Tuesday, June 29, 2010

Despite channel conflicts, floor covering distributors are the perfect partners for many

One of my fond, early experiences in the flooring industry involved a two hour car ride across Florida with my friends Al Wahnon (before he founded Floor Covering News) and Alan Greenberg (before he founded CCA Global Partners).  Bob Shaw (co-founder of Shaw Industries Group) had just been quoted as saying that distributors were unnecessary and that he would start servicing retailers direct.  As we drove along Al said, Jim, I feel badly.  You are a nice guy but I’m afraid you’ll need to find another job, the days of wholesale distributors are numbered.” 

Thirty five years later, Shaw Carpet has a very healthy business through independent wholesale carpet distributors but channel conflict and debate over the relevancy of distribution not only continues it has expanded because the Internet has added not just a new dimension but a new channel to the discussion.  This is true in virtually every industry whether it is groceries, fashion, golf equipment, electronics or pharmaceuticals.  In fact the issue of removing intermediaries in a supply chain, especially by introducing e-commerce, is so wide spread and relevant it has its own name in economics -  “disintermediation.”

The broader issue though is channel conflict - that refers to a situation in which business partners clash in some of their operations, such as distribution networks, in such a manner that it causes stress to the relationship, effectively turning them into both competitors and partners simultaneously.  A classic example of channel conflict and disintermediation made flooring industry headlines last week when BR-111 announced it would eliminate distributors, sell direct to consumers over the Internet and give a commission to the nearby dealer who lost the sale.  “BR-111 says No to Distributors.”  There is more than just channel conflict that makes one wonder how this story will end; the result remains to be seen. Others have tried forsaking distribution.  In 2008 Faus initiated a “direct to market” concept after its major distributor, Hoboken, filed bankruptcy.  This spring Faus announced that it was actively courting distributors again.

Armstrong began its retailer direct program with the National Floorcovering Alliance (NFA) in 2006 and more recently with CCA Global Partners.  In CCA’s case, orders will be placed centrally and order fulfillment will be carried out by their distributors. While rumors and questions persist about Armstrong’s long-term plan for distribution, this arrangement is an example of a traditional, linear distribution model moving towards a more collaborative one; something that many industries try to achieve.

No company owns a right to their business.
If the services you perform become outdated, the competitive market will cut you out one way or another.  When Mohawk Carpet decided to follow Shaw’s lead and eliminate their 14 distributors in 1985, my company lost 60% of its sales volume almost overnight.  Instantly, Misco Shawnee had to reinvent itself or become a dinosaur that had outlived its era.  We redesigned the company to fit the changing needs of the market and prospered for many years, but some distributors could not change fast enough and they disappeared.  The same story has happened over and over throughout the years; the key is to not be so inflexible that you become irrelevant.

Consolidation has seen the flooring industry evolve into an oligopoly of manufacturers.  Given the examples of companies like Shaw, Dal-Tile and Armstrong some may conclude that the future of wholesale distribution in the flooring industry is at question.  But as much power as these giant manufacturers wield in our industry, they do not define the industry in its entirety. I spend a great deal of my time finding the right channels and channel partners for my clients to take products to market. Wholesale distribution remains a very important solution today for many domestic and foreign manufacturers, who without distributors, could never compete.  It is a perfect marriage for distributors who need product differentiation and manufacturers who need a sales force and logistics.

Jim

Jim Gould is President of the Floor Covering Institute

Tuesday, June 22, 2010

The New Consumer Frugality and Flooring

Christine B. Whittemore
Have you thought about the New Consumer Frugality and what it might mean for your flooring business?

Several articles, namely The New Consumer Frugality, an article from Strategy+BusinessNew frugality for many may outlive recession from msnbc.com and The New Frugality: Consume Less, Save More, Live Better from Wisebread, had me considering the future.

The New World Order: Consumer Frugality


It's fair to say that we are emerging from the Great Recession. We're not out of the woods, but there seems to be a constantly shining light beckoning to us through the trees.  We are making progress slowly.

In the process of this recession, though, we have become less wealthy. Either from lost jobs, diminished home equity, higher taxes, higher costs of living, education, driving, insuring and unbearable debt loads...  There's just less disposable income for spending on what used to be considered necessities and in hindsight seem more like frivolities.  Top that with being worried about what the future looks like.

Consumer trends -- many of which had started developing before this marketplace turmoil -- have only accelerated.  They support a new consumer attitude toward spending: one of frugality, characterized by a "strong value consciousness that dictates trade-offs in price, brand, and convenience."

