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Flooring Manufacturers and Distributors: "Déjà Vu all over again"

David Wootton

David Wootton asks: Do flooring distributors have a viable future and how did the marriage between distributors and manufacturers get to this point?


Returning from Europe I was catching up with the flooring press when an article by Steve Feldman caught my eye. It was titled “Distributors weigh in on key issues” (FC News Oct12/19 and Oct 26/Nov2nd). Steve had attended the NAFCD annual meeting in Phoenix and his article summarized comments made during a breakout session discussing the manufacturer / distributor relationship. It was a very well written article and if you have not already done so please try and read it.

After I read it I was reminded of the classic Yogi Berra quote “it’s déjà vu all over again." I have been involved in the U.S. flooring industry for 20 years and the majority of issues reported in Steve’s article were issues then and appear still to be so now! Also interesting was 20 years ago the U.S., and California in particular, was in recession and had just launched Operation Desert Storm in the Middle-East.

To put it bluntly the manufacturer / distributor relationship was not always harmonious then and it is not today.


One distributor commented that the manufacturer / distributor relationship is like a marriage and I wholeheartedly agree. Given the fact that the current failure rate of marriages is more than 50% it is not a particularly rosy comparison but nonetheless realistic. Instead of children, money and being faithful think retailers, margins, dual distribution and duplicate product lines and you get the picture.

It seems to me the real question arising from the discussion is this, do flooring distributors have a viable future and how did “the marriage” get to this point?



One word has been very prevalent throughout our industry’s history and the word is LOYALTY. Michael Marks of Indian River Consulting speaking at an earlier NAFCD meeting said a mistake is made when any one party believes that “loyalty is anything more than the lack of a better alternative."

20 years ago the distributor landscape was very different form today. As a result of the trend by manufacturers to sell carpet directly to retailers, distributors were categorized by which brand of vinyl they carried and this was in most cases an exclusive arrangement. With the emergence of hardwood, ceramic and laminate as significant product categories quickly gaining market share we saw the advent of multi-line distributors. They often carried product lines that duplicated each other and created conflict with their manufacturing partners who questioned their LOYALTY.
Michael Marks says...
Over the past 20 years manufacturers have faced their own LOYALTY issues as first the big boxes and then the buying groups. As they began to grow in importance they wanted to negotiate directly with the manufacturers rather than through distributors. Other than some special order programs, distributors enjoy very little business with the big boxes. This leads to conflict with the perception that big boxes secure more favorable arrangements than the independent retailer segment. With buying groups, distributors invariably resent that their margins are determined by the manufacturer and they are faced with a “take it or leave it situation."

Other issues which remain a source of conflict relate fighting for distributor and manufacturer’ rep time, sample and display costs, inventory levels and replenishment, not to mention the increasing impact of the Internet.

I think you can see why Michael Marks statement has relevance to the manufacturer / distributor relationship.

So are the distributors’ issues valid and what does the future hold for them?

  • Distributors will continue to be concerned about large manufacturers bypassing distribution and selling their product and brands directly 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 reliance on existing branded products.

One thing is for sure; they should not expect or rely on manufacturers to keep them viable. I think we are beginning to get a picture of what “the new normal” is in our industry and as in the jungle it will be the survival of the fittest. I do not foresee any significant improvement before mid 2011 at the earliest so every company should be continually reviewing their plans and cost structure.

Okay I am no longer involved in manufacturing or relationships with distributors, this makes it easier for me to be objective and if you would like to discuss any issues with me feel free to contact me at david@thewoottongroup.com. I would love to hear your views.

Finally and as always if you have, thanks for reading this.

David

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Comments

  1. The explanation given above for the question asked looks satisfactory is capable of explainign the correct realationship between these two. My misconception is now clear.

    ReplyDelete

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