Construction spending, Starnet, FEI, Bridgeway meetings: Strategic Exchange - Dec 2015

By Kemp Harr

We’ve got one more month to go in 2015, and it looks like the overall pace of flooring consumption in the U.S. is tracking at the same rate as last year, with the smaller commercial sector far outperforming residential and with hard surface taking share from carpet. In 2014, wholesale floorcovering sales grew just under 4%, and even though the overall economy is off slightly due primarily to energy prices, flooring sales remain steady.

Growth in the $8 billion carpet market is being driven by the strength of the commercial sector, where modular carpet continues to take marketshare from broadloom. Nationwide, commercial carpet sales are up 4% while residential carpet is down a little more than 1%. Wholesale prices for residential carpet have dropped a little in 2015, while prices for commercial carpet are up slightly. When you roll it all up, the carpet category will probably grow 1% this year compared to 2014, when it was flat.

At the end of October, Dodge released its Construction Outlook for 2016. Total construction starts for next year are forecast to advance 6% to $712 billion, with gains for residential building up 16% and nonresidential building up 9%. More specifically, single-family housing will rise 17% (in units) to 805,000. Multi-family housing is forecast to increase 5% (in units) to 480,000. And lastly, commercial building spending will increase 11%, up from the 4% gain estimated for 2015. So if Bob Murray, the economist who authored this report, got it right, it looks like 2016 could be a strong year for flooring demand. 

From a more macro perspective, the U.S. economy is currently holding its own compared to the other major economies around the world—resulting in a strong dollar and a decline in exports. The reduction in exports coupled with cut backs in energy-related activity is having a negative effect on U.S. industrial activity, even though vehicle sales are still robust and continue to track above pre-recession numbers. 

These are the mixed signals that the Fed is talking about as it continues to consider raising interest rates in December. The likelihood of this happening is high, but there is also a chance it could be put off until early next year.

COMMON THREAD AT RECENT INDUSTRY MEETINGS: LABOR DECISIONS
In the past 30 days, I’ve spent time with the Starnet group of commercial flooring contractors; attended the Surfaces East trade show; spent time with the National Association of Floor Covering Distributors; and met with two separate groups that focus on the builder sector, the FEI Group and Bridgeway Interactive. In almost every case, these meetings have been well attended, and everyone is feeling good about their business today and where it’s headed for next year. It’s worth noting that at each of these meetings, one common thread that every group addressed dealt with labor. The challenge we’re all facing today is finding, hiring, training and motivating talented employees.

STARNET TACKLES THE BIG ISSUES
The Starnet group of commercial contractors meet twice a year, and in late October the group went to Boston and met at the Omni Parker House, one of the oldest hotels in the U.S. The tone of the group was extremely upbeat, and Jeanne Matson, Starnet’s president and CEO, told me that this was shaping up to be the group’s best year since the recession. With just under 400 attendees, this was the largest fall meeting group on record and much was covered in the two-day event.

On the first day, the entire afternoon was devoted to an impressive concrete moisture mitigation seminar that tackled the topic from a fresh perspective. In the building construction business, contractors are broken out into divisions—in the sequence of when they complete their jobs—by the Construction Specifications Institute. The group assigned to do concrete work is in Division 3 and the contractors assigned to do the flooring work are in Division 9. Architects and engineers who design buildings use these “divisions” to organize and allocate responsibilities between the trades. In this meeting, Starnet invited a few of the smartest concrete experts in Division 3 to have an open dialogue with the membership in an effort to eliminate the finger pointing and tackle the concrete subfloor issues that often aren’t revealed until it’s time to install the flooring. The two biggest issues that dominated the discussion were slab flatness and moisture. 

Peter Craig, who has devoted his career to the topic of concrete moisture, estimates that $300 million to $1 billion is wasted every year due to claims related to concrete that is too wet to cover with finishes. At the end of the day, no simple solution was unveiled, but the discussion gave everybody a better understanding as well as a future network of resources when the next set of issues arises.

Other topics that seminars addressed included: succession planning, technology, marketing and working with installers. And, in one of the best sessions of the weekend, local Boston architect, Paul Lewandowski, gave a presentation on how to engage a flooring contractor as an active advisor in the design and specification process, which Lew Migliore discusses indepth his Flooring Forensics column on page 71. 

It’s no secret that much of the operating budget that funds Starnet’s activities and the compensation for its staff is paid for through contributions from its vendor partners. It was great to see that the organization was continuing to thrive despite having split from one of its largest and oldest vendor partners, Mohawk Industries, back at the beginning of the year. It was clear when walking the aisles of the meeting’s trade show that the members appreciate the support of the suppliers that align with this group of 170 contractors.

