Strategic Exchange - February 2013
By Kemp Harr
Very few people would dispute that an industry with a diverse range of suppliers is usually better served than one with just a few large suppliers.
In the last year, we’ve seen movement in both directions, but it has been heavily weighted on the consolidation side. First we saw Mannington buy Amtico. Next, in a movement in the opposite direction, Interface split from Bentley Prince Street. But from then on, it’s been all consolidation—with Tarkett buying Tandus, and Mohawk first buying Pergo and then the Marazzi Group. If you look back on the recovery years from past recessions you see the same patterns, and I’m betting there are a few more on the horizon that will reveal themselves in the next six months.
Unfortunately, at the end of last year we lost Gulistan, and in this case there’s no buyer—so in a sense it’s a form of consolidation because its business will split among the remaining suppliers. Gulistan’s history in this industry is rich with a heritage that runs back into the 1920s. As it closes its doors in Aberdeen, North Carolina, almost 400 jobs have been displaced.
Gulistan is Armenian for “garden of roses” and the brand was first used on rugs in 1924. At that time, the rugs were woven in a factory in Freehold, New Jersey. During World War II, the company switched over to making duck cloth for the war effort, and then switched back to carpet in 1946. Gulistan moved its manufacturing to North Carolina in 1957 and was purchased by J.P. Stephens in 1964.
In its early carpet years, Gulistan (which at that point was called JPS Carpet) was well known for its Trevira Fervor carpet, made with polyester from Hoechst Celanese. In those days, much of the company’s business was focused on large department stores and it didn’t have much dealer business. But with the help of Jack Riley from Evans and Black, Fritz Munzinger (recently inducted into the WFCA hall of fame), and Paul Comiskey (now president of Dixie’s residential business), the salesforce was expanded to service both national accounts and retailers. Revenue for the company peaked in the mid ’90s at about $150 million. Some say that Bob Shaw’s venture into retail gave the company a big boost in revenues. And with wind in its sails and a strong growth record behind it, the employees purchased the mill from J.P. Stephens and renamed it Gulistan. This was a classic employee buyout that saddled the company with a large amount of debt at high interest rates. Charlie Kennedy, who later ended up at Dobbs Mills, ran the mill as it struggled to cover its debt load and spent very little on new equipment.
In 2003, the Essig family, which owns Ronile, a core supplier of dyed yarns for Gulistan, and Bocova Guild, a leading supplier of rugs and bath mats, stepped in and rescued the company from its creditors. Phillip Essig became CEO and for the next three years both the economy and Gulistan’s business ran smoothly. But as the economy started to turn down in 2007, so did Gulistan’s fortunes. Finally, in December of last year, Gulistan announced to its employees it was winding down operations and shutting its doors. We estimate that Gulistan’s sales volume last year was $80 million with $55 million coming from dealers and $25 million from the home centers. Much of its dealer business came from the larger members of the National Floorcovering Alliance.
There has been much conjecture on the causes for Gulistan’s demise. Some say it was lack of investment and too much focus on solid colored textures. Others say they never recovered from the sample expenses they incurred when Invista pulled Stainmaster out of Home Depot and focused on Lowe’s. And there are others who say you can never make a profit when you focus on the home centers and large volume dealers with non-distinctive products. Regardless of the cause, the outcome is the same. So now the business will be absorbed by the remaining players and the floorcovering industry finds itself with one less supplier.
Last month, Tarkett took the first step toward integrating Tandus into its commercial flooring business by announcing that Centiva and Tandus would be aligning their marketing and sales efforts. This seems like a natural place to begin, since both brands sell direct rather than through distribution and both divisions are well known for their striking aesthetics. A sector-by-sector analysis would show that Centiva is very strong in the retail, hospitality and education segments, and Tandus is best known in the education, corporate and healthcare segments. And from a feet-on-the-street perspective, Centiva is represented with a direct salesforce of roughly two dozen and Tandus has about 140. I’ve been told that this integration does not mean that Tandus’ sales team is now selling hard surface and visa versa, but it does mean they can attempt to negate the advantage that Mannington, Shaw and Mohawk have created by bundling their hard and soft product offerings.
Another key part of this announcement is that Centiva’s founder, Thomas Trissl, will be stepping down as Centiva’s leader at the end of March, when Glen Hussmann will serve as president of both divisions. Trissl came to the U.S. from Germany and built Centiva from a bankrupt vinyl flooring factory that he acquired in Florence, Alabama. Trissl’s parents were in the flooring industry in Germany, so he grew up in the business. Part of Centiva’s success has come from Trissl’s ability to hire and motivate talented employees who adopted his entrepreneurial passion for success and customer-centric focus. As part of this announcement, Jeff Buttitta was quoted as saying that he looked forward to “working with Trissl on a variety of projects and ventures.”
A few days after this integration announcement was made, Centiva named Doug Young as vice president of sales. Prior to joining Centiva four years ago, Young spent time working with Congoleum, Milliken and Shaw.
