Monday, November 28, 2011

If Housing Is Rebounding Can Floor Covering Sales Be Far Behind?

Stuart Hirschhorn
FLOOR COVERING STATISTICAL TRENDS AND OUTLOOK - Housing Data

Something happened on the way to the predicted double-dip recession that was to be caused by the European debt crisis and the paralysis in Washington- the housing market showed strong gains and specialty floor coverings store sales turned upwards.  These trends can be seen in the following reports.

• According to the Department of Commerce (http://www.census.gov/const/newresconst.pdf), housing permits increased by 6.5% and starts rose by 5.5% in the third quarter of 2011.  In October, these gains accelerated, growing 17.7% and 18.9%, respectively.

• Existing home sales increased at even sharper rates.  According to the National Association of Realtors  existing home sales increased by 17.8% in the third quarter of 2011 and by 11.7% in October.(http://www.realtor.org/research/research/ehsdata)
• Floor covering store sales also began to rebound as housing demand increased.  Commerce reported that specialty floor covering store sales increased by 1.2% in the third quarter after declining 7.9% in the first half of the year.  Sales are estimated to have increased by 3.4% in October, based on preliminary Commerce data.  Positive specialty floor covering store sales are not a surprise, since floor covering sales are highly correlated with housing demand.  This has been seen in the findings of the Catalina Floor Coverings Quarterly Update. (http://www.informationgiant.com/www/index.cfm?action=catalog.browse&category=Floor%20Coverings%20Quarterly%20Update&id_category=06a50ffa-04c4-4f6b-9dda-c14d67bd2247).

Considering the uncertainties of the economic environment and the low level of consumer confidence, it would seem unlikely the housing data would be so strong.  So why are we seeing such positive housing data?

•  Can it be that consumers consider housing prices low enough after declining by 26% over the last five years?  They are also reacting to historic low mortgage rates.

• Can it be that consumers are “acting” more confident as initial unemployment claims fall and employment increases?  After increasing at a 0.4% rate over the first three quarters of 2011, U.S. employment levels increased by 0.9% in October 2011.

• Can it be that we are finally seeing the peak of our housing woes?   A recent Wall Street Journal  (WSJ)article indicates that “the share of households delinquent on their mortgage payments has fallen to the lowest level since the end of 2008.” according to the Mortgage Bankers Association. (http://online.wsj.com/article/SB10001424052970204517204577044401122300024.htm)

Now that we are seeing an upward trend in U.S. housing demand, the question now is how sustainable are these trends?  I think we could see continued gains in the housing market, since the lack of Congressional action on the budget results in neither a cut in spending or an increase in taxes.  So we may see stronger floor covering sales for 2012.  However, all bets are off for 2013 if the automatic cut in spending and increase in taxes (a total of $4.9 trillion over ten years) goes into effect.

What do you think?
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.

Monday, November 21, 2011

Assessing opportunities in China; the market, logistics and consumer buying habits

Jim Gould
As a consultant to the global floor covering industry I talk to manufacturers about shifting markets and how to reach new opportunities. The fastest growing and yet most mysterious market is Asia where the demand for all products, including floor covering, is rapidly rising. It’s no secret that China’s market is expanding at unheard of rates and some floor covering companies have already made the leap to China. In fact, US exports of floor covering to China increased 36.8% over the first eight months of 2011, according to Stuart Hirschhorn of Catalina Reports.

Flooring Mall on Yi Shan Lu Rd, Shanghai

I have written about the growing opportunity in China many times and you’ve certainly heard the message from others.  But I know many of you are asking, What does it mean to me?  Is there an opportunity for my company and if so, How can I capture it?

These are serious questions especially when you consider the trouble that some of the world’s largest, and presumably most sophisticated, retailers have faced in China. Best Buy Company, the world’s largest electronics retail chain, while successful around the world, has closed all of their Best Buy branded stores in China (http://www.bloomberg.com/news/2011-02-22/best-buy-s-china-stores-shut-as-retailer-focuses-on-more-profitable-brand.html ).  Closer to the flooring industry, Ian Cheshire, CEO of Kingfisher plc, Europe’s largest home improvement chain with 900 stores worldwide, explained after closing its 22 stores in China that big-box DIY “is not the model for China.” (http://www.kingfisher.com) Giant Atlanta-based Home Depot, too, has closed some Chinese stores with only seven still operating in mainland China. (http://www.homechannelnews.com/article/kingfisher-has-new-idea-chinese-diy-retail).  At the same time, Starbucks opened their 500th store in mainland China and announced plans to increase that to 1,500 by 2015.  KFC is China’s largest restaurant chain and is still opening new stores at the rate of one per day. One can't help but wonder:
Why are some globally successful companies failing while others are flourishing?  
Is there a market for Western made products in China and if so how would those products get to market? 
What do we need to understand about the Chinese consumer in order to succeed in business there?
I’ve been asked these questions by companies around the world. My client Domotex asia CHINAFLOOR (Asia’s largest floor covering trade show) wants to answer these questions for people and companies considering if they should attend or exhibit at the show in March, 2012… and so my research began.

