Reflecting on our purpose: Strategic Exchange - Aug/Sep 2017
By Kemp Harr
Celebrating an anniversary is a waste of time if some strategic effort is not made to analyze and reflect on where we’ve come from and where we’re headed. First, let me say that this is, in fact, an anniversary issue and not a birthday issue. Yes, Floor Focus was born 25 years ago, but it’s more fitting to call this an anniversary, because that word is generally used to denote the beginning of a relationship. In this case, it’s a relationship between our readers and the voice of this publication.
It is never wrong for an organization to reflect on its purpose. Just as this magazine has one, the industry does as well. Warren Buffett once joked when he bought Fruit of the Loom that the goal was to cover the asses of the masses. We laugh, but, in that statement, this Kentucky-based textile company is defining its product focus and its target audience.
For us, our purpose is simple, and it’s written on the wall of our offices. Our goal is to entertain and inform our readers with the type of information they can use to be more successful. So, what is the purpose of the flooring industry? With so many different sectors, that answer will vary, but from a big picture perspective, we are here to serve our customer and enhance their interior spaces both from a fashion and function perspective. Unlike the other surfaces in the cube, the user connects with the floor through touch, so the experience not only needs to be visually appealing, but it impacts touch and sound as well. And for those who study indoor air quality and biophilia, scent and origin of components are factors as well.
Another dimension of our purpose as an industry is financial. This industry’s customer is hopeful that the products we offer have been lab tested to provide them with optimal performance without failure. The suppliers that win in this business should be the ones that understand all of this and are rewarded for doing the right thing and making products that are designed with the end user in mind. The products have to look great, be made of the right materials, and perform as promised. We will all win if the room is enhanced beyond expectation due to our contribution.
Any company that says it is focused on enhancing shareholder value without ending that statement with “by providing the end user with the best damn product available” will ultimately be exposed for its shortsightedness.
In this day and age, producers who think the channel is their customer need to think more strategically. Contractors, dealers, retailers and even builders should be seen more as partners with parallel goals of serving the end user. And as you will read in this issue, the channel has more voice with the consumer today than it did 25 years ago, so it is the one final litmus test that stands between the producer and the end-user because the channel gets to choose who it buys from and what products it carries. Its voice is stronger because those in the channel live in the same neighborhood, and they talk to the consumer on a local basis with TV, billboards and now Google AdWords. There was a time when flooring brands meant something to the consumer, but in the case of carpet, that went away when the mills cut out the fiber producers and passed the savings down through the channel. At the time, very few people recognized that those ad dollars were creating consumer preference and, in the case of retail, store traffic.
As the brand power moves down the channel, one has to wonder who should serve the role of consciousness within the industry? Who is making sure the consumer gets the best product available? In other businesses, like chainsaws, the role has been played by the supplier. There are instances where brands like Stihl have thrived by telling the home centers, “No, we have no intention of competing on the basis of price alone.” Walking away from business takes discipline. But in the Stihl case, it has paid off because it is the marketshare leader. And when it comes to home centers, one can’t help but wonder what Pergo would do if it could relive its channel strategy decisions-but that is water over the dam.
THE NEED TO DEFINE REAL WOOD FLOORING
Before we leave that consciousness question, let’s take a quick look at the hardwood flooring business. Today, it is under siege from every direction with lookalike products. It used to just be laminate, but now consumers can quench their thirst for the hardwood look with porcelain, LVT, WPC and sheet vinyl as well, with a wide range of performance attributes and price points-and many of these products are imported. To me, that sounds like a perfect time for the hardwood flooring producers to circle the wagons, define what real hardwood is, and accentuate those benefits both to the channel and the end-user. And yes, part of that effort would mean pointing out the shortcomings of the imitators.
The Tile Council of North America had taken a leadership role in its sector by using an ANSI standard to establish minimum standards for what qualifies as ceramic and porcelain tile. And earlier this year, the tile industry launched its Why Tile campaign to promote the benefits of tile over other surface options. This sets a high bar for other flooring sectors to follow.
BEAULIEU'S RISE TO PROMINENCE
The inaugural edition of Floor Focus magazine back in June of 1992 has several pages devoted to the success of Beaulieu of America, which in 1991 was the second largest carpet mill in the U.S. with $480 million in sales. The firm got its start making woven oriental rugs in the old Barwick plant in Dalton, Georgia in 1978. Initial funding came from Roger De Clerck, owner of Beaulieu Belgium, at the time the largest carpet producer in Europe. He chose his future son-in-law Carl Bouckaert and his daughter Mieke to run the American operation, as he dispatched several of his other children to start flooring businesses in other parts of the world. Beaulieu translates to “beautiful place” in French. Carl and Mieke were married in May of ’78, and they moved to Dalton to launch the company in its first phase, making woven polypropylene rugs. Their first house in Dalton was in a neighborhood with Bob Shaw on one side and Alan Lorberbaum on the other.
