Strategic Exchange: Consumer Sentiment rose 11.2% in July despite lingering economic headwinds – Aug/Sept 2023

By Kemp Harr

It was encouraging to see the July consumer sentiment numbers up 11.2%, to the highest reading since October 2021. Lower-income consumers aren’t as optimistic, and this is also reflected in the flooring market, as higher priced products are outselling commodity goods. Inflation at 3.4% is still above the 2% Federal Reserve target but, unfortunately, oil and gasoline prices are on the rise.

Shifts in flooring demand varies by segment. Retail remodel is holding steady at roughly 2019 sales levels. Existing-home sales remain soft as higher interest rates motivate owners to sit tight. The single-family builder market is starting to pick up as multifamily demand is beginning to taper off. Commercial continues to be the strongest sector, with healthcare, education and hospitality performing best. According to Keith Hughes, a securities analyst with Truist, the residential remodel business should follow the homebuilder uptick later this year and gather steam in 2024.

ONGOING DEALER CONSOLIDATION
Consolidation within the channel continues with the two biggest recent news items being HD Supply’s acquisition of Redi Carpet (multifamily) and Diverzify’s acquisition of Dallas based Apex Group/Corporate Floors (commercial contractor).

Redi Carpet is the largest U.S. dealer in the apartment/multifamily replacement business and was listed at number 11 on our Top 100 Retail list last November, with estimated annual sales of $454 million. Headquartered in Stafford, Texas, Redi got started in 1981 and grew both organically and through acquisitions to 500 employees in 31 cities and 24 states. The firm’s service promise is next-day installation coast to coast, so when a tenant’s lease is up on an apartment, Redi has the unit ready to lease to a new tenant within two days. The firm uses independent installers, so you can imagine the network of installation crews it has built relationships with.

HD Supply is a wholly owned subsidiary of Home Depot. Home Depot sold HD Supply to private equity firms Bain Capital, The Carlyle Group and Clayton, Dubilier & Rice for $8 billion in 2007, and in 2013, the company went public. After several restructuring changes, Home Depot reacquired HD Supply in November 2020 for about $8 billion.

As part of this transaction, Brian Caress, the son of Redi Carpet founder Bruce Caress, is stepping down as CEO and retiring, and David Rasenwasser will remain president. For years, Redi has been a vocal contributor as one of the largest members of the FEI Group. I did several interviews with Brian over the years, and we will all miss his contribution to the flooring industry.

The second recent shift in ownership came with Thomas Holland’s decision to sell the Apex Group/Corporate Floors to Diverzify. This business started as a Millicare floor maintenance franchise in Dallas, Texas in 1997 and expanded into the product and installation business (P&I) with the acquisition of ReSource Dallas and Wilson Flooring. The firm became a member of Starnet in 2012. Six years later, it expanded its floorcare business into Arizona, Washington, Colorado and California-ending up with nine locations and year-over-year revenue growth even through the Covid downturn.

Part of Diverzify’s attraction to this business was its national surface care model and its P&I presence in the Austin, Texas market. Diverzify plans to expand the Apex surface care brand into many of its other locations for a stronger national footprint. This acquisition was funded by Acon Investments, the PE firm that owns Diverzify. Holland, who is 53 years old, plans to stay with Diverzify and help them integrate that business.

DISCOUNT TERMS FOR CARPET
Back in the early days of the carpet business over 50 years ago, mills started offering discount terms to mom-and-pop dealers as an incentive to both carry their products and pay on a timely basis. Over time, this practice has remained even as the hard surface business, sold on a net-30 basis, has eroded carpet’s marketshare and the dealer base’s balance sheet has gotten healthier. There have been several attempts in the last decade to eliminate this antiquated practice, including by Mohawk in 2017.

On August 4, Shaw notified customers that all carpet orders starting September 5 would be net 30. On August 15, Mohawk announced that it, too, was moving to net 30 terms on all carpet shipments starting, October 2.

Naturally, the dealer base, which is used to paying early for the additional discount, sees this as a price increase of sorts. In the end, if this shift in terms holds, it will simplify the invoicing process for orders that include both carpet and hard surface products.

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

Copyright 2023 Floor Focus

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