Don Finkell of American OEM: Focus on Leadership - Apr 15

Interview by Kemp Harr

Self described as an architect who got into the flooring business, Don Finkell, CEO of American OEM, has spent more than 30 years in the hardwood flooring industry. He spent many of those years as CEO at Anderson Hardwood Floors, where he became instrumental in not one, but two inventions that had a game changing effect on the hardwood flooring business.

Finkell grew up in Daytona Beach, Florida and after high school was appointed to West Point. His father had been in the Marine Corps and was excited about the appointment, but Finkell longed to be an architect. His father encouraged him to give West Point a year. During his first semester, he took a course in architecture, fueling his passion for that area of study. After completion of his first year, he entered the University of Tennessee, which was eager to add students to its budding new Architecture School.

UT turned out to be a serendipitous choice. While there, Finkell worked for TVA as a co-op student, and also met his wife, a member of the family that owned Anderson Hardwood. After graduation, he coordinated the design team for the innovative TVA office building in downtown Chattanooga that to this day is recognized for its reduced energy usage due to its passive solar design. Work on this project also enabled him to gain the required experience to take the Architect Registration Exam, which he passed right before going to work for his father-in-law manufacturing hardwood flooring.

After Shaw Industries bought Anderson in 2007, Finkell shifted his focus to Shaw’s complete hardwood program until he retired in early 2013. But last year Don’s yearning for the hardwood business drove him to launch American OEM, a U.S. producer of engineered hardwood floors in Dickson, Tennessee that offers a competitive alternative to imported private label products.

Q: What was it like working for the Anderson family?
A: Bob Anderson was in a tough business at the time. His father died in 1967, and carpet had become FHA approved, so the wood business had gone from about a 20% marketshare down to about 2%. But Bob managed to stay in the business and be one of the last people standing.

Bob’s father, L.W., had been the general manager of Daystrom Corporation, and the Navy was one of their big clients. They had started building houses on slabs for Naval housing, and they couldn’t find a floor that would stick to the slab. They didn’t have very good adhesives then, just cutback mastic, which was really an asphalt-based mastic. Plywood was kind of new, and they had been making marine grade plywood. His thought was, if this stuff is dimensionally stable enough to stand up to the ocean water, then it probably will be OK to glue down to the slab, and it worked. That was around 1938. After the war, he was making plywood blanks for Cincinnati Flooring Company, and then they turned it into flooring.

Q: What were some of the innovations you were involved with at Anderson?
A: In the 1980s we introduced a white, pickled look, but the grain attracted dirt and turned black. You could fill it with a colored fill, but you had to match it to the stain color that you were going to use. Our innovation actually came about as an accident. We were working on it, and I said to the guy, “Can’t you fill it with clear?” I didn’t mean it the way that he took it, but he came up with a solution. It was one of those happy coincidences. So in 1990 we came up with the first full filled look, and we did that for several years.

A few years later we came up with a new wood floor finish. When laminate flooring was first introduced here in the U.S., it had superior taber test results—ten times or better than what we were getting on wood floors. I kept asking everybody, “How are they doing that?” Then a guy who was touring a laminate factory called me in the middle of the night from Germany and said, “Don, I know how they’re doing it. They’re putting aluminum oxide on it.” So, armed with that little piece of information, I went to our finishing company, Valspar. They started doing research, and we came out with a new finish in 1997.

We had not introduced it yet when a couple of guys came to demonstrate a sander that would safely take finish off an engineered floor. We did half of the test floor in the aluminum oxide and half in our previous finish, but you couldn’t look at it and tell the difference. They started on the aluminum oxide side, and the guy was a pretty good salesman, but you could tell it was going terribly wrong for him. Finally he was standing on the little machine to try to put weight on it while the other guy pushed it. I wish I had video of it. We just broke out laughing and told them to try the other side, and of course it cut the finish right off. That’s when we knew we really had something.

Q: When you retired from Shaw, you did some extensive traveling and then came back to start a new wood flooring company. What motivated you to get back in the business?
A: In 1945 L. W. Anderson started the company that would become Anderson Hardwood Floors. It provided income and purpose for four generations of his family and others. I would like to do the same for my descendants if I can. And I feel like I have more to do in the wood flooring industry. I felt like I lost some of my purpose when I retired.

Q: How has your architectural degree helped you be successful in this hardwood flooring business?
A: Architecture is a half measure art and a half measure engineering. To me, that describes the wood flooring business. Too much art and you will have problems with the budget. Too much engineering and the consumer will lose interest. Finding that balance has always come natural to me, whether it is architecture or wood flooring.

Q: Your strategy for American OEM is really to take share from imports, isn’t it?
A: Ten years ago, very little Chinese wood flooring was sold in America. Today, there is more Chinese wood flooring sold in America than there is American made wood flooring. They have to import all their raw materials and then they have to send it all the way over here to us. Fundamentally we ought to be able to be competitive.

Q: The business model for American OEM is to let your customers attach their brand to the product. Why did you decide not to create your own brand? Isn’t branding one sure way of conveying quality and promise all the way to the end user?
A: I think brand is very important for the reasons you say. We arrived at the decision not to do a brand after a lot of contemplation. Almost all of this Chinese flooring is private label. Retailers and distributors plug manufacturers in and out of their private label programs constantly. Building a brand is expensive and time consuming. In the end we decided that we could sell more flooring, faster if we just gave an American alternative to Chinese OEM wood floors. Hence, the marketing concept for American OEM. If you are going to compete with China, you are going to have to be price competitive. What we save on selling and marketing a brand is our profit margin. This strategy worked for China. We think it will work for us too.

