Best Practices: American Floor & Home, Bougainville Flooring Superstore, Hawaii Flooring Solutions - January 2023

By Jessica Chevalier

American Floor & Home, Bougainville Flooring Superstore and Hawaii Flooring Solutions are a trio of businesses, based in Honolulu, Hawaii, founded by David Arita and now headed by his son, Daniel Arita. David sold the business to his employees through an employee stock ownership plan (ESOP) in 2013, and both he and Daniel have been pleased by the advantages the ownership change has wrought. Employees with the business for one year qualify for the ownership program, earning more shares throughout their tenure, and Daniel coaches his team that they “own” their role in the business. If customer reviews are any reflection, the approach seems to be a success; the company has 829 reviews on Google with an average score of 4.9.

GOING & GROWING
David trained as an engineer in college but, not long into his engineering career, realized he’d prefer a job in sales. With partner Stan Koki, David started a shop-at-home retail flooring business in 1974, selling carpet, then moving into brick-and-mortar. Soon after, he bought Stan’s shares. At the time, the business was named The Carpet Shop, which David soon realized was problematic because when he’d say, “I’m with The Carpet Shop,” customers would say, “What carpet shop?”

David changed the name to American Carpet, then American Carpet & Drapery, then American Carpet One, then, in 2021, American Floor & Home. Through the years, the company added more flooring offerings, as well: sheet vinyl, ceramic, hardwood and then laminate, which was huge in Hawaii, says Daniel, because of its affordable price tag and durability in relation to other products on the market at the time. As is the story across the U.S. market, when LVT hit Hawaii, it took the market by storm, says Daniel, and today accounts for 60% of the company’s flooring sales. In addition, the company binds rugs in house.

While adding products, David added businesses: Bougainville Flooring Superstore, a cash-and-carry operation about five miles from the American Floor & Home location, in 1990; a ProSource to the Bougainville location in 2001; and, finally, a distribution and specification business called Hawaii Flooring Solutions, housed with the American location, in 2011. And in 2019, American returned to its roots, offering a shop-from-home service, driven by the fact that traffic on the island is hectic and can deter shoppers from making it into the store. The company currently has three vans and is hoping to increase that to five.

Daniel started working in his dad’s business as a teen. His father took him along to all the fun events put on by vendors and “showed me the perks,” as Daniel puts it. In his third year of college in San Diego, studying business, Daniel decided he would join his father in flooring. After he’d committed, “Dad stopped taking me on all those perk trips,” laughs Daniel.

Daniel worked throughout the various departments of the business, and, about eight years in, his father named him vice president. In 2021, Daniel transitioned to president and David to founder.

CERAMIC
While it would seem that ceramic tile would be a fan favorite in Hawaii due to its cool temperature underfoot and durable nature, it is generally relegated to commercial applications, bathrooms and kitchens, says Daniel. This isn’t due to a lack of appreciation for the product but rather to labor costs for installation, which start at around $20/square foot on the island.

OWNERSHIP TO ESOP
Daniel explains why his dad opted for an ESOP rather than selling the business to a buyer. “Dad saw the benefits of being an ESOP,” says Daniel. “We don’t get taxed on net income, so we can use that to reinvest in the business. In addition, he could take his equity from the company and use it for whatever he wanted. Lastly, he knew I couldn’t afford to buy the business from him myself.”

Daniel considers employee ownership a significant competitive advantage. “We share financials with the team. They know the cash flow, the profit and loss. We have a weekly huddle on where we are at. We want employees to know this information so they can make a difference in their role. Having them educated on costs changes how they operate,” Daniel explains.

In fact, in addition to the standard training for new employees, the team hosts seminars educating them on understanding the financial ins-and-outs of a business, as an owner must.

The business is working toward making its status as an ESOP company more public, incorporating it into advertising and getting the word out so that customers understand that when they are working with a team member, they are working with a co-owner.

TEAM INCENTIVIZATION
The company also believes in rewarding team members who do well. Gift cards are awarded to installers and warehouse staff based on positive posted customer reviews. And team members are also rewarded with three- and four-figure bonuses for referrals that lead to successful hires. “We’ve found that it’s cheaper to pay our team members for a really good referral than to do random interviews with Indeed applications,” says Daniel.

On the installation side, the company incentivizes journeymen to take on new hires and trains them by paying them a percentage of the jobs they complete.

BRANCHING OUT
Around 30% of business is in the commercial market. Through American Floor & Home, the company serves mainstreet commercial and through Hawaii Flooring Solutions it manages specified business. Hawaii Flooring Solutions also oversees homebuilder work.

The company has had a window covering business for many years, but around five years ago, it entered the kitchen and bath business through its ProSource arm and brought that business to American Floor & Home. It has now added a Kiba Studios franchise through CCA Global. The company has a general contractor on staff and manages kitchen and bath remodel work from the ground up. “The remodel business complements our flooring business,” says Daniel. “Flooring is the last finish to go in, but if we get involved in a project closer to the beginning, we can capture more of the home: the cabinets, paint, etc. The whole project is a much bigger budget than just the flooring, and that’s where a lot of our growth will be.”

The operation has 35 installers and ten carpenters on staff, and supplements with subs as well as specialists from complementary industries, such as electricians and plumbers. The kitchen and bath operation has several professional designers in its ranks-two at ProSource and three at American Flooring & Home.

The operation also inventories a lot of material. Daniel says, “We partner with manufacturers, such as Cali, to distribute products and have over 50,000 square feet of warehouse space. I don’t think anyone has more flooring inventory in Hawaii.” Interestingly, some of the business’s distribution customers are the local big boxes.

In addition, the company has built its own proprietary product lines, one of its most successful an LVT collection named Pacifica. “We worked with Coretec to create specific colors just for Hawaii,” notes Daniel. “We have had it for seven years. It’s our number-one seller, and we haven’t changed the colors at all. It’s timeless, and customers like it.”

ON AN ISLAND
While many people believe that Hawaiian life is all beach esand cocktails, Daniel points out that running a business on the world’s most isolated land mass can present some challenges. “Freight from Dalton to Hawaii takes three to five weeks,” says Daniel. “From the West Coast, it’s two to four weeks.”

Lastly, it’s easy to associate Hawaii with luxury living, but the residents are largely middle class, says Daniel. “It’s so expensive to live here because everything has to be shipped or flown. Due to the cost of property, a lot of people in Hawaii are opting to remodel and add extensions to their homes instead, moving their parents or kids in with them, so there are more people in single residence.”