Leadership Outlook 2021: Top execs find opportunity amid chaos and remain positive about 2021 - Dec 2020
By Meg Scarbrough
As the flooring industry looks to 2021, much remains uncertain: When will children go back to school? When will offices be occupied again? When will people feel safe to travel? And how quickly will this all happen? The speed at which the pandemic struck earlier this year forced businesses to make changes at a breakneck pace. One challenge has been the work-from-home environment. As states and municipalities forced shutdowns this spring, millions of America’s corporate workers were sent home and launched into an unfamiliar way of doing business. But there were also production interruptions and supply chain issues.
Leaders of the industry’s top flooring manufacturers say survival has relied squarely on adaptability and flexibility, as well as the ability to maintain morale. They remain optimistic for the coming year, focusing their sights on a residential sector that has rebounded beyond expectations and set the stage for a good year ahead.
We talked to some of them about their takeaways from 2020 and what lies ahead in 2021.
Manufacturers started the year in a good position, poised to make gains in most flooring categories over 2019. But then COVID struck, and sales ground to a halt as retailers and independent dealers were forced to close or limit operations under state or municipal mandates that deemed them nonessential business, all while large big box stores and home centers largely proceeded as normal.
As people sheltered in place, consumers’ priorities began to change. “We elevated the essential role of the home,” says Tim Baucom, president of Shaw Industries. Vacations were canceled, students were sent home to learn remotely, and their parents were now balancing their jobs with keeping those kids engaged.
What emerged, retailers and manufacturers say, were homeowners who had spent more time than ever in their homes and were now seeking ways to make those spaces more comfortable for the days and months ahead as well as those identifying the need to establish more permanent workspaces. “Maybe I need some rooms that I can close off that are quiet, that are comfortable,” says Baucom of homeowners. “I can’t tell you how many Zoom calls I’ve seen with people in closets, in bathrooms. I think most people have seen everybody’s headboard in the industry.”
By summer, as stores began to reopen, sales of residential flooring started to rebound, buoyed by those do-it-yourselfers seeking out flooring products that didn’t require specialty installation. The home updating trend has continued into the winter, and manufacturers report sales of residential flooring are strong.
Manufacturers that have a strong home center business appear to have fared better than others in recent months for a number of reasons. One is that those manufacturers and producers tend to market products that lend themselves more easily to DIY projects, like click system luxury vinyl tile-ones that don’t require full service like offered at flooring retailers-or “my guy,” in which consumers buy products on their own but have someone they know or are familiar with install them. Secondly, shutdown mandates meant that independent retailers either had to temporarily close or limit business, but big box stores continued to operate as essential businesses. So even if homeowners were seeking full-service flooring, their options may have been limited. And big box stores like Lowe’s and Home Depot, with DIY items in stock and ready to take home, were able to meet the mounting demand for flooring as homeowners aimed to limit discretionary spending in lieu of investments.
Manufacturers and retailers say hard surface flooring was highly sought-after during the shutdown, reflecting the overall trend in the industry toward hard surface products over soft surface in recent years. They say it was bolstered in recent months by claims that those surfaces are “safer” and more sanitary, a trending theme among consumers looking for ways to mitigate the spread of the virus. But manufacturers and retailers alike reported that not all sales have been for hard surfaces. As homeowners researched ways to make their living spaces more comfortable, some looked to floorcovering that could provide softness, comfort and sound-dampening qualities.
Says Dan Frierson, president and CEO of the Dixie Group, “If anybody had told me, ‘We’re going to lock everybody in their house for a couple of months, and when we let them out, they’re going to want to go buy carpet,’ I would have thought they were crazy. But that seems to be what happened.”
While March, April and May saw flooring sales grind to a halt, the second part of the year has shown promising signs. And looking to 2021, the residential trend is expected to remain positive.
Says Frierson, “All the housing numbers are strong, whether it’s housing resales or housing starts, and inventory levels are very low, which indicates to me a longer period of better business. And I think there’s a good chance that will last through 2021. And I really believe we will see the residential business strong for the period.”
John Wu, president and CEO of Novalis, agrees. “With low interest rates and new home construction and people staying home more, we see home renovation, including flooring, having a strong 2021 and 2022,” he says.
Leaders say they will be keeping an eye on things like the renovation index and sales of existing homes, as well as the formation of households, which is an indicator for multifamily.