As expected, questions begat more questions but ultimately I focused on three main areas:  
The MARKET -what changes are taking place in China’s consuming market that could affect your company and your opportunity? 
LOGISTICS -  if you were to expand into China, how could your products get to market – what is the state of China’s logistics channel?
RETAIL - how and where do consumers buy goods in China and what do we need to know about the Chinese consumer?
After dozens of interviews with experts across China, a White Paper on the Chinese market and logistics channels is taking shape. I will also publish a series of articles in the industry trade press and of course I’ll also post here.

For now, here’s something to think about. China is the third largest market for US exports (after Canada and Mexico).  US exports of goods to China are up 468% since 2000 and since 2009 alone US exports to China have grown by 32%. This percentage increase is ten times the increase in exports to Canada and  Mexico. (US Dept of Commerce)

There is a huge expansion of consumerism in China; already more BMWs are sold there than anywhere in the world, and that was before the Chinese State government made increasing domestic consumption a key target of its economic restructuring goals in its 12th Five Year Plan (2011-2015). Through a series of macro and social changes and continuing shifts in urbanization the consuming middle class is growing faster in China than anywhere else in the world. Retail sales in China grew about 18% in 2010.

This new focus on consumerism can transform China from the World’s Manufacturer into the World’s Supermarket.  Already the number two consuming nation in the world, behind only the United States, it’s not hard to predict that it will become the largest.  These changes will have a major impact on countries, industries, and companies - perhaps yours.

What I hope you are doing now is assessing how you and your company may prosper from these changes.

Here are some related articles I've written on China:
The Great Urbanization Threats and Opportunities in China   
China-Threats and Opportunities Part 1 (Floor Covering News)
  Part 2

China's Economy and Construction Boom Creates Huge Floor Covering Potential

Jim 
Jim Gould is President of the Floor Covering Institute

Thursday, November 17, 2011

Corporate culture; what does it say about your company?

Christopher Ramey

Culture at a company (corporate culture) is generally developed through the actions of management.  Employees then follow their lead.  “The boss did it this way so it must be the right way.” I share this obvious observation because sometimes leaders do things that ultimately reflect poorly on the company.  This is particularly so during difficult times.


One of the benefits of working with dozens of companies outside the flooring industry is the opportunity to understand their corporate standards and culture by observation.  I recently spoke at a convention for a couple hundred people.  The food was acceptable as you would expect; but the room was dirty and hideous.  The company chose this room because it was the least expensive room available.  The room was so remote and old that most of us didn’t even know that wing of the well-known property existed.  We sat in a dirty room that communicated the company’s own low standards while the corporate president spoke glowingly about their commitment to standards and growth.  It was another sales meeting where I was hired to present a motivation and informative presentation on selling to the affluent.  No small task when my feet kept sticking to the very old carpet.  They saved a few dollars but undermined the reason for the meeting.   

I recently reached out to an executive at one of the big three carpet manufacturers.  He called me back within 24 work hours.  He then continued to return my call until we connected.  I assume because he is a high level leader that his professionalism reflects their corporate culture.  I was impressed.  On the other hand, I recently called a mid-level executive at another major flooring manufacturer three times.  I also emailed him.  He never responded.  I need not mention the organization as I understand from colleagues that everyone in the industry will know the company to which I refer.  I have also been informed that arrogance and dislike for their customers is part of their corporate culture. It shows.

I worked at a company where the CEO set the standard that executives would return phone calls within 24 hours – regardless of who it was calling.  It was his own personal standard that he, as one of the leaders of the organization, believed to be important.  It was part of the culture.  

In college I was writing a report on Jerry Della Femina.  A little background: in the 1970’s Jerry Della Femina was an icon in the marketing and advertising industry.  His book “From those Wonderful Folks Who Brought You Pearl Harbor” was a staple on my dresser for years.  Unlike the other students writing reports on other advertising agencies, I called Mr. Della Femina on the phone to interview him.  Shockingly, he took my call!  Once I got over the fact that he swore more than my fraternity brothers, he taught me that helping college students was part of his culture.  It’s become part of my culture too.  And, I’ve been one of Della Femina’s followers ever since.        

