Retail Trends - January 2011

By Jessica Chevalier

The advice of Patrick Molyneaux, owner of Molyneaux Tile and Carpet, is “Diversify or die.” Recent economic and market forces have, it seems, pushed retailers into two camps: those who believe that specializing is the key to differentiation and success, and those who share Molyneaux’s conviction. In both camps, retailers agree that over the course of the recession the customer—from the bargain shopper to the luxury goods consumer—has transformed into a value seeking machine and that the products offering the greatest value are those that will sell in the current marketplace.

Molyneaux points out, “Value is not typically the lowest price. If value and low price were synonymous then everyone would drive a Kia or a Hyundai. Ninety percent of the dealers in the U.S. sell themselves short in terms of understanding their value proposition. [Molyneaux’s] is always higher priced than box stores, and we don’t apologize for it.” Several years ago, Molyneaux’s decided to target the consumer who wants a better shopping and installation experience than would typically be found in a big box. As a result of this strategy, Molyneaux’s has higher revenues today than it did before the recession. The store sells all types of flooring, including carpet, tile, wood, vinyl and laminate, and has eight locations in the Pittsburgh, Pennsylvania area.

Jon Moullet, owner of The Flooring Place, which has stores in Bozeman and Helena, Montana, agrees that diversification is the key to success in the current economy. “Customers are busy and don’t want to spend a lot of time shopping around,” he explains. Moullet has had a number of customers tell him that the reason they choose to shop in his store is because he carries a wide variety of products. Three years ago, Moullet began expanding his offering beyond flooring, adding cabinets, window treatments and sinks to The Flooring Place’s line-up. In addition, The Flooring Place now fabricates its own granite countertops. Moullet notes that the 20% growth his company experienced in 2010 was all in these accessory products. His flooring business was flat.

However, at Synergy Floor Covering, a designer showroom in Denver, Colorado that caters to residential interior designers, 95% of the store’s sales are in soft surface flooring products. Owner Steve Wilson did not expand his offerings in the recession—except for adding hardwood—and he doesn’t foresee doing so in the future. “We want to be the best at what we do, so we concentrate on carpet.” He notes that no one store can be a specialist in everything. Wilson chooses only to offer products in which he has true expertise.

Pucher’s Decorating Center also capitalizes on the value of specialization, albeit in a slightly different way. Though the store carries a variety of products, including paint, wall coverings and window treatments, it has trimmed offerings in all areas to a point that is manageable for its customers. Alisa Pucher, co-owner of Pucher’s, which has stores in Berea, North Royalton and Westlake, Ohio, explains, “We carry fewer brands but understand them more deeply. Simplicity is important for the customer.” Pucher’s is a third generation family business that started in 1928. On the flooring side, the store sells carpet, hardwood, laminate, tile, cork and bamboo. “Our customers appreciate that we’ve done the sorting of manufacturers on the back end—bringing only the best to market.”

The New Customer
Whether a retailer chooses to specialize or diversify, the key to success with either strategy is understanding the target customer and catering to that customer. And for many retailers, the target consumer may deserve a second look, as who they are, how they act and what they want has likely changed in the recession.

Two retailers noted that the average age of their buyers rose in the recession. Pucher attributes this to the fact that the working population, those between 20 and 50, was hit hardest in the downturn, while the retired consumer, with a mortgage that’s paid off and no concern about joblessness, continued with replacements and renovations. Her average customer is now between the ages of 40 and 70.

Moullet notes the same trend—his average customer age range has shifted from between 25 to 54 to between 35 to 60—and he reasons that the more affluent, and therefore older, customers are the only ones who could afford to remodel in recent years. The fact that many first-time homebuyers were stymied in purchasing homes as credit tightened likely affected the average customer age as well. After all, twenty-somethings who are bunking on their parents’ couches rather than buying their own homes are spending no money on renovations.

Kevin Tidwell, owner of Walther’s Carpet One in Los Altos, California, has noted the opposite shift in regard to the age of his consumers, from between 50 to 75 to between 35 to 65. Los Altos’ population is relatively advanced in age. However, in the last year, Tidwell remodeled his store and updated his products lines, so this may account for the fact that his store is now attracting a younger buyer. No matter which direction the consumer has shifted, it’s important for retailers to take inventory of who is buying and angle their business toward the needs of these individuals.

What all buying customers currently seem to have in common, regardless of age or income, is their desire for value. Synergy’s Wilson reports that, “The high end clients are not the same that they were two years ago. They are demanding a low price, excellent service and expertise. They are very challenging clients.”

Pucher notes that current shoppers are savvier, as a result of their ability to research online before entering a brick-and-mortar store. However, many customers still seek face-to-face interaction before committing to a purchase. Pucher says, “They come to the store for validation, to see if what they found online is true and to get help with style and color. They want to know if what they read online has been our experience in the real world.” Pucher also notes that customers are increasingly prioritizing the endorsements of friends, family and impartial parties. “In the coming years, we will use tech tools but will put more credence in what people say their experience has been with a particular product.”

