Tuesday, November 24, 2009

Reality Rains on Optimism for Flooring and Carpet Industry

Chris RameyMy sense is that optimism is in the air for the floor covering industry. Many of my friends and colleagues are hopeful. You’ve read the good news too. The recession is over. More people are preferring carpet. Home sales are up. Life is good!

Not so fast. The numbers don’t support the positive vibes. Perhaps you read that there are fewer houses in inventory to be sold and that home sales are up. But the worst has yet to come; there are still more than three times the current number of foreclosures still in pre-foreclosure. Furthermore, industry pundits tell us that 2010 and 2011 will see great numbers of foreclosures too. The impact on the housing market is immense. The flooring industry is unlikely to emerge from the protracted recession without an improved housing sector.

Then there is retail replacement and pent-up demand. Maybe, but maybe not. Watch the Consumer Confidence Index which continues to bump-along the bottom. Furthermore, the longer a customer keeps her carpet the more likely she is to be offended by it, and will choose a hard surface when she replaces it. Considering the slowdown, there are millions of customers with carpet that has outlived its useful life. And every day, they swear at it and tell themselves, “I can’t wait until I can replace this gross carpet with….” To all those naysayers, the customer does not believe it’s her fault that her carpet has worn out.

Then there’s that pesky research issue. Ed Kelly, president of American Express Publishing, recently distributed a letter quoting Harrison Group’s research on the affluent in which he says that holiday sales will be off 15% from last year’s very poor numbers. American Affluence Research Center recently published similarly almost as negative news. Clearly, the affluent consumer is still sitting on the sidelines in comparison to 2007.

New construction and housing (and all that manifests due to it) have an immense impact on the flooring industry. And possibly worse, affluent consumers who are responsible for 50% of the total retail dollars spent in America aren’t interested. My suggestion to those in the industry; enjoy your current customer and euphoria, but don’t advertise for new employees just yet.

Business is now evolving more slowly. The downward spiral may have ceased. However, that doesn’t mean we will see a spike in the near future. The new normal is not kind to businesses; particularly those connected to the home. You have to adapt in order to survive. Neither blind optimism nor capitulation is a good choice. As an expert in retail and service businesses I often consult with companies trying to survive the present even as they prepare for the future. While the recommendations I provide my clients may vary, one thing remains the same – they all benefit from a thorough examination of their business and input of new information and perspectives.

The floor covering industry will survive and the tempestuous times won’t last forever. But first, you need a plan to get through this mess. The good news: 2014 looks solid.

Chris Ramey

Send Chris a message: cpr@affluentinsights.com

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