Arnold Kahn, from Crystal Tree Carpet & Flooring in Palm Beach Gardens, tells the story about a salesperson who increased the price on a product because he could.  Arnold corrected the salesperson and then credited the customer.  After all, it was his company’s customer.  I mention this because I recently needed flooring for one of my clients who opened an office on Palm Beach.  I called Arnold who sent me pictures from a cell phone.  Within five minutes the client chose one of two products and ordered by phone.  The cost for the carpet was ~$7.00/square foot – not inexpensive.  Price was never an issue because I already understood Arnold’s culture.  I was buying Arnold’s established culture of integrity.  I didn’t need to ask about price.        

I recently worked closely with an organization of affluent homeowners.  The merchants in the community can become a sponsor of the organization for $250.  Not one retail merchant is a sponsor of this organization comprised of their best prospects.  The retailers will advertise and support their own business association, but miss the opportunity to support what really matters to their clients and best prospects. 
 
The moral of these stories is simple.  Leaders create their culture.  Regardless of what you say; your real feelings are transparent and are imitated by those around you.  It becomes clear when you don’t like your customers, as well as when you value your customers.

What about your company?  Are your employees emulating your actions?  Are they making short-sighted decisions because they’re following your lead to maximize profits rather than your future?  
Which leads to my final question.  Are you marketing and communicating your price or your culture?  And which do you believe really matters?

Chris


This post is an extract of Chris Ramey's upcoming book "Ramey's Rules of Retail."

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

Friday, November 11, 2011

Thank you Veterans!

On this Veteran's Day, there aren't enough words to thank the Veterans and their families for all that they have done and continue to do for our nation...all generations and including Veterans from other countries that have stood by our side.

We are forever indebted to you; your service and sacrifice and your courage.  We honor you today, as we should every day.



The Floor Covering Institute

Wednesday, November 9, 2011

Coalition working to define Lacey Act Due Care Standard for wood supply chain

Susan Negley
There’s a yearning for clarity of the Lacey Act Due Care Standard. Many in the wood supply chain are waiting for the next shoe to drop, wondering who will find themselves in the boat with Gibson Guitar, the first US company to be investigated for importing illegal wood. The second raid on Gibson in August caused a lot of stir and controversy but even before that happened one coalition was already working to define the Due Care Standard for the wood and paper supply chains.  The movement started far outside the floor covering industry but its effort and anticipated result are surely of interest to us.  You may have read a brief description of this in the trade press so I wanted to give you more information about who is taking up the cause, their goal, and what you can expect as an outcome.


First,  for anyone who wonders why you should care about the Due Care Standard .…  The Department of Justice defines Due Care with two criminal liability standards: strict liability for forfeiture of products and vessels carrying the products, and negligence for selling illegally logged wood and paper.  Strict criminal liability means liability without fault, thus a seller can be liable even if it is not negligent.  

Here’s an example of how strict liability can be applied. According to the affidavit filed by the Fish and Wildlife Service in support of its search warrant served during its second raid on Gibson Guitar this August, Gibson improperly filed customs declarations and imported product under the wrong Harmonized Tariff Schedule (HS) code.  They allege that shipments left India as finished parts under one code and arrived in the US classified as veneer under a different code, but should have been classified as lumber all along.  Apparently, India allows exportation of the species at issue as a finished product but not as lumber.
What’s important here is not whether Gibson knew that something was wrong with the tariff codes. My point is, under Lacey, it does not matter whether they knew or not. Lacey places the strict burden on the importer of record to ensure that everyone in the supply chain classifies the products correctly. Gibson is being held responsible for alleged misclassifications by the shipper, the broker and the receiving company. Not knowing is no excuse under the Act, as currently written.

Who is this group taking up the cause to clarify the Lacey Act Due Care Standard for our supply chain?

A diverse coalition of investors, financial institutions, insurance companies and others, including the US Conference of Mayors, took up the challenge to define the standard. Why?  Because they want to increase green building in the US and to do that they need national green building standards for underwriting, financing and insuring those projects. They formed a non-profit organization (The Capital Markets Partnership) to address those broad issues.  I suppose, in part due to its impact on construction supply chains - the unknown and unquantifiable risks - the Lacey Act needed to be addressed. Under the guidance of an expert with the right experience, they formed the Lacey Act Defense National Consensus Committee (I just call it the Lacey Committee) to write a new Due Care Standard with guidelines for the supply chains.

