P.O. Box 15169
Clayton Homes Incorporated is the largest retailer of manufactured homes in the United States, and its manufacturing division is the nation's fourth-largest. Clayton is one of two vertically integrated manufactured housing companies in the country. It makes and sells manufactured homes, provides related financial services and insurance, and also owns communities in nine states. These four levels of operations have enabled it to ride smoothly through a wildly fluctuating market.
To a great extent, the company reflects the image of its fascinating founder. James L. Clayton was born in a tin-roofed home, with no plumbing or electricity, on a sharecropper's farm in 1934. By the age of five, he was making cotton rows with a log pulled by a farm mule and getting paid 25 cents a day. He had his own cotton patch by age 12. After finishing high school, Clayton left for Memphis with his guitar. He went to school, sold vacuum cleaners, and played in honky-tonks three nights a week.
After transferring to the University of Tennessee at Knoxville, Clayton earned a degree in engineering and then a radio broadcast engineer's license. He got a job with WATE-TV, and from 1960 to 1976 he was a part-time host on "Star Time," a weekly variety show on Knoxville TV. While Clayton was singing duets with Dolly Parton and strumming guitar, he was also buying and selling cars. He first entered the car business in college, when he sold his own car through the classifieds and realized that it might be a good way to make some spending money. As an undergraduate, Clayton opened a small used-car lot in North Knoxville. Before long, he was joined in the business by his younger brother Joe. By the time he earned his degree, Clayton was making more by selling cars as a hobby than he was by working at the TV station.
The Clayton brothers obtained a Volvo franchise in 1958, one of the first in the area. They bought other import franchises the following year, and in 1960 they purchased an American Motors franchise. After the variety show started, Clayton's visibility and duets with Parton did not hurt business on his car lot. He even made his own commercials, with the guitar. The young businessman experienced a slight setback in 1961, however. A Knoxville bank called in a loan, and Clayton's lot went into bankruptcy. After the bank dissolved the fledgling company, Clayton decided to pursue a law degree. He and his brother soon opened their second used-car business on the same lot.
Clayton received his law degree in 1964. Two years later, he borrowed $25,000 from a local bank and launched Clayton Homes--a mobile homes retail outlet--just over the highway from the car lot. Clayton entered this business, too, as a result of a college lark: he sold his first two mobile homes on behalf of his law school classmates who were leaving Knoxville after graduating.
Clayton soon discovered that selling mobile homes was similar to selling cars, except that the margins and markups were much higher. He also found himself well-situated for this business, since his regular TV appearances made him a local celebrity, while the Southeast was the country's largest market for mobile homes. By 1970, Clayton was moving about 700 units a year off the lot. He built his first manufacturing plant a year earlier. Clayton became absorbed in this new arena immediately, and before long he sold his half of the car business to his brother.
The ingredients of success were there from the start for Clayton Homes. Clayton quickly learned that high turnover was key. Even early on, he would forfeit margins to move units. Because of his rapid turnover, his inventory financing--often a heavy burden in this industry--was modest in relation to how many homes he sold.
Another key strategy was vertical integration. By 1970, Clayton was manufacturing as well as selling mobile homes. Four years later, he started a mortgage subsidiary to finance the company's sales, Vanderbilt Mortgage and Finance. Eventually, Clayton's vertical integration meant that the company built the homes, sold them, insured them, financed the sales, and provided communities in which the homes could be parked. A customer could walk onto a Clayton Homes lot, and the company could make money from that customer in four different ways. The financing division helped Clayton survive the squeeze when recession hit during the late 1980s. To counterbalance the incentives for salesmen to move units off the lot--even at the risk of making unstable loans--Clayton introduced accountability by holding the sales manager responsible for half of a bad loan. That policy kept Clayton's charge-offs due to bad loans at around 0.4 percent of sales, a third of what its main competitors faced.
By June 1983, Clayton Homes was ready to go public. Less than two years later, the stock was traded on the New York Stock Exchange. Clayton's timing was sterling. Overall industry shipments dipped 40 percent in 1984, and this downturn continued through 1991. During that period, however, earnings per share at Clayton Homes grew at a compounded annual rate of 23 percent, while its share of the market in mobile home sales shot from 1.8 percent to 7.4 percent. Meanwhile, the company's close competitors--Oakwood Homes and Fleetwood Enterprises--suffered significant declines, in large part due to depressed conditions in their previously reliable Texas markets. The collapse of oil prices during the early 1980s hit these key markets hard, but Clayton had yet to enter Texas.
