Wednesday, June 22, 2011

Is the flooring anti–dumping case a catalyst for change in the distribution channel?

David Wootton
Duties for Samling and 73 other respondents to the imported Chinese engineered flooring anti-dumping case were lowered Sunday. The Dept. of Commerce announced  they would lower Samling's rates from 10.88% to .29% and 73 other companies to 6.78%. The DOC's latest revisions mean that the largest volume manufacturers selling engineered wood to US importers have now been assigned rates close to zero. Jonathan Train, president of the Alliance for Free Choice and Jobs in Flooring (AFCJF) whose group opposed the investigation, is thrilled and feels vindicated. 

But does this mean it's over?  I am bothered by something more far reaching.

While many are focused on the the immediate outcome related to duties what is most significant to me is how it affects the fragile and contentious relationship between manufacturers and distributors – a problem we’ve been dealing with for twenty plus years and a topic that I’ve covered here before.

But I feel now that we are reaching a new stress point. The dynamic between the wood flooring distributor and manufacturer has been one with the potential for trouble for some time. That is because many distributors import Chinese products and include them into their own branded wood lines.  Those distributors also sell and distribute wood for U.S. manufacturers.  The manufacturers’ products may be domestically made or they could be Chinese imports that the manufacturer has placed within their branded programs.  This sets up a unique situation in which the distributor and manufacturer are competing against each other, possibly even with products from related sources. 

While this dynamic has been going on for years with comparatively silent if not benign friction, I think it is an untenable situation for both parties and I believe it is at the heart of the current litigation. The current hardwood flooring market has too much capacity and too many players  fighting over a shrinking market volume. Something’s gotta give! 

Will this anti-dumping case be a thorn that exacerbates the tenuous relationship and the catalyst that causes a major change in the distribution model?

My colleague, Jim Gould, recently wrote about how manufacturers must reach consumers through the most efficient and effective pathways and that the biggest threat to traditional distribution is complacency in believing that business will continue as usual. In his article Reaching the Consumer in a Changing Landscape, he says that if traditional distribution ceases being the most effective way to reach the consumer, manufacturers will have no choice but to take another path. I agree.

Will this mean that more manufacturers will start selling retail direct or even directly to consumers and will distributors focus more on imported lines as a way of maintaining their independence and future business?  One thing is certain  -  the manufacturer / distributor relationship has been under stress for a long while, the anti-dumping case is only adding to that stress. I think the relationship will become even more contentious and new changes in the model will take place. Certainly as a result of the threat to supply over the last few months importers of every kind are now more knowledgeable about sources of supply from other countries and can turn to alternative suppliers if necessary. They can probably also negotiate lower prices with their existing Chinese suppliers to help offset the impact of any final duties imposed.

I don’t mean to paint the distributor as the bad guy here.  At the root of this problem is a lack of aligned goals and a failure to work together and evolve as true channel partners. In too many cases, each channel partner is looking out for themselves creating conflicts that cannot possibly satisfy the needs of both parties and it merely perpetuates the problem.  I believe that all manufacturers have to be questioning the effectiveness of the traditional distribution channel and the ITC case is just one manifestation of that.

I am wondering if you think the same or have a different view of this?
As always 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.

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