Retailer Survey - July 2007

By Darius Helm

The builders felt it first. Then late last year, the ripple effect from the slumping housing market hit floorcovering retailers, as consumers put remodeling projects on hold. The retail floorcovering market has yet to recover, and margins grow ever tighter. Yet according to this year’s Retail Survey, there’s still plenty of business to be had in most areas. But retailers have to find better ways to remain competitive, by using online resources to increase efficiency and boost the bottom line, and by looking at new product categories and services to draw consumers into their stores.

It’s no secret that the nation’s independent retailers are frustrated with the current business climate, coming as it does on the heels of three years of price increases caused by rising oil costs. These days, they’re fighting not just the big boxes but online retailers as well, and there’s a sense among many of them that manufacturers are not doing their best to help them survive.

“It’s easy to shop online and get rock bottom, no service pricing,” an East Coast retailer wrote. “Then customers expect retailers with storefronts to meet or beat those prices. I firmly believe manufacturers need to choose how they want to sell.”

A Midwest retailer echoed those sentiments: “Both manufacturer and distributor think more is better. Instead, they should try aligning themselves with the better performing dealers and give them incentives to drive traffic, increase margins, and provide opportunities to buy out existing companies.”

Frustration with home centers is an ongoing issue. Many of the retailers we surveyed believe manufacturers are lured by short term profits and refuse to take the longer view and recognize the value of service and experience. One retailer from the Midwest noted that “home centers are killing this business, mainly because they sell many inferior products that leave a bad impression with the customer. Manufacturers need to realize that flooring dealers who know their products and their business are a much more desirable outlet for their products than an ignorant sales clerk who worked in the garden department last week.”

The cost of doing business is another major issue for retailers. An East Coast dealer offered this example: “One of our distributors just doubled its fuel surcharge to $15, and that’s on top of its $38 delivery fee. These increases have forced us to change the way we do business.”

One new and welcome trend: retailers are beginning to recognize green practices as tools to lower those overhead and transportation costs. “[Manufacturers] need to look to improve on alternative fibers for carpet, as well as alternative fuel, recycling, etc,” said a Midwest dealer. “They need to go GREEN! Save our fuel, keep costs down.”

Another Midwest retailer felt he had found a strategy that yields results: “With the independent groups we belong to, our training and bottom line are working.”

Some retailers expressed concerns not over their shrinking profits but over the philosophy of the industry in general. A retailer from the South wrote: “The floorcovering industry needs to become more of a design group and not just a flooring installation business.”

However, another Southern retailer may have said it best: “Floorcovering surveys are too concerned with things we already know are problems. Why don’t we quit trying to figure out who is best and figure out how to sell an $80 a yard carpet to a family that just bought a million dollar home and drives an $80,000 car?”

WHO THEY ARE

Retailers we surveyed were divided into the four main geographical regions: South, West, Midwest and East. As it has in the past two years, the Midwest generated the most respondents, 36%. The other three regions were closely grouped, with 25% from the South, 21% from the East, and 18% from the West.

About 37% reported revenues of $1 million or less, compared to 31% last year; 43% reported revenues from $1 million to $5 million, identical to last year’s survey; 15% had revenues ranging from $5 million to $15 million; and only 5% reported sales of over $15 million, down from 13% last year.

WHAT THEY SELL

Broadloom carpet is still king among independent retailers, but the king has struggled to hold onto his domain in recent years. This year, broadloom actually made a bit of a comeback, jumping from 46% of all sales last year to 48%. Hardwood and ceramic tile maintained their standing as the products which are second and third on the sales list of retailers nationwide. Vinyl made a bit of a comeback this year, jumping from 10% of total sales to 11% this year. Laminate, meanwhile, slipped a point to 11%.

Retailers shouldn’t be surprised that two installed products— broadloom and hardwood—are their two best selling product categories. Research from Market Insights/Torcivia shows that they’re also the two categories in which independents are most competitive with the big boxes. As a result, it was quite a surprise to see that 30% of retailers in the West don’t carry hardwood.

While the national sales stats show one picture, the regional breakdowns sometime show a completely different one. Broadloom, for example, did best in the East and Midwest, accounting for 49% of sales in both regions. Broadloom sales were softest in the South, at 45% of the total.

Hardwood sales were highest in the South at 15% and lowest in the Midwest at 11%, They accounted for 14% of the total in both the East and the West. Surprisingly, though, 30% of our respondents in the West don’t carry hardwood. A lot of people are obviously missing an opportunity to profit from a big box-proof product.

Ceramic breakdowns prove to be interesting when looked at regionally. Numbers range from a high of 13% in the South and the Midwest to just 10% in the East and West. However, many respondents don’t carry ceramic. On the East Coast, a full 23% don’t, while 22% don’t on the West Coast. Both of those areas get some serious competition from stone and ceramic showrooms, so retailers close to those showrooms tend to avoid the category. Most interesting, though, is the fact that 13% of the product mix of Midwest dealers is ceramic, which disproves the notion that you can’t sell ceramic and stone floors in cold climates.

Laminate sales showed the widest range from region to region, from 13% in the Midwest and West to 7% in the East, The South held the middle ground at 11%.

Area rugs once again prove to be the most mystifying category. Sales range from 4% in the East and South to just 2% in the West and Midwest. But 57% of all the dealers in the West, 48% in the Midwest, 38% in the South and 15% in the East don’t even carry rugs. That’s amazing to us, because rugs can be one of the best and most problem-free profit centers an independent retailer can have. Obviously, a good number of retailers have already discovered that, while a surprisingly large number haven’t. If we look at sales of those who do carry rugs, they account for 5% of the total product mix, with a high of 6% in the South.

For the complete survey results, see the July 2007 issue of Floor Focus Magazine.