Tuesday, May 11, 2010

Predictions For the Changing Floor Covering Industry

The Floor Covering Industry has hit bottom and that’s a start upward.  Although the comps are low, we’re beating last year now.  While no one knows what the future holds for the floor covering industry in the U.S., we can be certain that public companies have plans and the necessary capital to ensure successful growth.  It’s also likely that we’re about to enter an era of new competition and unpredictable hyper-change that will alter the landscape as we know it today.

The new buzzword in the luxury segment coined by Ron Kurtz is “frugal fatigue” which roughly means the affluent are becoming tired of frugality. Perhaps that’s analogous to “home sick” - the new home furnishing buzzword.  It is defined as being sick of the way your home looks when you know you’re going to live in it until its value increases, which is probably a long time.   “Home sickness” bodes well for the floor covering industry.

Other trends don’t look quite as positive for floor covering retailers however.  Author and columnist Jonathan Trivers  recently wrote (I paraphrase) that most independent floor covering stores are really just carpet stores.  That’s a problem because hard surface will be the primary beneficiary of any increase in new construction.

Perhaps it’s appropriate to look forward ten years. I make these predictions and wonder how you see the floor covering world might change.  The craziest vision may just come true.

1.    Carpet, as a percent of floor covering, will have decreased to 40% of total sales which is a precipitous drop from its recent high above 70% during the 1980’s and hovering now around 60%.  An increase in new construction will force it to 50% within a short period of time.

2.    The slowdown in carpet replacement driven by sales of hard surface will contribute to greatly diminish the number of independent floor covering stores.  Within ten years, the number of independent floor covering stores in the United States will decrease to 6,000; half the current number.  Consider that retail categories almost extinct now include record stores, hat stores, television stores, organ stores and local pharmacies.       

3.    “Reps,” as we know them, will no longer exist.     

4.    Home centers will increase their share of market to 35%.

5.    Armstrong may be purchased by a Mohawk, Shaw or an outside organization akin to Wolseley.   

6.    Wolseley DBA Ferguson has 1530 locations in North America.  Their involvement would indelibly alter the floor covering industry; they already sell products that complement floor covering.  Think "Long Tail" - the theory that our culture and economy are increasingly shifting away from a focus on a relatively small number of mainstream products and markets at the head of the demand curve toward a huge number of niches in the tail.
    
7.    Berkshire Hathaway will likely acquire additional companies.  For example, the synergies with Sherwin-Williams and their 3,354 stores in North America would be compelling.  Note: Berkshire Hathaway already owns Benjamin Moore.  Would that make Sherwin-Williams into Shaw flooring stores?   
    
8.    Mohawk has their own strategic advantage to leverage; 250 Daltile locations.  The stores already sell ceramic, porcelain, stone, laminate and wood.  It’s not a stretch to create full-line Mohawk home stores.

We don’t know how different the world will be in ten years; only that it won’t look anything like today.  Difficult times are the platform for severe change in any industry.  Planning for the future is particularly tricky when most in the floor covering industry are having a difficult time getting through the month.  What are your plans; how are you going to compete?  Are you prepared for the incomprehensible to become reality…again?    

What do you think the floor covering industry will look like in ten years?

Chris

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

2 comments:

  1. Chris

    You've made some really interesting predictions here.

    I suspect the climate here in the UK flooring industry parallels your US experience pretty well.

    There is definitely anecdotal evidence here about the increasing switch to hard flooring (particularly wood/laminate) and a feeling that more affluent homeowners may be riding the housing downturn by looking to improve their homes rather than selling.

    Adrian

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  2. Adrian,

    Thank you for your comments. The market is fragile everywhere. The flooring industry is not falling apart; just be prepared for changes you never imagined. You’re a piece in the puzzle and you have to be pliable.

    Thanks to everyone who has called or responded with an email.

    Chris
    cpr@affluentinsights.com

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