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

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