That tells me that the good times of enthusiastic consumer spending are gone.  The days of acquiring stuff to replace old stuff that gets placed into storage [paid for in addition to monthly living obligations] are no longer sustainable.  Buying the largest McMansion that a mortgage can buy quickly becomes an upkeep nightmare if you can't afford cleaning and maintenance help. Clogging those homes and our lives with more stuff can only suffocate us personally and financially.

That puts us in the midst of a purge. Not that we've stopped buying. Rather, we now make considered trade-offs for the best combination of price, brand/quality and convenience. In making prudent trade-offs, we benefit by obtaining more; we focus on how purchases can benefit the community, the environment and contribute to sustainability.  We're figuring out how to feel good through our new frugality.

So how does all of this affect us in the flooring industry? What does the new consumer frugality mean for those making and selling floor covering products?


Start by rereading David Wootton's post In the flooring industry, it pays to have a vision. Then, consider the implications of the New Consumer Frugality and flooring:

The New Consumer Frugality means that, although the floor covering business has entered into a more mature phase of growth - i.e., less stuff sold less frequently -- flooring faces an opportunity to redefine the customer experience in terms of how product is sold and what kind of product is sold.  That in turn requires new customer-focused commitments.

We need to be transparent in our pricing and product claims.  Why? Consumers don't trust marketing claims.  They readily make use of the Internet to educate themselves, using digital comparison tools and tapping word-of-mouth perspectives. Customers are more likely to trust you if you make it easy for them to do their due diligance. They seek out transparency.

We need to be willing to build longterm relationships with customers. With that comes a true commitment to sustainability, a belief in authenticity, a commitement to service and to the local marketplaces we serve. Consumers are tired of being taken advantage of and being considered statistically insignificant when they have complaints. They expect you to be listening and paying attention, especially online, and they have high expectations about the feedback they offer and the interactions with them. They expect you to have meaningful ties to the community and that you think and act sustainably.

We must provide a greater focus on product differentiation and quality.  Customers are seeking out simplified product offerings.  They are time stressed and tired of being deliberately confused. They appreciate that you try to make their lives easier. Edit, curate, add meaning to your product assortment so they can understand the benefits they receive from different product categories and price points.  Simplicity is meaningful to your customers.

We must be willing to explore new retail and business formats that make use of Internet based disintermediation. Our consumers are also tech savvy, adopting mobile at a very fast rate, and willing to experiment with the likes of an engagement ring iPhone app from Tiffany, or a geolocation gaming application like Foursquare. Be visible digitally and be sure to integrate your online and instore experiences.

What's your interpretation? How are you planning for the New Consumer Frugality?

~ Christine B. Whittemore

Chief Simplifier
Simple Marketing Now, a consultancy focused on connecting with customers by integrating social media and content with traditional marketing

Contact her at cbwhittemore@simplemarketingnow.com
Or visit The Simple Marketing Blog and Flooring The Consumer

Tuesday, June 15, 2010

In the flooring industry it pays to have a vision

"You cannot become what you want to be by remaining what you are." This quote by Max DePree from his book, Leadership is An Art, sums up the idea that a business needs to embrace change in order to become what it wants to be. Most companies know what levels of performance they would like to achieve but too few do anything to make it happen; supporting this oft quoted management axiom:
Some companies make things happen. Some companies see things happen. Some companies wonder that things happen.

Change happens whether you are ready or not.

These are challenging times in the flooring industry and since I became involved in 1990 the one thing that has been consistent each year is CHANGE. Just look how fast things have changed in the six months since I wrote about the contentious relationship between manufacturers, distributors and retailers. Already in 2010 we have events that could exacerbate that situation:

•    Armstrong Industries is beginning to service CCA Global retailers direct and is using their distributors as a logistics providers. (National Floor Trends)

•    Mannington terminated their agreement with Abbey Carpet Co. (Floor Covering Weekly)

•    Anderson Hardwoods decided to stop exhibiting at Surfaces and join Shaw’s regional shows, causing their existing distributors to share access to retailers with their parent company and Shaw’s direct sales force,  albeit with different branding options.   (Floor Covering News

•    Shaw Industries acquired Stuart Flooring strengthening their position as a player in the hardwood flooring segment, (Floorbiz) and partnered with LG Hausys enabling Shaw to enter the vinyl flooring segment.  (Floor Daily)

•    The “Bravo” group of Armstrong distributors aligned with Interface to promote the sale of carpet tiles to mainstreet through retail specialty stores. (Floorbiz)

•    BR111 created a website that will sell the consumers directly with plans for rebates to go to the channel partners who lost the sale.  (Floor Daily)

And let's not forget that seven months ago the U.S. dollar was 1-34 against the Euro whereas today it is at 1-19, making US exports around 12% more expensive and therefore less attractive.


