Strategic Exchange - January 2012

By Kemp Harr

At Floor Focus, we’re junkies for good research and we’ve always believed that you’re only as smart as what the market tells you. Recently we were given a preview of market research data and were able to peer into the minds of 700 consumers who had either bought flooring in the last 12 months or were planning to buy flooring in the next 12 months. Interestingly enough, those planning to buy far outnumber the ones who have already bought, by a greater margin than at anytime in the last six years. 

Another important nugget is that the three most influential resources used to gather information during the selection/buying process were: 1. Recommendations from friends and family; 2. Product displays in stores; 3. Websites from major home centers. So, if you’re a retailer, making sure your clients are happy and that they love the flooring they’ve selected is critical, and making sure your store’s merchandising system is uncluttered and efficient is also important. 

When consumers are asked what the most important criteria are for selecting a floor, they rate quality, aesthetics and durability ahead of price, and as you scroll down the top 16 items on the list, “made in America” is number 14. And further down from that is sustainability and even below that is a salesperson’s recommendation. One more important comment on price before we leave that topic: not only is price not one of the top deciding factors in the selection process but it is less of a factor today than it was two years ago. And while the importance of price has gone down, durability and lasting beauty had gone up.

When asked what room they were selecting floors for, the top five rooms on the list (in order) were bathroom, living room, family room, kitchen and master bedroom.

One disturbing and yet understandable statistic dealt with where the consumer first started shopping; 66% start with the home center, 16% start with a specialty flooring story, and 11% start online. Granted, a higher percentage of shoppers who started shopping at the specialty flooring store actually ended up buying there (82%). But home centers do a surprisingly better job of closing their customers than one might think (75%).

When asked whether social media was a factor in the decision making process, only extreme social media users said it was a factor, and demographically they tend to be younger in age.

PRELIMINARY YEAR-END NUMBERS
Santo Torcivia’s December market report released year-end dollar consumption figures for the U.S. by flooring category. Carpet and rug is up 1.7%, hardwood is up 1.2%, ceramic tile is up 5%, resilient flooring is up 2%, and laminate is down 11.8%. 

These laminate numbers are somewhat surprising. The laminate category is being hurt from two directions. LVT visuals are just as realistic without the acoustical issues that are typical with laminates, and pricing for engineered hardwood is competitive enough for people to buy the real thing. 

Another item that caught my eye is the import numbers for tufted carpets and rugs, which are up 13% year to date on top of a 17% increase in 2010 over 2009. For 2011, India leads the growth with a 16% increase and that’s mostly rugs. However, imports out of China are up almost 14% and that’s more likely a mix of broadloom and rugs.

You can’t help but note that the top line revenue numbers for the home centers are outpacing the overall retail figures and the flooring store numbers. Year-to-date, the home centers have grown 4.9%, while overall retail is up 3.2% and flooring store sales are down 3.9%. What you can’t tell from those numbers is whether the flooring department within the home centers continues to track with the rest of the store. Our last good estimate was that the flooring department represented about 6% of the overall number. Conversations we’ve had with a few key flooring suppliers to the home centers tell us that business within the home centers continues to outpace what they are seeing in the overall market.

Santo points out that the U.S. dollar has bounced back, which makes exports more expensive and imports cheaper. 

Dollars spent on consumer advertising by flooring companies is up 6.8%, which would seem to indicate that they’re betting that demand will improve in 2012.

BLUE RIDGE CLOSES
It was sad to see Blue Ridge Carpet Mills close late last year. Blue Ridge, a commercial carpet mill based in Ellijay, Georgia, operated for 43 years, with peak sales in 2005 at over $50 million. 

The company had primary focus on the commercial office business, a secondary focus on retail floors and it was known for its patterned broadloom products. In 2002, Blue Ridge entered the modular carpet sector when it acquired Lowe’s Carpets.

Blue Ridge struggled throughout the recession and wasn’t able to hold on long enough for the market, and in particular the corporate office sector, to recover. The demise of the company was due, in part, to the fact that it wasn’t vertically integrated and had only one plant, so it couldn’t consolidate operations to cut costs. And, while the company’s management was talented, much of its equipment was dated. For several years, Blue Ridge was able to develop very distinctive products but wasn’t able to carve out a sustainable following that could carry it through the downturn. In the end, I’m not sure if it was the lack of A&D connection with the folksy brand image or just too many other mills with the same look and a better balance sheet. I do know that the company didn’t have the resources to either invest in its brand or to build out a competitive sustainability platform—both of which are necessary to compete in this market.

Blue Ridge opened its doors in 1968 as Davis Mills with a Small Business Administration loan to its founder, Ralph Davis. Through its history, it was owned by the Lowy Group (a floorcovering distributor/wholesaler based in St. Louis); a private equity firm in Houston, Texas; and River and Associates based in Chattanooga, Tennessee. Mike Gallman, former CEO, spent 21 years at Shaw Industries before taking the helm at Blue Ridge in 1998.

CHANGING OF THE GUARD
The recent announcement about the two new business unit leaders at Mohawk and Dal-Tile brings to light the abundant changes in key leadership positions within the manufacturing sector of this industry. One of the most interesting details is that all of these new leaders are flooring industry veterans. With Mohawk, Frank Peters is stepping down, and 46 year old Brian Carson, who spent 16 years at Armstrong, is taking over as president. At Dal-Tile, J.T. Turner Jr. is taking the helm as Harold Turk steps down. In, J.T.’s case, he’s been with Dal-Tile for 21 years.

At Mannington Mills, Tom Davis is retiring after 18 years and Russell Grizzle is taking over as president and CEO. In this case, it appears that chairman and owner Keith Campbell likes the Milliken leadership training system. Tom came over from Millken 18 years ago and Russell spent 31 years at Milliken prior to making this move.

We recently noted that James Lesslie, who started in the fiber business at Allied Signal 29 years ago, spent ten years at Queen/Shaw and most recently seven years at Beaulieu as COO, has now joined Bob Shaw at Engineered Floors as the assistant to the chairman.

Earlier this year, Paul Murfin, who spent four years at Beaulieu and six years at Armstrong, took the helm as president of IVC.

Brad Townsend recently took the vice president of sales role at J&J Industries after spending 27 years at Shaw. 

David Vita, who now holds the top spot at Beaulieu Commercial, spent 22 years at Shaw before making the switch.

And Lindsay Ann Waldrep recently took Crossville’s marketing vice president position after spending six years at Mohawk and four years before that at Harris Tarkett.