariffs came in, it became evident that their supply was Chinese. I think the market's knowledge of what product is what redefines the supply chain a little bit. All of that is going to take time to work its way through the system and for people to really understand the definition of these various products. As I've told Daltile, which is Mohawk (Industries), and I told them this two years ago, I can't wait for you to start up your U.S. manufacturing. Think of me saying this as a domestic producer to a competitor that's going to build a factory. I said, "I can't wait for you to start up because you're going to get real economics finally and when you do, we'll be happy to compete with you. You'll compete with us, we'll compete with you and it'll be what makes it all work." I tell it to them every time I talk to them, and it's the truth. By the way, when Caesarstone built its plant in Georgia, they found out what the real economics of producing this material is. Okay? No subsidies, no nothing. We don't have a single subsidy at our factory. Not one. In fact, we gave the TIF (Tax Increment Finance district) money, when we built the factory, to the city of Le Sueur and they used it for booster stations and water towers. We needed the money at the time. We didn't have any money. But we didn't take a penny.

In 2017, Cambria cut production days from seven to five and laid off 115 production workers. When do you think the company will be back to that seven-day, higher-employment level?

DAVIS: I would tell you that the layoffs went up to about 185. Worse than that, we would have put another 200 to 300 on if we'd have built those two more lines. As to getting back up to seven days and adding lines like the ones that we put on hold in 2016, that goes to the earlier question: How long is it going to take for the market to weed out all this illegally dumped material? I don't think we're going to see that effect for a bit. It kind of ties to who's going to pay. For that $350 million, if they raise their prices up to market prices based on a market-based economy, we'll all get to compete fairly and somebody's going to win the share, and I guess the best person wins as it should be. So I think that whole thing has got to shake out.

You recently said that Cambria would only be made at the LeSueur plant and the company acquired more land in the area. When will we see expansion?

DAVIS: We only plan to service North America from Cambria in Le Sueur. As to other products, we can't say. We're always interested in diversifying. You saw that when we got in the airline business. (The Davis family owned Minnesota-based Sun Country Airlines from 2011-2017.) And we'll look at different opportunities. I will say we're committed to this building products category. We like the business, we love Cambria. We started it from scratch. I was one of the first employees of the company. We had five employees the first month. So we're very endeared to it. We like quartz. We think it's a design business, and we've got to keep innovating. If we can continue to innovate and advance the technology around quartz, There's a lot of opportunity for it. A lot of good opportunity. If there's opportunity to diversify in this category, we'd look at that.

One thing the Chinese import boom showed is a desire for more value-priced options. Is that a market that Cambria may address, possibly with different branding and different manufacturing?

DAVIS: I would say that we could diversify our offering. Absolutely. But with the illegally dumped product in here, that opportunity is obviously nonexistent. We were exploring those options and also opening up our supply chain. We've opened up our supply chain substantially in the last four years and that particular strategic move certainly was disrupted by this dumping, right? So it kind of threw off our plan. When I first got in the business, Mr. Toncelli (Marcello Toncelli, founder of Breton S.p.A.) used to talk to me about porcelain, and I think it has a place. I still think that quartz is a better countertop. I give Mr. Cosentino (Francisco “Paco” Cosentino, president of Cosentino Group) great credit for being such an innovator and an entrepreneur, as he did with Dekton® and he took a great risk. He's a real champion and a winner and a visionary. And some of their new designs are outstanding. We think there’s going to be real competition for us, and we're going to have to go out there and earn the market. Quartz has some advantages in different ways and we've got to continue to advance the technology to make quartz better and service it. That's what the porcelain guys are going to do, right? And then there are these other mixed products, agglomerated products too. We looked at porcelain a couple of years ago in terms of adding it as a line for us and we passed on it. We passed on it because we needed to focus, we felt, on quartz and to continue to advance our technology. But it's a good product and it's certainly got a very strong position for outdoors and in claddings. They're going to continue to work hard to earn some of the countertop market, and time will tell.

