Flooring revenue growth for 2017 should outpace last year: Strategic Exchange - June 2017

By Kemp Harr

It appears that the sluggishness of the first quarter, as indicated by GDP growth of 1.2%, has carried through to the floorcovering business. Consumer spending took a breather after a fourth quarter surge last year. 

Economists, however, are predicting a 2.1% growth for 2017 as a whole, and Floor Focus’ economist, Santo Torcivia, is predicting that floorcovering growth for this year will surge to 5%, compared to the 3.1% growth rate we experienced in 2016.

While the nation’s growth is well below the 3% to 4% target that President Trump set as a goal, the reality is that it will take time for Washington to implement the tax cuts and infrastructure spending that are fundamental components of his stimulus plan. In the short term, rising interest rates will act as a drag on growth.

One of the key drivers for flooring sales this year will be the housing market. While the numbers fluctuate on a monthly basis, the seasonally adjusted annual rate of housing starts is 1.2 million-well above where it was this time last year. The two biggest issues for homebuilders are the shortage of ready-to-build lots and the availability of skilled labor. Existing home sales, which took a 2.3% dip in April, are still tracking 1.6% above last year. The issue here is rising home values, which are up 6% from a year ago. 

STARNET’s 25TH ANNIVERSARY
At the end of April, the Starnet group of commercial contractors celebrated its 25th anniversary at the swanky Omni La Costa resort just north of San Diego. This was a mandatory meeting for the 171 co-op members, and while the overall tone was upbeat, you could tell that growth among the membership was varied, with the strongest growth going to those members that have diversified into maintenance, concrete polishing or other services beyond the basic floorcovering installation business. The meeting drew a record 700 attendees.

The success fiber that runs through this organization comes from the entrepreneurial spirit that many of the leading members have. This creative energy flows through the meeting, and it’s obvious that the members look forward to this gathering so they can share ideas and learn from each other. 
I interviewed Rob Hailey with Howard’s Rug based in San Diego, and I invite you to listen to that interview not only to get a perspective of the character of the group’s leadership but also to hear more about the focus that Rob puts into growing his business and how he mines the co-op for fresh ideas as well as contributes ideas of his own. 

This year’s keynote speaker, John Maclean, was far and above one of the best motivational speakers I’ve ever heard. His true story about being hit by a truck as he was bike training for a triathlon, leaving him paralyzed in a wheelchair, sounded like a devastating experience. But what he was able to achieve after that terrible accident is amazing. What sets this talk above all the rest is the conversations that he had with himself and the way he conveys those conversations to the audience. We’ve all heard that everybody needs a good cry every now and then, and I don’t think there was a dry eye in the room as Maclean connected with the audience. And don’t get me wrong, the tears were generated from what he was able to achieve, because he and those around him never gave up.

Starnet’s success over the next 25 years is dependent on maintaining its relationship with a core group of vendors that recognize that the group as a whole can influence which flooring brand gets specified and installed on any given project. It’s no secret that several of the larger flooring producers would rather deal with installation workrooms than dealers who seek a cut of the product margin. In the end, it will all boil down to who the end-user and specifier trust to install and maintain their floors. One would think that each passing year would give the organization more confidence about its sustainability, thanks to the value its members bring to the mix. But then again, continued consolidation in the business tends to give the bigger suppliers the notion they are too big to fail.

CARE’S 15TH ANNUAL MEETING
Last month, CARE (Carpet America Recovery Effort) met in Indianapolis for its annual convention. CARE’s goal from the outset has been to reduce the amount of carpet that ends up in the nation’s landfills. Over the years, the group has helped create a network of collector/sorter locations as well as viable markets for the recycled components of carpet. 

Funding for CARE used to come solely from sponsorships and membership, but thanks to California AB-2398 and the CRI’s Voluntary Product Stewardship fund, its annual budget has blossomed to nearly $30 million. Most of that comes from California’s $0.25 per yard fee, collected when carpet is sold in the state, up from a nickel when the law was implemented back in 2011.

For many years, CARE was able to increase the amount of diverted carpet. But for the last three years, the equation has changed due to three factors: oil pricing came down, making virgin plastics more affordable; polyester, which today has little post-use value, became the dominant type of residential carpet; and lastly, the market for recycled nylon 6 has dried up due to increased Chinese caprolactam capacity.

To be compliant in its role with the state of California, CARE is supposed to increase the diversion pounds on an annual basis. Since it hasn’t, California is fining CARE $3.28 million. Hopefully, all of this will be sorted out in the next couple of months. 

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

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