Distribution Panel - February 2013

s we emerge from the recession and look at rebuilding business, it is important to consider the role of every member of the supply chain. The distribution network is important to the flooring industry, yet it receives little attention because it is, virtually unseen. It doesn’t create the products or sell them to the end-user, yet its successful operation is critical to both the supplier and retailer’s success. For this year’s Distribution Panel, Bruce Zwicker, president and CEO at Haines—the largest floorcovering distributor in the U.S.—and Scott V. Rozmus, president of FlorStar Sales, share their insight on the state of flooring distribution.

Q: What are the core brands that you represent?
Zwicker: Haines sells all flooring product categories, so we represent many well-known brand names. The sales of Armstrong are the largest. We also sell Shaw branded products, such as Anything Goes and Anderson, and Mohawk branded products, such as American Olean and Columbia. In addition, we sell Mirage, Mapei, Tarkett, Indusparquet and Metroflor, to name a few.
Rozmus: FlorStar sells Armstrong, Armstrong Hardwood, BASF, Bella Cera, Bruce, Healthier Choice, Homerwood, Interceramic, Interface, Lauzon, Lyptus, Milliken, Mullican, Q-Cork, VPI and Weyerhaeuser.

Q: What is driving the continued consolidation in the distribution sector of the floorcovering market?
Rozmus: A combination of poor growth in the overall economy, strains on working capital among some historic players, lack of succession plans, and a need for increased scale to drive overall profitability.
Zwicker: Some distributors continue to struggle after the beginning of the recovery and choose to close down or sell.

There are a number of reasons for this. Their balance sheet and profitability haven’t recovered from the recession, so they can’t invest in growth. Margins are lower now and not recovering any time soon. Expenses are rising, especially personnel-related costs, and medical in particular. In order to increase sales, a company must invest more cash to fund inventory increases, displays and credit for customers; however, for some, cash is tight, and banks are tight with credit, meaning that the distributors have to invest more of their own money. They are tired of the hard work and know that the “good old days” are not coming back. Some have no succession plan, and sometimes they are worried that they will not be able to compete in a tougher world against larger distributors. Some can’t get good brands. There are many reasons, but the need to invest and compete are strong drivers in the decision to sell.

Q: How many product lines/brands can a distributor effectively represent?
Zwicker: A distributor can represent as many brands and lines as it has sales reps to effectively carry them. That means that a distributor can have multiple sales teams, each assigned to a set of lines. The key is reliably achieving the supplier partner’s goals. A large diversified sales team and great planning, training and coordination are all needed to effectively carry multiple lines. For the supplier, there is an advantage to working with a strong, well-financed distributor carrying multiple brands. Because a large distributor can leverage or bundle products and reduce customers’ delivery fees by shipping many products on the same truck, a supplier is at an advantage when represented by one of these firms.

Q: What is the best way for a supplier/manufacturer to motivate you to make their products more of a priority than other lines that you carry?
Zwicker: In the end, it is primarily gross margin. Distributors operate on skinny profit margins, so the gross margin is critically important. Also, a reliable supply chain is important. A supplier that can ship orders quickly and not have many backorders is a supplier that is favored, because the distributor doesn’t have to carry excess inventory. That is important because the turns on any product are pivotal to a distributor’s return on investment. Special volume incentives are a way to motivate a distributor, because the incentive is essentially an increase in gross margin. Further, good training and in-field joint calling will add motivation to a distributor’s sales team. Having lots of backorders and claims are the most de-motivating things a supplier can do.
Rozmus: Being easy to do business with. Responsiveness to our market and its needs. A demonstrated interest in our profitability versus simply selling product to us.

Q: Beyond the core logistic role, what services do you offer your suppliers that make you their best option?
Zwicker: First, we have the balance sheet to fund growth. We can afford to buy the displays and maintain the inventory at levels that the customer can rely on. Second, we have the sales team and relationships that open the door to make the sale. Third, we have a transparent strategy that provides the supplier consistency over the long term.
Rozmus: We offer local sales, marketing, and technical support. Specification work. Claims processing and handling. Local merchandising development/sample production. One of the nation’s more widely-recognized private label brands and programs. Local sales training. Local technical and installation training. Also, local credit services, an often-overlooked yet critical service we provide the marketplace.

Q: In what areas have you been able to use technology to improve your efficiency?
Zwicker: We have been working for over a year on our customer efficiency project. It’s the result of extensive research. We are building online capabilities that make transactions faster and more accurate in ways that increase accessibility. Customers can do what they need to do at any time, day or night. In addition, we are creating a sales mobility platform that will make our salespeople better informed in real time about information important to their customers and have more kinds of information accessible online through mobile devices for their use and the customer’s use.
Rozmus: We have used technology to improve warehouse management, including layout; claims processing via online forms; order entry via online order entry capabilities; and sales support.

