Wednesday, October 21, 2009

Flooring Industry Take Note: Will carpet return when "normal" returns? and...What if the new "normal" is already here?

Chris Ramey
Perhaps you’ve heard about the new normal. Essentially the question for all business people is what will business be like when it “returns.” Those in the flooring industry may have more to fear than most. The new normal - the landscape to which we will manage our businesses - will be far different from before the housing implosion.

It’s particularly bothersome because the floor covering business has been so bad for so long. What if we discover we’re already experiencing the new normal?

There are a couple substantial trends and none of them are particularly positive for floor covering stores. Consider:

  1. Carpet is trending out of style;
  2. Housing isn’t coming back quickly and when it does the greatest beneficiary will be hard surface;
  3. The explosion of hard surface over the last decade will interrupt the normal replacement cycle of flooring.

I occasionally mention that carpet is out of style. I generally receive three types of responses:

  1. People think I’m nuts and don’t say anything perhaps out of respect, or maybe they’re not listening to me;
  2. Some like to argue generally because they don’t know the facts;
  3. Some agree with a casual response akin to “duh, of course I know that.”

Faus Floor - PineThe facts are carpet has been declining in units for many years. According to Catalina Reports, 2004 was the year that carpet and rugs as a category experienced their biggest year in units; long before housing started to tank. If 2010 is as troubled as economists are suggesting, unit sales of carpet may be substantially less than half the unit sales in 2004.

Half is a monumental and unprecedented drop in units. No one can blame that merely on the economy. The facts are that consumers no longer desire carpeting throughout their home, and the more affluent the consumer the less likely they want it even in their home. These pesky facts have often been masked by price increases. Perhaps you’re one of those whose carpet sales grew through 2007 and were laying off installers at the same time.

During the decade of the 1970s we used to advocate wood or ceramic in the entrance of a home to protect the carpet. Back then we even had displays of kitchen carpet; yes, it really was that ugly. Then, in the 1990s we advocated hard surface in the living room whilst carpet was the fait accompli in the bedrooms. Not anymore. Carpet is often the step-down for the bedrooms and it serves to tell your friends that you couldn’t afford hard surface.

Shaw Industries knew what was happening when they promoted carpet for the garage. Who’d have thought that the garage would be the only room in the house where installing carpet made it a more luxurious room? Even further, who’d have the thought the garage could be a room?

The second not necessarily good news is that new construction isn’t coming back anytime soon and contract/commercial will be dead for a few more years too. If either category is your primary business then you’re probably out of business, considering going out of business or quickly changing your business. If not the first two then you probably should consider the third.

When new construction returns the greatest beneficiary will be hard surface. Builders believe, and customers often think, that carpet is one of the products that helps define an inexpensive home. Builders aren’t generally known for sophistication. But they understand that upgrading a laminate counter top to granite makes an impact on the consumer. Builders don’t understand upgrading from 25 oz nylon to 40 oz polyester when most customers can’t tell the difference.

If you’re like most independent flooring retailers you live in the same community as your store. You know your customers; perhaps your children went to school together, you patronize their businesses, socialize with them, serve on the same philanthropic committees, etc. They’re loyal to you and you’re loyal to them. You probably prefer to eat at their restaurant rather than the chain down the street because the money stays in your community. You likely socialize with your customers because you share a common goal of creating a better community. And, you probably sold them the ceramic or stone for their home that still looks gorgeous twelve years later. Gosh, no wonder they like you so much. After all, you sold them a product that they’ll never have to replace. Good for them; very bad for you.

In harsh terms; selling a product that renders you irrelevant (defined as not needing your products any more) is analogous to a restaurateur serving you poison. In either case your business relationship is irrelevant and you’re bound to die.

Now is the time to revisit and surgically dissect your business model. The new normal will not be kind to floor covering retailers or carpet manufacturers. It’s no longer about cutting costs; it’s about innovative strategies to survive. Your new business plan has to consider:
  1. The impact of increasing wood sales
  2. The diminishing importance and sales of carpeting
  3. Continuing hyper-competition in the flooring category
  4. Finding new products that will permit you to make enough money to be satisfied.

The new normal is likely here. It’s time to accept this may be as good as it gets.

I invite you to post your thoughts here or contact me directly at cpr@affluentinsights.com

Chris

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