Leadership of Jaeckle, Cronin and R.A. Siegel: Distribution Panel - Feb 2014

Flooring distributors provide a critical service to the industry, linking the flooring producer to the retailer. With business increasing across the board, it is imperative that every member of the supply chain find partners with whom they have trusting and mutually beneficial partnerships. Here, Geoff Work, president and CEO of The R.A. Siegel Company; Heidi Cronin Mandell, president of The Cronin Company; and Torrey Jaeckle, vice president of Jaeckle Distributors offer an update on the business of flooring distribution.

The R.A. Siegel is a family-owned company, in business since 1950 with two locations—one in Mableton, Georgia and another in Ocoee, Florida—and approximately 3,000 customers. The company services the states of Georgia, Florida and Alabama.

The Cronin Company was founded in 1878 as a saddle and harness company, which entered the flooring business in 1962. Headquartered in Portland, Oregon, The Cronin Company has eight branch operations serving over 5,000 customers throughout Oregon, Washington, Idaho, Montana and Alaska.

Jaeckle Distributors has about 3,000 active customers and five locations in Madison and LaCrosse, Wisconsin; Minneapolis; Chicago and St. Louis. The company services all or parts of 11 states throughout the Midwest: Wisconsin, Michigan, Minnesota, North Dakota, South Dakota, Iowa, Illinois, Indiana, Missouri, Kansas and Nebraska.

Q: Please tell us what flooring surface categories you distribute, ordered from the largest category to the smallest. Has that mix changed much in the last five years? 
GW: In both the residential and commercial markets, we distribute sheet vinyl, VCT, LVT and rubber. To the residential market, we also distribute wood, laminate, porcelain and related items, such as underlayment and adhesives. Over the last five years, vinyl has declined in importance, but LVT has increased.

HM: We distribute hardwood, installation supplies, LVT, ceramics and laminate. 
The mix has changed up a little due to the demand and growth of LVT. Hardwood has been consistently strengthening, as is our installation supply side. Laminate and ceramics continue to maintain good sales.

TJ: Currently we distribute LVT; hardwood; ceramic/porcelain tile and stone; sheet vinyl; rubber, cove base, stair treads and other resilient; laminate; and VCT. Hardwood and LVT are in a virtual dead heat right now to occupy the number one position. 

The mix has changed quite a bit over the past five years when the rankings were sheet vinyl; ceramic/porcelain/stone; hardwood; rubber, cove base, stair treads and other resilient; laminate; LVT; and VCT.

Both hardwood and LVT have gained share quite a bit over the past five years, while sheet vinyl has dropped out of the top level, down three spots. LVT gained the most, jumping up from sixth to first place. Laminate has also fallen. With regard to sheet vinyl, we are very excited about the plans of our supplier Mannington this year to help reverse the downward trend of that category.

Q: Are certain surface categories more profitable to distribute than others? 
 Certain surface categories are definitely more profitable to distribute than others. Products that carry a higher gross profit dollar per order amount are more profitable. Processing any order typically requires a fixed amount of work and expense (enter order, pick, pack, ship, invoice, post-sales assistance), so higher gross profit per order products thusly generate more profit for the same amount of fixed activities and expenses. For us, those more profitable categories are hardwood, LVT and commercial sheet vinyl.

There are factors that can offset the profitability of any particular category, however. For example, hardwood, laminate and ceramic all have high trim stocking requirements. Trim is usually fairly low turning inventory and can also result in significant losses when product is discontinued. The thing to remember, however, is that all flooring surface categories can be and should be profitable for a well-run distributor.

HM: There are always some categories that are more profitable. Most categories can be, if they are growing. They start to lose their profitability when the market gets saturated with too many manufacturers who devalue the category with low pricing. 

GW: Porcelain is the most profitable but has the most weight and also breakage issues. 

Q: Outside of floorcovering, what other types of products do you distribute, if any?
 We carry plastic laminate, solid surfacing, engineered quartz stone, and we also have installation supplies.

GW: We only focus on hard surface flooring products.

TJ: We also sell laminate countertop, solid surfacing and thermally fused melamine.

Q: Are the majority of your customers retailers, or do you also sell to large end-users like builders, apartment building owners and commercial building owners?
 The majority of our customers are retailers of decorative products on the floorcovering side. We do sell to laminate, solid surface and stone fabricators. And to installers and contractors and retailers, we sell installation supplies.

GW: We only sell to specialty flooring dealers and flooring contractors. 

TJ: The majority are retailers or commercial contractors. We do not sell directly to any builders or building owners.

Q: When you are negotiating a partnership with a supplier, what are some of the key components that you look for in that relationship?
 Fundamentally, do they have a product that our customers are looking for? Is the price point competitive with where the market is? Logistically, how will we source it? How deep is their stock, and how will replenishment work? Nearly as important as the product is the level of trust and partnership we feel we will have with the supplier. 

TJ: Trust is number one. If you can’t trust each other, the relationship won’t work. We also look for suppliers that are innovative, responsive, flexible, willing to stand behind their word and their product, and that have good representation—a rep who will actively work with our people and customers to help grow the business.

HM: We look for a variety of things. We look for “single” distribution. We look at their track record and reliability in the marketplace, quality of product, supply chain, and how they handle claims. We also want to know their expectations of us as the distributor. In addition, we consider their inventory requirements and how they see us going to market. We want to partner with our vendors. We don’t take on lines if we can’t meet their expectations or devote the time to make it successful.

Q: What decisions have you made in the last few years that have resulted in the most growth? 
 We invested in deeper inventory in both LVT and porcelain to improve our service levels, which has led to increased confidence by our salesforce to sell those products and for retailers to buy from us. We also decided to move our transfer trucking between Georgia and Florida in-house, which has resulted in significantly improved service levels versus relying on third party trucking companies. Our customers in Florida have responded to the increased levels of service. In addition, we have also made some additions to increase our sales staff to better serve our customers.

