Retailer Diversification: Flooring retailers offer honest talk on diversification ventures – July 2024

By Jessica Chevalier

Sixty-six percent of retailers who participated in this year’s Retailer Survey, beginning on page 45, believe that diversifying into other product categories will improve their business performance. Of all the non-flooring options, those surveyed point to window treatments, cabinets and countertops as being the most attractive opportunities.

With the retail flooring market soft at present due to low housing inventory and high mortgage rates, retailers are looking for ways to increase tickets among the home renovation customers who are walking into their showrooms, and adding more product offerings can be one way of achieving that goal.

However, there are no guarantees. Success in one field does not guarantee success in another. And it’s crucial that retailers thoroughly consider investment cost, square footage and warehousing needs, requirements for staffing and installation labor, and the necessary branding and marketing expenses before they launch a new offering.

Floor Focus reached out to four flooring retailers who have expanded their businesses beyond flooring: Jon Moullet of Monteriors and Monteriors Outlet, Ted Gregerson of Ted’s Floors & Beyond and Floor Depot +, Pat Molyneaux of Molyneaux Home, and Katelyn Hansen of CarpetsPlus Colortile Kitchen & Bath of Somerset, Massachusetts and Wholesale Flooring of Fall River, Massachusetts. Here, they share their insights on their reasons for diversification, their processes of planning for and establishing their new offerings, and their outcomes.

WHY DIVERSIFY?
The factors that finally push a retailer to take the leap into diversification vary significantly.

When a local appliance store went out of business around 12 years ago, Moullet saw a hole in his Montana market, so he made the decision to pick up not only product lines but also staff from the shuttered location. Having employees who know both the product offering and the ins and outs of selling that new offering can have a significant impact on the success of its implementation. Monteriors has full-line showrooms in Bozeman and Helena as well as an outlet store in Bozeman.

Monteriors, which was established as The Flooring Place in 2000, went on to add cabinets, granite fabrication and window coverings. Moullet notes that diversifying “was a chance to make bigger sales. And more sales means more profit.”

Hansen was similarly motivated to add offerings to her flooring business to capture a larger portion of a home’s renovation budget and new-home building work. The company has always offered window coverings but about a decade ago, added countertops, bathroom vanities, kitchen cabinets and cabinet hardware, as well.

“People come for cabinets, then we get the floor, counters and hardware, as well. That’s the majority of a renovation,” says Hansen. Her mother and father, Andre Coelho Sr. and Janet Coelho, started their flooring business in 1976, and she and her brother, Andre Coelho Jr., have long been a part of the operation. Four years ago, their father retired, and Katelyn took over.

For Gregerson, a decline in foot traffic led him to consider how to bolster ticket sales. “Traffic was really good in the pandemic, but in the last year or two, we have seen the number of customers walking in slow dramatically. The tickets were getting bigger, but the customers were fewer, so we asked ourselves how we could raise the average invoice. And that’s what drove us to diversify, so we could keep volume increased with fewer customers.”

Ted’s Floors & Beyond added new offerings in the outdoor space, but its biggest addition has been cabinets. “We have been doing granite counters for 18 to 20 years through a partnership in town,” says Gregerson. “We were doing everything in the kitchen and bath except the cabinets, so it was a natural fit to get into that.” Gregerson opened his first flooring store in 1997 at the age of 28. Both of his businesses are based in Anniston, Alabama.

Molyneaux recalls that the first suggestion that he should consider diversification came from Phil Koufidakis of Arizona’s Baker Bros. at Molyneaux’s very first National Floorcovering Alliance meeting in 2019. “Phil suggested that we consider countertops. I started meeting with a local vendor partner/fabricator before Covid and then, after lockdown, fired it up and also decided to paint cabinets,” recounts Molyneaux, who noted that Koufidakis made the suggestion following a successful diversification into countertops in his own business.

Along with countertops, beginning in summer 2020, Molyneaux’s team began offering change-outs of cabinet hardware, but then they realized that some people wanted a new cabinet door style too, so the business began offering custom cabinet restyling in early 2021. In early 2022, the business added interior painting to its offering. Molyneaux Home is a fourth-generation family business with locations throughout the Pittsburgh area.

INVESTMENT ADVICE
The “how” of diversification is, of course, the greatest challenge. For operations that have focused on flooring exclusively throughout the life of their business, launching into the unknown can be overwhelming.

