It’s an unusual reason for a business to come into existence: to manufacture products with a workforce that comprises at least 75% people who are legally blind. But that was the sole raison d’être of LC Industries, and it still is today. The organisation has grown from being a manufacturer of mattresses to being a manufacturer, retailer and distributor of a huge variety of items under the AbilityOne programme (see box below). Far from having its eggs in one basket, anything is considered at LC Industries as long as the company fulfils its goal.
OPI travelled to North Carolina to meet Bill Hudson, the charismatic CEO who fell in love with the mission 44 years ago and has never looked back.
OPI: This is probably one of our more unusual interviews because your company doesn’t fit into any of the nice boxes that typify the OP industry. Can you describe LC Industries?
Bill Hudson: The company started back in 1936, and everything we do is focused on one thing only and that is to employ people who are blind. Today we operate eight manufacturing facilities around the US, 31 retail stores and two distribution centres. We are heavily involved in the office products industry, not only manufacturing but also retail and distribution. If you look at our product offering of 2,500 products, about half are in the OP industry. About 50% of the products we sell in retail are office products and if you look at distribution that number is probably about 40%.
OPI: Your history is mattresses, yes?
BH: The first product this company ever made back in 1941 was a mattress, and until 1969 it was the only product. But as we have diversified mattresses have become about 4% of our total sales.
OPI: The range of products that you manufacture is extremely broad.
BH: We manufacture all kinds of products, from a mattress to file folders, c-fold towels, facial tissue and chemical light sticks. We do a big business in tactical assault gear; we have a blow-moulded operation where we make five-gallon water cans; our largest single manufactured product is plastic flatware – knives, spoons and forks. Our largest customer for that is the US military and that has been great for us. It employs about 120 people working on nothing but manufacturing and packaging plastic flatware.
The product line goes on and on and we’re always looking for new products. We just introduced a new co-branding product with Master Locks which, over the next 12 months, will give us an additional employment of probably 40 more people.
OPI: How are you able to be competitive?
BH: That’s a good question. Number one, we have some very talented people who work for LC Industries. We do a lot of automation but our people, even though the majority of them are legally blind, are just as good and often just as productive as a sighted person. Yes, we may make some changes to equipment and manufacturing techniques, but at the end of the day we figure out a way that we can be just as competitive as the competition.
OPI: What’s the legal structure of the business; not for profit?
BH: We incorporated in 1956 as a private non-profit corporation. Under the federal income tax code we are what is known as a 501c3 organisation, but most take donations. This is a very unique point about LC Industries – I’ve been here since 1969, and this company has never ever taken a donation and I can tell you we will never ever take a donation.
OPI: Do you pay taxes?
BH: We don’t pay federal income taxes but again there are things that set us apart from just about everybody else in this arena. We spend a lot of money in areas other than employment. For example, we endow a number of college scholarships for people who are blind to further their education. We are the leading contributor to the Duke University Eye Centre in building a state-of-the-art eye centre and are the leading supporter of the United Service Organisation of North Carolina.
OPI: What other burdens are on you? You don’t pay tax, that’s the upside so what’s the downside?
BH: If you look at it realistically, our business is employing people who are blind. If you look at some of the operations within our business, you’ve got to have vision to do them.
OPI: Like driving a forklift.
BH: Driving a forklift is a classic example. There are still obstacles we have to overcome, although computers have opened a lot of doors. So we don’t pay tax but the cost of operating this business is much higher.
For example, one of the most difficult things for a blind person is transportation. If I want to go to the grocery store or to work, I get in my car. A blind person doesn’t have that flexibility. He or she’s got to either rely on public transportation, or have a friend to take them, or ride a taxi. So you’ve probably never talked to any other company that spends about half a million dollars a year on transportation but that’s what we do because we’re in the business to provide jobs for people who are blind and if that’s what it takes, that’s what we do.
So to go back to the original question, there’s a real trade off. Look at it from a standpoint of medical costs; medical costs are much higher for our employees than at the average company so we spend significant dollars to provide good health coverage.
OPI: Do you pay them the same wage?
BH: Oh yes, at all our locations we pay commensurate rates, so our wages are equal to the same job in any other company. In addition we have great benefits. For example, at the end of each year we contribute the amount equal to 12.5% of the gross earnings to a retirement plan. We also have a 401 plan, hospitalisation insurance, life insurance, vacations, sick pay – any benefit that an employee could get anywhere else.
OPI: Going back to 1969, how did you end up joining the business?
BH: I was a sales rep for Lowe’s, the building supply people. One day my best customer, who happened to be the Chairman of the board of this company, said the industry was hiring and he wanted me to go talk to them. I’m not sure that I was really interested but if your biggest customer asks you to do something, what are you going to do?
