Distribution Evolution - December 2007

By Frank O'Neill

As long as the Fed continues to cut interest rates, don’t expect gasoline prices to come down. And be prepared for raw material costs to soar even higher, resulting in higher product prices.

While lower interest rates may keep some homeowners from foreclosing on their highly leveraged homes, the main benefactors of Ben Bernanke’s largesse are the banks, the mortgage companies and the hedge funds that didn’t have the foresight to see the impact their reckless, greedy dealings would have on the U.S. economy and on people whose salaries don’t reach seven and eight figures.

Lower interest rates translate into a dollar that nobody wants anymore. The Chinese, who have trillions invested in U.S. bonds, have shown strong signs of moving their money into the euro, which has managed to nearly double in value since it was created nine years ago. The lower dollar means great opportunity for exporters, but the floorcovering industry has never been very good at the export game. More importantly, the lower dollar means great opportunity here for the European Community. Next year, we can expect more and more euro-based companies to be looking at possible acquisitions in the States, and if the U.S. housing market has any oomph at all in 2008, we can probably thank European investors for that. While the U.S. economy struggles, most EC economies seem to be going full bore ahead.

If all this sounds depressing, there are a few silver linings. Higher oil prices are certain to encourage innovation. I’ve already seen more media awareness of alternative energy than ever before. (Take advantage of it in your business by offering more green products.) Those high oil prices are also going to mean more people buying smaller, more efficient cars, which is going to force the Detroit auto makers to move away from the gas guzzlers they’re so fond of making and rely on new technology to create a new generation of cars. If they don’t, the Asian auto manufacturers will run them into the ground.

THE DEMISE OF HOBOKEN
Hoboken Wood Floors began this year as the nation’s largest floorcovering distributor, with sales well over $400 million. Today, the Wayne, New Jersey company is no more. After 77 years in business, Hoboken filed for Chapter 7 bankruptcy and closed its doors last month.

Craig Dean of the Chicago turnaround firm AEG Partners, who was designated chief restructuring officer, said the company would be unable to obtain the cash to fund an expensive Chapter 11 reorganization. So the company’s board chose to file Chapter 7, which forces it to sell its assets and distribute the proceeds to creditors.

However, it looks like the company’s thousands of creditors, which include Armstrong’s Bruce and Robbins brands, BR-111, Crossville, Faus, Johnsonite, Laufen, Mirage, Mullican and Somerset, are unlikely to get much back. Hoboken listed assets and debts of more than $100 million each.

For years, Hoboken was owned outright by the Lefkowitz family, but in 2005, the firm sold a majority interest in the company to the Chicago investment firm Code Hennessy and Simmons. That December, the firm merged with the Elkridge, Maryland distributor Superior Products and extended its reach all along the East Coast.

Hoboken’s troubles began shortly after that, nearly in lock-step with the start of the downturn in the housing market. In August 2006, the company laid off about 500 of its 750 East Coast employees. Around the same time, Ira Lefkowitz resigned as CEO. Mark Steele, who had been CEO of the Aurora, Missouri manufacturer Jakel Inc., took his place. Joel Lefkowitz stayed on as vice chairman until earlier this year.

The deepening downturn in the housing market proved too much for Hoboken to overcome. At the time it closed its doors, the company had 26 locations along the East Coast and as far west as Dallas, along with showrooms in New York and Boston.

What impact will Hoboken’s demise have on retailers? Probably just a short term one for Hoboken’s customers, who may experience a supply shortage on some hard surface products. The real concern will be the impact the housing slump has on everybody else in the supply chain.

Meanwhile, we have a new number one among the nation’s distributors: J.J. Haines, which recently acquired the Florida distributor Wheeler Inc.

WILL HOME DEPOT GET IT RIGHT?
Home Depot probably does more tinkering with new concepts than any other retailer. This time, the Big Orange is trying out an idea called the Home Depot Design Center in Charlotte. If it sounds familiar, it is. The new Design Center is actually an amalgam of the Expo Design Center concept and just about every other concept the big home center chain has ever tried in its efforts to get beyond the cash-and-carry workbelt crowd and appeal to some of those women customers Lowe’s has done such a good job attracting.

The new 100,000 square foot store, which opened last month, looks a lot more like a high end Expo Design Center than the cavernous warehouse stores that have been the Home Depot staple for the past three decades. Just beyond the entrance is an 11,000 square foot furniture and accessories showroom featuring products from the Home Decorators Collection, a catalog business Home Depot acquired last year. Another big change: there are no shelves higher than ten feet, and there are no forklifts for customers to dodge.

This concept is definitely a lot more female-friendly than anything that’s gone before. It might just work.

Of course, the format’s success still depends on giving clients good service, and Home Depot hasn’t been very good at that in the past.

CLICKS AND BRICKS
If you read last month’s Retail 100 report, you may have noticed a newcomer to the list way up at number 25. Yes, it’s the Internet retailer iFloor. We’ve never listed an e-tailer before among the Top 100, but the Tukwila, Washington company isn’t getting the bulk of its sales from the Internet anymore. In the past two years, the company has been adding retail stores all over the country. At last count, the firm had 36 stores around the country.

Ironically, Steve Simonson, the founder of iFloor, started adding stores because other flooring retailers were complaining to suppliers that a company with little overhead shouldn’t get the same terms as they got. Simonson, who started in the flooring business as a retailer in Washington, turned to the Internet eight years ago and quickly built iFloor into the largest Internet flooring business in the nation. But that’s been nothing compared to the business he’s generated since he started adding stores two years ago.

I know a lot of retailers complain about e-tailers and the unfair advantage they have. I think it’s time to stop complaining, though, and look very carefully at the selling format Steve Simonson has created. I think it’s the way all savvy flooring retailers are going to be doing business a decade from now.

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

Related Topics:Haines, Armstrong Flooring, Mirage Floors, Crossville

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