Tuesday, April 27, 2010

Flooring, China & Social Media

One last post relating to China - about Flooring, China & Social Media. This time, I highlight non-flooring examples with a Chinese connection to provide innovative perspective for your flooring business domestically or abroad.  All made possible thanks to social media tools.

Here are links to my previous posts in this China series:
What got me started with the series was an AdAge article titled 20 blogs marketers to China should be reading with a wealth of information about China, a country on the other side of the globe, one I admired and have visited, but don't fully understand.  I can't speak the language other than a few words like thank you, yet love the food and fully appreciate the marketplace implications of a country so big for products like flooring. 

In my previous life in the branded residential carpet business, global didn't matter much.  Flooring, though, is global --  Jim Gould brought that point home when he described his first global experiences on the Domotex Blog -- with China perhaps an extreme, given its geographic location, example, but relevant nonetheless.

Curiosity got the better of me.  I began to wonder what I might discover from my keyboard in Northern New Jersey... and how those discoveries might be relevant to flooring.  After all, if it works for China, then the universe becomes my oyster!

For example, take this article titled Why Do The Chinese Save So Much?  Do you know why? Although the article starts out discussing interest rates it moves onto a fascinating observation.  That "an important social phenomenon is the primary driver of the high savings rate: for the last few decades China has experienced a significant imbalance between the number of male and female children born to its citizens."  Increased savings helps young Chinese men look more attractive as marriage candidates... Think of the implications for selling household items such as flooring into China. Think of the implications of similar observations for your domestic customers. 

Imagine doing as Unilever does in Unilever puts in face time with the Chinese consumer. The company's chairman for Greater China regularly spends time with consumers to experience and observe their lives. He refers to these as 'consumer connects.'  Do you regularly connect with your customers to calibrate product and marketing decisions?  Imagine how much easier this is to do in the U.S. than in China!

The lesson: pay attention to the social dynamics of your market. Look beyond the stats to find the real stories and opportunities. Observe and listen.  Walk in your customers' shoes!

Social Media And China: It's not what you think: Notes from SxSW by Jim Tobin offers perspective on the state of social media in China.  What fascinated me most: 40% of the Chinese population creates content online [vs. 21% in the US] much in reaction to a media infrastructure that isn't totally objective. The opportunities for listening and learning about consumers abound [e.g., how they refer to products; eagerness to participate in group purchasing...] especially since innovation is intensely strong in China - particulalry with respect to digital.  As the article closes "while China is known in the U.S. in part for their rampant piracy..., it's clear from the level of participation, and the monetization of that participation, that China's innovation also offers lessons for marketers in the United States and elsewhere."

The lesson: foreign locations and cultures teach you as much about that environmnent as they do about your own. Immerse yourself in foreign-ness via digital resources and social media and emerge with a new appreciation for your domestic flooring marketplace and customers.

For more onlines resources relating to China, do visit Alltop China resources - aka all the top news. [Note: you can also search on other countries of interest.]

What have been your most surprising foreign flooring experiences? What about in your domestic market? How have those shaped your business? As you have explored flooring beyond North America, what have you observed and how has that changed your domestic perceptions?

~ Christine

Christine B. Whittemore
Chief Simplifier, Simple Marketing Now
cbwhittemore@simplemarketingnow.com

Tuesday, April 20, 2010

The U.S. Lacey Act Amendments: Wood Product Supply Chain Tips and Myths


The 2008 U.S. Lacey Act Amendments ("Lacey Act"), the world's most punitive and far reaching "ban" on illegally harvested timber, continues to influence the floor covering and many other industries using wood products worldwide. As more industries come under its influence, and with the first U.S. government investigation of  illegally logged wood underway, I thought now was a good time to revisit this subject. Here are some practical tips and a few busted myths.


The Lacey Act makes it a crime to receive, transport or sell timber products harvested in a manner contrary to the laws from which the timber originated. Mislabeling and making false statements as part of the mandatory disclosure requirements are also crimes.  The act forces U.S. buyers and importers to take full responsibility for how their timber is harvested and extends that responsibility through the entire supply chain; everyone is accountable. We first wrote about the Lacey Act on this blog site back in September, 2009 in How the Lacey Act Affects Floor Covering and Wood Products Industries.