This has been done before. It was industries coming together and agreeing upon standards that lead to the environemental “super-fund” standards we have today.  Those standards were approved by the American National Standards Institute (ANSI), accredited, and eventually ratified by the government.  That is the process that is being followed now by this coalition to amend the Lacey Act. 

During the process, the Lacey Committee reached out to associations and business members of the timber and paper supply chains for comments. That is how Jim Gould, the Floor Covering Institute and the National Wood Flooring Association became involved. The NWFA is an important representative for the U.S. wood floor covering industry in this endeavor.  Other flooring focused companies participating include: Mannington, Home Depot and Columbia Forest Products while others from the wood and paper supply chains include: Staples, Williams Sonoma, Knoll Furniture, Kimberly-Clark, Sustainable Furnishing Council, Forest  Stewardship Council, National Wildlife Federation, Rainforest Alliance, The Danzer Group the National Association of Music Merchants, the National Retail Federation and leading global retailers and consumer products companies.

What is the goal of the Lacey National Consensus Committee?

Currently there is no guideline for Due Care under the Lacey Act and members of the wood and paper supply chain are at an unknown degree of risk when they import and sell wood products. The goal then is to create a consensus based Due Care Standard that brings clarity to what is now arguably a vacuum in which we operate.  An industry standard can be accredited by ANSI and become a legal standard where now there is none. Having a clarified Due Care Standard will make a big difference to our wood flooring members; make it possible to defend against strict criminal liability and even possible to purchase risk insurance.

How long will the process take?

It is expected to take an additional three months to complete the consensus process. This is followed by a national public meeting in Washington, DC and the ANSI approval process and eventual ratification. We are told that by Spring 2012 there should be a written Standard of Due Care that our industry can promote through the regulatory process.  This is a huge difference from our current reality.

Read More about the Lacey Act:

From our blog site - 



I hope you find this information useful.


Susan

Susan Negley is Director of Communications for the Floor Covering Institute

Friday, November 4, 2011

Market Strategy for a Tough Economy

Donato Pompo
The economy hasn’t been good for most and it doesn’t seem to be getting any better.  So what does a company do to position their business and products to survive the down economy and prepare for opportunities when the better economy returns? 

Whether you are part of the ceramic tile or stone industry, which is my speciality, or even part of the floor covering industry, the same business and marketing principals apply and you need to go through the same exercise to answer the following questions and prepare your business strategy:

•    You need to know who your competition is
•    And, what your competitive advantages are over that competition 
•    You need to know your own strengths and weaknesses as well as those of your competition
•     You need to have a good product mix in order to supply the commodities, drive volume and to promote the higher margin products that give you a competitive advantage
•    And of course, you need a written marketing plan to orchestrate the complexity of your business, and the plan has to continually adjust to accommodate the changing market and influence of the economy.

Positioning your company service and brand identity is important, but often not done well by many companies.  “Customers for life” is a good goal but keeping customers requires a dynamic strategy that will give them a reason to come back and refer you to others.

Positioning products for performance and value is important too, which support higher price points and avoid the costs of customer false expectations.

Taking market Share is a fundamental way to grow your business in a down economy.   There will be some opportunities through attrition of competitors who can’t survive, but there are better opportunities through outperforming your competition with service.  When it comes down to it, people buy from people who they like and trust.  Being a reliable supplier is very important.  Not responding timely, or giving out bad information, or not making deliveries on time often cost customers a lot more than inconvenience.  It can cost customers money in penalties or in lost opportunities, if not in reputation.  All of which could be a reason to cause them to do business with your competition.

Dropping prices seldom works in the long run and too often companies resort to this as the easy way to try to gain more business. This is at best a short term strategy.  When you actually do the math, raising prices and increasing service levels is more effective.  For example, if you drop your prices by 10%, assuming your costs remain the same, you would have to increase your sales by 43% just to break even.  Plus you would have 43%  more business to serve that would either require increasing your staff and costs, or it would diminish the level of service you can provide.  On the other hand, if you increase your prices by 10%, assuming your costs remain the same, you could lose 30% of your business and you would still make more profit.  Plus, you would be in a better position to maintain or improve the level of service you can provide to your customers.

Now is the time to maximize your market share, retain and grow your customer base, and prepare your company and your product mix with competitive advantages for the inevitable return of a favorable economy.  Have you taken the steps you need to do this? 

Donato

Donato Pompo  is founder of two well-known flooring industry companies focused on improving everything about ceramic tile and stone flooring and the businesses that produce and sell them. They are Ceramic Tile and Stone Consultants (CTaSC) and the University of Ceramic Tile and Stone (UofCTS).