While most big companies disappear over time (as shown in our recent newsletter), some figure out how to survive and prosper decade after decade, even century after century. But is the journey from founding to long-term durability a straight path? Today one of America’s most successful companies, one that does not make many headlines, is Sherwin-Williams, the world’s largest paint company, based in Cleveland, Ohio for 151 years. Here is a quick look at the ups and downs of a true survivor.
In 1866, twenty-four-year-old Henry Sherwin invested his $2,000 life savings in a prosperous local paint wholesaler. Four years later (1870), he convinced two friends, Williams and Osborn, to each put up $15,000 to become equal one-third partners with him in taking over the wholesale business and adding a retail store. The new organization, Sherwin, Williams & Co, generated $422,391 in revenue in its first year. Relative to other businesses of the era, that was a large figure, the equivalent of almost $9 million in 2021 dollars.
Henry Sherwin was the driving force behind the company. According to company records, he was obsessed with neatness and organization, even checking for dust behind machinery and under desks. Any sign of clutter could get you fired. But he was also intent on making the business large, an attribute not common among the thousands of paint dealers around the nation.
In a time when paints were hand-mixed from raw pigments and fillers and other ingredients, Sherwin and his associates focused their energies on making the best paints and charging a full price for them. And they were committed to growth. In 1871, the one-year-old company began making its own paints. For its factory, the company acquired a former cooperage (for barrel making) from John Rockefeller’s main company, Standard Oil of Ohio, on the Cuyahoga River in the heart of Cleveland. In its first year, Sherwin, Williams’ paint factory made 450 pounds of paint using 83 different formulas.
By 1874, the firm employed twenty people. 1875 witnessed the company’s first ready-mixed paint, a major step forward, and in 1880, it opened a branch in Chicago. The firm was incorporated as Sherwin-Williams in 1884. In the ensuing years, Sherwin-Williams continued its geographical expansion, making use of the emerging railroad system. It also hired chemists and led the industry in new innovations. Finding new markets, the firm produced paints for horse-drawn coaches, railroad cars, and farm implements. It even made its own paint cans. All of this growth was financed from profits, avoiding debt. Henry Sherwin continued as the key person, first as President and then Chairman of the Board, until his death in 1916. (Sherwin was also responsible for the first use of the “Covers the Earth” logo, one of the most recognized in the world.)
By World War I, Sherwin-Williams had become the world’s largest paint manufacturer. By then, the company was about the same size as Standard Oil of Ohio, the Brunswick Company, or the powerful National Cash Register Company of Dayton, Ohio. While the company opened a few retail stores in this era, the emphasis was on paint manufacturing, with the products being sold through a large dealer network. In 1917, Sherwin-Williams acquired Chicago’s Martin-Senour Paint Company, a brand still in use today. The company also expanded overseas. Between 1900 and 1919, Sherwin-Williams’ revenues grew from $2.3 million to $34.2 million, generated by 600 different products. The first sale of stock to the public took place in 1920.
The man who drove this growth was Walter Cottingham, President from 1909 until 1922, who came into the company when they acquired his Canadian paint company, one of many acquisitions. Cottingham was a master salesman, preaching the importance of enthusiasm to the company’s growing sales force. Like John Patterson, the head of National Cash Register and often considered the creator of modern sales methods, Cottingham developed incentive systems, slogans, company songs, and handbooks covering every aspect of sales. Sherwin-Williams ran national advertising campaigns, including billboards, magazines, and later radio. Due to the quality of the products, the company’s paints often sold for substantially more than those made by competitors.
From a distance, the paint business might seem simple. But “coatings,” as the industry calls itself, are highly complex. Each paint, varnish, lacquer, finish, and stain must be customized for its intended use. Coatings that stick to metal are different from those that stick to wood. Those used on the interiors of houses are very different from those that work on automobile exteriors. Sherwin-Williams developed extensive research laboratories to figure out the best formula for every application. Developing paints for aircraft exteriors was especially challenging, given that those surfaces expand and contract as they experience temperature extremes. Sherwin-Williams rose to meet all these challenges, becoming an important source of automotive and airplane paints.
The chemistry of paints also changed dramatically in the early twentieth century. In World War I, supplies of critical dyestuffs and other ingredients from the big German chemical industry were cut off. All of American industry scrambled to come up with synthetic substitutes, which also lowered the cost of paint ingredients. New plastics resulted in the creation of latex-based and other paints. Sherwin-Williams was at the forefront of all these developments.
The Great Depression hit the company hard like it did other firms. Yet by 1939, when company revenues reached $95.8 million, business had bounced back.
From 1940 through 1960, Sherwin-Williams was led by Arthur Steudel, who introduced fat books which showed customers how rooms might look in different color schemes, along with paint chips to take home. The company operated a large printing plant, which in 1959 produced 500,000 “Color Harmony Guides” and 12 million copies of the company’s Home Decorator magazine.
In 1941, Sherwin-Williams introduced Kem-Tone Paint, which required only one coat and dried within an hour. The new product was a huge success, quickly outselling all the other products the company made. By 1945, 37 million gallons had been sold and by 1955, 100 million gallons. Another new product was the paint “Roller-Koater,” one of the first paint rollers and another big winner for the company.
World War II brought new demand for paints for the military, and Sherwin-Williams even operated a bomb factory on behalf of the government, due to its reputation as outstanding manufacturers. 2,700 company men and women served in the armed forces.