HIGHLIGHTS FROM SHAW’S DEALER PARTY
Just before we closed on this issue, I attended the largest dealer convention in recent memory—sponsored by Shaw Industries. Shaw takes a little different approach with its aligned dealer convention from any of the other major suppliers or buying groups. In an attempt to throw the biggest, most memorable, family-oriented residential floorcovering event, Shaw chooses to hold this event every other year. And from the minute you step off the plane until the time they whisk you back to the airport, Shaw’s goal is to endear you to its brand culture.
Shaw started throwing these aligned dealer parties in 1998, and the 2013 version was the biggest yet, with 1,000 accounts bringing 3,100 family members. I’m not sure who has the best recipe for building brand preference but I can tell you that Shaw’s event takes on more of a party atmosphere than some of the others. The opening session started with the Rolling Stones playing “Start Me Up” (not live) followed by Warren Buffet and Vance Bell telling attendees where we stand from an economic standpoint.
From the stage, Bell presented some pretty convincing evidence that the residential floorcovering market is on a solid path for recovery. Bell said that it’s refreshing to stand in front of customers and be able to say with certainty for the first time in five years that things are looking up and the future looks bright. He showed several upbeat charts, but one in particular showed how closely related the retail flooring business is with net residential investment (NRI). He defined NRI as the sum of all single-family and multi-family construction expenditures and home improvement expenditures, including real estate brokerage commissions and stressed that for the last 20 years they have tracked almost lock step. His subsequent slides showed fact after fact that proves that the current housing recovery is real and sustainable. His conclusion was that NRI is up 14% to date and is predicted to climb 19% and 22% over the next two years, with floorcovering sales tracking at the same pace. His only cautious comment with all this good news was about his concern over the current politics and shenanigans in Washington.
Bell also announced from the stage that Shaw has rewritten and simplified the company’s mission statement. It now reads, “Great people. Great products. Great service. Always.”
Aside from the new product introductions, one of the most impressive programs that Shaw discussed during this two-day meeting was its Total Business Transformation program. In an attempt to measure the effectiveness of its dealer support programs, Shaw has singled out and basically moved in with eight loyal customers in an 18 month research project to determine how much better a dealer can do if it adapts and utilizes all of Shaw’s core dealer support programs. In the end, it plans to measure the success of these eight dealers compared to other Shaw retailers and the national average.
Shaw is also providing all of its aligned dealers with market demographics for the area surrounding its stores, which includes a mailing list of the top 500 prospects near the store. It is also continuing its secret shopper program, where a paid professional retail consultant shops each store and writes up a thorough report on what the store is doing well,\ plus areas where it can improve.
Shaw’s keynote speaker this year was best selling author Andy Andrews, who is best known for his book, The Noticer. Next time you see a Shaw rep, ask him or her to explain “the butterfly effect” and how it’s changed their lives.
2015 BRINGS TRADE SHOW SYNERGY TO VEGAS
By early February most of us are travel weary and trade showed out. But there’s good news on the horizon that will alleviate at least a small part of this travel for many of the floorcovering professionals in the residential sector. Starting in January 2015, the National Association of Home Builders show, the Kitchen and Bath show, the Surfaces show and the Las Vegas Market will all host their shows in Vegas the same week—and it will be called Design/Construction Week. As we talk about the new normal, post recession, many of the industry’s trade shows have struggled to attract the level of participation that they were achieving in the middle of the last decade. But starting in two years, the third week in January will be a command performance for nearly everyone in the residential interior furnishing business—whether you’re buying or selling.
Initial plans are to have one badge and one registration process for all four shows, with integrated transportation to each venue. Surfaces will remain at the Mandalay Bay, the builder and kitchen shows will be at the Las Vegas Convention Center, and the Las Vegas Market will remain at its permanent location.
CARPET ONE FOCUSES ON DIGITAL MARKETING
Carpet One hosted its annual winter market in early January and rolled out a long list of private label floorcovering products that are exclusive to its members. Just as we’re seeing at all of the other product shows we’ve attended this year, low denier soft carpet and LVT hard surface is where most of the product emphasis is being placed. The Just Shorn wool program that was introduced last summer has been delayed but should be in the stores by the time you read this.
Carpet One’s marketing focus for 2013 is centered on three simple concepts: “Find us, Consider us, and Choose us.” Its keynote speaker, Michael Tchong, gave a very interesting presentation on how the digital environment is changing the culture in America. His premise focused on mobile technology, reality versus virtuality, and time compression. His main point was that if you are a retailer today, your communications plan must embrace the world of digital technology.
In an effort to further define Carpet One’s fit versus all the retail options in floorcovering, it has a new communications tagline: “From inspiration to installation—Carpet One.”
If you have any comments about this month’s column, you can email me at firstname.lastname@example.org.
Copyright 2013 Floor Focus
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