Q: What is the most effective way for a manufacturer to train the retail sales associates to properly position their products? Can they rely on you to get the job done, or should they manage the role themselves?
Rozmus: Proper and effective training of retail sales associates requires an ongoing commitment of time and money. In a sense, the investment in training is akin to a retailer’s own investment in advertising. It is about making your audience comfortable with you and your product and also about making you and your product top of mind. Thus, the training must be consistent without becoming rote and boring. It also must be comprehensive without becoming overly complex.

The retail sales associate needs to be extremely comfortable not only with the brand and product but also with the service model that supports that brand and product. A breakdown anywhere in the supply chain ultimately puts egg on the face of that local retail salesperson who sold the consumer or end user the goods. Accordingly, he or she needs to be comfortable with the entire process, not just with the product.

Consequently, an essential element of training involves educating folks on both product and logistics elements. Generally, the local wholesaler/logistics provider is somewhat uniquely positioned best to explain this in totality.

There are various tools a manufacturer can provide to make the local training process more efficient and more productive. Comprehensive product design and technical information is a must, as well as succinct summaries of warranties and claims processes. To the extent that such information can be web or cloud based, it’s all the better in terms of ease of access.

Q: Do some flooring categories offer better margins then others?
Rozmus: I think—and feel very passionately—that folks who get caught up solely in the margin a product offers miss the boat. What is most relevant is the overall profitability involved in handling a product. Margin certainly and absolutely is a critical component of this analysis, but factors such as inventory investment, inventory turns, product quality/claims, sample cost and logistics cost are also an important part of the analysis. When you consider all these attributes, invariably there are certain products or categories that may offer slightly higher margins than others, but this is necessary because those products may, for example, be more prone to damage, obsolescence, waste or claims that carry added expense as well.

Q: During these tough economic times, how do you balance the value of products from China and American-made goods?
Zwicker: We buy from the best source as long as the quality and supply reliability is there. In this day and age, many domestic producers are sourcing their products from Asia. The brand name doesn’t signify U.S. made anymore. At the same time, the cost of products from China in many goods, not just flooring, is rising. Labor costs in some Asian countries are rising. Shipping costs inevitably rise. More inventory must be held when importing. So, it is not a simple question, and there are no simple answers.
Rozmus: We balance the import (including China) versus domestic sourcing issue first by considering our markets. Ultimately, the marketplace is the boss. The marketplace dictates what products are needed today and tomorrow. Once we feel we understand the need, we have a bias toward our current vendors, regardless of their locale. Indeed, some of our vendors operate both domestically and internationally, so, at times, working with them affords us a look at both sourcing options. In our experience, it is almost always more efficient to do more with existing partners than to add scores of new vendors. Not only are there efficiencies from pre-existing processes and systems already in place, such that adding a new product line or two is almost a non-event, but our existing supplier base is, by definition, pre-qualified in terms of their ethics, quality and financial stability. One of our key questions when considering any new and innovative product is who really is standing behind this? Especially in the case of a foreign provider, it is critical to understand the answer, because if things head south, it is important to know that the manufacturer is capable of and willing to stand behind its goods.

Q: What is the greatest challenge for a distributor? What sort of improvements would you like to see in how the industry runs?
Zwicker: Our industry needs include more standardization; less waste in displays and discontinued products; better supply reliability to reduce back orders and reduce inventories; and more use of online technology, particularly by customers. The flooring industry is behind many industries in our country. The penalties we all pay are inefficiency, low profitability and low return. Also, the relationship between suppliers and distributors could use some help. It’s not bad today, but it could be better. Again, other industries are ahead of us in this regard. The world will get smaller and tougher with flooring industry consolidation and because consumers are spoiled. They are addicted to too many choices, low prices, and instant and low cost delivery gratification. We need to figure out new models.
Rozmus: We need to be continually educating all members of the supply chain regarding the value a wholesaler adds. Everyone is so focused on their own businesses and the day-to-day that folks will tend to ignore the value provided to their businesses from elsewhere. Further complicating things for wholesalers is what I call the “umpire reality.” Sports fans and commentators generally ignore umpires when they do their job well; the officials are noticed only when they blow a call or otherwise impact the game. So too with the wholesaler, whose role may go unnoticed when the right products are sampled, sold, supported and timely-shipped, but who becomes front and center when anything in the process breaks down or when there is a failure of product that the wholesaler neither installed nor produced. This is not a gripe, just a statement of reality. Given this reality, wholesalers need to perform their role at a high-level, while consistently and professionally educating not only retail partners but also manufacturers regarding the resulting value added to the channel.

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