The first enforcement action under the Lacey Act took place in November, 2009 when inspectors from the Fish and Wildlife Service raided the offices of Gibson Guitar in Nashville for the suspected import of rosewood and ebony illegally harvested in Madagascar. It was widely reported that agents seized wood, guitars, computers and files from the company headquarters.  Click here to read our initial post on the Gibson investigation

Presently the investigation remains sealed; few verifiable, new facts in the case are known and as yet no charges have been filed but the lag between the raid and developing news shouldn’t be interpreted as an indication that the investigation has stalled.  The latest news on Gibson coming this week from the Nashville Post (which follows their hometown guitar manufacturer closely) is that Gibson now faces an IRS investigation. The IRS has filed a lien for just under a half million dollars for unpaid corporate and payroll taxes.  Raise your hand if you don’t want to be Gibson Guitars right now.

Meanwhile, on April 1st enforcement for reporting requirements under the Lacey Act was expanded to include some furniture, musical instruments, guns, hand tools, toys, pool cues and works of art, among others.  Asian wood furniture exporters are described as “nervous as cats on hot bricks” as they wait for more detailed guidance about what they have to do to continue to export products to the U.S. The garden furniture industry (i.e. teak furniture) could be ripe for the next illegal wood investigation since much of the wood used for this furniture is harvested in high risk countries.

Practical Tips

Back in the Spring of 2009, the floor covering supply chain was also on edge as deadlines for compliance approached with virtually no guidance available.  Foreign floor covering suppliers were especially concerned and The Floor Covering Institute was among the first to address this angst starting with our white paper,  Continuing Wood Trade Under the Lacey Act Amendments, which provides a broad range of information about the history and evolution of the Lacey Act, the standard of “due care,” compliance and penalties, the Department of Justice’s approach towards investigations and prosecutions, where high risk wood comes from and tips for wood products buyers.

Our follow up article, Will Your Wood Trade Business Meet the Lacey Act Due Care Standards  reached nine important conclusions that the wood products supply chain should consider when developing Lacey compliance protocols:
  1. Certifications are evidence of “due care,” they are not proof that wood is legal.
  2. The standard of “due care” may be applied differently to different people.
  3.  There is no “innocent owner” defense and illegal flooring can be seized at any point in the chain.
  4.  Relying solely upon others to comply may be insufficient in the face of investigations.
  5.  Certain facts should trigger a heightened degree of care, i.e. (below market pricing).
  6.  A Lacey violation can also lead to prosecution under other laws.
  7.  The Act is violated as soon as illegal wood enters the supply chain, whether on domestic or foreign soil.
  8.  To be in violation of the Lacey Act one only needs to have participated in the supply chain that received, transported or sold it.
  9.  Developing procedures that demonstrate due care well beyond the mandatory “import declaration” is prudent.
When giving one-on-one guidance to U.S. importers we stress that members of the timber products supply should:   
  1. Create a written company policy stating the intent to buy/sell only legal wood products.
  2. Back that up with a standard operating procedure, checklist and questions for buyers to follow
  3. Do not allow wood products that have not passed those standards into inventory;
  4. Document actions.  In the event of an investigation, written policies, checklists and documented actions will be primary evidence that due care was exercised;
  5. Ask suppliers to document the due care they exercised in sourcing the wood products;
  6. Know where the wood was harvested. If it’s coming from a higher risk country then realize your risk is greater.  If it comes from a low risk country, verify that it was not first imported from a high risk area. Use third party certifications when you can.

It is important to remember that courts will likely hold those routinely involved routinely in importing flooring, or any wood product for that matter, to a relatively high standard of care.  Relying upon your supplier to meet the standard of due care before the product reaches you will be insufficient.

Dispelling Myths

Unfortunately there are still those who are not yet convinced that the Lacey Act can touch them. One commonly held myth is that domestically harvested wood is always "safe."  The Lacey Act applies to both domestic and foreign sourced wood. While the highest instances of illegal logging exist outside of our domestic borders, we are not immune to illegal logging and just because your wood products may be made in the U.S. from domestic wood doesn’t mean that you are risk free.  Timber is also stolen and illegally logged in the U.S., albeit on a smaller scale.