Through the 1980s, Clayton thrived in its no-nonsense way. When the market dipped along with the economy from the mid-1980s to the early 1990s, Clayton responded by calculating the level of payment its basic customer base could afford, $200 per month. The company then worked backwards, designing homes that could be made and sold within that budget. As a result, Clayton's revenues rose during the economic downturn from $122 million in 1985 to $476 million in 1993.
Clayton Homes opened its first manufactured-home community in Texas in 1987. By 1989, it had made Forbes's list of the "200 Best Small Companies in America" for four years in a row. Financial World included Clayton Homes among its list of 500 companies on the "fast track." In 1991, James Clayton received a Horatio Alger Award, sharing the honor that year with Phil Gramm and Colin Powell, among others. By that time, Clayton was chairman of the country's largest retailer of mobile homes, overseeing 10 manufacturing plants, 125 company-owned dealers, and 325 independent dealers in 24 states. Clayton had communities in Tennessee, North Carolina, Michigan, and Missouri by 1991. These communities resembled subdivisions, and some included amenities such as tennis and basketball courts, fish-stocked ponds, and clubhouses. Sales reached $371 million by 1992 and kept climbing. Nearly half of the company's profits that year came from its financial services division.
In the early 1990s, the industry was revived as lower mortgage interest rates stimulated sales. The recovery was subdued, but manufactured homes fared better than multi-family housing, and the South and South-Central regions of the United States led the housing rebound. About three-quarters of Clayton's market was within a day's trip of one of its plants in Tennessee. Sales in 1993 topped $476 million.
In August of that year, there was a flurry of concern as tax problems surfaced. Evidently, Clayton Homes had failed to pay sales tax on units sold at five mobile home parks it owned in Tennessee. Clayton and other company officials blamed the mistake on the comptroller of the company's retail division. That individual had been moonlighting as Clayton's personal accountant, and Clayton filed suit against him for allegedly embezzling more than $3 million of the chief executive's personal funds. Tennessee's commissioner of revenue stated that his agency was not investigating Clayton Homes's officers, but only this individual, who was fired. Two board members resigned around the same time. Clayton Homes paid Tennessee $163,000 for the back sales taxes. The incident ultimately proved to be a blip on the screen for Clayton, which remained highly lucrative for investors.
One reason mobile homes have fared well in the past decade, while housing in general fared poorly, was that they tended to be much more affordable. In the winter of 1995, the industry received another boost when the government abolished tax incentives for multi-family apartment construction, which is the main alternative for blue-collar and retiree housing. Mobile home manufacturers also were cheered by greater diversity in the economic base of the Southwest and Southeast, where half of all mobile home sales took place. As the region reduced its dependence on the oil industry, mobile home retailers became better insulated against foreclosures caused by economic fluctuations. Also, the overall trend that saw low-paying service positions replacing high-paying manufacturing jobs helped Clayton, since a $20,000 mobile home was feasible for a service worker.
The homes being manufactured at Clayton's 14 factories by February of 1995 had many of the charms and amenities of a site-built home, including cathedral ceilings, fireplaces, walk-in closets, and whirlpool tubs. And they took only days, instead of months or years, to build. Such product improvements, along with favorable conditions in the general economy, led to a 20 percent annual growth rate in the manufactured housing and recreational vehicle industries between 1992 and 1994. Clayton Homes, which had withstood shifting industry winds with its strategy of vertical integration, appeared well-positioned to continue its success in the future.
Principal Subsidiaries: CMH Manufacturing, Inc.; CMH Homes, Inc.; Vanderbilt Mortgage & Finance, Inc.; Clayton-Vanderbilt, Inc.; Vanderbilt Property and Casualty Insurance Co., Ltd.; CMH Insurance Agency, Inc.; CABS, Inc.; CMH Parks, Inc.; JH Properties, Inc.; CMH Capital, Inc.; Blevins Mobile Homes, Inc.; Clayton's-Tullahoma, Inc.; Vanderbilt Life and Casualty Insurance Co., Ltd.