After the War, the great housing boom of the 1950s drove demand up, resulting in one of the best eras in the company’s history. New factories and new product innovations continued apace. By 1964, when Sherwin-Williams stock was listed on the New York Stock Exchange, the company had 1,850 branch offices and 33,000 dealers. Revenues that year were $313.5 million and profits $17 million, making Sherwin-Williams one of the two hundred largest American industrial companies, larger than Gillette, Merck, Xerox, or Pepsi-Cola.
That same post-war boom also brought innovations in retailing and other forces which were not favorable to the company. By the early 1960s, the discount store phenomenon began to arise: Kmart, Target, and Walmart all opened their first stores in 1962. Sherwin-Williams had historically been able to set the prices retailers sold its products at, but changes in the law allowed retailers to sell at any price. Discount stores sometimes sold the company’s products at half-off in order to drive traffic, crushing the profit margins for Sherwin-Williams dealers and its own branches.
At the same time, after years of falling ingredient prices, inflation increased, raising the cost of making paint. Labor costs also rose. The rise of aluminum siding for houses posed another challenge to the traditional paint market. Sherwin-Williams’ revenues stagnated and profits started to decline.
Struggling to regain its footing, new management tried a variety of strategies. Investment in new plants to replace outdated facilities accelerated. A large new research center was built. Much larger stores called “Decorating World” carrying many more products for do-it-yourselfers were tested but proved too complex to operate, outside the company’s “wheelhouse.” More acquisitions were made, some of them well beyond the company’s expertise. The company even dropped the renowned “covers the earth” logo, spending $15 million on “rebranding” and introducing the new logo.
To finance all these activities, Sherwin-Williams went deeply into debt for the first time in its history. The acquisitions and new ideas resulted in the company’s first billion-dollar sales year in 1977. But that same year also resulted in the first loss, $8 million that year, compared with annual profits of $15-20 million in the 1960s. For the first time, no dividends were paid to stockholders. Long-term debt totaled $197 million. According to its own financial executives, Sherwin-Williams was on the verge of bankruptcy.
Likely in a state of panic, in January 1979, the hundred-year-old company’s Board of Directors brought in a new leader, John Breen. Breen was the first chief in company history to come from outside the company (and outside the paint industry), having served as an executive at Cleveland’s Gould battery and defense company. Breen brought with him other key executives, especially in finance and strategic planning. Breen and his new team brought higher productivity standards to the company. Authority was decentralized and re-organized into profit centers, the heads of which were expected to deliver results. Every aspect of the business was reviewed, with many parts sold off. Many long-time executives quit or were fired. The transition was not easy.
The new leadership was not perfect. In 1981, Sherwin-Williams bought leading Cleveland drug store chain Gray Drug for $55 million, thinking the drug stores’ year-round business would balance the company’s dependence on the warm weather painting business. (Acquisitions in radically different fields, which peaked in the “conglomerate” fad of the 1960s and 1970s, were in part motivated by intensified antitrust action by the federal government, which often prohibited a company from buying companies in the same industry.) Gray Drug was later sold to Rite Aid.
But, over time, the most profitable parts of Sherwin-Williams were enhanced and expanded, and the weak parts sold off. The classic old logo was revived. Profits began to rise. Debt was paid down and dividends restarted.
The Sherwin-Williams brand of paint was no longer sold at competing stores; it became exclusively available in the company’s own retail stores (which are owned, not franchised). For the first time in company history, its retail stores became meaningfully profitable, and as many as 100 new stores a year were opened. The stores followed successful chain retail principles, looking alike, becoming instantly recognizable across the nation. At the same time, to support independent paint dealers and the new home improvement chains (Home Depot, Lowe’s, Menard’s), Sherwin-Williams developed separate brands including Martin-Senour and Dutch Boy (an old brand it acquired).
In the following decades, Sherwin-Williams really “got its act together.” The company returned to its roots as a premium paint manufacturer, complemented by its ever-expanding chain of stores. As it became more profitable and on a solid financial footing, Sherwin-Williams made the right kind of acquisitions, which fit its strategy to be the best (as well as biggest) paint company in the world. These efforts culminated in the 2017 acquisition of large coatings company Valspar for $9.3 billion. Sherwin-Williams continues to introduce new products and innovations in all segments of the coatings and finishings markets, serving do-it-yourselfers, contractors, and the industrial coatings markets. Every segment of the company is profitable.
In the year ended December 31, 2020, Sherwin-Williams’ 61,000 employees generated revenues of $18.4 billion in 120 countries and through 4,900 company-owned stores. Net profits exceeded $2 billion for the first time in company history, compared with $1.5 billion the prior year and $1.1 billion two years earlier, a phenomenal result for a company over 100 years old. As of late April 2021, the company is valued (market capitalization) at about $72 billion, among the 250 most valuable public companies in the world.
Painting the Big Picture
Long-term corporate survival is not easy. In fact, it is rare. Adapting to changing technologies, markets, and competitors can challenge even the best of companies and the smartest leaders. Only those companies which can repeatedly learn and adapt – sometimes even return to their roots – remain in business as independent enterprises decade after decade. Sherwin-Williams is a great example of this, making life better for its customers, suppliers, employees, and stockholders. Cleveland, America, and the world are fortunate to have a company as excellent as Sherwin-Williams. Only time will tell if future managements can live up to such a high standard.
American Business History Center