To meet those demands, some manufacturers are tweaking their lineups to introduce new DIY products or highlight existing ones. For example, Baucom notes that Shaw’s Floorigami isn’t new but that they’ve ramped up messaging around it in various channels and feel like they are seeing encouraging signs. “It’s a bit like that Broadway star who’s been acting for 20 years and all of a sudden gets a shot at the big role and is an overnight sensation.” It’s not new, but it might feel new, he adds.
Manufacturers report they expect sales of commercial flooring to be flat to slightly down for the coming year and maybe into 2022, with projects undertaken this year budgeted in 2019 and with funding available to complete them. But projects are becoming less frequent, and even when they do begin picking back up, it could take time to fully recover. Frierson says, “The commercial business has obviously been impacted dramatically, and unfortunately, it’s going to be a while before some of the commercial sectors recover.”
The sectors seeing the most struggle now and expected to continue that path next year are hospitality and retail, both dramatically impacted by forced shutdowns across the country and lack of travel, dining out and in-store shopping. Industry leaders say it’s too soon to predict how long it will last or whether it will ever return to “normal.” Says Wu, “Everybody is in a sit-and-wait mode.”
Another sector of uncertainty is education. While some leaders predict there’s opportunity for positive movement, most say there are so many factors at play it’s impossible to guess how it will ultimately fare. The outcome, they say, rests on how quickly students return to classrooms. Says Richard French, vice president of sales for Bentley Mills, “I think everything falls from there. Once kids are back in school, people will hybrid to the office; it’s just a matter of when. When can we get kids safely in school?”
Eric Daliere, president of Tarkett North America, also points to uncertainty in this area. “I think it’s much harder to be too optimistic about the education sector given what’s going on in terms of budgets and other things,” he says. And it’s unclear when or even if their parents will return to their offices, which could affect that segment, as well.
French notes, “You can’t collaborate, you can’t build a corporate culture if you’re not in an office setting. So we know there’s a time when people will return to their offices, but nobody knows when.”
Says Baucom, “We are going to have to think much more intentionally about officing: How do we bring people to the office? How do we make the office a place where you feel even more comfortable that we’ve controlled the environment for safety, security and connection? It’s something we’re doing intentionally, and it’s something that will evolve.”
The outlook for the multifamily is another segment that remains unclear. Job losses and the lack of a new stimulus plan are making it hard for people to pay rent, and it’s unclear if the national eviction moratorium, set to expire at the end of the year, will be extended. All of this uncertainty is holding back capital investments and extending renovation cycles.
All seem to agree that the healthcare segment, including acute care, given the emphasis that’s been placed on it during the pandemic, will be strong in the coming year.
There is some early data hinting at a stabilization in key markets, says Dan Hendrix, president and CEO of Interface, “and we are optimistic that we’ll start to see a return of the corporate office market in the second half of 2021.”
In the meantime, for manufacturers who produce both residential and commercial flooring, the challenge will be whether, or how, to adjust resources to meet growing residential demand and shrinking commercial needs. Frierson says, “I think people can reallocate assets that were dedicated to commercial in order to service some of their residential business, and I think you’ll see that happen. But not everybody is in a position to do that.”
Other strategies will include continued development of products, sales tools and training.
Says Greg Mather, president of Crossville, “We are going to continue driving innovation for tile, and for us, that really means larger sizes, bigger formats and trying to get more wall surfaces with more wall tiles and ongoing design innovation. For me, the floors are a very competitive space right now and walls are another opportunity for us to leverage within our industry.”
Hendrix adds, “We are continuing our efforts to expand
Interface’s marketshare through targeted product innovations and through focused sales and marketing initiatives directed at industry segments such as healthcare, education, industrial and more.
Ultimately, how quickly things will recover remains uncertain. Mather says it’s that unpredictably that may be one the biggest hurdles.
But Baucom notes, “Any time you are fundamentally rethinking things, like offices, shopping, entertainment, it creates opportunity for innovation. And we will see that happen.”
SUPPLY CHAIN & PRODUCTION
One of the biggest impacts of the COVID shutdown has been on production and supply chains. “The supply chain is one of the key competitive differences between different products and different enterprises,” says Harlan Stone, CEO of HMTX Industries.
