Tuesday, July 27, 2010

The Great Urbanization: Threats and Opportunities for Floor Covering in China and India

I want to share a recent series of articles about coming changes to the global economy affecting the demand for floor covering  - representing both threats and opportunities. This grabbed my attention and it should yours too. If this doesn’t scare you, it may inspire you; regardless I hope you take some time to read and consider what might bring about a very profound change in the floor covering industry and other construction industries around the world.

Spotting emerging trends
Spotting and acting on emerging trends is how companies take advantage of market opportunities.  After much research,  McKinsey and Company just proposed five areas they see that offer the richest opportunities created by new stresses and tensions in the global economy. You can read the entire article about global forces but here I focus on two particularly important ones to us; they are productivity and emerging markets.  Together, the influence of these two forces will be profound; reshaping the global economy and, by extension I believe, the global floor covering industry in a rather surprisingly direct manner.

The Productivity Imperative explains the urgent need for developed countries of the world to increase productivity in order to sustain their economic growth and the unbelievable productivity potential of some developing countries. Emerging Markets details how we are heading into a time when, for the first time in 200 years, emerging markets will contribute more to the world economy than developed ones.  McKinsey calls it the Great Rebalancing. These two articles dovetail with another recent article that prompted this post:

The Great Urbanization: Threats and Opportunities in China and India

China and India are urbanizing simultaneously and at such a pace that the shift in demand for finished products and raw materials will be unprecedented.  In Comparing Urbanization in China and India,  McKinsey's newest research contains some mind blowing facts. Consider how these changes in the developing markets of China and India will have a profound effect on the world’s economy, the demand for finished floor covering and the raw materials and labor to make it.

The demographic shifts taking place in China and India are creating the largest work forces the world has ever known. Labor productivity throughout Asia is increasing five times faster than in the West, says McKinsey.

•    54 percent of the world’s urban population will live in Asian cities by 2025. In China 64 percent of its entire population will live in cities creating a urban workforce larger than anyone has ever seen.

•    This migration will create as many as 280 million Chinese middle class households with disrectionary income by 2025 (up from 55 million today) and as many as 89 million in India.

The new infrastructures needed to support this shift in urban population will be massive and so will the construction markets required to build and finish them  –  that includes floor covering.

•    India will need to add 700 to 900 million square meters of new floor space a year.
•    In China, the estimate is 1.6 billion to 1.9 billion square meters of new floor space needed yearly.

In comparison, the most recent numbers for the entire US floor covering market in 2009 was 16.80 billion square feet or 1.56 billion square meters (Floor Covering News, June 28, 2010).   The split between hard surface and soft: Hard Surface - 526 million square meters; Soft Surface - 1.0 billion square meters.

According to McKinsey, Asia may need to add as much as 2.8 billion square meters of new floor space a year to support its migrating populations.  This is new floor space and new demand; demand not just for finished products but the raw materials to make them.  And, they will have the workforce needed to do it.

Consider that in China at least 90% of the flooring demand is for hard surface. This translates to a new, yearly demand for hard surface flooring roughly equivalent to 1.5-1.7 billion square meters compared to the entire US hard surface market of 526 million square meters in 2009.

The questions we should be asking
Who will fill the demand?  Who will provide the raw materials? Does it create opportunity for export and should you be thinking about moving a production facility to Asia or partnering with an Asian company?  How will the drain on raw materials affect the world’s supply? Will this mean that European manufacturers will direct their goods to Asia creating new manufacturing needs in the US? Or, will the burgeoning low-cost Asian work force draw all of the manufacturing there? How will prices, innovation and technology be affected?

What McKinsey proposes is that these emerging market economies will go from peripheral players to powerful economies and their urban expansion will "restore the global prominence that Asia enjoyed before the European and North American industrial revolution." This is heavy stuff to consider but something we can’t ignore.

I feel a new urgency to learn more about threats and opportunities implied here. Maybe this explains why Asia’s largest floor covering show (Domotex) is growing so rapidly – now the world’s second largest show, behind only its sister show in Hannover.  Surely it explains why so many Western manufacturers are looking for partners in Asia but I fear that there are many more of us in the industry that haven't yet considered the impact that is coming. I think all of us need to pause and reflect on this; no one can afford to view the market as anything but global anymore.


