Economy, RD Weis, selling online, Trade show insights: Strategic Exchange

 

By Kemp Harr

 

The economy continues to send us mixed signals now that the long winter is finally behind us. Most of the recent news has been good, but with a few caveats. On the positive side, nonfarm payrolls are up, retail sales are strong, inflation is in check and durable goods orders are healthy. Consumer confidence is back to pre-recession levels and the purchase of motor vehicles and home furnishings are on the rise, indicating that consumers are increasingly willing to buy big ticket items. Cars, for example are tracking at an annualized rate of 16.3 million units—the highest rate since December 2006.

However, performance with the biggest ticket item of all, housing, is not tracking as well. The growth rate for existing home sales, after two years of steady increases from mid-2011 to mid-2013, has fallen in six of the last seven months. Existing home sales peaked in July 2013 but have declined at an average rate of 2% per month, and are now back at the same pace of sales that we saw in April 2012. While sales of new homes have not been declining in the same manner we’re seeing with existing units, they have flat lined since the beginning of 2013—locked at an annualized pace of around 434,000 units. With single-family housing starts hovering around the 2013 average, it is likely that new home sales will stay in a similar range.

It’s hard to know whether housing starts are pacing with true demand or if builders continue to be risk-averse due to the painful memory of the consequences of the last downturn. Contributing factors could be the lack of labor and the same lumber supply constraints that are affecting the hardwood flooring market.

On the remodel side of the housing market, Harvard’s Joint Center for Housing Studies is predicting that home improvement spending will continue to grow at a rapid pace until at least the third quarter of this year, when it will reach an annualized spend level of almost $160 billion.

It was discouraging, however, to see that the Architectural Billings Index dropped below 50 in March, but hopefully that was a weather based anomaly, especially in light of the new projects inquiry index in the same report, which was almost 58.

In April, I attended the spring meetings for both Starnet (commercial flooring contractors) and the NFA (leading floorcovering retailers). The tone and outlook for continued growth at both meetings was extremely upbeat. But at the same time both organizations had recently lost a longstanding member to bankruptcy. The NFA lost MMM Carpets, a six store retail chain centered around San Jose, California, and Starnet lost Legacy, based in Columbus, Ohio, which at one time was one of the core Dupont Flooring System commercial flooring dealers. At the same time, both organizations were adding healthy new members, but I mention these unfortunate closings to emphasize that this recovery still has pockets of anemia.

As much as I’d like to be more optimistic on the topic of economic growth, I don’t foresee a period of sustainable growth until something changes on the political front in Washington. The extremists in both parties need to learn to compromise so the country can continue to move forward.

COLLABORATIVE OFFICE OF THE FUTURE
At the spring Starnet meeting I learned that Randy Weis, owner of RD Weis, a progressive commercial flooring contractor based in the New York area, was taking some bold steps in the process of remodeling his Manhattan office, which celebrated its opening party on May 1. Forced to move to a new location based on a lease expiration, Randy chose to step out of his traditional office format and build an open-formatted office of the future. 

As Randy explained it to me in a FloorDaily interview, he hopes to change the culture of his operation by tearing down the walls and paneled workspaces and creating a more collaborative working environment. In fact, even though he is the business owner, his workspace will be just another open desk like all the other associates. According to Randy, workers today are more focused on results and less concerned with work hours and office apparel. He added that the policy manuals of previous eras are just white noise today. 

Randy tapped Michael Stark, a New York based interior designer, to help his company with this workplace design. Michael added that this past recession has also influenced the open-format trend. “Many workers were shaken to the core and this changed their priorities. It is better to focus on meaningful work than the stature associated with where you sit,” Michael said. “The type of business you are in is also a factor. Ad agencies, publishing and media companies are more receptive to collaborative spaces than banking and legal firms. One factor that is important in any office environment is creating some area that the worker can call their own. Every worker needs some sense of connection.”

I personally am intrigued by this transformation but plan to study Randy’s experiences further prior to making this change at Floor Focus.

HOW MUCH FLOORING IS SOLD ONLINE?
Last year as we watched Amazon’s sales climb to $75 billion, many people started to wonder what role the Internet would play in the sale of floorcovering to consumers. Nearly everyone who sells floorcovering at retail today would admit that the Internet plays a key role in the information gathering stage of the selection process. But with the exception of rugs, e-commerce (where the complete flooring transaction is handled over the Internet) is still a small percentage of all floorcovering sales (about 2.4% according to Santo Torcivia of Market Insights) and will likely stay that way for a while. Even if you take the weight and large scale format of flooring out of the equation, consumers still prefer to see and feel the texture/finish of the product and the majority of floorcovering still needs to be installed by a trained professional.

Torcivia recently shared with me the data listed in the table shown here. According to his estimates, Internet flooring sales with the nine leading e-commerce retailers totaled $407 million. Of those, the retailer with the highest percentage of online sales was Lumber Liquidators. Its $51 million represented 5.1% of its total sales.

HOW TO SURVIVE AND THRIVE IN THE TRADESHOW BUSINESS
Attendance at a trade show is like circulation for a magazine. It’s what exhibitors are buying when they choose to pay the space rental fee. The goal of the trade show management company is to attract an audience that can ultimately influence the success of the exhibiting company’s brand. Some shows do a better job of this than others. The name of the game is not just raw numbers. If the people who attend the show can’t influence the purchase of the products or services, then eventually the exhibitors will wise up and quit coming. 

I chuckle when I see show management companies chasing last year’s raw number because it’s not about quantity, it’s about quality. I’ve attended enough trade shows in my career to gain a pretty good understanding about what works and what doesn’t work. As with many successes in business, the trick is in how much strategic thinking goes into the planning process. 

The first question to ask is: where are the gaps in our current attendance? And the second is: how can we attract those who aren’t coming? A word of caution, though—if the show management company is more interested in growing its exhibition business than growing its sector of the flooring business, it will ultimately fail. 

In the first quarter I attended both the Domotex Germany and the Domotex Asia shows. In both instances I could tell that show management was strategically tuned into growing the flooring business. Instead of doing the same thing over and over again, they were mixing things up and adding new features that were designed to attract the right type of audience. 

At Domotex Asia, for example, the show had pulled together the Shanghai Architecture Fair, which ran concurrently with the trade show. They invited master architects to speak to the theme “Rethinking the Future” and gave education credits to the professionals who attended the fair. As a result, more architects—who can specify flooring—attended the show. 

In addition, both Domotex shows had a new innovation area where attendees could see the latest innovative products on display in a museum type setting. Products that earned a spot in this area were judged by an independent and objective panel and there was no charge to the exhibitor for having its product on display.

If the goal is to create an event that can’t be missed by the core players in the business, then everything else will fall into place.

 

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

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