Growth for the American business in the first ten years was slow but steady, as the company grew its annual revenue up to $55 million. In 1988, Carl got together with Ed Ralston, the president of D&W, along with three other partners, to buy Conquest Carpet Mills, which at the time had sales of $120 million and focused on the low-end commercial carpet market as well as the outdoor carpet business. In 1990, Beaulieu doubled its size by buying Coronet (with estimated sales in 1989 of $300 million) and opening Epsilon Products, a 260-million-pound (annual capacity) polypropylene resin plant in Pennsylvania. Both these investments represented milestones for the company because Epsilon integrated the company’s manufacturing from polymer to finished carpet, and Coronet had direct distribution to the retail sector. So in 1992, at the age of 38, Carl Bouckaert was in control of an extremely diverse group of investments in the plastics, carpet, rug and artificial turf business. Running the residential carpet business alongside Carl was his brother-in-law Piet Dossche, who moved to the U.S. and joined the firm in 1990.
Throughout the 90s, Beaulieu continued on its buying spree. In 1993, it purchased Grassmore (estimated revenue, $38 million). In 1997, it purchased Princeton Rugs (estimated revenue, $30 million). And in 1998, Beaulieu made three acquisitions: Marglen Industries (estimated revenue, $98 million), Columbus Mills (estimated revenue, $185 million), and Peerless Carpet (estimated revenue, $142 million).
Also in 1998, Beaulieu made national news when it was fined $1 million for making corporate contributions to Lamar Alexander’s bid for the presidency at a fundraising dinner on March 8, 1995. At this dinner, Beaulieu executives directed 36 employees or spouses to contribute $1,000 each to the campaign and turn it in on their expense reports for reimbursement.
Then in 1999, the company decided to enter the hard surface business by acquiring L.D. Brinkman, one of the nation’s largest distributors of hardwood and tile flooring, with estimated sales of $450 million. The very next year, the economy turned negative thanks to the dotcom collapse, demand for flooring took a serious dip, and the company started losing money. In 2002, to cover its debt, Beaulieu sold its rug operations in the U.S. and Canada to Springs Industries, and the following year, it sold Brinkman back to its original owners. Piet Dossche took responsibility for the Brinkman miscalculation and resigned to pursue his lifelong dream of starting his own company. As Piet stepped out, Ralph Boe stepped in to serve as president. By 2003, Beaulieu was back in the black, and Ralph drove the company to its all-time peak revenue of $1.125 billion in 2005.
The decline of sales for Beaulieu started with the Great Recession of 2006, when the entire carpet industry fell from its peak of $12.3 billion in 2005 to where it is today at $8 billion. Naturally, the first few years of the recession saw a decline across all flooring categories, but three factors impacted Beaulieu’s business so that its decline never stabilized. The first factor was when the firm’s gregarious leader, Carl Bouckaert, was forced to step down as CEO in June 2007 when the company was found guilty of tax evasion and forced to pay $32 million in back taxes. The second factor was the company’s delay in diversifying its mix into hard surface flooring, and the third was Bob Shaw’s launch of Engineered Floors in 2009. One could argue that Beaulieu’s decision to buy Brinkman in 1999 was the industry’s first bold move to diversify into the hard surface business, and no one could have foreseen the economic dip that derailed it.
BEAULIEU'S CHAPTER 11 REORGANIZATION
Most of the top companies in this industry have used public money to rise to the top. Beaulieu, on the other hand, has always been family owned. When an individual came to work for Beaulieu, they came to work for Carl and his extended family. In the first decade of this century, dealers bought and sold Beaulieu’s products for two reasons-their connection with what both Ralph Boe and Carl Bouckaert stood for and to keep the third-largest player healthy as an alternative to buying from the two industry leaders.
On July 17, Beaulieu declared Chapter 11 bankruptcy protection. Today, we estimate Beaulieu’s annual sales pace to be somewhere around $350 million. Engineered Floors has stepped in as number three in carpet. Interface is number four, and The Dixie Group is fifth. The next several months will be very telling as to whether Beaulieu can right size the company and get it turned back into a growing entity with a diverse mix of products and a compelling purpose.
If you have any comments about this month’s column, you can email me at email@example.com.
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