Moullet of The Flooring Place believes that the consumer has changed significantly. “They are shopping harder for value,” he notes, “shopping price more than they did three years ago.” He points out that there now seem to be two segments in his market: those who want something quick and cheap, and those who want something that will last forever.

Steve Brannen of Carpet King in Minneapolis, Minnesota, which has eight stores in and around the city, believes that the customer is shopping harder and more aggressively than ever before, and shopping one retailer against another. “It’s a smarter customer walking in the front door,” he says, “and that requires you to have a top notch sales force. The sales team can’t be contradicting what the customer has read online because they haven’t done their homework.”

Brannen agrees that customers are driven by value. Through the recession, Brannen’s stores didn’t see a reduction in the number of orders that it fulfilled, but it did see a reduction in the size of those orders. There are fewer whole house projects than there were before. But Brannen believes that, “when customers feel comfortable spending again, business will be very good.”

Molyneaux is the one retailer who does not believe that consumer patterns have changed as drastically as the media portrays. He bases his belief in the fact that flooring is an emotional purchase and, as is said, the heart wants what it wants.

Today’s Market
The good news is that regardless of how the consumer has changed, some retailers report that many are starting to spend again. Both Moullet and Pucher are feeling the pent-up demand of the recession loosening. Moullet says, “The buying cycle has sped up. Two years ago, customers kept delaying their purchases. Today, they get it done.” He adds, “When the mid-term election was over, it was like someone unlocked the doors. People realized that the sun was coming up again tomorrow.” Moullet predicts that this trend will continue through 2012. Pucher’s stores experienced 24% growth in 2010, which she attributes to the pent-up demand that accumulated in 2008 and 2009. Though not all retailers report this good news, it’s a very positive sign that some are experiencing growth, and it’s reasonable to believe that other communities will follow suit as the confidence of consumers grows.

To complement that good news, Wilson of Synergy Floors reports that price points are edging upward in his market. Up until five months ago, Wilson notes, customers were only interested in purchasing a product at a low price, but now the customers have started looking for products with long term worth.

When customers do buy, it seems that they choose carpet and hardwood primarily. All but one of the retailers that we consulted reported that carpet accounted for over 50% of sales; some report that carpet accounts for as much as 95% of business. At Walther’s Carpet One, which has 60% of its sales in soft surface products, Shaw’s Tigressa SoftStyle is the top seller, which is not that surprising, since Tigressa was rolled out in cooperation with Carpet One. Relax It’s Lees and Bigelow are solid sellers as well.

Carpet is also the biggest seller at Molyneaux’s, which makes 65% of its sales in soft surface products. In particular, higher-end soft carpet is performing well in sales. Molyneaux believes that filament polyesters are improving the value proposition of carpet. The company’s best selling brand is Shaw.

Pucher’s has a similar story. Soft surfaces account for 60% of the company’s sales, and Shaw products lead all other manufacturers’ products. Regarding style, Pucher’s customers like the new soft fibers as well as textures and patterns. The company also sells a good amount of friezes, though not edgy styles. Additionally, the new Tuftex Pattern Destinations display has produced good results in Pucher’s conservative market.

Though soft surface sales account for 95% of Synergy’s business, the company’s best sellers vary from what other retailers reported. The Dixie Group’s Masland and Fabrica are strong sales-wise, as are Shaw’s Tuftex and Royalty’s Camelot. On the wool side, Masland, Fabrica, Hibernia, JMish and Unique Carpets take top billing. Synergy sells very little polyester carpet, reporting that few of its interior designer clients have trust in the fiber.

With regard to styling, Synergy is selling a good amount of solid colored, patterned carpet. It also notes strong movement in multi-colored wool or wool with subtle patterns. Wiltons with an aggressive pattern are also doing well. Prior to the downturn, wool accounted for 70% of Synergy’s sales. Today, business is split 50/50 between wool and nylon.

At Carpet King stores, polyester fiber accounted for 80% to 90% of carpet sales before the recession, but nylon made headway during the downturn and now accounts for 50% of carpet sales, reports Steve Brannen. Shaw, Beaulieu and Mohawk take the lion’s share of business, but Brannen reports nice sales growth among some of the smaller mills like Dixie and Phoenix.

Overall, soft surfaces account for 85% of the store’s sales, not surprising, perhaps, for a company in a cold, northern climate. Within the soft surface category, level cut loop patterns continue to be popular for Carpet King. Soft nylons and polyesters are selling well. And there is a trend away from frieze types towards shorter, more tailored textures among Carpet King buyers. The company saw hard surface sales growing prior to the recession; however, the category has been stagnant since the downturn.