For starters, companies that import or produce flooring in China saw their supplies cut off almost completely as the Chinese government issued a shutdown in the spring. Secondly, some domestic production halted or slowed for a time, driven by either lower staffing because of sick employees or concerned workers wanting to stay home and decisions by manufacturers to draw back production based on an uncertain market.
“For a while, a lot of supply chains, both international and domestic, were pretty difficult,” says Russell Grizzle, COO of Mannington Mills. “I think everyone slowed down operations, and in many cases, got caught short when things came back a lot stronger than anyone was anticipating.”
Recovery, though, appears to be uneven between commercial and residential business. Says Daliere, “The challenge is that what happened from March and April to what happened in May, June and July, particularly on the residential side-we just saw an incredible whipsaw of demand. Things got really quite low and then things came back really strong. And that was difficult to manage through. But I was glad to have that challenge. It’s better than the challenge on the commercial side, which is demand being low and not recovering at the same level.”
Most acknowledge that while manufacturers are working to get caught up, the backlogs have affected service. Moving forward, Mather says being nimble in the supply chain and supporting customers will be key, noting that it will be especially important “given that segments are coming back unevenly and that some of the supply chains overseas continue to face some pressure and uncertainty.”
But Grizzle says he’s hopeful that the industry is moving past that and that it won’t roll over into 2021. On the other hand, Frierson believes that production could remain an issue until a vaccination is widely available.
“It’s been very difficult, particularly in North Georgia, to run all of the facilities at optimum levels,” says Frierson. “We all have COVID-related issues even though business is good. And right now, it seems to be centered on servicing the customer the way you’d like them to be serviced.”
Others say the impacts were minimal because they import from countries that were less affected by COVID shutdowns or tariffs.
At Interface, Hendrix says, “Our efforts early in the pandemic included pre-purchasing key raw materials to make sure that we maintained supply chain continuity, and as the situation progressed, we kept in close contact with our supply chain and raw materials suppliers while we monitored stock levels.”
Supply chain disruptions weren’t unique to the flooring industry; anyone who was seeking toilet paper, treated lumber or furniture this year can attest to that. As Daliere points out, “Across the building products categories that has been the case. And I think there was a little bit of acceptance of that challenge.”
With everyone separated and away from the office, the way in which flooring producers collaborate not only internally but also with their retail partners has been a challenge. But with those challenges comes opportunity, leaders say.
The rapid nature of the COVID-19 situation has meant businesses have had to be nimble and make adjustments to the normal ways in which they operate, with some saying the changes were perhaps already in the works but accelerated in terms of the unexpected shifting landscape. According to French, “It forced us to do things faster than we would have, like a website retool. Those have been positives.”
Says Wu, “It’s always been on a roadmap, and we were moving along. But this really accelerated it.”
An obstacle that remains, manufacturers say, is that not all of their retail partners are back to being fully operational. Connecting with them and providing them tools to succeed is an evolving process, one that some manufacturers are tweaking on a weekly basis.
Says French, “We’re trying to get as many opportunities for our salespeople to have tools to connect with their customers in some way. We’ve been lucky to have trunk shows and tailgate shows, and all of these things when the weather was good. But you’ve got parts of the country where things are about to get cold, and our customers are going to go back inside, so to speak. So the main thing we are trying to do is use our resources to help our salespeople connect with the customers the best they can, whether digitals, fun things, whatever that tool might be, but just trying to keep connected and over-communicate.”
Grizzle says, “It’s been difficult to try to communicate with customers. There’s a wide array of customers that have opened back up and have salespeople coming back in and some that are still pretty much locked down and just doing basic business.”
Mather expects that hurdle to remain heading into 2021. He says, “The other side of it is we still have limited opportunities to see customers face to face, so really honing in on our digital capabilities and improving that overall platform so we can better communicate our new messages and interact with customers is a really important thing for us, and I’m sure for everybody in the industry.”
Wu says for Novalis the acceleration has been seen within its salesforce. He said the company launched a new CRM platform over the last 18 months, so it was already moving down that path. But what changed is that in the last few months, salespeople have been unable to travel, and they had more time in front of their computers. “It gave them more time to get integrated into what was going on from a digital side so that it could be much more of an integrated effort,” Wu says. “For us, what speeded things up a lot is that dynamic of getting salespeople much more engaged,” and it led to an integrated sales and marketing initiative.