So, it was a very small place, only employing about 20 people. I don’t know how this happened but a 30-minute conversation turned into a four-hour conversation, and something about this business really infatuated me. They offered me the job, I took it and I’ve had a great career here. I’ve had the chance to really touch the lives of a lot of people and create some opportunities, not only by providing jobs for a person who’s blind but seeing people who have never had a job before develop into a good employee, develop upward mobility, start making a good living, support a family and raise kids.
OPI: That’s quite rewarding.
BH: It has been, it really has and at the same time I’ve seen the business really grow. We started with nothing and last year we were $306 million, which is pretty significant.
OPI: How was that compared to 2010?
BH: $277 million, so we had a pretty good increase. Over the last 20 years we’ve increased our business every year.
OPI: What are your plans for this year?
BH: We do a tremendous amount of business with the federal government – about 75%. Our concern today is that if we see cuts in the federal budgets, there are going to be cuts within the defence budget. So there’s no question we’re going to see our current business decrease.
The good news is that we have people focused on nothing but researching new opportunities. I would venture a guess today that we’ve got somewhere close to 100 different new opportunities on the drawing board. If we get 5% of them we’re in pretty good shape. My belief is that yes, the business that we have today is going to decrease, probably 10%, but I feel very confident that we will make that up with new products. We probably won’t see the growth over the next three years that we’ve seen over the last three years but this business is going to continue to grow. We’re very fortunate we have people who are dedicated to the mission of this company, and that goes from Jeff Schwartz, who’s our COO, Jeffrey Hawting, who’s our VP of sales, all the way down to the people who are working in the manufacturing plant. We all work together to grow this business because I believe, and everybody else believes, we have to continue to create opportunities for people who are blind.
OPI: So what’s to stop other manufacturers in the US hiring more people with a sight impairment?
BH: You know, the sad reality is that most companies don’t hire people who are blind. I’m not sure I can give you an explanation for that, but we have proved time and time again that blind people, in most cases, are just as productive. Anybody who walks through our plant can see a man who’s totally blind running a half-a-million-dollar rotary press as good as any sighted person.
OPI: You mentioned that a big part of your OP business goes to the government – where does the rest go?
BH: We have our retail business called Base Supply Centers (BSCs), which supply anything from office supplies and jan/san to hardware and military unique products. Then we have our distribution business.
OPI: Describe your distribution business.
BH: We started our distribution business back in 2003 because it became very difficult in some areas to find suppliers for our BSCs. Now obviously when we talk about office products, we go to SP Richards and United Stationers, but we carry such a wide array of products that we were dealing with many different vendors around the country. So we came up with this idea of starting a distribution business, right in this building, bringing in products in bulk, consolidating them and shipping them to our stores.
So we started the business and it really took off. We outgrew this space and moved into another building; we rapidly grew out of that so about two years ago we purchased a building about five miles from here. The interesting dynamic is that the concept was to supply our stores, which we do everyday, but we have probably 500 customers outside our own system that we sell to, covering a tremendous number of AbilityOne products, of which we have about 700.
OPI: What sort of products?
BH: Jan/san products, a lot of military unique products such as helmet covers, pistol holders, all kinds of boots, telescopes for a rifle – anything that a soldier would buy we try to put in our distribution centre.
OPI: Who are your 500 customers?
BH: In most cases they have a contract to sell to the federal government, to the military. They actually buy a lot of office products, as well as some other products. We continue to grow this business; everyday we put something new in. It goes back to our philosophy that we want to be your one stop shop, to sell everything you want to buy.
OPI: There aren’t many businesses that have such a scattergun approach to product development. How do you decide where the next opportunity is?
BH: Do you know what, we have this conversation just about everyday. If you think about what we do, we really don’t care what we make. We look at every opportunity and question number one: is this a product that blind people can manufacture? If yes then we go to step two: can we make some money? If we can then we go to step three: full-scale development. About 3-5% of products that we identify, we actually start manufacturing.
The ultimate goal is to sell a product to the federal government under the AbilityOne programme. Everything we make is 100% made in America, it’s the best quality and we’re going to grow that business. At the same time we’re going to sell that product in our BSCs, which is going to generate more revenue, and there is opportunity for more customer service people who are legally blind. So it multiplies as we identify products.
OPI: Manufacturers in the traditional OP arena believe we are on the cusp of seeing a dramatic decline in volumes. How do you think things will pan out?
BH: I don’t think there’s any question that over the next five, ten, 20 years we are going to see a significant drop in the volume of business we do on our OP product line. I do believe, however, that we’re going to be smart enough to replace that business with something new, whether it be in the OP arena or not. I also believe that one of the things that’s been very negative for the OP industry is the lack of innovation over the last ten years. If we get back to introducing new products then we may change that trend.
OPI: What stifled that innovation?
