Ralph Boe and Beaulieu, Lumber Liquidators, and taxes: Strategic Exchange

By Kemp Harr

March is the month when the residential markets start to wind down and many flooring retailers make their assortment changes based on what they’ve seen at the markets and what was selling in the third and fourth quarters of last year. Without a doubt, most are optimistic about the growth opportunities that this calendar year will bring. 

Growth in the commercial market historically follows success in the residential sectors, so as that sector —which represents roughly a third of the total business—starts to ramp up toward NeoCon, we’re seeing optimism commercially as well. 

As the publicly traded companies report their positive year-end results, we continue to hear about this wind that’s blowing on their backs as they talk about the outlook for growth in 2014. 

We need to be careful not to overreact to the negative housing information that’s sure to be released in the next 30 days. Sales of existing homes as well as construction starts have been hampered chiefly by the weather and the slowdown is not the result of a sputtering economy.

A TRIBUTE TO DR. RALPH BOE
I can’t let Ralph Boe retire from Beaulieu America without noting his contribution to this industry. I’m not sure if and when he will surface next, and he probably has a contract that says he needs to lay low for a couple of years, but based on what Bob Shaw’s been able to accomplish with Engineered Floors in his 80s, there’s a chance that a big retirement eulogy is premature.

Anybody who’s spent any time with Ralph knows that his intellect is razor sharp, thanks, in part, to his Norwegian heritage. And with 44 years of experience, he understands this business as well as anybody I’ve ever met. He’s also not short on gumption. As with most accomplished leaders, Ralph is a great communicator and is never afraid to pick up the phone and either challenge or praise someone depending on the circumstances. Jeff Meadows, who led the residential sales team for Ralph at Beaulieu, recently told me that the essence of Ralph’s leadership skills are transparency and inclusion. “Ralph is great at laying everything out on the table and seeking input from his team on the next course of action. Some leaders hold everything very close to the vest, but that wasn’t the case with Ralph,” Meadows told me.

In his 44 years in the business, Ralph, who has a Ph.D. in chemistry, held leadership positions at Diamond, Horizon, Carpets International (U.K.), and DuPont in addition to the last 13 years at Beaulieu. Ralph is also a family man with a wonderful wife, Nancy, and two grown children. My favorite part about Ralph is his great sense of humor and the fact that he doesn’t take himself too seriously. He understands hard work and long hours and has always been eager to jump in and be part of the team. He’s the kind of guy people love to work for.

INCREASED TAXES FOR THE 2013 TAX YEAR
It will be interesting to see if the increased tax burden from 2013 will hurt floorcovering sales—especially sales of better end goods. The four biggest changes in the tax burden are the 3.8% Medicare tax applied to net income, the phase-out of itemized deductions, the increase in the capital gain tax rate from 15% to 20%, and the increase in the federal income tax rate for married couples who earn more than $450,000 to 39.6%. 

Granted, most of the increased burden applies to higher income earners, but those are the people who buy and furnish second homes, so it’s hard to predict the outcome on our industry. There’s also a large percentage of taxpayers who use the withholding system to build an annual saving surplus and look forward to getting that refund to pay down credit card debt or fund home improvement projects. So, they may be surprised to see that the refund this year is smaller than in years past.

LEARNING FROM LUMBER LIQUIDATORS
Many of you compete with Lumber Liquidators and see them as the category killer that they are. But if you believe that it’s wise to keep your friends close and your enemies closer then you might understand that there’s much to learn from this rapidly growing publicly traded chain. Here are a few nuggets of wisdom that I learned from reading its recent earnings call transcript:

Lumber Liquidators crossed the billion dollar mark in retail sales for 2013. In fact, net sales increased 23% last year with comparable stores increasing 15.8%. 
• Advertising expenditures were 6.3% of net sales.
• The consumer buy cycle is 100 days plus from initial consideration to final installation. The process starts with online research.
• The average net sale is up 7% to $1,750.
• LL plans to open 30 to 40 new stores in 2014 and remodel 25 to 35.
• Training salespeople eliminates unnecessary discounting and improves profit margin.
• LL expects a surge of sales in March because consumers who’ve been trapped in their homes due to the weather have been busy doing online research.
• Most LL customers install what they buy. The company coordinates installation on only 8% of flooring transactions.

Related Topics:Beaulieu International Group, Engineered Floors, LLC, Lumber Liquidators, Shaw Industries Group, Inc.