Nebraska Furniture Mart, contract dealers and direct sales: Strategic Exchange

By Kemp Harr

Thank goodness the first quarter in the flooring business is historically the weakest, because for a multitude of reasons sales have failed to materialize. But we’ve still got three more quarters to catch up and hopefully outpace last year’s growth of just under 4%.

Blame it on the harsh winter followed by the annual slowdown around Easter and the distractions of spring break, but we still aren’t seeing the vibrant uptick that many economists were calling for at the beginning of the year. 

At this point, it looks like people in the builder market still feel that rapid growth is right around the corner, but they keep pushing out how long it’s going to take before we make the turn. On the retail side, we’re seeing some growth, but most of it is with the multi-store operators with annual revenues north of $20 million. Home center flooring sales have also been soft for the last five months, so they don’t appear to be taking share.

The U.S. economy seems to have taken a dip in the first quarter with GDP, consumer spending and exports all running below the pace of the latter part of 2014. However, the export numbers are not a surprise, considering the current strength of the U.S. dollar.

As you can read in this Annual Report issue of Floor Focus, most of the flooring growth last year and for the first quarter of this year is coming from the commercial market, driven by multiple large projects that have been in the planning and design stage and are now finally coming to fruition. Hospitality, education, retail and healthcare are the most active sectors.

NEBRASKA FURNITURE MART’S TEXAS SIZED STORE
Nebraska Furniture Mart’s new Texas store just north of Dallas, now open to the public, is a retail marvel. This two-story, $400 million store took two years to build, and the retail showroom is 560,000 square feet. The investment for the entire 433-acre complex, which includes a four-story parking garage and a 1.3-million-square-foot warehouse, is estimated at $1.5 billion. And similar to the three other NFM stores, this location sells furniture, flooring, appliances and electronics. The last store that NFM opened was in Kansas City 11 years ago, and it’s only 450,000 square feet with 800 employees. This store is expected to draw eight million shoppers a year, and it employs 2,300 people. Back in February, Warren Buffett boasted during a Fox Business interview, “They don’t want me to say this number, but I’ll say it anyway—I believe the store will do over $1 billion.” 

This store’s flooring department is 40,000 square feet, and it offers all types of flooring, including a large area rug section. Annual flooring sales out of this one location are expected to exceed $30 million. (For images and more info, go to FloorDaily.net.)

I attended a charity event at this store in early April where Warren Buffett played the ukulele and sang “Deep in the Heart of Texas.” He told the audience that his mentor early in his life was his father, not through his words but through how he lived his life with hard work and integrity. Buffet said, “The most important job you have is to teach your child.” Asked what keeps him up at night, Buffet said, “Now and then there are occasional people issues, trustworthiness, human things, but nothing ever about investments.”

HOW COMMERCIAL CONTRACTORS REACT TO DIRECT SELLING
For decades, commercial flooring contractors have been fighting the “direct sale,” where manufacturers call directly on end users, negotiate a sale and then offer the installation part of the project to anyone who would take it on a “labor only” basis. Some contractors refuse to take this type of work and others take it and figure out other ways to earn money in the process. One way of offering an alternative solution is for the contractors to band together and negotiate their own direct relationship with the end user.

End users don’t really care how the money is divided between the supplier and the contractor as long as they aren’t overpaying and the project is completed on time and without issues. For years, the more successful contractors have managed to build their own relationships with end users, but they had difficulty servicing projects that called for work outside the scope of their operation.

A few years ago, the Fuse Alliance, and more recently Starnet, have come up with programs that allow the membership organizations to service the end user on a more national scale with fewer touch points. Both groups structure this initiative with their own nuances but their common goal is to ensure that the groups’ members and vendor partners are recognized by the big national account end users for the services that they offer and are given a chance to compete for their flooring work. Both groups now have a dedicated staff member that calls on the big firms with multiple locations. Prior to this type of structure, national retail chains retrofitting their stores nationwide had to coordinate the work with multiple flooring contractors. Now, both groups offer a solution.

Related Topics:Starnet, Nebraska Furniture Mart, Fuse Alliance, Fuse