Strategic Exchange - June 2009

By Kemp Harr

Last month in our Annual Report article you read that the wholesale value of the flooring industry (not counting labor or accessories) was just over $20 billion. That’s down from a peak of $24 billion in 2005. When you look back and adjust that $20 billion for inflation, the flooring industry is back to 1998 levels of business from a revenue perspective. 

Fortunately, I’ve heard more than once in the last 30 days that we are seeing the light at the end of the tunnel “and it’s not a freight train.” In fact, just as this issue was heading to press, we learned that the leading economic indicators rose sharply in April—the first increase in seven months. Stock prices, the interest rate spread, consumer expectations, initial unemployment claims, the average workweek and supplier deliveries all improved. 

In a recent conversation I had with John Baugh, a leading analyst covering the publicly traded companies in the interior furnishings market, he reminded me that historically economic recoveries can be “fairly dramatic on the upside.” He also pointed to the fact that the credit market was beginning so show signs of “normalcy,” which is critical in an economic recovery. He added that some lagging indicators like unemployment, home prices and GDP growth, while moderating, will likely remain negative for at least another quarter. It’s encouraging to see that the collective stock price of all the publicly traded flooring companies has improved 196% in April. Stock prices are definitely a forward looking indicator.

A RECIPE FOR BUYING GROUP SUCCESS
Buying groups come in all sizes and offer a wide range of services for the independent flooring dealers. The ones that seem to do the best are those that recognize their membership consists of entrepreneurs who must be able to maintain their individual identity and spirit. One of the more powerful groups that appears to have a winning recipe is the National Floorcovering Alliance (NFA). While it only has 36 members, it represents hundreds of storefronts. As with most buying groups, the members say they get the most from the synergistic relationships with other members. 

What’s unique about the NFA, however, is the chemistry and camaraderie that has developed over the years. At meetings of other flooring groups, you get the feeling that the members have come to attend a business seminar. But with the NFA, it feels more like a group of old friends has come together to help each other out. The essence of this successful chemistry would be hard to emulate. The same leadership skills that make each of these members hugely successful as individuals are also what make them work well together as a group. They are passionate about their business and they learned a long time ago that if they give, they will get and if they listen, they will learn. 

FLOORING FUNDAMENTAL IN HOSPITALITY
Next time you check into a hotel, pause for a few minutes and soak in the ambiance. Take note of the changes not only in the guest room but in the lobby as well. Notice the open spaces, but also the modular social areas where guests can comfortably peel off into small groups. Notice that hospitality architects have learned that transitions of hard and soft flooring help to better define the traffic areas from the lounging areas. Also take note of the technology enhancements. Flat screen monitors, information signs, boarding pass kiosks and self check-out stations—items that used to be a novelty are now mainstream. 

We covered the rapid pace of change in this market sector in an article last month, but I bring it up again as an explanation for the surprise we experienced a few weeks ago in Las Vegas at the annual Hospitality Design Expo. Change is going on so fast within this sector that even though new hotel construction, occupancy rates and hotel revenues are down, attendance at this show was much stronger than we anticipated. Hotel chains and property owners realize that they have to stay on top of the trends in this highly competitive sector and this trade show is seen as a resource for staying abreast of those trends. And let’s not forget that furnishing trends that are first seen in the lodging sector often wind up in the consumer’s home a few years later. This industry should be proud of the prominent presence that the flooring manufacturers have at this annual show. Flooring is clearly a fundamental design component in the hospitality market.

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

Copyright 2009 Floor Focus