Opinion ID: 453199
Heading Depth: 2
Heading Rank: 1

Heading: The Carpet Industry and Lees' Marketing Strategy

Text: 7 As the district court accurately observed, the record reveals a vigorous and highly competitive industry at all levels. Terry's Floor Fashions v. Burlington Industries, 568 F.Supp. 205, 208 (E.D.N.C.1983). There are a large number of companies which manufacture residential and commercial grade carpet. The record indicates, for example, that Terry's purchased carpet not only from Lees, but also from Trend Carpets, Armstrong, Stratton, J & J Carpets, J.P. Stevens, Evans & Black, and others. 8 There are numerous carpet dealers in the market as well. Terry's and Eatman's, for example, were among forty-two authorized distributors of Lees carpet in eastern North Carolina. Eatman's was also one of several large commercial dealers for Lees in the eastern North Carolina area. Others with a sales volume comparable to that of Eatman's included Educational Equipment Company located in Raleigh, Monnett's Carpets & Draperies in Greensboro, and Style Perfect Furniture Galleries in Winston-Salem. Joint Appendix at 216. 9 Lees distributes its carpeting through a system of sales territories throughout the United States. Lees assigns a sales representative to each territory. These territories are not exclusive for distributors, and each Lees sales representative is responsible for developing a network of dealers in his territory. North Carolina is divided into two territories, with both Eatman's and Terry's in the territory covering eastern North Carolina. The Lees sales representative for this territory during the period of time relevant to this suit was John Cummings. 10 In the carpet industry, there are two broad categories of carpet--residential grade and commercial grade carpet. Residential grade carpet, generally heavier and less densely woven or tufted, is sold primarily for use in homes or for smaller commercial applications. Commercial carpet, lighter weight and more densely woven, is obviously designed to withstand much heavier use. One of the major differences between the two types of carpeting, however, is the manner in which they are marketed. Residential grade carpet is usually sold through retail stores or to building contractors. A dealer in the residential carpet market must, therefore, devote significant resources to media advertising and to a showroom. 11 Commercial grade carpet, on the other hand, is generally sold through a competitive bidding process. Dealers in the commercial carpet market must engage in intensive sales work with architects, contractors, and purchasing agents in order to persuade them to specify or accept Lees carpet for a particular bid. While the Lees sales representative for that territory does some of this work, Lees relies to a great extent on its commercial dealers. Personal contacts, quality of installation, and reliability of service are much more important in the commercial market than in the residential market. Because the manufacturer's reputation is more visibly at stake in the larger commercial jobs, the manufacturer is very interested in the accountability of his commercial dealers and in the dealer's own reputation for reliability and service. 12 The selection of dealers for a particular territory is made by the Lees sales representative in consultation with his superiors. 3 Lees does not, however, regard all its dealers to be equally as capable as other dealers. This is particularly true with regard to commercial carpet dealers because of the importance of personal contacts and professional reputation. Lees, therefore, selects some dealers through whom it concentrates its marketing of a particular line of Lees carpeting. That selection is based on an assessment of which dealers are most willing to and capable of effectively promoting Lees products. Incentives are given to these selected dealers, usually in the form of price, to encourage them to market Lees carpeting aggressively. 13 The giving of such incentives is necessitated by the nature of the carpet industry. Carpet dealers, including both Terry's and Eatman's, are normally authorized dealers for a number of manufacturers. The products of these numerous manufacturers are often interchangeable, and the purchaser of the carpet does not usually specify that only one brand may be used. Some incentive is necessary, therefore, to encourage a particular dealer to promote and bid one manufacturer's product over that of another manufacturer. Thus, Lees' marketing strategy is to choose those of its dealers that it believes will be most effective in marketing its products and to give those dealers a price discount to encourage them to promote and bid Lees carpet. This marketing strategy is apparently a common one in the commercial carpet industry. 14 As a part of this general marketing strategy, Lees has a policy against sales by its dealers to other Lees dealers or to non-Lees dealers. The practice of dealer-to-dealer sales is sometimes referred to as bootlegging. The basic purpose of the anti-bootlegging policy is to ensure the integrity of Lees territorial marketing system and its choice of principal commercial dealers within a given territory. Bootlegging undercuts Lees' choice of principal commercial dealers in a territory because a bootlegger may be able to win bids over Lees dealers who have worked with the architect or contractor to ensure that Lees carpet is specified or approved for a particular job. This lessens the incentive which Lees is trying to create for selected commercial dealers to promote and bid Lees carpet. Also, bootlegging may make it more difficult to determine responsibility for certain quality problems. Finally, bootlegging also undermines Lees' system of sales territories serviced by commissioned sales representatives because these representatives lose their commissions on bootlegged sales. 4