Strategic Exchange - July 2013

By Kemp Harr

Recent jitters in the market have been blamed on the news last month that the Federal Reserve is planning to curtail its quantitative easing sometime around the middle of next year. It has been said all along that this economic stimulus would end once the economy was clearly stabilized, and one of those economic barometers was an unemployment level somewhere in the vicinity of 7%.

The unemployment rate was 7.6% in May, up from 7.5% in April, and in a recent Bloomberg survey of 72 economists, the median prediction for the fourth quarter was 7.3%. Arguably, some of the fluctuation that we get in these employment statistics comes from college-aged students looking for summer jobs, coupled with Americans who transition in and out of the labor pool based on whether they are actively searching for a job or pursuing more training or education.

If you step back and consider that the economy is still growing despite the fact that the government has curtailed spending (federal budget sequestration) and taxes have gone up (when the payroll tax break was removed), we’re slowly but surely removing the crutches that were put into place as the economy was in its recessionary spiral. Now that housing values are going up (Case-Shiller index has risen 12% in the past year for the top 20 markets) and the existing housing supply is in closer check with household formations, the residential builder market is heating up and helping to create more jobs. And let’s not forget that car sales are also continuing to track at the highest level since December 2007.

In most other U.S. postwar recoveries, the housing market has been one of the strongest drivers of the recovery. But since this last recession was in part caused by an overabundance of housing inventory, it has taken a long time for this issue to correct itself. Residential investment is strong and some analysts feel that it represents a fourth of the growth we are seeing in the nation’s GDP. There’s a concern that rising home values will move housing out of the range of affordability but at this point mortgage rates are still near historical low levels and sales of new and existing homes continue to rise.

Those of you in the retail sector who focus primarily on the remodel/replacement side of the business may still be seeing fits and spurts of business as consumers continue to spend their disposable income on items they deem more necessary than upgrading their floors, but hopefully that business will strengthen over time, especially as home values continue to recover. Unfortunately there are still roughly 26 million mortgages that are considered upside down.

BRANDING ACTIVITY IN THE CONTRACT SECTOR
One of the key takeaways from our trip to NeoCon this year was the number of new brands within the contract sector of the floorcovering market. Bentley is probably the most prominent, but they all make a statement about positioning and investment as companies feel optimistic about prospects for future growth. Changing or launching new brands is an expensive initiative but can be well worth the investment because of the statement it makes and attention it brings to a new or altered direction for the company or product line.

With Bentley, the name change reflects the fundamental changes that the company is going through with new ownership, new leadership and a renewed focus on what made the brand so successful in the early ‘90s. In addition, it draws attention to the company’s unique West Coast heritage, which is a major part of its personality and focus on sustainability.

J&J Industries is also updating its hierarchy of brands, primarily to draw attention to its innovative, non-traditional textile composite flooring product called Kinetex. With the announced changes, the company name becomes J+J Flooring Group and the two go-to-market brands are Kinetex and Invision, with Invision representing the company’s traditional modular and broadloom carpets.

Two completely new boutique brands that made their debut in Chicago last month were Totally and Avant Contract.

Totally is the brand selected by Dr. Bob Weiner for his fourth foray into the contract carpet market. Many will recall that Bob started Harbinger and sold it to Mohawk. Next he started Prince Street, which later became part of Interface, and after that came Constantine, which he sold to Milliken. And now, at age 70, he is launching Totally Enterprises LLC and Totally Carpet. According to news releases, this brand is positioned as a textured, sophisticated performance brand with conservative costs.

The Dixie Group is also launching Avant Contract as a completely separate brand from its well-established Masland Contract brand. This bold new boutique brand will focus on the commercial office sector with modular carpet that has a fresh, young look. As products are being introduced under this brand, they will be linked to freelance artisan sculptors, photographers and painters, who will give more personality to the styling.

ACOUSTICAL ISSUES WITH HARD SURFACE PRODUCTS
It was good to catch up with David Oakey at NeoCon. Most of you know David as the chief design guru at Interface, and he does a great job of keeping his finger on the pulse of the core specifiers of commercial interiors. We’ve all made note of the shift toward hard surfaces, but David told me that the acoustical brightness of these surfaces is causing issues. Granted, David works for the world’s largest producer of modular soft-surfaces—so some might think his view is myopic—but I don’t think so.

Successful design firms provide their clients with fresh, unique, trendy interiors that, first and foremost, enhance the desired function for a particular space. However, establishing themselves as the go-to design firm for the next project is another central goal. A designer who specifies polished concrete for an open office environment, where panel-less collaboration of small work teams is the intended use, may not be in the running the next time around. An ill-conceived design impacts not only present but future business.

Like me, you’ve probably experienced this kind of poor design. Quite often, I’ll visit the latest trendy restaurant that reeks of opulence with the coolest visuals that tickle the senses, only to be disappointed because I can’t hear the conversation of the other guests at the table, which should have been a major design consideration for the dining area.

Granted, modular carpet does offer a solution to acoustical issues but so do rounded corners, textured wall surfaces, angled ceilings and even white noise generators. But none of those other remedies are flooring options.

FUSE ALLIANCE INCREASES FOCUS ON NATIONAL AND REGIONAL END-USERS
Fuse Alliance, the 75+ member commercial cooperative that does about $1.2 billion in business annually, has brought in industry veteran Geoff Gordon as senior vice president of business development. Geoff spent 17 years with Designweave, the commercial carpet division for Tuftex, before it was sold to Queen and ultimately Shaw. Then he joined SCS Flooring Systems and ultimately became president of this Orange County, California based commercial flooring contractor. Now that he has joined Fuse, Gordon is leading the group in its new growth plan, winning national accounts in the retail, corporate and senior living markets.

To complete the work on these new accounts, Fuse is looking to add members in markets where it does not have them, including Canada. In addition, the co-op will add 50 Fuse service associates (FSAs) by the end of the year. These FSAs are labor workshops that will fill the void where Fuse does not have full-fledged members. The labor workshops, which will operate under non-exclusive arrangements, will be required to meet criteria with regard to licensing, insurance and financial stability to be brought in as FSAs.

Fuse will manage its commercial work in whatever way is in the best interest of the end user. For example, for national accounts extremely concerned with consistency, Fuse can create a proposal, then divvy up work to the regionally appropriate members and advise them on how to handle the job. Any issues would be handled through Fuse, as would invoicing. In this case, Fuse would be acting as a commercial contractor and using members as subcontractors. However, if the account prefers to work directly with the local Fuse member who will be completing the work, the organization can structure the job that way.

Once it has signed a national account, Fuse is willing to handle any flooring need the customer has, large or small.

In starting this new program, Fuse is operating under the belief that many big companies in the U.S. want to have a working relationship with other companies as large as themselves. These large chains don’t want to seek out a different commercial contractor in each of their markets. Fuse is hoping to act as a one-stop shop for these organizations, using its members to create a network of knowledgeable and responsible labor shops across the nation that will complete quality, worry-free and consistent installations.

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

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