Another common misconception is that third-party certifications guarantee that your wood is legal.  While certifications go a long way to show that you are exercising "due care," third party certifications are not guarantees.  That is because the Lacey Act is a fact based, not a document based, law and compliance does not rest on any one document.



For a quick information about these and other myths I highly recommend that you read Setting the Story Straight The U.S. Lacey Act: Separating Myth from Reality
which addresses many practical questions relevant to our readers.

As always, you are encouraged to comment and give us feedback on any information we post here.  Many of our readers comment directly to us via email but posting here helps to encourage conversation  among our readers. 

Thank you for reading,
Susan Negley

Susan Negley is the Director of Communications for the Floor Covering Institute.

Tuesday, April 13, 2010

Tips for Using Your Floor Covering Supply Chain to Reduce Your Inventory Investment

Recently Jim Gould wrote a post on this site about managing your floor covering inventory investment in Avoiding Cash Traps and the Recession Slows and Business Grows in which he talked about how inventory consumes a lot of business capital that could be available for other purposes. David Wootton also described inventory as “a big box of dollar bills” in his post that talked about methods for preparing your annual budgets. I could not agree more  - inventory is a cash trap - in fact, I always say that inventory should be the buyer's biggest client, meaning you have a bigger investment in inventory than any customer. With so much at stake you need to use innovative methods to manage your inventory investment.


One of the best way to reduce your inventory investment is to use the resources of your supply chain. In my experience, businesses put a lot of money and effort into sales and marketing but place less focus on the supply chain. Normally you have fewer suppliers than customers and focusing on the supplier relationships can yield incredible results. Today I want to share some of the methods I have used in the past to reduce the amount of cash tied up in inventory.

Realize that you and your suppliers have mutual interests in common and use those common interests as leverage.
  • Once a year create a budget with incentives and obligations for both sides based upon the market conditions. If markets change, amend the budgets and targets. 
  • Include a retroactive rebate – if your sales exceed "y" percent more than your target you receive a "z" percent retroactive rebate.
Most suppliers will be prepared to do this and it shows you are committed to the supplier relationship. I can tell you from my own experience that this is a very successful tool that can contribute more than imaginable in annual profits.

Improve delivery times and service. If the supplier informs you that he requires a 4-week delivery schedule this could mean you will have to increase your inventory on hand. That will trap your cash and place you at a disadvantage. To turn this around you should sit down with the supplier and discuss how to improve delivery and service levels so that you receive stock faster or more frequently.

One way to achieve this is to provide the supplier with your sales history and forecast for his product.
  • A sales history would typically include the average sales per month over a certain period (normally 104 months) and your forecast for the next 3-4 months.  A forecast is not binding and in practice the supplier may only see a percentage of your forecast in realized sales but your information, combined with that of other buyers of the same product, will help the supplier manage his production.
  • Guarantee that you will purchase a minimum amount of product but let the supplier keep the inventory and bill you as the orders are shipped. Most suppliers are prepared to do this. It helps them to manage production which is a benefit to them. If the supplier does not want to keep inventory on hand then the discussion should expand to keeping raw materials on hand so that production can happen quickly to fill your orders and shorten delivery times.  Of course, keeping both inventory and raw materials on hand for you is the best of both worlds, if that is applicable and possible.  Trims and moldings are a good example of products for which this scenario may apply.
  • Better terms should always be part of the discussion. A supplier is often prepared to give better terms for customers that order on a regular basis but this does not mean that you should agree to buy exclusively from that supplier. It is best in most cases to keep those options open.
Monitor the supplier agreement on a regular basis. While you are no doubt accustomed to suppliers monitoring your performance, you also need to monitor theirs. Review to ensure that all parameters are being met and systems are working as mutually agreed. An added benefit to creating a mutual agreement with your supplier is that it changes your leverage and puts your supplier on a different footing. They then begin to make similar arrangements with their suppliers, so the total supply-chain benefits.

Other areas where hidden costs are common: communications and travel. Always ask if travel is absolutely needed or whether you can you travel at another time in combination with another trip. Ask people to come to you. Use Skype for conferences. Skype is also available on the I-phone and Blackberry.

