Thursday, January 21, 2010

Impact and Importance of Brand Equity in Floor Covering

Chris RameyBrand equity is an important issue for those in floor covering. For purposes of this post I’ll define brand equity as the value the brand brings to the seller or owner of the product or service. In other words, the brand brings significant cachet so that a customer will pay more for it.

Marty Collins, president of Gatehouse Capital and widely considered the “Father of residential hospitality” and I were dining together last week when he told me that adding a brand to a residential development adds about 30% to the value of the property. In other words, consumers will pay about a third more to live in The Ritz-Carlton, Four Seasons or similar residential development. Marty would know; he is opening the W Hollywood Residences.

It reminds me that in the last couple months I’ve heard four presenters ask their audience “What is branding?” The de rigueur answer is “it’s a promise.” Perhaps that’s accurate, but to me it’s too ethereal. According to Wikipedia “a brand is a distinguishing name and/or symbol, intended to identify a product or producer.” To others a brand is the positioning and/or the pillars to which it is perceived. In flooring, the general consensus is that consumers judge stores by the brands they carry; brand equity is likely the more relevant issue for those in floor covering.

Stainmaster, Karastan, Masland, Fabrica and Stark have brand equity. These are also the brands that were most often recognized by the wealthy when The American Affluence Research Center researched the flooring industry in 2008. But, you have to be cautious, brand awareness doesn’t necessarily manifest into equity. And equity rarely helps everyone in the channel.

Stainmaster adds margin for Invista. But, few manufacturers or retailers would claim they make additional margin on Stainmaster products. Unfortunately Stainmaster is a commodity and Invista is the only winner.

Karastan and Fabrica, on the other hand, have limited distribution. Brand equity allows Mohawk for Karastan and Dixie Group for Fabrica to increase their margins on their products. The opportunity for dealers to increase their margins is obvious. Unfortunately, most retailers who sell these products take a lower margin on them due to the perceived competitive nature of the marketplace or their lack of conviction. Too many retailers use Karastan and Fabrica as tools for positioning rather than the brand equity they present to the marketplace. This may be the greatest waste in the floor covering industry.

Stark, on the other hand, is the most interesting brand because it manages the entire process. It maintains the highest margins in the “retail” industry. As a side note; retail is probably the wrong term. Stark has less than 35 showrooms in the U.S. and they sell primarily to the trade. Key is that they’ve invested in their brand for decades, they source and merchandiseFabrica's Larochelle extraordinarily well, they’ve created separate channels of distribution, and they hold their margins. Stark is the best example of brand equity in flooring and perhaps the entire design trade. I’ve heard dozens of examples of retailers competing against Stark with a lower price and still losing the job. Brand equity still trumps low price.

Private labels rarely have brand equity. Perhaps you’ve found the consumer’s newly recalibrated values frown upon private label products because it appears you’re trying to fool them. Authenticity is important today. Authenticity means it has to be believable. I was driving down Brickell Blvd in Miami yesterday on my way to a keynote speech. A teachers union was picketing in front of the building. I’m reasonable sympathetic to teachers. However, the individuals who were picketing weren’t teachers. It was pretty clear to me that the union had hired the homeless. They were dirty and disheveled and looked woefully out of place. Are the private labels that hide from whence your product came akin to the homeless people picketing?

Customers are more informed, cynical and desirous of negotiating on price. They’re looking for a reason not to be attracted to you. Beating-up retailers is now sport. It’s another reason why brand equity is so important. We’ll talk more about this subject at my workshop at Surfaces “The 2010 Success Plan for Selling the Post-Recession Customer." I hope you’ll be there.

If you’re wondering if brand equity is important consider that Louis Vuitton consistently earns margins in excess of 62% - almost twice the average flooring covering product. If a product in the field is remotely considered damaged or an off-good they automatically destroy it. Vuitton would rather preserve their brand than discount a sale. Unfortunately, most floor covering stores earn 34% margin, discount daily, and are happy to accept a manufacturer’s credit to pacify a customer.

No one questions that brands are important. But don’t assume the brand you think has equity is helping you, and don’t confuse awareness with equity. It’s been a long time since DuPont originally invested in Stainmaster to make it a household brand. The dollars necessary to maintain that awareness may no longer make sense in our declining flooring market. It may be they only need to convince the industry rather than consumers.

The textile industry overcame the polyester brand by re-making it into “microfiber.” Under Armour created a new category with its polyester; oops, I mean microfiber products. Mohawk and DuPont did the same with Triexta. They all realized that polyester has negative brand equity.

How about you? Have you defined where brand equity benefits your organization? Is it possible you’re carrying a brand that emasculates your margins while enriching someone else in the supply chain?

Perhaps the proper questions are:
  • Why aren’t you leveraging brand equity (particularly for Karastan and Fabrica)?
  • Why sell any product if you have to take a short margin?

Look around your showroom and ask yourself these questions:
  • Which brands have equity and which have negative or no equity?

  • Can you define the fine line between brand equity, parity and commodity?
The answers may not be easy. Call me if you need help or would like to discuss your particular situation.

Back to my friend Marty Collins; he wouldn’t consider selling a product without a brand adding 30% to his top-line revenue. Should you?

Thank you for reading,

Chris

Chris Ramey is president of Affluent Insights and a member of the Floor Covering Institute.

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