Distribution Evolution - March 2007

By FRANK O'NEILL

I hear more and more retailers complaining about online retailers, but online sales probably account for less than 2% of total retail floorcovering sales right now. So why feel threatened? Well, fact is, online sales are a legitimate threat to brick and mortar retailers.

Or at least they will be. Maybe not tomorrow, but certainly by the time all those young computer wizards we’re raising become consumers.

So how do you deal with the threat?

I just learned that iFloor.com, the nation’s largest online floorcovering retailer, has opened a 15,000 square foot retail store/distribution center in Minneapolis. It’s the fifth location opened by the Bellevue, Washington e-tailer. The other four are in Seattle and Tukwila, Washington; Hayward, California; and Newark, Delaware. And more are apparently planned for other parts of the country in the near future.

Take a good, hard look at iFloor.com if you feel that the Internet is going to be a threat to your business. I think it’s a great blueprint for creating a sensible marriage between brick and mortar and online business.

iFloor was started by a Seattle floorcovering retailer named Steve Simonson, so it’s hardly far-fetched for other brick and mortar retailers to think about creating a balance between retail and e-tail. If you’ve got teenagers, you can give them the job of researching the technology. You’ve not only corralled someone who probably knows more about the Internet than you do, but you’ve also solved some succession issues.

Then again, if you find the idea of starting up your own online business too daunting, you might think about using the WFCA’s new consumer website: www.wfca.org. The WFCA launched it late last year as a way to bring people who browse the Internet for floorcoverings into its members’ stores. It’s a very consumer friendly site, complete with fashion tips from designer Rebecca Cole and a virtual room design section that lets the browser pick out any room in the house and see what a particular type of floor and color would look like long before she even sets foot in a store. And when she’s ready to shop, it gives her a list of WFCA retailers close to her home.

Whether you decide to go it alone, like iFloor.com, or align yourself with the WFCA, you should be thinking about using the Internet more effectively in your business instead of worrying about the retailers who are already there.

HOME DEPOT’S CONTINUING MAKEOVER

It didn’t take Frank Blake long to show he’s no Bob Nardelli clone. Looks like he might even get rid of HD Supply, the $12 billion toy Nardelli created to beef up the Big Orange’s sales.

If you’ve been reading this column for any amount of time, you know I’ve always felt HD Supply would be a losing proposition for Home Depot, but not necessarily for the same reasons as other HD critics. I believe it will fail simply because the builder business is service oriented, and Home Depot has the worst service in the home supply trade.

If HD Supply does get sold, that should be good news for independent builder retailers, but if Frank Blake ever finds a way to solve HD’s service problems, that could be bad news for all of us.

THE VALUE OF JOINT VENTURES

Several years ago, Mannington Mills and Tarkett entered into a joint venture to share the output from Tarkett’s Houston vinyl composition tile. Then a few months ago, Tarkett partnered with the Canadian carpet manufacturer Kraus to share the Kraus distribution network in the Chicago Metro Market. Now Mannington is back with another joint venture, this time with J&J Industries. In January, the two privately owned manufacturers formed a venture called Modular Carpet Systems that will make modular carpet backings for both companies.

The Mannington/J&J venture makes sense because both companies not only get a manufacturing operation that can operate at higher production output (i.e. lower cost) right away, but also have very little overlap in the markets they target.

Is this the beginning of a new trend in the manufacturing sector? Will more and more companies be looking for ways to compete more effectively against the industry’s giants?

We’ll keep our eyes on this developing trend, which makes me wonder if independent retailers—those of you who don’t want to join buying groups—can find ways to work together. Okay, so you don’t want to work with the guy two miles down the road who’s your direct competitor. But how about a retailer in a nearby market area, one who doesn’t compete directly with you? Or how about a nearby furniture or interior furnishings retailer?

Maybe joint advertising and marketing campaigns. Don’t you think you’d pull in a lot more potential customers if your marketing campaigns were tied into a furniture or lighting retailer? I’m sure there are a lot more possibilities. I just want to get you to think out of the box. It’s important to do if you want to keep ahead of the competition.

THE ULTRA-COMPETITIVE LAMINATE MARKET

There probably hasn’t been a more competitive time for the U.S. laminate market than right now. Not only were a slew of new European players lured here in the past few years by the high value of the euro against the dollar, but the economy decided to slow down right after all this happened. That’s bad news for suppliers and good news for retailers looking for bargain prices.

It’s also a sure sign that we’re finally going to see the consolidation at the manufacturing level I’ve been talking about for the past year now. Last month, the European engineered wood producer Pfleiderer made a bid for Pergo that should greatly enhance Pergo’s dominant position in the U.S. market, as well as strengthen its position in the equally competitive European market. Pfleiderer, you may remember, bought Canada’s Uniboard last year. Uniboard is one of just two producers in North America that’s integrated back to coreboard production (Mohawk’s Quick-Step subsidiary is the other). They’ll be joined later this year by Tarkett, which is building a laminate plant in Pennsylvania, right next to its partner’s existing coreboard plant.

Today there are still more than 30 laminate producers competing for a share of the U.S. market, but it seems to me that going forward, the survivors will either have to join Pfleiderer, Quick-Step and Tarkett and integrate into coreboard production, or join players like Faus at the high end of the market.

We’ll keep our eyes on this dynamic, rapidly changing market sector.

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

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