The Vision Statement: Creating a vision that embraces change.
With the continuous changes in our industry you need to have a VISION of what you want to achieve and a route map of how you might achieve it. Remember the DePree quote: “You cannot become what you want to be by remaining what you are.”  A vision statement is not cast stone and needs refining at regular intervals. Creating a vision of where you want your company to be in five years is a good place to start and here is how I suggest it can be done.

Form a small group of senior employees representing sales, marketing, operations and finance and give them the task of creating “VISION 2015.” Ask them to have the presentation ready by October 1, 2010. Have the group do the following:

•     Create a situational analysis of where the industry is today and the dynamics driving it, including:
    • Products
    • Market segments
    • Channels to market
    • Supply chain
    • Economic trends
•    Create an overview of the competitive landscape affecting your business including key players who influence your ability to compete in the marketplace.

•    Create a broad strategy to grow your business considering these and other options:
    • Increase sales
    • Strategic alliances
    • Acquisitions
    • New products
    • New channels to market
    • Reduced operating costs
    • Streamline administrative processes
    • Using the Internet
    • Embracing Social media
•    Examine the key resources needed to implement the strategy such as:
    • Human resources
    • Investments and finance
    • Technology enhancements
•    Translate the strategy into an annual P and L for the period of the vision.

The completed project can be summarized in a power point presentation of only a dozen slides and presented to various internal groups for comments to receive input and further refinement. You will be amazed at how much you learn about your company (as well as your management) as a result of this process including some things you probably did not want to know. And you’ll have a blueprint that will help you navigate challenges that lie ahead.

When complete, I believe it is an excellent idea to present this to your entire workforce, in groups if necessary and with or without profit numbers at your discretion. Employees are always motivated to know the company has a plan for the future. It is also a good idea to present regular updates as to how the plan is working (or is not) so that "VISION 2015" becomes a buzz phrase in the company and employees feel they are part of the process.

Remember the line from William Ernest Henley's poem, Invictus: “I am the master of my fate . . ."

Visions statements are crucial and the process is fascinating. If you need my help let me know; and as always, if you have thanks for reading this.

David
David Wootton is President of The Wootton Group, an independent flooring consultancy, and a member of the Floor Covering Institute. He is past CEO of both Columbia Flooring and Harris-Tarkett.

Tuesday, June 8, 2010

How the oil spill disaster may affect the flooring industry.... Will customers start asking new questions?

Like you, every day I am sickened by the sight and thought of the BP oil spill. I can no longer even look at the televised live feed showing oil spilling into the gulf. I can’t watch pictures of animals coated and drowning in oil or think of what is happening to the sea life, the ecosystem and the lives of countless people along the coastline. If only we could apply Ctrl Z  to life and undo our mistakes the way we can with a computer. I fear we will be living with the consequences of this event for at least the rest of my life.  That brings me to my thought today – which is to share an example of one way this oil spill might affect the floor covering industry, and especially retailers.

It seems natural that this disaster could heighten the collective concern about the environment. Maybe this disaster will cause some Americans to ask more or different questions about products they buy. Retailers may face some new objections as consumers try to avoid petroleum based products or ask about products that use less manufacturing energy. The answers to these questions are not readily available in most retail showrooms, but maybe they should be. In the very least, maybe this should be something that our product makers and sellers recognize as a possible emerging dialog.

Most types of flooring products have been analyzed and "scored." Data is stored and available for designers, builders and manufacturers to use. So the potential question of “What product type typically uses the least energy during manufacturing?” can be answered. The answers are based upon the product's Life Cycle Analysis (LCA).

What is a Life Cycle Analysis?

A Life Cycle Analysis is a careful accounting and analysis of  measurable raw material inputs (including energy), product and by-product outputs and emissions to air, water and land - and they can be much more detailed.

One source of LCA data is through an agency within the U.S. Department of Commerce.  The National Institute of Standards and Technology (NIST) maintains a data base with environmental and economic performance data for building products, including dozens of floor covering products. Their LCA considers 12 environmental attributes from fossil fuel depletion and indoor air quality to ecological toxicity and the impact of raw material extraction through product manufacture, transportation, installation and disposal.  Analysis is based on a uniform set of international guidelines and procedures published by the International Organization for Standardization (ISO).

Wood flooring has also been the topic of many studies in the U.S., Canada and Europe. In 2008 The National Wood Flooring Association Industry Research Foundation conducted a life cycle analysis of wood flooring in conjunction with the Consortium for Research on Renewable Materials (CORRIM) entitled: Life-Cycle Inventory of Solid Strip Hardwood Flooring in the Eastern United States.