Take a look also at the way you communicate internally. Complicated internal communications (bureaucracy) do not generally contribute directly to success in sales or buying and can kill an organization over time. Shorter communication lines - from the top down and back up - mean a leaner organization. You need this, especially under the current market conditions, although if you follow the same principles when the market is good again, you will certainly see more improvement.

I hope this gives you some food for thought. In my next article I will write about "painless negotiations."

Please give your comments; I will greatly appreciate it.
Best regards,
Ruud  Steenvoorden

Ruud Steenvorden is president of Steenvorden Consultancy and a member of the Floor Covering Institute. 

Tuesday, April 6, 2010

More about Moisture Problems Leading to Flooring Complaints from Lew Migliore

I feel like concrete moisture leading to flooring complaints is the bane of the flooring industry right now.  If you are a floor covering dealer you probably have a complaint, are dealing with one now or are about to get one. That is why it is important that you know your product’s vulnerability to moisture and then communicate it to your customers  - be they residential or commercial users.

Alas, I see too many people who fail to heed the warnings then want to blame the retailer, manufacturer or the product itself for the failure when the facts, once we investigate, show that proper moisture conditions or barriers were not in place. The facts don’t lie, but people do, and by the time the flooring failure has gotten to my attention we usually find that the problems - and the huge costs and losses associated with them -  could have been avoided.

This is a follow up post to my  recent post on concrete moisture leading to flooring failures which got a lot of attention. I hope this post will help someone to avoid potential problems in the future.

There are three flooring materials affected most often by moisture issues: sheet vinyl, carpet and wood.  The common denominator between these three products is that they are vulnerable to the affects of moisture in substrates, whether beneath or above grade or from the surrounding environment.  Before you go off the deep end thinking that none of this material can be installed without the threat of a problem, let me explain.

Sheet vinyl flooring with welded seams

Sheet vinyl flooring with welded seams, used most frequently in hospitals, schools and health care facilities, is non-permeable which means it doesn’t breathe - that is moisture vapor or pressure beneath won’t pass through it. Moisture below it destabilizes the adhesive that holds the flooring in place and then eventually lifts the flooring material out of place.  Sheet vinyl isn’t the only sheet goods susceptible to failure, however.  Sheet linoleum and large vinyl or rubber tiles are equally at risk.

Oddly enough, if there is a VCT tile floor directly adjacent to the compromised sheet goods it may be unaffected.  Why?  Because the tile has a “seam” or gap all the way around it that allows anything beneath it to evaporate.  Certainly if the moisture vapor emission rate gets high enough it will eventually overwhelm these tiles too  - and lift them, but because they are “pieces” they have a better chance of survival.

Carpet products

Carpet with non-permeable backing - whether carpet tiles or wider width goods such as six foot products - can be as easily compromised as their vinyl flooring cousins because the non permeable backing will not allow moisture vapor to pass through.  If there’s moisture in the concrete slab on which these products are installed there is strong likelihood of an installation failure.

In the future we will see more recycled content backings (often non permeable) for modular and six foot carpet goods so the potential for failure if proper installation conditions are not met will increase. This is not to cast aspersions on these types of products. It is meant to warn you of potential problems that can arise if the substrate is not tested to determine if it requires remediation before installation of flooring. The common denominator in these two products is the non permeable nature of the material.

Regular tufted carpet with a woven synthetic backing will allow moisture vapor to pass through it.  This means the carpet won’t be affected but the adhesive holding it in place eventually will be.  If the carpet is stretched in you may never know moisture is present.

Wood floors

Wood floors are most susceptible to moisture because, once having been a tree, they inherently absorb moisture and not just from the substrate but also from the air.  Not controlling what’s above and beneath wood flooring will have you wishing you were marooned on an island where no one can find you.  So the common denominator for wood floors is the fact that wood absorbs moisture.

Moisture is to flooring like toxic gas is to humans, to use an exaggerated comparison.  You can’t see it but the effects are disastrous.  Always assume moisture is present and deal with it accordingly.  You have to test for it or have someone trained and certified by the International Concrete Repair Institute   (ICRI) conduct the testing.  You may even consider this certification yourselves as a profit center for your business.