TJ: We sold our cabinet hardware business to another building materials distributor in 2010 and used the funds to invest in other areas that held more potential and were a better fit for us, mainly into additional flooring lines like LVT and hardwood. Hardware was a profitable business, but the business requirements weren’t the best match to our current company strengths and route to market. We’re more focused now and able to devote more time to the products that we know best and can service best.

HM: Our decision to stay in front of our customers by not eliminating any of our salespeople and investing in new well-established product lines during the downturn aided us in our growth.

Q: Of the brands you carry, which do you think does the best job of building an image with the consumer? 
 Mannington does an outstanding job in building their brand. They have a management team that partners with us to build relationships with dealers and has an excellent website as a point of reference. It has also created a series of online education tools to help the flooring retailer succeed.

HM: Quickstep has branded itself well and has led the laminate category for years in sales, quality and customer satisfaction. It has embraced technology and has applied it to their displays and marketing to draw the tech savvy consumer in.

Q: How do you help your customer compete with the home centers and category killers?
 We help our customers compete by having inventory available, training their employees on product, and handling any claims. Most home centers work as a first step for the consumer. The average home center employee is not as educated on products, trends and installation. Consumers are less confident in their abilities and want to know how to do things correctly. 

TJ: We try to offer products that are superior in value and performance to what the big boxes offer. I don’t think it’s in the distributor’s or the retailer’s best interest to compete directly with the big boxes on price. We want our dealers to be offering superior value and a superior shopping experience for the consumer: a well-designed showroom, knowledgeable and helpful staff, competitive pricing and professional installation. We help our retailers provide those things through the products we offer, through education, and by being responsive to their particular needs.

GW: Our primary manufacturer partner, Mannington, does not sell its brand in the home centers. Therefore, our customers can have confidence that a consumer won’t be able to find their products anywhere but in the specialty flooring channel.

Q: Beyond the pure logistic role, what value do you bring to your customer?
 Integrity, quality, value and service.

GW: First, we serve as an advisor, helping the flooring retailer grow their business. Second, we train their retail salesforce on product knowledge and selling skills to sell better to their end consumer. A better salesperson on their floor will lead to a more educated end-consumer buying decision and, ultimately, an end consumer happy with their flooring purchase. Finally, we are a source of new product opportunities and are partnering with retailers to help them succeed. 

TJ: We are a source of knowledge and training for our customers and their on-floor salespeople, as well as offering post-sales service. Additionally, as a full-line flooring distributor, we give our customers the potential for purchasing all their needs from one source. We aim to be the easiest supplier for our customers to do business with. Taking costs and headaches out of the order process and supply chain is of great value to retailers. To that end, we have launched several initiatives over the past year including our first app—a specials and closeouts inventory app—that aims to make it easier for retailers to find great buys and make extra margin when the opportunity and/or need presents itself. We also redesigned and re-launched our fcB2B program last fall. FcB2B is a very important function for many (mostly larger) flooring retailers. This is very different than typical online ordering, which we also offer. The savviest of dealers are linked up with us via fcB2B and are ordering product electronically, as well as receiving electronic invoices and gaining significant efficiencies in managing their product catalog and costs. We are on the front end of newer fcB2B standard initiatives such as dealer stock check, which allows a dealer to poll our system’s inventory on any particular item directly within their own software system, in real time.

Q: What impact is the Internet having on your business?
 I think it has been hugely positive and beneficial. Sure, there will always be online retailers out there selling on nothing but price and creating problems here and there. Those issues will always be around but, at least for now, will be more of a nuisance and occasional headache than a widespread problem. There are ways for brick-and-mortar retailers to deal with that if they know how—without sacrificing margin. 

The positives we get from the Internet outweigh these occasional headaches. The Internet isn’t just for consumers to buy cheap product online. It’s a great medium, which allows us each to market our products and businesses, educate customers and draw traffic into stores.

No one knows what the future holds, however, so we are always watching this closely. For example, three years ago, no industrial distributor thought that they would be competing against Amazon in 2014—and now they are, with Amazon Supply. The key is to always be thinking, always be watching, and never assume that things are going to just stay the same.

GW: There is the possibility a potential retailer sale is sourced over the Internet from a location outside of our territory. However, the biggest impact is it provides for a better-informed consumer. Consumers are doing more homework on what they would like. 

Q: Retailers often complain about being showroomed by consumers that have a smartphone. What can you do as a distributor to resolve this issue?
 Smartphones are here to stay. Consumers have more information at their fingertips now. It’s important to all involved—manufacturers, distributors and retailers—to keep up with the technology and have resources available to them to accommodate the smartphone consumers.

TJ: Private label programs developed by distributors can help with this. Distributor private label programs are generally not going to be shown and available at Internet-only retailers and thus less likely to be able to be showroomed. Our company currently offers private label programs in ceramic, stone, glass and laminate.

GW: We strive to provide Siegel private label options that will not be found in other locations or on the Internet. In addition, our primary manufacturers have minimum Internet polices in place to prevent retailers from being showroomed.

Q: What is your outlook for business conditions for 2014?
 I see a better 2014, compared to 2013, with LVT continuing to experience high growth for us. In addition, we have expanded with some new supplier relationships, which should continue to be a positive from a growth perspective. Also, our states of coverage were slower to recover than other areas of the country, so that should contribute to 2014 being a positive year. 

HM: We are very optimistic about growth in 2014. Many of our manufacturers are bringing new and exciting products to market. 

TJ: We anticipate a year of solid growth, with residential being strong throughout the first half of the year and leveling off thereafter and commercial being significantly stronger than last year. Both of those factors should combine for a very strong year.

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