Tuesday, October 20, 2009

Wootton Takes a Look at the Future of Our Industry

David WoottonPart 2. In part one of my post I wrote about the last 20 years in the floor covering industry. Today I talk about the future.

So what does the future hold for our industry? Obviously, until we experience a significant improvement in the economy and the banks start lending money (sensibly) life in our industry will continue to be difficult. There is currently way too much production capacity in all segments. It is going to be a long time (if ever) before new home construction returns to the heady levels of 2007 and earlier. On a brighter note, another Floor Covering Institute colleague, Stuart Hirschhorn, who publishes the excellent Catalina statistical reports, suggests the current improvement in existing home sales should lead to an improvement in the residential remodel business in 2010.

Here is what I expect to see in the next few years and remember this is only my opinion for what it’s worth.

The large manufacturers now have in house manufacture or outsourced private label arrangements for all flooring segments. Mohawk can offer their customers including home builders, big boxes and retail cooperatives, very attractive arrangements in return for single sourcing through their acquistions of other comapanies:

Dal Tile (ceramic), Unilin (laminate), Columbia (hardwood) and their strategic alliance with Congoleum. Armstrong, following their very interesting strategic alliance with Beaulieu Carpet can do the same and with the exception of vinyl so can Shaw.I expect to see these companies fighting for the much sought after builder business and dominating the market. Mannington is another excellent company and I believe it will continue to champion the independent retailers through the “one Mannington concept”.

Elsewhere, I believe consolidation through acquisitions will continue and the resulting synergies will benefit those companies while other manufacturers will pursue the niche markets.

Given the current weak dollar, manufacturers will no doubt continue to look to expand into global markets. Through Unilin, Mohawk already has a substantial global presence and Mannington has an interesting strategic alliance with a major Chinese manufacturer.

Distributors will be concerned about the large manufacturers by-passing distribution and selling all their product ranges and brands direct to retailers. More dual distribution is also a possibility. Others will consolidate through acquisition and some will close. I believe there will always be opportunities for well run distributors to thrive provided they manage their finances in a professional manner. I also expect to see more distributors launching their own private label programs to protect their interests and reduce their reliance on existing branded products.

At retail I believe more independents will close and the retail cooperatives will continue to grow in importance including develoing private label programs. Big boxes are a fact of life and will continue to be a significant force in the market.

In terms of product assortment hard surface will continue to achieve growth at the expense of soft surface and environmentally friendly products will be a must, although they might not command a higher price.

So that is what I think. What should we be doing? All companies, whatever segment and function of the industry they operate in, should take a detailed 360 degree look at themselves and formulate their plan or vision for the future and ask themselves these questions:


  • Can you continue to stand alone or do you need to be acquired by another company or form a strategic alliance to enable you to operate more effectively?

  • How does your balance sheet look? Will you collect all outstanding receivables and is your inventory valued correctly given its aging? If the answer to these questions is no, what impact will this have on cash flow and can you take the hit?

  • Can you eliminate any overhead; do you have the right people in the right positions?
Then prepare a plan together with your key people; share it with all employees, and most importantly monitor the plan and continuously refine it as market conditions change.

Finally, if any of you would like to discuss your current situation with someone who has experienced the good, the bad and the ugly sides of our industry feel free to contact me at david@thewoottongroup.com.

I cannot promise to be around for the next 20 years but I guarantee the flooring industry will be! As always, if you have, thanks for reading.

David


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