Mohawk's outlook, A&D awards, retail segment evolution

By Kemp Harr

Happy New Year! So what’s the forecast for the flooring business this year? If you’ve been following the audio interviews I’ve done with economists at Harvard (Kermit Baker), the National Association of Home Builders (David Crowe) and the Dodge Report (Bob Murray), you’ll know that all three are optimistic that 2015 is going to be a good year for construction spending, both in the housing market and the commercial buildings market. But, at the same time, all three admit that they were just as optimistic about the outlook for 2014 back at the beginning of last year. So what’s different this time around? 

They unanimously agree that the culprit in their missed forecasts in 2014 was the slow single-family housing market. Crowe, in particular, points to the relaxation of tight mortgage lending standards coupled with continued improvements in underlying economic conditions (i.e., low mortgage rates, lower unemployment, rising home values and continued GDP growth) as to why he’s predicting single-family housing to grow 25% to 800,000 units in 2015 and a whopping 37% in 2016 to 1.1 million units. Murray’s single-family housing growth prediction is a little more conservative but is still in double digits. 

While Crowe is extremely optimistic, he added that much of what we’ll see in the housing market boils down to attitude. Recent preference surveys conducted by the NAHB show that consumers recognize the benefit of owning their own home—even among the millennial generation. But when they actually choose to buy their home is based on how they feel about their own economic standing coupled with their feelings about the world around them. 

In my dealings with economists, I know that many build these elaborate spreadsheet models that integrate historical data using formulas that pivot off of current data. And while we do get consumer sentiment numbers from the University of Michigan—which are currently running at a eight-year high—we all know it’s hard to accurately quantify attitude. 

Without going down a wormhole or taking this conversation completely off track, it’s possible that the 24-hour news phenomenon coupled with social media could force consumer sentiment to swing from one extreme to another at an accelerated rate. Like no other era, consumers are now able to self publish their opinions to large groups of people and turn an unfortunate news story into a major and distracting social movement, which in turn makes great news for CNN, CNBC and Fox. But I’m digressing.

Fortunately, as indicated by the latest consumer sentiment numbers, the good news is winning out. Gas is cheap, people are working, the U.S. GDP continues to rise, mortgage rates are still low, inflation is in check and wages are starting to rise.

MOHAWK SHARES OPTIMISTIC OUTLOOK
Bryan Carson, president of Mohawk, expressed a similar view in his general session remarks at Mohawk’s Solutions aligned dealer meeting last month. Mohawk is expecting more consistent growth for retailers than it saw in 2014. Carson attributes this optimistic outlook to the same factors I mentioned above, including a strengthening U.S. economy, as reflected in the 2014 GDP numbers, which grew 4.6% in the second quarter and 5% in the third quarter. It was the strongest six-month performance since late 2003, and the strongest job growth period since the end of World War II. 

Carson admits that growth in the housing market took a pause in 2014, but he predicts “a much brisker pace” in 2015. He’s expecting the younger millennial generation, which normally represents 40% of first-time homebuyers, to step back into the market. He referenced a recent statistic that said that 83% of non-home-owning millennials expect to become homeowners in the near future.

BEST OF YEAR AWARDS INSPIRE DESIGNERS
Over 1,000 people gathered at the IAC building in New York City last month for Interior Design magazine’s ninth annual Best of Year awards. This was my first visit and I hope to attend every year from now on. Interior Design does a great job of visually presenting all the finalists and winners in each category. As I’ve pointed out before, floorcovering is just one of the many components that work together to create the interior spaces in which we live and work. Being able to visually see images of the best of the best interior products projected on a huge wall in rapid succession was quite an inspiration. 

Presentations like this can often get bogged down with presenting personalities and acceptance speeches, but I’ve got to give kudos to Interior Design for realizing the sheer volume of material and why people really attend. Sure, people want to know what company has won in each category but, more importantly, they want to see what designers are voting for.

It might help if I step back and give you a broader view of how this all comes together. There are roughly 60 different categories that entries are divided into—seven of which are focused on flooring. The other big buckets are furniture, bath, kitchen, lighting, seating, textiles, wall coverings and accessories. 

Any new product that was developed and introduced within the last year can be entered as long as if falls into one of those 60 categories. Entries are posted, and architects and interior designers vote for their favorite in each category. Voting takes place over a two-week period, and security has been developed to ensure that only designers are voting and that they can only vote once.

On the night of the event, designers, architects and manufacturers who have been notified that they are finalists get dropped off at the entrance of the IAC building—many using ride service Uber, I might add—wearing fashion forward outfits, to experience what I just described. Cocktails are served and the winning products are presented. Feel free to refer to our FloorDaily news article for more information on who won Best of Year in the seven flooring categories.

THE EVOLUTION OF RETAIL IN A DIGITAL WORLD
In this issue, Darius Helm’s article on the commercial retail sector uncovers some trends that all independent floorcovering retailers should take note of. While his focus in the article is on trends that affect floorcovering usage in the commercial retail interiors market, there are plenty of lessons in it that apply directly to how technology, the Internet, and mass merchants have changed the way the consumer shops for flooring.

The thrust of the article is that the retail model has fundamentally changed in the last 15 years or so. Not only is the landscape now heavily populated with big boxes, and the consumer more heavily focused on value than ever before, but that consumer is fundamentally different from all those that have come before. The consumer profile is increasingly modeled on millennials, who are also called the first generation of “digital natives.” 

Digital natives most often start their shopping experience online, where they are more at home than any generation before them. But they also venture into brick-and-mortar stores and, because they are well informed, they may make their eventual purchase at a custom-order kiosk to get exactly what they want. These modern shopping habits have led to a phenomenon called omni-channeling, which allows brick-and-mortar stores to reach consumers wherever they are. 

To get today’s shoppers off the couch and into the store, it’s no longer enough to have a basic web presence. The most successful retailers embrace a fully integrated digital system that includes an interactive website with mobile apps and a full complement of social media. 

Once consumers come into the store, retailers have to work harder than ever to keep them there. Shoppers want free Wi-Fi and charging stations for mobile devices, and, most important, they want to find the same prices and return policies in the brick-and-mortar stores that they found online. Millennials also want to be entertained, leading malls to put on live performances, movie theaters to incorporate bowling alleys and bookstores to offer cafes. 

With this seismic shift in shoppers’ habits, many stores have already fallen through the cracks. To survive, retailers must let go of traditional selling techniques and embrace change. Think digitally. Think entertainment. Think like a millennial. 

Even though millennials are driving this retail shift, baby boomers still control much of the buying power due to their accumulated wealth. And while boomers may be more content with outdated selling practices than their children and grandchildren, they are far from stuck in the old ways. Boomers window shop on their iPads and read consumer reviews on Angie’s List. And they watch for deals on Overstock.com and take shopping tips from friends on Facebook.

Related Topics:Mohawk Industries, Coverings