Jim Gould is President of the Floor Covering Institute

Tuesday, July 20, 2010

How spinning the truth and lying with statistics can easily deceive

I was in 4th grade when my English teacher assigned us to write our first book report.  “Read any book you like,” she said. “Write a one page report and it’s due on Friday.”    Slow reader that I was, I remember running to the library in search of the thinnest book with the largest type I could find.  Pulling a sliver of a book from between two giant (probably more likely normal) sized books, I came face to face with How to Lie with Statistics by Darrell Huff; 47 pages of large type with pictures and graphs. My selection was made! Little did I know at age nine, what an impact that book would make on me and how many times I would think about it during my life.

This seemingly unimpressive, slim book turned out to be one of the most widely read books on statistics in history. It explained, even in a way that a nine year old could understand, how statistics and graphs can be used to twist reality.  What Huff said then may be even more true now, "The secret language of statistics, so appealing in a fact-minded culture, is employed to sensationalize, inflate, confuse, and oversimplify." His book remains relevant today. You can still buy it on line at the usual places and I highly recommend it.

Today we call artful interpretation of statistics “spin,” and sometimes it makes your head do just that. Examples of spin include headlines that read:  “Losses Shrink” or “Sales Decline Halted.” These are nice ways of saying, “We’re still losing money.”

More egregious example are those in which only part of the story is told:  “Sales Increase 4%” was the headline but the full story was that units were down 2% and prices were up 6% for a net gain of 4% in dollars.  Some may say that expenses are paid with dollars not units but I still feel that the writer is not reporting all of the information the reader deserves.

The floor covering industry isn’t immune to this. Recently an international floor covering manufacturer reported a profitable quarter with headlines about a “Return to Profitability” when their increase in profit was really generated by currency fluctuations.

Another example is: “Ceramic Sales Plummet While Carpet Regains Market Share.”  Does this signal a major shift in consumer taste?  No.  It simply means that new home construction is dead as a doornail.  Ceramic, which is installed in every new home, is not replaced as frequently as other products.  Carpet on the other hand wears or uglies out and needs to be replaced, hopefully every seven years on average.  Hard surface purchases can be, and often are, postponed during uncertain economic times while carpet, after a three plus year recession, is another story. It's getting replaced.  So yes, carpet is gaining share now but don’t read any more into it than it's a short term blip.

Other examples of spin we need to be concerned about include claims used in “green washing,” meant to speak to the environmentally curious consumer.  Claims of oil based products containing X% of natural or recycled content, or natural products produced using more energy and water to finish than their artificial replicas are just a couple of examples.  Nobody wants to talk about their product’s drawbacks and there are too few common comps or measurements we can use for credible comparisons.

Whether viewed on TV, newspapers or the Internet, news and facts are often editorialized. Like Sergeant Friday used to say on Dragnet, “Just give me the facts ma’am.” Unfortunately too often consumers of news have to search between the lines to find the truth. I have to say that one organization that is working to get to the truth is the American Hardwood Export Counsel (AHEC) with their complete life cycle study on the carbon footprint of timber.  I mentioned this earlier in my post on wood flooring and carbon sequestration. I’m looking forward to seeing those new facts.

I am sure you have seen similar examples of spin and creative statistics; why not share some of them with our readers here?


Jim Gould is President of the Floor Covering Institute

Tuesday, July 13, 2010

Who merchandises and controls your floor covering showroom?

Merchandising a retail showroom floor may be an owner’s most important responsibility.  The problem is, most retailers permit their reps or buying groups to handle that responsibility which means that it's easy to start looking like every other floor covering showroom.  Let me explain why that might not be a good thing. 

Last week my wife and I visited Sorbaras, our new local grocery store.  We were amazed at the plethora of brands we hadn’t seen for many years, including Utz potato chips, DeLallo and Isaly's chipped ham.  Sorbara’s is exciting to us because their selection is different.  The store is not as large as Publix, the dominant chain; nor does it have as many brands or selection.  None of that matters though, because Sorbara’s has brands and products that are different and we have become fans.

Product differentiation is key to your success. 

Someone recently said to me that shopping at carpet stores was akin to shopping for beer at convenience or smaller grocery stores - the insides of the stores and the products all look the same - unless you go to Trader Joe's where they help you cook rather than just sell you something to eat.  Trader Joe’s proves you can be different in a highly commoditized category.

So ask yourself these questions:   

Who chooses the displays for your floor covering store?  Most floor covering stores are edited by their reps, buying or aligned groups. A cynic might call that manipulation when retailers are shown or not shown products as their rep or group desires.  (This is not a knock against buying groups.  In fact, joining a buying group may be exactly what you need to differentiate yourself).

What products do you show that amaze your customer and can only be purchased at your store? Consider products rather than brands. As an aside, changing the name of a Mohawk or Shaw product doesn't qualify a product as being "different" to a consumer.  Brands have limitations too.