In an effort to further entrench the relationship between Starnet and its vendor partners, Leah Ledoux, Starnet’s director of strategic accounts, has spent the last six months engaging the vendor partners with members in joint sales calls with A&D specifiers and end users. In addition, Leah is encouraging its members to add more A&D focused salespeople, like Sheri Gorman at RD Weis. Sheri has been tapped to spearhead this initiative. 

Starnet has also announced a new Dream Team competition to encourage the members’ sales teams to work closely with vendor partner mill reps. The three winning teams from across the country will be recognized at the spring meeting at the Trump Doral resort in Miami. 

FEI GROUP’S ANNUAL MEETING IN TUCSON
Almost a third of the residential flooring that’s sold on an annual basis goes through dealers that focus on the builder and multi-family sectors of the business, and the largest membership group within that sector is the FEI Group, known for years as FloorExpo. It’s worth noting that many of the members have been very successful and are well represented on the Retail Top 100 list that we published in November. Also, the leader of this group, Dave Gheesling, is the subject of our leadership article on page 15. While the group has expanded into other finish areas like cabinets and kitchen and bath fixtures, there are 100 member companies focused in the flooring sector, and they are evenly split between single-family builder and multi-family.

When this group, which was formed 18 years ago, gets together, it’s usually at some exotic venue, like this year’s Ritz Carlton Dove Mountain, north of Tucson, Arizona. In addition to the normal networking, trade show events and break-out sessions that most of the industry’s group meetings have in common, this group also incorporates some type of brain tease or high energy fitness challenge. In fact, you will often hear axioms like “first wealth is health” and “leadership is action, not position” roll off the tongues of the group’s leaders. This year, over 100 people signed up for “The Fitness Challenge – Tighten Up Pledge,” which has four components: eating the right foods, eating the right amount, doing cardio exercise and resistance weight training. Everyone who signed the pledge is agreeing to work out six out of every seven days for the next 90 days.

It was no surprise that the tone of this meeting was very upbeat, since the two sectors the group focuses on—multi-family and builder—happen to be the two hottest areas for growth in the residential flooring business. The membership’s biggest challenge is centered on availability of quality labor—not only in the area of installation but also in operations and sales.

Out of the many different sessions, two that rose to the top, were a panel on leadership and another one given by Robert Sher, the author of a book called Mighty Midsized Companies. Participants in the panel were Randy Merritt, president of Shaw Industries; Adam Nonn, CEO of Nonn’s Kitchen and Bath Flooring; Jerry Hosko, president of Redi Carpet; and Marty Van Doren, EVP of sales with Masterbrand Cabinets. A few of the key takeaways from this session inclue: staying true to your value system, the essence of leadership in getting people to do things because they want to, and the importance of actively doing “good morning” rounds with employees.

Sher defines a midsized company as one that’s doing between $10 million and $1 billion in sales. In the book, he identifies seven problems—such as missing deadlines, tinkering and shooting from the hip—that often result in failure. He bases the conclusions on 101 interviews with executives who worked in companies that either thrived or failed. 

Next year’s FEI Group meeting will be at the Hyatt Regency Chesapeake Bay in September.

BRIDGEWAY INTERACTIVE MEETING IN WINE COUNTRY
If you don’t recognize Bridgeway Interactive by that brand name, there’s a good chance you’ve heard of Michael Vogel’s other brands, such as Design Center Solutions or Creating Your Space. For 15 years now, Vogel and his team have focused on providing their clients with the latest web-based digital marketing tools to engage consumers as they shop for flooring. Each of the firm’s brands are segment-based, with Creating Your Space focused on flooring retailers and Bridgeway Interactive focused on the builder sector. 

In mid-November, the builder focused group met at the Silverado Resort in Napa Valley for two days of networking, education and relaxation. As Dennis Webb with Fulton Homes, an Arizona homebuilder, told me at the meeting, “I’ve come up here to wine country with this group for the past ten years so that I can get away from the day-to-day work schedule and learn about new tools to improve our business.”

This year, roughly 70 people—who ranged in job function from retailers and contractors to builders and manufacturers—were in attendance. In addition to wine, the group was introduced to the latest in visualization tools, search retargeting, reputation management, CRM and social media. One session was focused on Houzz, the latest social media website that consumers use as an idea center when considering home-related purchases. Unlike Pinterest, which a consumer can use to, for instance, collect pictures of tattoos, Houzz is a smaller, more focused site for design inspiration with products related to the home.

Today, the firm touts over 600 clients, and it reportedly creates more Internet traffic than any other independent flooring focused website service provider in the business.

Related Topics:Mohawk Industries, Shaw Industries Group, Inc., FEI Group, Creating Your Space, Starnet, Redi Carpet, RD Weis