Pillow fight: how a domestic rival knocked the stuffing out of Pillowtex.

• Position: Feature

When Pillowtex Corp. shut down last summer, triggering the biggest job loss in state history, most North Carolinians thought of the company as only the towel, bedding and rug mills it acquired in the 1990s before moving its head quarters from Dallas to Kannapolis and blamed its demise on the foreign competition bedeviling the U.S. textile industry. In his book Pillow Fight: Pacific Coast Feather's Rise to the Top, scheduled for publication next year by Documentary Media LLC, UNC journalism professor Chris Roush notes that Pillowtex also was pummeled by a domestic rival. A former reporter for Business Week, The Atlanta Journal-Constitution and Bloomberg News, Roush is the author of a book about Home Depot.

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On July 30, 2003, the pillow and down-comforter industry experienced a change unlike any other in its history. The longtime leader had succumbed to competitive pressure, among other forces, and closed shop. The shutdown led to the ascension of a new industry pacesetter--also with North Carolina ties--that had overhauled the business during the past 20 years.

On that day, Pillowtex Corp., the largest pillow manufacturer in the country, shuttered 16 manufacturing and distribution facilities. The Kannapolis-based business began as a pillow company but expanded into other operations, including towels, sheets and rugs. It purchased other companies at high prices and piled on debt. Pillowtex, which entered bankruptcy court in 2000 and emerged a year later, had crumpled under its own weight.

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The closing plunged the industry into chaos, sending pillow and comforter makers scrambling to grab the business left behind. Rarely, if ever, does an industry's market leader go out of business. The move would be comparable to Coca-Cola shutting down its soft-drink business or to General Electric leaving the light-bulb industry. But it wasn't just the weight of Pillowtex's holdings and debts that crushed it. Another less evident, but equally important, factor contributed to its demise. For decades, Seattle-based Pacific Coast Feather Co. had slowly inched its way closer to Pillowtex, gaining business from retailers while the industry leader--its main rival--grew but failed to innovate. Pacific Coast Feather boosted its marketing and improved its products' quality.

For years, the company avoided the spotlight. It gradually added market share and expanded across the country, branching away from its Pacific Northwest roots. As it did, it made Pillowtex weaker in the businesses upon which it was founded in 1954. "Pillowtex was exactly in the same business that we're in," says Joe Crawford, Pacific Coast Feather's senior vice president of finance and procurement. "Six years ago, they were at about $300 million in sales, and at that point, you felt that they were doing everything right. They were good at what they did. We were chomping away at some of their placements simply because they were big and we were willing to accommodate customers more than they were."

Pillowtex grew five times larger than it was before its acquisition spree. The strategy proved fatal. The biggest beneficiary of Pillowtex's poor management since the late 1990s was Pacific Coast Feather, a company largely unknown outside the bedding industry. But with Pillowtex's collapse, it became the largest pillow manufacturer in the United States and strengthened its position as the nation's largest down-comforter maker.

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"They were one of the things that drove us," says Jerry Hanauer, owner of Pacific Coast Feather. "In the late 1980s, we had these series of...