Baucom is among those who commended retail partners’ ability to weather to COVID storm. “I’m very proud of how agile our entrepreneurial small businesses have been to respond to meeting the customer, making them feel safe.”
INSPIRING AMID UNCERTAINTY
With so much uncertainty, it’s hard not to feel anxious about the coming year, but leaders remain cautiously optimistic, and part of their role, they say, is keeping positivity high and momentum strong.
Technology has perhaps softened the blow, allowing workers to connect in ways that would have been unheard of just a decade or so ago. Boardroom meetings have been replaced with Zoom calls and face-to-face meetings with retailers are done virtually now. Says Grizzle, “It’s gone better than it could have if this had happened before the technology evolved and we were doing it all with phone calls. But it’s still not as good as getting together. So we try to do the best we can to try to communicate frequently through YouTube videos, giving everyone business updates, giving encouragement with what’s going on with the pandemic itself, reminding everyone to be safe.”
Says French, “The hardest part of any leader’s job right now is keeping people focused on the fact that this is temporary. It’s longer than we want, and it may be another six months or a year. Keeping everybody positive is one of our biggest opportunities.”
The message is much the same across the industry.
Adds Stone, “Leadership in a crisis is where you find out who the good leaders are and who the good leaders are not.” He is among those who have been hosting town halls to engage with employees. He also writes a COVID update newsletter periodically. “I communicate both directionally and emotionally with my team.”
Says Frierson, “I don’t think there’s any question that in a time when so many people are working remotely you lose some of that camaraderie, but we want to do everything we can to try to help reinforce the fact that we are all working for something bigger than ourselves. And we need to work together to accomplish that. We have a term we use at Dixie-‘Working together’-and we want to continue to emphasize that, because it takes everybody, from salespeople to production facility, working together with the same objectives to service the customers in a way that ensures our longevity.”
Wu recognizes the current environment means team members are spending their days on Zoom calls, and he reminds them not to fill their days on video conferences, but to take some time for themselves to think. And he encourages team meetings to start with a virtual face-to-face meeting, even if it’s for five minutes. He said seeing people’s faces creates a sense of purpose and familiarity. And ultimately, during times like these, he says “every leader needs to do their part to demonstrate they are working just as hard as before so that their team can follow.”
He also says that he’s made it a point to remind the team to stay safe, adding, “I think that part of the message hasn’t been clear enough. Just because we have a large office but we don’t have people there doesn’t mean we don’t care. The manufacturing people are there every day because they can’t do their work from home.”
Perhaps one of the more unique perspectives this year is from Daliere, who was named president of Tarkett North America in July. Despite taking on a new, high-profile role during a pandemic, he’s remained enthusiastic and optimistic. He says, “It’s not been easy, but [the new role] has certainly been fun, and I’m encouraged.”
Stone says he thinks the biggest challenge for 2021 remains responding to the pandemic. “It’s a very fierce enemy, and we should not take lightly the current wave and return of high levels of infection and hospitalization.”
Adds Baucom, “I think 2021 is still going to be heavily influenced by public safety and public health. We cannot become complacent.” It’s something the nation and the world are keeping an eye on, even as cities began reinforcing shelter-in-place mandates in November. He adds that identifying new norms in the industry will be in the forefront. “Which of these changes and disruptions are accelerations? Is the DIY trend permanent, or is that temporary?”
Flexibility and agility will be critical. Says Stone, “Keys to success will be rapidly evolving one’s business so that you’re taking advantage of the technologies that are becoming much more dominant much more quickly, such as online searches, education and sales.”
Says Wu, “It is a changing landscape, and it is more dynamic than ever. Combine it with the political climate, the global trade aspect, COVID. Every company needs to be more nimble than ever. We need to be able to be quick and pivot from one location to another in terms of manufacturing capability. We need to be able to pivot quickly from commercial business to residential business.”
Adds Grizzle, “The only thing we can count on now is we have to manage through uncertainty and be flexible.” He says speed of adjustment is key. His advice: “Don’t get too stuck to your plans.”
Most remain cautiously optimistic about the outlook for the coming year. Says Wu, “There is much uncertainty and unresolved issues going into 2021: the status of the virus, when will a vaccine be available. There are still a lot of unknowns.” But like others, he says, “as a company, we are still optimistic.”
Says French, “All of us are in the same boat. We’re all fighting the fight.”
Copyright 2020 Floor Focus