There are few reasons to believe the floor covering industry is going to emerge from the recession any time soon.  This is the new normal.  Can you survive if this is as good as it gets?  Perhaps only if you make changes to the way you do business.  The products on your floor are the engine to your success.  Make it your personal passion to ensure your showroom floor does not mirror your competition’s showroom floor. The key is that you explore your options for products where your competition is too lazy to tread.  Be different.

What do you do that is different? Comment below and let us know.

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

Tuesday, July 6, 2010

How the flooring industry and consumers can reduce flooring waste sent to landfills

The “Green” movement is upon the floor covering industry - it has influenced our manufacturing processes for years. We have worked to increase manufacturing efficiencies, create more environmentally friendly products and even found ways to make recycled materials into flooring, such as using plastic drink bottles to make residential carpet.  Low odor and low VOC’s are now standard in new flooring.  Floors are now being produced with recycling in mind at the inception of their life. We have a variety of programs in place to recycle, re-use and re-purpose flooring that help to keep old flooring out of landfill, such as the Carpet America Recovery Effort (CARE). But we can do more to reduce waste at the end of a floors life cycle, and today I want to talk about how everyone in the industry can become part of the solution that reduces flooring waste in landfills.

Up to now our flooring manufacturers have taken the lead on making our industry more socially responsible through product innovation and process improvements. But every other tier of our industry including specifyers, retailers, distributors, logistic providers, installers and even our consumers can make a big difference by following my “get it in the door and keep in on the floor” philosophy. Simply put...Specify, sell and deliver the right product for the job and make sure it stays in place for its expected life cycle by installing it properly and teaching the customer how to maintain the floor. 

The biggest contributor causing flooring waste to end up in landfills is pre-mature replacement of flooring when the wrong product is specified or the right product is improperly installed.

Flooring is installed in virtually every building and home in the world creating the potential for billions of square feet of eventual waste material.  When a floor is removed and replaced the old floor goes to a landfill so it stands to reason that if the floor fulfills its expected life cycle, and is not replaced prematurely, there will be less flooring waste clogging our landfills.

Here are some ways that our industry partners and consumers can address this problem. 

•    “Get it in the door and keep it on the floor” should be the mantra with every flooring project.  By “get it in the door” I mean, get the right product for the job delivered.  By “keep it on the floor” I mean, make sure it stays down; that the installation is done right and the floor is maintained and cared for properly so that it will fulfill its expected life cycle.

•    Don’t rush the installation. You’ve heard the saying, “haste makes waste.” Well, when projects or jobs are rushed they can and do create waste.  Why is everyone in such a hurry to get the job done only to have to come back later and fix all the mistakes?  This is the epitome of waste and a wanton disregard for the environment.

•    Make sure the installation is error free. Even if it’s the right product for the application, unless the product is correctly installed over a proper substrate in the right environment, failure of some kind is inevitable.  Here, advancements in mechanical bond, moisture resistant adhesives, adhesive free backings and advanced installation systems are available to prevent installation failures. 

Two issues adding to installation failures recently are the increased use of recycled content in flooring covering backings and concrete substrates that are not properly cured before flooring is installed. I talked about this in my blog post about flooring failures and how to avoid them. It can cost tens of thousands of dollars to remediate the conditions so flooring can be successfully installed.  But here I’d like to say, “We have an app for that!"

New technology can overcome most installation challenges. A host of new, recently developed technologies can overcome conditions that, up to this point, wreaked havoc with installations and cost upwards of millions of dollars to fix.  Ironically, the biggest hurdle to date has been getting our own industry to accept those new systems. We are historically suspect of new technology due to the “not invented here” syndrome because flooring manufacturers and the industry in general are apprehensive about what we sometimes perceive as “magic wand” science. The paradigm shifts in this area are perhaps the most difficult for the industry to swallow but be assured the technology is real. This category actually holds the most promise for virtually eliminating installation failures, if we would only embrace it.

Floors last longer with proper maintenance. Once installed, if the floor is not properly cared for it can’t last.  It will “ugly out” faster than a speeding bullet.  This can be caused by not having the right surface or colors for the application.  If you install a light color carpet in a busy hallway it won’t mask, hide or mute soil and the floor will be doomed to a short life.  When properly cared for with a planned maintenance program that is correctly implemented, most any floor will last until you get tired of looking at it. 

Reducing this waste in the life cycle of flooring is something the industry has focused on for years but reducing waste at the end of the floors life cycle is a solution that everyone, even our consumers can become a part of. If you already have a program that addresses this issue we would love to hear about it.


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.