Strategic Exchange - January 2011

By Kemp Harr

 

Happy New Year! As we turn to the blank pages of 2011, we can’t help but wonder what’s in store for our industry. As hikers on the proverbial trail of time, we look back to see that we’ve just crossed the deepest economic valley in our lifetimes. It was October 11, 2007 that the Dow Jones Industrial Average peaked at 14,279. Will 2011 bring this industry its first year of growth since the decline started that year? The older we get, the more we realize that a year isn’t really a very long time. The decisions we make this month, or at least in this first quarter, can really set the tone for the remainder of the year. Most economists are telling us that in the third quarter we’ll feel the warmth of growth that we haven’t felt for nearly the four years prior. 

So what stands in our way? New home construction is still running at half the normal pace, and while this is painful for those who sell products into this market, logic dictates that we move through the 11 month supply of existing homes before we add more to the inventory, which has swelled due to the lack of jobs, personal bankruptcies and foreclosures.

But with flooring products will this be the year where the pendulum swings from over-supply to lack of inventory? The answer to this question lies with the consumer, and there are many factors that can set the tone with all the Whos in Whoville. Will Washington work in a bipartisan fashion to stimulate growth and yet limit the accumulation of long-term debt? Will we see another national disaster like the Gulf oil spill? What will the weather patterns bring? How much is energy going to cost us? What tone will the national media set? All of these factors are beyond our control.

Based on the index of leading economic indicators, the outlook for 2011 is positive. We’re seeing life on the replacement side of the commercial business and we’ve heard consumers have loosened their purse strings more this past holiday season than they have in several years. Our focus should be on the fundamentals that have proven to be successful and that we as individuals can put into action. These are vision, planning, hard work, relationships, optimism, humor and integrity.

Doing virtuous business
In this past decade, business barbarians like Kenneth Lay, Bernie Ebbers, and Bernard Madoff have been exposed. These crooked CEO icons have forced many to question whether the character of business—focused on making a profit in this free enterprise economy—is inherently rapacious, predatory, and selfish. Have we eroded as a society and has the pursuit of profits and fame forced most business leaders to turn to the dark side? Is this negative business narrative indicative of the type of people who are running most successful businesses today?

Fortunately, as pointed out in a recently published book called Spiritual Enterprise: Doing Virtuous Business, the majority of successful business leaders are ethical and good. In fact, the author’s research goes on to point out that many of the dominant enterprises in America today that outperform the S&P 500 index have leaders who outwardly focus on the ancient virtues studied by Aristotle such as honesty, trust, respect, humility and loyalty. In this book (and in a PBS documentary based on the book) you’ll find more than a dozen business success stories that prove that virtuously led companies are abundant. Examples brought to light are Chick-Fil-A, Cargill, Dannon Foods, ServiceMaster, Tyson Foods, Herman Miller and Cummins Engines. All of these companies were founded by entrepreneurs who acted ethically and yet were still able to dominate in our free enterprise system.

Tarkett’s acquisition of Centiva
We’ve all heard the success stories of immigrants that came to America. They arrived in the land of opportunity, worked countless hours, and focused on becoming the best that they could be, ultimately building a successful and sustainable business. While most of these stories seemed to have happened decades ago, we have an example right here in our industry that proves that it can still be done today.

Thomas Trissl, the founder of Centiva, grew up in Germany and started his career working in his family’s long established commercial flooring installation business, which specialized in airports, hotel chains and retail chains. In 1995, he came to the U.S. and before long started working in his basement to develop a line of vinyl flooring, which he then had produced on a contract basis at an old Robbins vinyl plant in Florence, Alabama. Just as his line was starting to take hold, the plant ran into financial trouble, ultimately forcing him to buy the plant.

The use of vinyl flooring in a commercial setting had been more prevalent in Germany and Trissl’s early success can be attributed to his experience with his family’s business and his drive to be successful with his own company. In the early stages of product development, Trissl would create samples and drive to visit design firms in Nashville to seek their feedback. From the very beginning, Centiva’s focus has always been the commercial market. Trissl’s creative skills drove him to create curves in his products while most other manufacturers were focused on squares and diamonds. And as his company grew, he resisted hiring seasoned flooring professionals but instead built a young energetic team that was as passionate about success as he was. Today, Centiva is well known for its extraordinary LVT products, its focus on customer service, and for being an eco-minded supplier.

Last month, Jeff Buttitta and the North American Tarkett team decided to add Centiva to their arsenal of hard surface flooring products. Now, coupled with the Johnsonite brand, which it acquired in 2005, Tarkett continues to build its presence in the U.S. as a dominant player in the resilient marketplace—a position it has held in Europe for some time.

Trissl recently told me that with Tarkett’s backing, he can now take his company to the next level. And, according to Jeff Buttitta, Tarkett plans to keep Centiva as a separate brand in the commercial market.

BANK VERSUS CARPET RETAILER
I was shocked last month when a Chattanooga newspaper reporter called me to ask what I knew about Carpets of Dalton’s financial problems. I had just spent time with its president, Jerry Hennon, at the National Floorcoving Alliance meeting in Puerto Rico and we had listed the firm as number 68 in our top 100 retailers list with our estimate of $24 million in flooring sales. While this is down from its peak, it certainly wouldn’t lead you to believe the company was having financial problems.

For the benefit of our national audience who might not know Carpets of Dalton, it’s a huge retail force in this region. Starting out as carpet retailer in 1970, it first expanded into all flooring categories and then into furniture. Today, when you drive from Chattanooga to Atlanta, you can’t miss the enormous complex that extends for a quarter mile along I-75 just south of Dalton, Georgia. In addition to the Carpets of Dalton business name, it’s also known as the American Home Showplace and its furniture business is now much bigger than its flooring business.

I recently met with Hennon, who reported that his business is continuing to do well, though it has been impacted by the recession. He added that his outlook for 2011 was very positive based on the strength of sales leading up to the holidays.

The issue, and the reason for the news story in the local paper, was an eroding relationship with a bank based on real estate investments that are completely unrelated to the retail business.

ITC INVESTIGATES HARDWOOD DUMPING
Less than 30 years ago, China was known more for its fireworks and toys than as an alternative, and often cheaper, supplier of the same type of goods that we make in our own plants here in the U.S. Now, thanks to the billions of dollars that consumers from all over the world have funneled into China seeking lower priced goods, China has built its infrastructure to a level where it can now manufacture products that rival what we make here. Apple computer, for example, ships components from all over the world to plants in China, and China has now become the country of origin for some of Apple’s leading hi-tech products, like the iPad and the iPhone.

Many of the leading suppliers in the flooring industry either have built or are in the process of building plants in China, and their plan is to manufacture products and sell them for domestic consumption in China—especially now that China economy is growing so rapidly (GDP growth for China is greater than 10%).

Recently a coalition of U.S engineered hardwood flooring manufacturers petitioned the International Trade Commission to look into the “dumping practices” of Chinese suppliers. Dumping means that these companies are selling products in the export market for cheaper than they sell them domestically. After a recent hearing in Washington, it appears that the coalition may have won the first round and import duties may be in order. Interestingly, we see that Lumber Liquidators stands to be the biggest loser if duties are applied, but others are putting up a fight as well. Most people we’ve talked to just want a level playing field. That will be hard to achieve as long as China’s currency is coupled to the dollar. Watch for more news on this topic on Floordaily.net.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

Copyright 2011 Floor Focus 



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