Q: Tell our readers why it makes economic sense to source hardwood here in the U.S.
A: There are many hidden costs in buying flooring overseas. You have to build and market your own brand, which is expensive, as I said. You have to carry more inventory to hedge against long lead times and uncertainty. There can be supply interruptions like dock strikes and Chinese New Year that can embarrass you with your customers if you don’t have enough inventory. If there are quality problems, you have a lot of bad production on the water. And there are risks with foreign made goods violating U.S. standards and laws like the Lacy Act and CARB (California Air Resources Board) requirements governing formaldehyde emissions. To stay on top of these things takes a lot of effort and vigilance. You potentially risk your whole enterprise if you just blindly go along with the herd. Buying domestic is a more efficient model for distributors if the price is close.

Q: Some floorcovering suppliers cut corners to meet price points and in the end consumers get inferior products that won’t hold up. Are there minimum allowable standards in the hardwood category? If not, should there be?
A: We voluntarily manufacture to the ANSI/HPVA 2012 LHF Engineered Wood Flooring Standard, which was first adopted in 1960. It has stood the test of time. We also meet the standards for CARB for formaldehyde emissions. And our products are totally sourced from North America, which has an excellent environmental record. Europe has very prescriptive standards around wood flooring, which creates less risk but less product variety. U.S. standards are more voluntary (except for CARB and Lacey). I would not want to see the type of restrictive standards that Europe has. I think if people know and trust who is making their floor, they get the best of both worlds.

Q: Hardwood flooring is the one category that still has plenty of medium sized suppliers. Why do you think we haven’t seen as much consolidation in this flooring category?
A: Bob Anderson once told me that to be in the wood flooring business, “you need a high threshold of pain. That’s why a small guy can compete with the big guys. They have a lower threshold of pain.” And wood flooring needs a decentralized raw material strategy. The more you buy in one area, the more expensive the wood gets. This goes against getting too large, which is how most large companies gain advantage. It’s harder to do in the wood business.

Q: For many years, the standard thickness for hardwood flooring was 3/4”. How has that changed? Is the consumer still getting quality flooring with some of the thinner products?
A: Thinner floors are made possible by engineered construction and better finishes. Cross ply lamination of the core allows a thinner engineered wood floor to perform better than a solid 3/4” floor of the same width as far as warping and shrinking. And the aluminum oxide particle in the finish makes the thickness of the top veneer almost a moot point. You are not going to wear through the finish and have to sand the wood down. Thinner wood floors can also be used for remodeling because you will not trip on a 1/2” floor but you will trip on a 3/4” floor if you don’t drop the subfloor. Dropping the subfloor is not practical in most remodel situations.

Q: We’re seeing more hardwood flooring end up in kitchens and in commercial applications. How has the product evolved that now allows it to be used in areas that once were considered taboo?
A: Wood floors are now used in kitchens and commercial settings more often because of improvements with the aluminum oxide finish, which is more moisture and wear resistant than previous finishes. Plus some of the texturing and rustic character in vogue now makes scratches and dents less noticeable.

Q: Where are the biggest opportunities for hardwood in the commercial market?
A: I think the biggest opportunity in the commercial market is in urban residential. I am still waiting for wood to be used on walls the way ceramic tile is.

Q: Has hardwood pricing stabilized or is it continuing to go up?
A: I think hardwood prices have stabilized, especially in solids, where I expect prices to go down. It has taken two years for green lumber volume to catch up with flooring demand after the Great Recession. But it has caught up now, so prices on solids will go down.

Q: What are the most popular species sold in the U.S. today and why?
A: Hickory is still very popular, but white oak is gaining. Maple is also popular, and we are seeing some nice walnut orders. Red oak is losing share.

Q; The majority of hardwood flooring is still sold through distributors. Why do you think that the channel has not flattened like we’ve seen in the carpet category? Or has it?
A: I think there is a consolidation of distribution happening. When I think of my old friends in distribution that are no longer in business, it makes me sad. I cannot think of any new distributors opening up. The remaining distributors have mostly gotten larger and more sophisticated, and there are a lot of retailers who are big enough to support their own supply logistics. And, of course, there are the big boxes, Lumber Liquidators and the carpet companies selling wood flooring now.

Q: American OEM will the be the eighth plant to benefit from one of your prison programs that offers inmates jobs, like hand scraping hardwood, and helps them stay out of prison once they’re released. Is that a core motivation factor that has driven you to set these programs up time and time again?
A: When I meet my maker, He will know the number of lives that our prison industries program has touched in a positive way. I have no way of knowing, but I do get letters from men who have found a new life after their release from prison or from their family members. I feel good about it, and it is one reason I keep at it. The more successful we are, the more lives we can touch.

Q: What do you do in your free time to decompress?
A: I am curious about new places and people. And old places. I like history and nature. I get a thrill out of a landscape with no manmade objects in sight, and I imagine that I am looking at it from a million years ago.

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