BH: I’m not sure, but for some reason some American companies that have always been the leaders in innovation just for some reason quit putting money into it. You would think that at some point they would look at the success we had with new products – I mean look at what Post-it notes did to 3M. It was innovative, it was new, it was unbelievable and at some point somebody’s going to come up with some new products, at least I hope they do.
OPI: Big news recently has been Amazon’s foray into B2B. What are your views on Amazon’s impact on the OP industry, and possibly your space?
BH: My belief is that if we as a company and as an industry don’t step up to the plate, Amazon is going to eat our lunch. They keep growing and growing. We’re obviously concerned about it and our belief is that five, maybe ten, years from now, the business we enjoy today is going to go away. Over the last three years we have invested a tremendous amount of money in e-commerce; today we have
even state-of-the-art websites. We’re preparing for what I think is going to be a major transition; that 50% of the business that we do five years from now is probably going to come from e-commerce.
OPI: B2B or B2C?
BH: Every area. The young generation is not going to think about business in the way we think about business, and they are the guys who are going to be driving the train.
OPI: Do you do anything with Amazon now?
BH: We sell some products through Amazon.
OPI: I guess it’s not entirely unreasonable to expect that a lot of the 13 million or so mops you sold to Walmart last year could be sold to the same consumers but through Amazon in the years to come.
BH: You’re probably right, and we have that entire mop line on some of our sites.
OPI: How will that affect the business infrastructure if you’re dealing with a different type of customer?
BH: Firstly, it will enable us to grow our employment. As we move towards e-commerce we will employ more and more people in customer service, which is a great job for a person who is blind. We will employ more people in distribution, where they can pick and pack products to ship to the customer. Employment in retail is probably going to drop a little bit, but as we grow using e-commerce platforms, we will grow employment in manufacturing. So we look at e-commerce as a real boom to LC Industries.
OPI: Many companies are embracing other items you sell such as breakroom and facilities products. Green Mountain’s patent expires on its K-Cup offering soon; do you have any aspirations to get into that area?
BH: I’m not sure that’s high on our drawing board right now but it is something that we have looked at. I think I’ve made it pretty obvious that there’s no area that we won’t look at but that’s a huge business.
OPI: What is your view on independent dealers’ prospects, particularly as it relates to the competition? Do you see OP superstores going the distance?
BH: My belief is that the big boxes’ business is going to continue to decline. I think the business of independent dealers is going to continue to increase, which is a good thing as it puts the business back into the hands of a lot of people who have struggled over the last 15, 20 years. When taking care of the customer, these dealers, or a lot of them, have really stepped up to the plate and as a result they’re getting business back that they lost. My hope is that the trend continues.
OPI: We’re in an election year; do you have a preference for the next president?
BH: I most definitely have a preference. My hope and belief is that the president we have today gets defeated and that Mitt Romney becomes the next President of the United States. If you look at anybody’s business that is heavily involved in the military arena, the defence department has historically faired better under a Republican administration.
OPI: You have a vested interest in that.
BH: I’ve never been a Barack Obama fan and I hope Romney wins by a landslide because the American people will benefit in many ways.
OPI: You’ve been in this business 44 years – do you have an exit in mind?
BH: Yeah I do. At some point over the next two to three years, I’ll start reducing my involvement in the day-to-day management, but I don’t ever see myself not being involved in some way. As I said earlier, we’ve put together a great management team, led by our COO, Jeff Schwartz, and I’m confident that with this team in place, LC Industries will continue to grow. The good thing about this team is their dedication to our mission. They believe in what we do and I’m confident they will take our company to a whole new level. We’re going to get into some areas that are beyond anybody’s imagination and it’s going to be good for us.
For me personally I will always, somehow or another, be attached to this business because it’s in my blood. I love it, I absolutely love it. I love to come to work every morning; I love the challenges; I love to see people succeed; I love to do new things; I love getting new product lines up and running and it’s just a great place to be.
BH: In 1938 a law was passed, known as the Javits-Wagner-O’Day Act, that said if a manufacturer meets certain criteria it will get preferential treatment in selling to the Federal Government. Number one on the list is that 75% of the labour must be done by people who are legally blind – that means that a person’s vision is no greater than 20 over 200 with corrective lenses, so when they take eye tests they can only see the big E, or their peripheral vision is no greater than 20 degrees, which means they can look at you and see you, but nothing to their right and nothing to their left.
Today about 444 people who work in LC Industries are in fact legally blind. There are currently 82 agencies for the blind throughout the US that manufacture a wide array of products which are sold under the AbilityOne programme.
- Founded: 1936
- Operates in: 12 states
- Employees: More than 450
- Manufacturing: 8 facilities
- Retail: Operates 30 of 144 Base Supply Centers
- Distribution: Centres in Durham, North Carolina, and Las Vegas, Nevada
- Main website: www.buylci.com