The authors of this study also prepared a supplement in which they compared wood flooring to some other flooring products: How Solid Strip and Sold Plank Hardwood Flooring Stacks Up in Comparison to Alternative Floor Coverings.  They looked at air and water emissions, primary energy use and product service life. They concluded that hardwood flooring used the least amount of primary energy in manufacturing, had the longest life expectancy and used substantially less water in manufacturing than other products, with the exception of VCT. This graph shows their findings of Total Primary Energy Required to Manufacturer Selected Floor Coverings.


This same information is contained in the Hardwood Council's American Hardwoods and Life Cycle Assessment: How Selecting Materials Impact Our Lives.  Of course other product manufacturers may have energy savings protocols that could enhance or contradict this – and that should be part of their marketing story. 

For those who want to learn more background on this topic, perhaps a place to start is the 2009 white paper by Dovetail Partners: Life Cycle Assessment of Flooring Materials A Guide to Intelligent Selection. Among the topics covered are: Environmental Performance of Various Floor Covering Options; Performance Rankings (based on the NIST data); and Economic Performance of Various Floor Covering Options.  Even if you don't agree with their findings, you are farther ahead knowing about this study.

Certainly every manufacturer will have its own interpretation of data, and maybe some have funded their own LCA’s.  I hope they make the data available to their distributors and retailers. The point is, you have a right to ask for it.

It’s hard to say if this oil spill disaster will make us think differently about the products we buy and use or whether buying decisions will change.  As a consumer I know that when I am informed about the differences in products I am empowered to make better choices for me. I appreciate any retailer or supplier with credible information to share during my decision making process. As the oil spill spreads across our beautiful Southern coastline, I hope this post will prompt some of you to think about how you might overcome possible new objections and questions.  

Thank you for reading and please continue the discussion by posting your comments below.

Susan

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

Tuesday, June 1, 2010

Floor Covering Retail Sales Are On the Rise

CATALINA FLOOR COVERING STATISTICAL TRENDS AND OUTLOOK

In my April post, “Catalina Says U.S. Flooring Industry Set For Spring Thaw,” I asked readers to let us know if they  benefited from improvements in the economy that were anticipated this spring.  We received a number of positive responses that business was beginning to improve.  Well the numbers are in, and retail floor covering sales are on the rise.

The first increase in floor covering store sales in 29 months came in March this year with a boost of 6.1% over last March, according to the U.S. Department of Commerce monthly retail survey. Based on furniture and home furnishing store sales in April, we think it’s possible that in April floor covering store sales will show a 4.5% increase over the previous year.

In the home center channel, Lowe’s and Home Depot are also seeing positive trends.  Lowe’s estimates that total second quarter 2010 sales could rise by 5% to 7%, with bigger ticket home improvement purchases leading the way.  Home Depot sees sales rising in the 4% to 5% range.


Outlook for Floor Covering Sales Throughout 2010

In the second quarter of this year we estimate total floor covering retail sales may increase by 4% to 5% and similar increases will continue through the second half of the year.

Increasing Home Sales Fueling Floor Covering Sales

The recovery of floor covering retail sales is tied directly to the increase in existing home sales which reached its highest level in three years this April with a 26.2% surge over last April,  according to the National Association of Realtors.  From April 2009 to May 2010 existing home sales increased  11.5% with over 550,000 more homes sold in that time compared to the previous twelve-months.

These sharp gains are, of course, due to the $8,000 tax credit for first time home buyers. That credit expired on contracts signed by April 30 and closed by June 30 and many are worried that existing home sales, and therefore floor covering retail sales, will decline again due to the expiration of the tax credit.

Will Floor Covering Sales Suffer with the Demise of the First-Time Home Buyers’ Tax Credit?

There are a number of positive trends that we expect will keep floor covering retail sales on an upward trend for the rest of 2010, even after the loss of the $8,000 first time home buyers’ tax credit:
 
•    The most important is the turnaround in U.S. employment.  U.S. employment rose by over 200,000 this April and is expected to remain positive.  This will give a boost to household incomes and lead to rising home improvement spending.

•    Household ability to spend is also improving.  Mortgage rates continue to remain below 5%.  This will provide a floor under existing home sales and improve the finances of those refinancing.

•    Homeowners’ ability to finance home improvements is also expected to increase with the rise in home values and a decrease in debt to income ratio.  The average value of an existing homes sold rose by 3% in March and April this year and the household debt to income ratio declined to its lowest level in nine years by the end of 2009.

As always, please let us know at the Floor Covering Institute how these positive market conditions are affecting your business.  We value your input and enjoy the conversation.  You can enter a comment below.

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.