Furthermore, learning curves can be lengthy, with success more of a long-term venture than a short-term one. “I had been wanting to move into kitchens for quite some time but was afraid of how custom and complicated they are,” explains Molyneaux. “Our diversification has been successful, yes, but the learning curve was way harder than anticipated. All of it has been harder. Ignorance is bliss. Had I known how hard it would be, I may not have done it. However, over the long term, I think it was absolutely the right move.”

Molyneaux characterizes the investment his business made in diversification as “moderate.” “Because we made a lot of mistakes and had to train people, the learning curve was expensive,” he notes. The business did not have to invest in additional square footage; rather, it simply leveraged its existing space, which, of course, saved that expense from ballooning. At present, Molyneaux doesn’t expect his business to move into additional categories.

Hansen reports that her company’s diversification efforts started small with a single brand of ready-to-assemble (RTA) cabinets in a single display, which made for a minimal initial investment, but the business ultimately made a larger investment to bolster its cabinetry offering. “We started that way to get our toes in the water, then we expanded from there. When we opened our second store in Somerset ten years ago, we did more research and brought in another brand. Then I got proficient in design software for cabinets and introduced custom and semi-custom lines, so that we have something in every price point,” Hansen explains. For her clients, Hansen creates layouts with 3D renderings free of cost.

Gregerson notes that while his upfront investment in cabinets was “significant,” there hasn’t been much cost after that initial chunk. Gregerson has what he characterizes as a “fairly decent-sized cabinet showroom.” He carries Wellborn cabinets, which are a higher-end product made in Ashland, Alabama, about 30 minutes away from Anniston.

Moullet has invested heavily in his appliance business with nearly $1 million in inventory but notes that it isn’t mandatory that new entrants to diversification go that big.

KEY STRATEGIES
Launching a new business in an established market requires getting the customer’s attention. For some, that may mean a rebrand to align the operation’s name with its new offering. For others, it may simply require making noise about what’s new.

In May 2023, Moullet changed the name of his businesses to Monteriors and Monteriors Outlet to better represent its expanded offering. Around the same time, Molyneaux rebranded from Molyneaux Tile Carpet Wood to Molyneaux Home across its seven locations. Rebranding a business comes with significant costs that must be factored in at the outset. A name not representative of its current offering is not doing its expanded business any favors.

As for getting the word out about her offering, Hansen reports, “The few print ads we do feature cabinets pretty heavily. If I can get customers in for cabinets, I can get them for everything. Usually, cabinets are the first step in a remodel.”

As for who her operation is competing with, Hansen says, “The big home centers are competition, and we have several cabinet stores within ten to 15 minutes of us. But I have the edge because I’m also in flooring.”

Hansen’s strategy is to carry products not available at the big box stores. She says, “We source countertops through a fabricator who only deals with cabinet stores, so we have access to all the brands in quartz and porcelain. I display the big brands that might pull people in with their name, but we have access to the full stone yard.”

One way that Hansen’s strategy is unique is that she operates her cabinet business out of a different location from the main flooring operations; the two locations are an eight-minute drive apart. Hansen’s brother and a retail sales associate (RSA) man the flooring operation, while Hansen manages the cabinet location on her own.

Though the offerings are housed separately, the intent is always to capture as much of the sale as possible, with Hansen noting that she feels disappointed if cabinet customers buy their flooring elsewhere.

Hansen leans heavily into her design and layout services as an added bonus, and kitchen projects now account for more than 50% of business. “As a designer, I have more control of the finished product, as I’m dealing with every aspect,” she says.

While her design services are currently free, she has debated about whether that’s the right approach. She enjoys the work but understands that it holds a great deal of value, which is lost if a client walks away without purchasing. At present, she is debating how she might add a price tag to that service without scaring customers away, perhaps crediting the cost of the service toward the purchase of product.

One important piece of Hansen’s operation is communicating all she offers to the customer. “A lot of customers are referrals, so they know what we can do, but I don’t know if they realize the value of service,” Hansen notes, pointing out that, in addition to eliminating the cost of incorporating an interior designer, her service also saves the customer time, as they don’t need to shop multiple locations and coordinate multiple schedules on a single project. “I’m handling 90% of a remodel,” Hansen reports. “I can show the customer what it will look like in the end and offer a total budget.” In addition, she coordinates with her clients’ general contractors directly in regard to scheduling and other issues that arise.