Other than import issues, what are the three biggest challenges Cambria faces in the next few years?

DAVIS: Well, we think the challenges are opportunities. We focus on innovation, advancing technology. That's the number one thing we think about, and I look at our challenges as opportunities. I'm not trying to make a cliché out of it, I really do. That's I think the biggest challenge any of us have. Secondly, to build a really robust sales and service organization that serves the markets and advances our touchpoints in the markets, so everybody can get our product. That's a big challenge, and it's again, an opportunity. The third thing, if you've got three, that we have nothing to do with, is what happens with this economy, right? Where does that thing go? It's a circus a week right now in Washington, D.C. The American consumer and the American businessperson are really trying to figure out what's the new normal on that. With the economy, you're in partnership with the government. I think about what's going to happen to the American business platform as it relates to our government and our politics, not only federal but state.

The relation in general between quartz-surface producers and surfacing professionals as a group has, frankly, been distant at best. Wouldn’t some changes in this make for better understanding within the industry?

DAVIS: We're very active. We've been at the kitchen show (KBIS) for many, many, many years and they combined the builders in the kitchen show. We invest $1 million a year in that show. Then we probably invest about upwards of $2 million in a lot of regional shows. We're very active in the market. I think the thing that throws the fabricators off with us a little bit is when we started in some markets, we were really concerned about making sure we made a quality product and that we delivered a quality product. We partnered with certain fabricators that we could work together with to learn the business and learn about quality and that kind of thing, and so we had more closed markets at that time. We have much less of that today. It was more of just trying to develop a brand and quality in the channel. We've done that and we've kind of worked with the industry to do that. But you've got to remember that when we first got in this thing, people really fought this product. They wouldn't elevate it in their offering and so we tried to find people that would elevate it so that we could get it going. The granite industry was very protective, if you will, and very hard on quartz. Our routes to market were dictated a bit by the acceptance of this product line, and quartz as a product line was almost, I don't want to say blocked, but it was restricted in who would be interested in carrying the product back in the early days. I mean, the Marble Institute did not embrace this product, so the category had to fight city hall, if you will. That put us in the early stages, in a little bit of a conflictive situation with the channel. We've always had high regard for the fabricators. We were the first company to really go direct to fabricators, and we did that in a big way. Caesarstone ultimately did too, with Mr. Tendler, but they kind of pivoted over to that. Silestone had the connection to the fabricators through the home centers and they did a nice job of advancing that market and that's how it kind of took off. I get befuddled that a fabricator's mad at Cambria for filing these trade-enforcement actions to protect this domestic industry when huge amounts of fabricated material are being dumped into this country and bypassing the United States fabricator. And where is MIA on that? Where is everybody on that? How is Cambria the devil when we went and asked the government to look at existing U.S. trade law and determine if it's been violated? When the government determined it was violated, it imposed a tariff, as you know, which is a trade enforcement tool. The whole thing in the stone industry where there's a group of people trying to boycott Cambria; I sit back in our factory and, I'm like, where are these people coming from? If you think they're not going to ultimately get to you as a fabricator, then you're not paying attention because they are going to get to you. And by the way, in the resort and hotel industry, they already got to you. Those hotels and resort people that are out there fighting Cambria on this – they're out there, they're writing me letters, and they're out there with the Commerce and Trade departments – they’re fighting this thing because they're making lots of money bringing huge volumes of fabricated material into this country. You think that they're fighting because they care about a fabricator? Really? They're getting huge margins off of subsidized material from a Communist dictatorship. That's what happened here.

What type of countertops do you have in your home?

DAVIS: We have Cambria in my kitchen island and we've got wood on my bar and my hunting den, and we've got onyx from Daltile on my bar. We bought some Antolini for one of the floors that we wanted to backlight a little bit too. Mostly Cambria, but we've got a couple of other stone products. We've got a lot of Cambria flooring in our house.

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