Key indicators point to spending increases in the second quarter: Strategic Exchange - May 2017

By Kemp Harr

We got encouraging news toward the end of April from the commercial and residential sectors that should translate into ongoing growth for flooring sales. First, the March Architecture Billings Index popped up to 54.3 from 50.7 the previous month. Kermit Baker, economist for the American Institute of Architects, noted, “The first quarter started on an uneasy footing but fortunately ended on an upswing entering the traditionally busy spring season.”

In the residential sector, existing home sales took off in March to their highest pace in over ten years, rising 4.4% to an adjusted annual rate of 5.71 million units. National Association of Realtors economist Lawrence Yun attributed the growth to “strong consumer confidence and underlying demand.” Other factors could be exorbitant rental rates and the knowledge that interest rates are climbing. At this pace, unsold inventory is at a 3.8-month supply.

Consumer sentiment for April held at an elevated reading of 97. “Consumers are more optimistic about the economy in general, especially Independents and Republicans,” Richard Curtin, chief economist for the University of Michigan Survey of Consumers, said after the report. “I would expect spending to come back,” after a first-quarter slowdown, he added.

WHAT TO DO ABOUT HOME CENTERS’ FREE INSTALLATION OFFER
Back in March, I mentioned that Home Depot’s free installation promotion has been well received with consumers, and we’ve learned recently that the move by Lowe’s to follow with a similar program is also being met with double-digit sales increases. This is not good news for the independent retailer that doesn’t answer with some type of counter strategy. We all know the home centers’ weaknesses: the hard-to-find sales associate has little if any product knowledge, the installation crew is in a hurry. The only reason the consumer shops there is because they think they’ll get more for less. Free installation at the home center is very similar to free shipping at Amazon. The Millennials eat it up, as do the bargain shoppers, regardless of when they were born.

So, what’s the best counter strategy if you’re an independent retailer who cares about the customer, knows how to sell fashion, and has a long standing relationship with a certified installer that understands the power of a referral?

I’m reminded of the two barbershops that are across the street from each other. At one, there is a big sign that says, “Haircuts for $6.” And across the street is a sign that says, “We fix $6 haircuts.” If your strategy is to be the true professional, you’ve got to make sure the discerning consumer knows that you exist.

The consumer research we did last year told us that the home center is going to get shopped in the early stages of the process. Why not? It’s the cheapest and most convenient place to buy weed killer and light bulbs, so we might as well check out the flooring department while we’re in there. But the consumer is also going to do some online research, talk to some friends and neighbors, and watch the local news or some cable TV.

As we’ve made our rounds in the first quarter of this year, we’re hearing that the retailers seeing healthy store traffic are working hard to earn it by spending money on advertising, having a great online presence, and, therefore, being top of mind with those friends and neighbors. It obviously pays to have professional relationships with realtors, interior designers, builders, contractors and others that sell interior finish items as well.

TILE AND HARDWOOD SURFACES STAVE OFF IMITATORS
Last month, we attended both the Coverings tile show and the NWFA hardwood flooring show. In both cases, it was obvious that the professionals within those businesses think they are losing share to the lower priced LVT look-alike products. And when you read our Annual Report in this issue, we confirm their fears. While the ceramic tile floor business was up 5.7% and the hardwood flooring business was up 4.9%, LVT (and its rigid core cousins) were up 29%.

When you think about it, hardwood and tile are the original flooring surfaces for interior dwellings, after humans decided they needed an alternative to dirt and stone. Now they are feeling the threat of a flooring that up until a few years ago always looked like a cheap imitation.

In the case of tile, the Tile Council of North America and its members have created a consumer website and ad campaign called Why Tile (whytile.com) that reminds the consumer of the benefit of using tile throughout the home and office. According to the website, not only is tile waterproof and easy to clean, but it’s also much healthier to live on. On one page, the website points out that tile has zero allergens, zero VOCs, zero formaldehyde and zero PVC. I invite you take a look at it; the photography is outstanding.

The guys in the hardwood business are not quite through polishing their message and haven’t yet built a website, but the steering committees have been formed, so it’s only a matter of time. And in the case of hardwood flooring, I’m guessing their sights will be aimed at more than the LVT business, since we’re hearing that roughly 25% of the ceramic tile sold in the U.S. today looks like hardwood. And you can’t blame them, since it looks like the tile guys fired the first shot. After all, there are harmless traces of formaldehyde in all wood products.

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

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