Gregerson has also seen his add-on business take a primary role in attracting customers. “At first,” Gregerson recalls, “we just expected to sell cabinets to our flooring customers. But we have realized that no one in our area is marketing cabinets, and we have taken our marketing there. Now, we have customers calling about cabinets, and flooring is sometimes the add-on sale.”

STAFFING CONSIDERATIONS
Prior to adding cabinets, Gregerson hired an RSA who had worked previously at Lowe’s selling cabinets and had experience with 2020 Technologies’ software used for cabinet layout. Interestingly, when Gregerson initially contacted Wellborn about adding its products to his store, the company was unwilling to offer its line to Ted’s until it learned that the business had an employee who knew how to use 2020. Since that time, Gregerson has hired two additional cabinet designers to have one in each location.

On the labor side, Gregerson explains, “We had a builder subcontractor who had experience installing cabinets, and we started with him. Then we hired another contractor who does remodeling, and he did cabinet installation for a few years. Now, he’s an employee and he’s doing the majority of our cabinet installation.”

At his locations, Moullet allows his RSAs to decide whether they want to cover only flooring or learn the other product categories, as well, though he does encourage them to educate themselves on the full offering. As it stands, some specialize and some cover everything. Flooring specialists may assist a customer with flooring and then pass them off to a cabinet specialist to handle that part of the sale.

The same holds true on the installation side. Granite countertops are installed via an in-house team, while its flooring and cabinet installers are a mix of employees and subcontractors. Some installers work in both flooring and cabinets, but most are specialized in one area or the other.

For Molyneaux, one of the greatest pains throughout the diversification process was bringing on new crews within a totally new area of business. With the shortage of quality laborers not only in flooring but across the trades, both the retailer and the laborer are unfamiliar to one another, making such connections even more difficult to establish.

BENEFITS OF DIVERSIFICATION
Molyneaux structured his diversification venture so that his RSAs can work with their clients from beginning to end. This both creates a positive, streamlined approach for the customer and provides his RSAs a chance to close larger sales that yield bigger commissions, a win-win.

He does point to one drawback: the sales cycle is extended, with the customer making more trips to the showroom and taking more time to commit.

Ultimately, says Molyneaux, “I think long term, diversification will give us a competitive edge over the emerging competitors in our core category.”

Moullet notes, “Once you get the first ‘yes,’ you keep asking for more sales. If the customer trusts you for one element, they will trust you through the project. Some customers want to spread their money around to multiple retailers, but it’s easier for them to come in and work with one person. And as far as builders go, it saves them time and effort to work with one provider, when we can coordinate delivery and installation times at our end.”

At this point, flooring sales represent 45% of Moullet’s business, and his add-on businesses make up the rest, so he feels the diversification venture has been a success. “For me, diversification has increased sales and bottom-line profit, and our overhead hasn’t gone up except for warehouse space,” he says.

At one point, Monteriors added lighting to its lineup but found that Internet retailers rule that space. “It’s so easy to order lighting online,” he notes. “We had our own website. Even though our prices were lower, customers assumed it would be cheaper to buy direct.”

Moullet advises that flooring retailers looking to add a new offering to their business look at cabinets first. “They are easiest and cost the least,” he says. “They offer a decent margin. Plus, it’s a natural tie-in to show cabinets with flooring, and they don’t take much floor space.” Moullet’s showroom includes an idea center with 14 mock kitchens.

Gregerson also judges cabinets to have been a good add-on for his operation. “The learning curve was significant and still is, but, for us, diversification has been a success,” he says. “We started last April and sold over $300,000 by the year’s end. And this year, we expect to sell $1 million to $1.1 million in cabinets.”

He continues, “The greatest benefit has been keeping our sales volume where it is with fewer customers. Our sales volume is maintaining pace. Last year was a record year. This year we are up 2%, though traffic has been slow.”

Gregerson advises, “If a retailer doesn’t want to get fully into the cabinet business, it would be easy to get into only vanities if they are already doing custom tile showers and bathroom floors. We are selling a lot of vanities, and they don’t require a lot of expertise in installation.”

Hansen believes her business to be in a sweet spot with regard to its current offering. “I feel like at this point we are in a good place,” she says. “Lighting and appliances are a whole different animal. I have stores that I send clients to for lighting and appliances, and they refer business back, too. I don’t feel like I could do as well in those areas as they do.”

Copyright 2024 Floor Focus 

Related Topics:RD Weis, Coverings, Molyneaux, The International Surface Event (TISE)