The Flooring Place is the only store that reported that hard surface sales exceed soft surface sales, accounting for approximately 60% of business. Ten years ago, this was not the case; in fact, at the time, soft surface sales were around 70%. Moullet explains, “Hardwood is doing well because customers are looking for a product that will last a lifetime, and the price of hardwood has come down so much that it offers consumers a good value.” For Moullet, Mohawk products are the best selling in every flooring category. In fact, in 2003, The Flooring Place was named Mohawk’s Dealer of the Year. Besides Mohawk, Dansk and Ark are the best selling hardwoods.

Regarding pressure from big box stores and online retailers like Lumber Liquidators, our retailers were divided regarding how directly they feel that these mega-retailers threaten their livelihood. In her region, Pucher sees a growing trend toward customers seeking out and supporting local businesses, but online retailers of flooring still concern her. She notes more chatter, for instance, about Lumber Liquidators among customers. “If I lose a sale to another family owned or local retailer, I am okay. I feel glad that the sale went to a small business.”

Moullet believes that many customers in rural America prefer to support small business. In his Montana markets, he does not feel a great deal of pressure from online or big box retailers, and he hopes that the flooring category, as a whole, will hold online sellers at bay, since customers really need to experience flooring in person—through sight and touch—to get a good understanding of what they are purchasing.

Molyneaux points out that, “The box stores and Lumber Liquidators have overheads of approximately 25% to 30% of sales. They have blended gross margins of approximately 35%. Most independents can’t survive on those margins. Independents need to differentiate by offering better service and quality.” Though all retailers don’t look to product differentiation as their key to survival, all have developed tactics for battling the big dogs, be it through consumer or sales staff education, top notch customer service or simply by offering products with true worth.

Sustainability
As of yet, none of the retailers in our survey reports that sustainability is a driving factor for the majority of their residential customers. Pucher estimates that 5% to 7% of her customers choose products based, first and foremost, on their green attributes. Another 20% are interested in buying green and factor it into their decisions. The remaining customers have a passing interest in sustainability but are not willing to make any kind of financial investment in it. Even though green is not in high demand by the bulk of her customer base, Pucher is investing in sustainable flooring products for her showroom. In August, she brought in USFloors’ cork and bamboo flooring. Shortly thereafter, a customer entered Pucher’s to buy a can of paint and left with a cork floor for her kitchen. On the basis of sales so far, Pucher believes that her decision was a success.

For Synergy Floors, which caters to designers, sustainability is a much more relevant concern. The company has made significant efforts to bring green products into its showroom and to be the area leader in sustainable offerings. Synergy sells a lot of wool, cork and bamboo, as well as a good amount of sisal and sisal-wool blends. Wilson believes that in the past 18 months, sustainable products have become much more visually appealing. The company has also noticed more green products available at a variety of price points.

Carpet King is using sustainability as a means of differentiating itself from competition. The company started a carpet and carpet pad recycling program that is offered free of charge to customers purchasing new flooring. The program has been very popular among consumers, and Brannen believes that it is pulling customers into his stores. As a 64 year old company, Carpet King is also seeks to capitalize on its expansive customer base to generate repeat business, hoping that these long-term satisfied customers pass along good reviews to their family and friends. Retailers are implementing other changes to pull in customers as well.

Market Differentiation
Several retailers believe that a quality sales force is more important to success than ever before. Molyneaux notes, “From a social standpoint, the high unemployment rate is very sad. However, from a business standpoint it is a glass half full. We are now able to recruit, train and retain the best salespeople and the best installers in our industry.” He notes that “better execution of sales management and sales training” are his answers for increasing sales at present.

Pucher is using the Internet to promote her store. She launched a new website in December and intends to incorporate Facebook and e-blasts into her marketing portfolio. In addition, she is advertising in local publications, using editorial style advertisements to tell a story about her business.

Wilson at Synergy Floors is using Internet marketing as well. He is also offering educational seminars for designers and college students to pull potential buyers into his showroom. He offers between four and eight seminars annually.

Walther’s has focused on appealing to one of the customer’s most practical concerns: money. He offers good financing options and a whole house installation special.

What does all of this add up to for today’s retailer?

Pucher tells the story of a customer who came to her store after having researched laminate flooring online. The customer intended to use the flooring throughout her entire condo and had narrowed her choices to two products: an espresso-toned laminate with handscraped texturing and a more traditional hardwood look. The customer, Pucher reported, wasn’t interested in what was stylish for the sake of style itself, but what she was interested in—what made her decision simple—was Pucher’s belief that the espresso-toned design would date quickly, like an avocado colored refrigerator. A product that will soon look dated has a limited worth. However, a more neutral, traditional look offers the long-term value that the current customer is seeking.

When a retailer has a good understanding of who their customer is, there are numerous ways that they can increase the worth of their products and services for that consumer. But offering value isn’t enough. A retailer must have effective means of communicating that worth—a quality sales staff as well as solid print and online marketing campaigns—to capture the attention and dollar of today’s consumer.

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