When researching information about moisture issues in substrates be aware that there is a lot of misinformation out there.  This subject is more complex than is readily apparent and “experts,” who really aren’t, are springing up all over.   Remember, if you have a flooring complaint resulting from moisture the evidence never lies - if you know how to interpret the evidence it will point you to the cause every time.

If you want to know more about this subject and how to manage the potential threat you can contact us at LGM where we not only inspect and help manage these issues but teach others how to as well.  And don’t forget, there is technology that will actually thwart the effects of moisture such as The EnviroStix™  and  Freelay®  systems.

Lew

Lew Migliore is President of LGM and Associates, a technical consulting firm specializing in all aspects of product and installation performance and education. He is also a consultant with the Floor Covering Institute.

Thursday, April 1, 2010

Catalina says U.S. Flooring Industry Set for Spring Thaw - Who Will Benefit?

FLOOR COVERING STATISTICAL TRENDS AND OUTLOOK

In my February 11th post I asked the question “Are Floor Coverings Sales On Schedule For A Spring Recovery?"  The answer is yes. Based on the March 2010 Catalina Floor Coverings Quarterly Update, the U.S. floor coverings industry is on track to show a 1.4% increase in square foot floor coverings sales (shipments, minus exports plus imports) in the second quarter of 2010.  This would be the first increase in quarterly floor coverings sales since 2006. Now the question is . . . 

. . . . who will benefit from this “Spring thaw?”  The answer seems to be retailers catering to the do-it-yourself (DIY) market and the products purchased for DIY projects.

The recovery in the residential replacement and remodeling market is being driven by do-it-yourself projects because the important first time home buyers are more likely to have lower income than the average homeowner and sluggish personal income gains have caused a shift to lower priced flooring projects.

The growing importance of DIY projects has allowed the major home center chains and Lumber Liquidators to increase share on the retail level because these retailers cater to do-it-your-selfers.  We estimate those retailers accounted for 24.7% of total U.S. floor coverings retail sales in the fourth quarter of 2009, up from 22.0% in the fourth quarter of 2008.

The trend towards DIY projects may also change the product mix of the hard surface flooring to click-able installations such as engineered wood and laminate flooring, and the newly introduced vinyl planks. I mentioned this in my post last month in Is Hard Surface Flooring Growth Just A Click Away?  This trend can be seen in the sharp increase in laminate flooring sales at Lumber Liquidators in 2009.

Overview of Statistics Leading the Flooring Industry Recovery
The improvement in industry sales is due to the turnaround in domestic housing demand since the third quarter of 2009.  Total housing demand rose by about 20.0% in the fourth quarter of 2009, and could rise by 7.1% in the first quarter of 2010.  These gains were due to the surge in existing home sales.  Existing home sales rose by 26.1% in the fourth quarter of 2009 and are estimated to rise by 7.4% in the first quarter of 2010.

The rebound in existing home sales is being driven by positive reaction to declining home prices, low mortgage rates, and the $8,000 first time home buyers’ tax credit (a $6,500 tax credit was extended to all homeowners from December 2009 to April 2010).  As a result, floor coverings manufacturers and marketers are sharply increasing dependence on the residential replacement and remodeling market.  However, the estimated increase in industry sales continues to be held down by a weak builder market and sharp drops in nonresidential demand.

Hard Surface Flooring  Gaining Share Overall
I think we will see  hard surface floors could gaining some share in the first quarter of 2010 due to the increasing popularity of  DIY products,  especially lower priced products such as  LVT and laminate.  Consumers’ growing preferences for lower end flooring lines over the past two years have caused a decrease in share for wood and stone flooring but we’ve noticed ceramic has gained share over the past two quarters due to inventory replenishment.  The supply chain could have been pretty thin after two years of sharp ceramic tile sales declines.  Overall,  the hard surface category should pick up share this year.

Let us know at the Floor Coverings Institute how you are benefiting from the “spring thaw.”

Stuart

Stuart Hirschhorn is a member of the Floor Covering Institute and Director of Research of Catalina Research, Inc. which provides in-depth market research on the floor covering industry.