Distribution Evolution - December 2006

By FRANK O'NEILL, Publisher

I talk a lot about the threat of Home Depot and Lowe’s to floorcovering specialty retailers, but the fact is, there are a lot of other mass merchant and big box retailers that compete effectively against independents. Take a look at last month’s Top 100 Retail list. Only 11 of the top 25 are floorcovering specialists, and seven of them specialize in the builder business.

Fact is, the retail replacement specialist is the odd man out among the Top 100. As every retailer knows, it’s getting increasingly more difficult to concentrate solely on the retail replacement business, yet the majority of dealers still specialize in that business. Do you think it’s time for a change in thinking?

The two big players on this year’s list—Home Depot and Lowe’s—sell more floorcoverings than the other 98 players on the list combined. The number three player on the list, Wal-Mart, sells just one product—low cost bath, throw and area rugs—but it sells so many of them, it’s a major player in our business. The same is true of number 11 Target, number 13 Sears and number 15 Kohl’s. So what’s the big deal, you say? We don’t sell rugs. Or maybe they only account for 3% of your sales.

That’s just the point. I’ve said it over and over again: rugs are such a profitable item, and some of the big machine made rug producers make it so easy for floorcovering specialists to carry them, I can’t understand why more of you don’t. Think you can’t compete with Wal-Mart or Target? Well, fact is, you can, especially when you’ve just sold a hardwood, stone or ceramic tile floor. A good looking but inexpensive polypropylene or wool rug is the perfect add-on sale at that time.

Empire Today, the shop-at-home retailer which promises next day delivery (give me a break), has grown like wildfire since it was acquired by a New York investment firm a few years ago. It’s now number 4 among the Top 100 and still growing fast. Another fast growth company is number 6 Lumber Liquidators, which sells both online and through a series of its own retail locations. While Empire has evolved from a carpet retailer in Chicago to a nationwide marketer of most floor and wall coverings, Lumber Liquidator specializes in hardwood. Both rely heavily on advertising for their growth, the former through extensive TV coverage in its key markets, and the latter through heavy print advertising.

Now that the economy is in a dip, we can expect them to increase their marketshare because most floorcovering retailers cut back on advertising when the economy heads south. And that’s just what you shouldn’t do. Please, please, if you want to gain marketshare during this downturn, turn up the advertising. You won’t be sorry.

Federated, the nation’s largest department store chain, is ranked seventh on this year’s list. The company’s stores sell a lot of high quality area rugs and some broadloom, and they’ve managed to remain a player in the floorcovering business when most department stores have thrown in the towel.

Menards, which is number 12 on this year’s list, is the nation’s third largest home center chain. It’s a private firm, and very private about giving out information, but the firm doesn’t seem to have the same problems making money in floorcoverings that Home Depot and Lowe’s do, and that’s not great news for independents that have to compete with them in the Midwest.

ABC Carpet & Home, which is number 19 on the list, had been a carpet specialist for many decades before it added other home textiles, antiques and home decor items over a decade ago. That expansion was a real boon for this New York City landmark, which is a popular destination for Manhattanites out to decorate their apartments.

Costco, which is number 21 this year, is more like Home Depot and Lowe’s than any of the other mass merchants. In addition to area rugs, the firm also sells more than $50 million of hardwood flooring as well as stone, mats and polypropylene garage tiles.

ONE WAY TO BEAT THE BIG BOXES

In the last issue, I talked about the new big box format flooring stores introduced by CCA Global and Alliance Flooring. The Floor Trader and Color Tile Outlet are definitely the way to beat the big boxes at their own game—providing consumers with DIY flooring at discount prices. And something they won’t get in the big boxes—knowledgeable salespeople.

How can I be so sure the format will work? Because the Kennesaw, Georgia company Floor & Decor Outlets of America has been doing it successfully since Michael Froning launched the first outlet in Atlanta in 2002. Today, Floor & Decor has 16 locations selling a huge selection of hard surface floors at deep discounts. It just opened the latest two—both are in the Denver Metro Market—in October. The firm also has three stores in Atlanta, six in Texas, three in Florida and two in Arizona.

While the Floor Trader sells both hard and soft surface floors, the Color Tile Outlets and Floor & Decor concentrate on the hard surface side only. When the two Denver Floor & Decor stores opened on the heels of a surprise early snowstorm, natural stone and high end hardwood were the big sellers.

WHAT ABOUT CARPET CLEANING?

Carpet cleaning seems like the perfect complement to both retail stores and contract dealerships. After all, if you have your own maintenance service, chances are good you can lock up the customer for the life of the carpet.

Some flooring retailers and contract dealers seem to realize this and have signed up for the maintenance services provided by Mohawk Industries on the retail side and Millicare or StarNet on the commercial side. I’ve never heard a complaint from the ones that do have their own maintenance businesses, so why is this $4.8 billion industry dominated by cleaning specialists, most of whom are part of franchises like Chem-Dry, Stanley Steemer and ServiceMaster?

If you’d like to get some answers, you might want to take a good look at the newest edition of “The US Carpet Cleaning Industry,” a 128 page report published by the Tampa firm MarketData Enterprises. It costs $1,595, but the publishers said they’d give you a 30% discount if you say you’re a Floor Focus subscriber. Go to www.marketdataenterprises.com for details.

I haven’t read the full report, but I can guess why more flooring retailers don’t get into the cleaning business. It’s a lot more complicated than it initially seems, especially now that retailers are carrying all types of flooring. And most retailers are having a difficult enough time making money selling floors, without adding another complication.

Having said that, it’s still a darn good way to get customer loyalty throughout the life of the floor. Just ask people like Randy Weis, the president of the Port Chester, New York contract dealer RD Weis. He’s built a thriving business in the New York and Boston Metro Markets with the Millicare maintenance business as its cornerstone.

THE NEXT PHASE

So you think the floorcovering industry has changed a lot in the last decade? Wait until you see the changes that occur in the next decade. One change I’m certain we’re going to see is a lot more retailers, contract dealers and distributors sourcing products from overseas, and in the process, leaving U.S. manufacturers out of the equation. We’ve already seen it with Home Depot, CCA Global and a handful of big U.S. retailers and distributors. We’ve seen it with the new breed of importers, companies like Pinnacle Interior Products and LM Hardwood. And just last month, we saw it at the NAFCD annual meeting in the California desert.

Wood Flooring International made its NAFCD debut with a new president who’s a familiar name in the hardwood flooring business. John Himes, who headed Mannington’s wood business for a number of years, has stepped into interesting new territory with WFI, which not only sells the products it imports from overseas through a network of U.S. distributors, but also has an e-commerce business and a component called Wood Floor Exchange, which will buy container loads of hardwood for U.S. distributors in return for a percentage of every transaction.

WFI is just the latest in a line of companies that are changing the way we do business in the floorcovering industry. So far, these changes have had the most impact on the hard surface side of the business, but there are signs that the U.S. carpet business—particularly carpet tiles—could be in for a shake-up in the years to come.

If you have any comments about this month’s column, you can email me at foneill898@aol.com.

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