Focus on Leadership - July 2009

Interview by Brian Hamilton

Carmen Pastore, executive vice president at Johnsonite, sat down for an interview with Floor Focus, to discuss the state of the industry and how to navigate this uncertain economy.

Q. In the current economic climate, how do you decide where to make investments and where to make cuts?
A. For us, everything starts with an effort to help the end user reap the greatest value out of their interior space. That’s what we do. So in these times of change in the economy, every action we take has to create real value. I think that those companies that have structured their businesses to match the realities of the current economic environment are going to emerge when the economy recovers—and it will recover—and will be better suited to be able to take advantage of the upswing in the business. In every downturn we’ve increased our marketshare. And what that does is, when the economy begins its expansion again, it will accelerate the expansion of the business.

Q. How do you increase marketshare in this climate?
A. First of all, you’ve got to get close to the customer and try to help them create more value that they can bring to their end user/customer. We spend a great deal of time with the design community andas you know, many of the design firms have reduced their staff. We try to understand what their issues are and help them to understand our capabilities, to educate them. We don’t try to sell them anything. Ultimately, we’re going to sell people things, we understand that. But the idea is to educate them on the capabilities that we can offer to an end user to make it easier for them. Right now they are operating with less people, smaller budgets, and their clients want it quicker and want to spend less money. I think we have a great rapport with the design community.

Q. How important is branding in times like these?
A. Investing in your brand and the core promise behind that brand is critical at all times but especially during an economic slowdown. Having the right mix of print, web marketing and trade show promotion is critical in a time when customer preference is being challenged from both an economic and time management standpoint. Share shift becomes more dramatic when conventional practices are challenged. Now more than ever is the time to be top of mind with your customer, especially when your competition is cutting back.

Q. How do you get your brand out there and increase awareness?
A. Certainly there are the traditional media that most people in the interiors business continue to use. We continue to do advertising in what we believe are the key publications that reach different segments, whether that’s the contractor community, the design community or the end user community. We certainly have the electronic means—we’ve got an environmental website, we’ve got our standard website, and they’re all linked together with the Tarkett website. We also get a lot of publicity because we’ve won so many product awards for innovation and design.

Q. What have you implemented to make sure your company is stronger once the economy turns around.
A. We structured our company to meet the current economic realities, we continue to focus on educating our clients, in addition to trying to protect our base business, in other words, being responsive in the marketplace when customers need new materials and the like. On our website, we have the new Balanced Choice Selector, where an end user, a contractor or a designer can identify the Johnsonite products that best meet their needs, based on their criteria.

Q. Once the market turns around, do you see any changes in market dynamics?
A. When you look at all levels of the channel, whether you’re a manufacturer, whether you go through distribution, or use contractors or design firms, there has been consolidation in the industry, and I think we’ll see a bit more in the second half of the year. This is an ideal time if you are cash laden to buy somebody in the industry, merge them into your business and expand your business reach. But I will say that any time there’s an expansion in the economy, what we typically see are niche players, at all levels. One thing you see at these design firms, as they consolidate down, is if they typically specialize in, for example, retail stores but now can get a hospitality job, they’re doing it. So it’s possible that when the economy starts to expand some will go back to focus on their specialties and then niche players will show up, a boutique retail design firm or a contractor that focuses on hospitality, or a wholesaler that focuses on a certain segment.

Q. You came to Johnsonite from the contract furniture business. Is there much similarity between those industries?
A. When I came here I thought so but now I’m not so sure. Yes, certainly in some ways because it’s all part of the interior space fitout. I think that in the contract furniture business, the customer sees the furniture as a strategic asset, they make an investment and they expect a return on that. On the flooring side, for a lot of reasons, people see zero value in flooring, it just covers concrete. I never hear an end user say, “What is my investment in my flooring.” It’s always, “What is my cost?” One of the things that we as an industry have to work toward is to help our clients recognize the value that flooring provides and that it is a justifiable element of the interior space, and just as strategic, I might add, as other key elements.

Q. What have you seen in the design community thus far in the downturn?
A. All one needs to look at is the Architectural Billings Index. Right now, although we’ve seen jumps that last two months, it’s still below 50%, which is still in the contraction mode. But once that index goes to 50% or more, that means the business is expanding. I don’t think my opinion is worth more than anybody else’s but I think we’ve got a way to go, on the commercial side anyway.

Q. So you think this is going to go on into next year?
A. I judge a lot of things by the pulse of the contracting community because they’re the people who work right with the end user who says the project is a go or no-go. I think that some people who have had some very good starts this year, a number of them are working on the backlogs that were given the go ahead before all this took place. The key will be in the second half, and how many of those projects that were put on hold will be released to go.

Q. What are the key elements that have to be in place before a recovery takes hold?
A. There are several factors. One is the availability of credit. Businesses need credit lines to support themselves. I think that directly drives consumer confidence. I think part of it is emotional and consumers have to feel like the economy is getting better. I think, from a commercial standpoint, this Architectural Billings Index will tell us a great deal. That’s a precursor to success downstream.

Q. Do you see the stimulus package as being a big help?
A. Well, I think it’s intended to help the economy in general. For those of us who play in the commercial marketplace, it’s focused on public buildings and infrastructure. It doesn’t say much about schools, hospitals or hotels. I think eventually those things will be impacted because of the stimulus program but the effect will be down the road.

Q. What’s happened with environmental programs on the commercial side? Have you seen any less interest in sustainable products?
A. Practically every project today has some element of sustainability. However, since overall construction is down, the sustainability aspect is down as well. I believe that sustainability is really a long term view. You can go to a more sustainable flooring but probably at a higher initial cost. But in the long term, it is better to make that selection. Sustainable elements are not being rationalized out of projects.

Q. Do you think the industry is doing a decent job of judging sustainability or do you think it’s still too confusing?
A. Our opinion is there are too many certifying bodies, with too many varying measurements, each with different agendas, so it’s very confusing, not only for the specifiers, but for the end user and manufacturing communities as well, because there’s no real unified approach. The most widely accepted system for ascertaining sustainability is LEED, which has been premised on some very finite measurements to determine the level of sustainability in interior finished products. They’re concerned about recycled content, or how much rapidly renewable material it has, they talk about if it’s shipped from a 500 mile radius, and indoor air quality. While those are noble elements, they’re probably not holistic enough—we need a more holistic measurement. USGBC is moving toward a more holistic measurement by employing life cycle analysis.

When we call a design firm or an end user, virtually the only sustainability question they ask us is how much recycled content is in it. They rarely have asked us, when comparing one product to another, “How much energy is consumed in making that product compared to other products?” or “How does the maintenance or product life impact the environment?”

Q. What is the right outlook for the future, given the current economic situation?
A. The economy has gone through these seven year cycles since 1960, but this one has been more severe. But the fact of the matter is, we need to look forward and this economy will recover, it’s just a question of when. Those people who are focusing on protecting their business base, focusing on getting closer to their customers, helping them see the value that they can create, and investing in their brand are going to be in position to ride the crest of the expanding economy in the future.