Survey 2023: What the Retailers Think: Although some conditions have improved, retailers report falling revenues and earnings – July 2023

By Darius Helm

It’s been a wild ride for residential flooring dealers over the last three years, which started off early on in the pandemic with rocketing demand alongside massive supply constraints related to raw material supply, pricing, labor and transportation; despite these supply-side issues, from mid 2020 through the start of 2022, most retailers saw their revenues soar. Last year finally brought resolution to many of these challenges, but inflation was already impacting the market, upending residential flooring as supply went up and demand fell.

Residential flooring is already challenging enough. Independent retailers have been facing robust threats for years from home improvement centers and national chains-and increasingly from the Internet-and many retailers report that the deck is so stacked against them that they’re unsure what the future holds. “It’s not as much fun as it used to be,” said one respondent from this year’s survey. Another said, “I’ve been doing this for 35 years now. I’ll be lucky to last another ten.”

The residential market turned about a year ago, largely driven by, as another retailer put it, “growing inflation and interest rates affecting the housing market.” And yet another noted that “the market is very soft for retail, affected by uncertainty from interest rates.” While supply chain issues have improved a lot-even though flooring prices haven’t come down significantly and many dealers are still trying to figure out who to align with for reliable long-term supply-retailers still face a slew of challenges, both long term and transitory. One retailer listed some fundamental issues: “Product availability, labor cost, age of installers, lack of installation training, housing bubbles and economic fragility.”

Last year, monthly sales of new and existing homes steadily deteriorated, falling by double digits over the previous year’s results, and the trend continued into the first half of 2023. However, there are signs of improvement. Existing-home sales are starting to inch up month by month, though they’re still down by double digits year over year. New-home sales have started to turn the corner, and, critically, housing starts in May were up by double digits from the previous month and up 5.7% year over year. So it’s likely that the worst of the contraction in residential flooring sales are in the rearview mirror, but there are still plenty of issues to contend with.

WHO THEY ARE
In this year’s Floor Focus survey, the 27th annual national flooring retailer survey, the Midwest accounted for over 29% of responses. Another 24% came from the South, with just over 23% from both the East and the West.

In terms of annual revenues, surveyed retailers run the gamut, from less than $600,000 to over $15 million. This year, the biggest concentration of revenues were in the $600,000 to $2 million range, accounting for over a third of retailers. And the bulk of responses, 46%, came in the range from $2 million all the way to $10 million. While only 7% had sales of less than $600,000, 13% reported sales of over $10 million.

However, it was the revenue and earnings results that were really eye opening. Whereas, in 2021, when retailer gains were peaking, average revenues were up 15.8% and earnings were up 14.8%-they dropped to 9.2% and 8.3%, respectively, in 2022-this year, average revenues are only up a paltry 1.6%, and earnings are up even less, at 0.9%. Unless the market rebounds strongly later this year, it’s possible that both will be down next year.

Retail group participation remains similar to recent years, with just under half of surveyed retailers reportedly belonging to a group. Generally, those that aren’t already in groups have made up their minds that it’s an arrangement that doesn’t work for them. This year, only 3% of those not in groups expressed any interest in joining one.

Among this year’s respondents, membership in groups was highest in the South at 65%, then the Midwest at 52%, the East at 41% and the West at 40%. In recent years, the Midwest has reported the highest membership rate, while it has been lowest in the West.

When it comes to installers, most retailers tend to pay them as independent contractors, rather than as company employees. This year, 75% of respondents said their installers are independent contractors, and only 25% have installers on their payroll.

There are some key regional differences when it comes to how installers are compensated. Historically, retailers from the East and West lean most toward treating installers as company employees, and the big outlier is always the South. For instance, this year 47% of retailers from the West and 36% of those from the East have their installers on staff. But in the South, only 6% of retailers keep their installers on staff, and that’s about the same as the last few years. And in the Midwest, 14% reported that their installers are on staff, also very similar to recent years.

In terms of RSAs, aka retail sales associates or salespeople, 26% of retailers nationally reported paying their RSAs straight salaries, 19% said they pay straight commission and 55% do salary plus commission. The general trend in recent years is away from straight salaries, which have fallen from an average of around 35% over the last several years.

Retailers in the East tend to lean away from paying straight commissions. This year, while 26% of retailers in the East reported paying straight salaries, only 11% did straight commissions, about the same as last year. And in the Midwest it was similar, with 26% straight salaries and 16% straight commissions. In the West, it was more balanced, 20% straight salaries and 23% straight commissions. In the South, where straight commissions tend to be most common, straight salaries also led the other regions this year-31% reported paying straight salaries while 27% said they pay straight commissions.

For the complete Retailer Survey Results, see the July 2023 issue of Floor Focus Magazine.

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