Strategic Exchange - April 2010
By Kemp Harr
Probably the biggest retail flooring news item this month is Invista’s decision to pull its Stainmaster brand out of 2,300 Home Depot and Menards stores, reportedly to earn a stronger presence at 1,700 Lowe’s stores in the home center retail channel.
When Invista called to announce this news, I asked whether this decision was made to punish Home Depot or reward Lowe’s, and it said the latter. But knowing what I do about brand positioning, I’ve got to believe that part of this decision was made to protect the brand’s hierarchy in the marketplace. Brands that are sold anywhere and everywhere and at all levels of pricing tend to lose the luxury promise that motivates a consumer to pay more for them. Last year’s $39 whole house installation promotion at Home Depot on Stainmaster carpet not only risked positioning the brand as a commodity but also hurt the independent retailers who have supported Stainmaster for years and helped position it as a premium product. This decision is bound to be good for the independent retailer.
Let’s not forget that while the home centers have continued to take overall share in the retail flooring market, carpet and resilient are their two weakest categories because of the logistics and difficulty surrounding installation.
When you step back and look at all the factors impacting Stainmaster’s loss of share in the carpet fiber world, there are many to consider. Stainmaster has lost share with Shaw and Mohawk because those mills have their own Anso and Wear-Dated nylon brands. Stainmaster fiber is only used on better, more expensive carpets, and that segment has been hit harder during this economic recession. Raw materials for nylon are in limited supply, so pricing has risen, opening the door for cheaper polyester. In fact, in 2009, BCF polyester volume increased 26% even though overall demand for carpet continued to decline. And triexta is another factor. Mohawk’s retailers are continuing to promote Smartstrand as the latest fiber from the inventors of Stainmaster. Ouch!
One has to wonder what Invista’s owner, Koch Industries, thinks about this decision. The home improvement giant is reportedly not happy and we estimate that Home Depot’s current volume with Stainmaster branded carpet is close to $100 million. Is Koch Industries concerned that Home Depot might take respond by punishing Koch subsidiary Georgia Pacific, which is a major supplier to Home Depot for lumber and other building?
And what about the carpet mills that are caught in the middle and have to pay to resample all three home centers because of this shift in alliances? Only time will tell who wins with this decision, but we can be fairly confident that more carpet will be sold, especially if the home centers decide to increase their consumer advertising to promote their unique market positions.
New Carpet Installation Standard
Carpet is still the leading flooring surface in the U.S. from both a revenue and a unit perspective, and the fact that new installation standards are being written deserves more than a tertiary mention. Historically, installers used either the Carpet and Rug Institute’s standards (CRI 104 or 105) as a training guideline, or they learned on the job or in one of the many training classes offered by the mills, the carpenters union, or Jim Walker’s CFI group. One interesting break from tradition is the fact that the Carpet and Rug Institute isn’t leading the development of these standards. They’re actually being developed by the Institute of Inspection, Cleaning and Restoration Certification (IICRC), which is the same group that wrote the standards for cleaning and maintaining carpet. This is not to say that the CRI is not involved. In fact, the CRI and the World Floor Covering Association have teamed up and agreed to cover the initial expenses of developing these standards, and since they are using the ANSI process this can take time and be expensive. In fact, many people question if the ANSI process is a wise choice due to the length of time it takes to make changes as the product or installation process evolves.
The long-range plan—once the standards are written and enough installers have been trained, tested and certified to use these new standards—is for the mills to tie their performance warranties to these standards. In other words, the mills will dictate that carpet must be installed by a certified craftsman much like they currently require carpets to be cleaned by certified cleaners for warranties to remain in effect.
Think for a moment about the ramifications of these decisions. One way for a carpet mill to reduce cost to meet a certain price point is to cut back on the quantity or quality of the ingredients used to produce the product. With backing and face yarn, these short cuts are visible and hard to hide. But when a mill adds filler to its latex adhesive, it cuts costs in a way that can’t be seen by inspecting the product. These shortcuts usually do, however, manifest themselves later when the installed carpet starts to wrinkle after it’s been installed on the homeowner’s floor.
In the past, it’s been easy for certain mills to blame these wrinkles on installer issues, and there are times when this fault does lie with the installers because they’ve taken short cuts and, for example, knee-kicked the product instead of power stretching it. But once all the installers have been trained and certified, it may be more difficult for the mill to abdicate the responsibility of paying for re-stretching the carpet. Naturally, certification is no guarantee that an installer won’t take a shortcut and diverge from the certification training. But if he’s certified, and he can prove the carpet was power stretched, the mill will most likely have to pay the claim.
NFA Changes Membership Bilaws
The National Floorcovering Alliance met a few weeks ago in Banff, Canada for its annual spring meeting. This elite group of retailers, with only 38 members that represent approximately 250 storefronts, touts themselves as “America’s Finest Flooring Retailers.” The Alliance was formed in 1991, and membership is limited to retailers whose annual retail flooring sales volume exceeds $10 million. New membership candidates must not be in competition with an existing member in the same market. This group is technically not a buying group because most of the members negotiate prices on their own behalf, but they do negotiate collectively on certain items.
At this year’s meeting, the members changed the membership bilaws to establish a mechanism whereby existing members are held to the same volume threshold as new members. With these revisions, members who fall below a certain volume level are automatically put on probation for a year, and if they don’t get their sales volume back up within that period, they’re expelled from the group. This new mechanism eliminates the need for members to vote a member out and with a group as small as the NFA, expelling a friend can be very difficult. Prior to this change, the only way to expel an existing member was by majority vote of the membership.
In a conversation I had with NFA president Jeff Macco, a successful Wisconsin retailer, he explained why this bilaw change was so important. “Our tier-one vendors recognize us as an elite group of retailers who are usually the dominant players in the markets we serve. They offer us special-buy programs and discounts because of our strength in the marketplace. If we have a member who has lost his edge in a given market, we need to be able to shift our alliance to a stronger candidate once we’ve given our existing member a chance to regain his edge.”
During the meeting, the group also discussed the optimal size of the membership as it attempted to set long-range goals. It was decided that filling the geographical gaps in its membership coverage in the U.S. and Canada was more important than setting an arbitrary number of members.
The group also made some headway toward identifying a supplier willing to offer a discount price on a polyester “roll-buy” similar to the Stainmaster nylon roll-buy agreement it has had with Shaw Industries for two years, which has already resulted in sales of 2,200 rolls this year. Most of the NFA members are also Stainmaster Flooring Centers, and much of their carpet volume has traditionally been with nylon. But with the gap in cost continuing to widen between nylon and polyester, many in the group are selling more polyester carpet.
Macco has served as president for two terms. At the fall meeting in Puerto Rico, a new president will be elected, and Jeff will join the ranks of ex-presidents, along with Gary Cissell of Nebraska Furniture Mart and Sam Roberts of Roberts Carpet and Fine Floors in Houston.
If you have any comments about this month’s column, you can email me at email@example.com.
Copyright 2010 Floor Focus