No substitute for preparation and challenging the status quo: Strategic Exchange - Jan 2017

By Kemp Harr

It’s January once again, and if you make your living in the residential sector, you may be reading this on an airplane, headed to one of the many industry winter markets to learn about new products, consumer trends or the prevailing thinking about how to use digital marketing to increase retail sales. The good news is that every economist I’ve talked to is forecasting a strong year for floorcovering sales.

We all know the unemployment numbers, the unfulfilled gap between household formations and new home construction, and where interest rates are today relative to where they are headed, but the most important statistic of all, especially if you trust the more seasoned prognosticators in the industry, is consumer confidence. This flooring product that we all sustain ourselves selling is clearly a deferrable purchase, and, as the economy runs its cycles, consumers must take care of the have-to-haves before they can buy the like-to-haves. And for the past several years, as we’ve pulled out of the severe dip of the last recession, consumers have focused on the essentials first-buying cars and clothes, updating electronics and replacing broken appliances. 

Consumer confidence in early December rose to 98, which is just one tenth of an index point below January 2015, the highest level since the start of 2004. And back when it peaked in 2015, I believe the consumer was still focused on the essentials. 

It may well be that 2017 turns out to be one of the strongest years we’ve seen in a decade. We’ve all heard that a rising tide lifts all boats, but those of us with a competitive streak should also remember Thomas Edison’s belief that good fortune often happens when opportunity meets with preparation. Hopefully, everyone got a chance to recharge over the Christmas break, spend quality time with family, reflect on past accomplishments and set goals for the coming year. The great thing about passing into a new year is the ability to hit the reset button and charge ahead with a new plan. 

So you’re sitting on the plane in January, most likely headed off in a similar routine to what you did last year. Now is a good time to remember Einstein’s definition of insanity-you know, the one about doing the same thing you’ve always done and expecting different results. But wait, you might ask, if the economy is going to bring more demand this year, won’t I get my share of it? Let’s just say it never hurts to challenge the status quo. 

Sometimes it’s good to get out of your comfort zone, ask yourself a few questions, and expose yourself to some new ideas. Here are a few things to think about: Are you working with the right suppliers, and do they have your interests at heart? Are you selling the right products that enable you to differentiate yourself and satisfy the needs of your consumer? Is your store set up properly? Is your store a fashion destination or just a cluster of product racks? Do your employees understand their role, or, even more fundamental, have you hired the right people? If you’re focused in the remodel sector, are you doing what it takes to be visible to the consumer? Or if you’re focused in the builder, multi-family or commercial sector, are you networking with the right people? Lots to think about, eh?

The good news is that, if you’re reading these words in this magazine, you’ve already started down the right path. You could have just boarded the plane, ordered a Bloody and taken a nap. But you’ve got to be on a quest and thirsty for new ideas to be successful in business today. Otherwise, you are just relying on lady luck. And if that’s the case, I’d never leave the casino. 

So, other than this magazine, what are the best resources for finding the right path for growth? Many of the winter markets-like Surfaces, CCA Global and Abbey-offer education tracks that could provide some nuggets of wisdom, and there is no substitute for trading information with your peers during the networking sessions at these markets. Also, when you’re working the expo floor, ask some challenging questions. Challenge the salesperson to prove it. For example, you could say, “So, if you’re the best website development company, give me a list of five clients I can talk to about your engagement with them.” Or in the case of buying product, “Provide a list of your top five SKUs in my market and put me in touch with another dealer that can substantiate that data.” Don’t just stand around rubbing on the face of the product. Ask them to prove it with third-party data. You might also say, “So if I bring this product in, which of your products should I drop?” There is nothing wrong with being a discerning buyer.

ARE MILLENNIALS REALLY MAKING LESS MONEY? 
The Millennial topic is not going away anytime soon, and in this issue, we’re running a column on page 77 that explains the younger generation’s perspective on why we should reconsider their non-conformance to traditional workplace practices. I’ve got to admit, it won’t be too long before they are a key part of our audience, so we’d better start giving them some content they can identify with. In a December 8 Wall Street Journal article, Bob Davis summarized research by economists and sociologists from Stanford, Harvard and the University of California, concluding that only 51% of 30-year-olds earn more than their parents did at a similar age. In comparison, in 1970, the number was 92%. 

This could be one of the reasons that this generation, born between 1980 and 2000, is looking for shortcuts. If today’s compensation isn’t on par with previous generations, then it’s easy to see why someone might cop an attitude or take the easier path. 

After reading this article, I went back and did some research on my own and discovered that the average hourly wage in September 2016 (per the U.S. Department of Labor Bureau of Labor Statistics) was $25.81. That’s the same buying power as $4.15 in 1970, and that same year, the average hourly wage was $3.40. Granted, tax rates are higher today, so it would be difficult to compare take-home pay, but, at first glance, it looks like today’s average pay is better than it was in 1970. Unfortunately, I couldn’t find wage-by-age data to reinforce the Wall Street Journal article. If there is some disparity by age group, one would think that it might correct itself over time. After all, we are in a free market economy, and there is a limited supply of labor.

Another issue that is creating more consternation among this age group is compensation for education level. When jobs were scarce in 2009, a lot of undergrads decided to stay in school and earn a graduate degree. But lots of employers aren’t willing to pay more for that higher level of education, especially when many of them feel that having several years of post-education work experience is also of value. 

Before I leave this topic, I must admit that it is amazing how much our lives have changed due to the Internet, the smart phone and now the IoT. And yes, I get it that work can be done from virtually anywhere. But at the same time, there is no substitute for working as a team, and it’s easier to build a team when everybody sees each other on a frequent basis and sees more than just the work that is turned in. Plus, if you think you can change jobs every year and still climb the ladder, I’ve got news for you-it ain’t gonna happen. You are not in the NFL!

SHAW INDUSTRIES’ NEW MODULAR CARPET TILE PLANT
In case you missed the news early last month about Shaw’s unveiling of its $85 million carpet tile plant, this facility is massive in scale with room for future expansion. Today, the building is 600,000 square feet under one roof on a 115-acre industrial site right out of Adairsville, Georgia-on the road toward Barnsley Gardens. 

At this point, the production equipment inside only takes up about a third of the building, but when the space is fully utilized, the plant will employ 500 people and increase Shaw’s modular capacity by 25%. The beauty of building a modern plant for a specific purpose is that all the infrastructure and product flow can be maximized for efficiency. It’s no secret that, as the largest modular carpet producer in North America, Shaw has been instrumental in taking cost out of the modular tile manufacturing process-which has forced all the suppliers to sharpen their pencil on pricing. Ten years ago, the average wholesale price for modular tile was around $20 a yard, and now it’s a little below $18. 

I wasn’t surprised to see that Shaw was installing the new equipment in phases, as it doesn’t make sense to ramp up too fast and destabilize the market with more supply than can be absorbed by demand. While we are all aware that the soft surface market is losing share to hard surface, this shift is predominantly in the residential market, and the dip is heavily weighted toward the broadloom sector of the carpet market. The modular sector of the business is still growing at roughly 5% a year here in the U.S. 

I interviewed Brenda Knowles, Shaw’s vice president of commercial marketing, at the ribbon-cutting event for this facility, and she confirmed that carpet tile is a key part of Shaw’s growth strategy. According to Brenda, Shaw continues to see expanded growth opportunities for carpet tile in the commercial sector, as it continues to take share from broadloom and as Shaw expands its global footprint. She also hinted that Shaw sees long-range opportunities for tile penetration in the residential market. 

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

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