Strategic Exchange - December 2009

By Kemp Harr

If the state of the housing market and the performance of the stock market are key barometers in the overall health of the economy, then perhaps we are indeed on the road to recovery. Sales of existing homes in October rose 10.1% percent, the highest level in more than two years. If we keep that pace, 6.1 million homes will change hands in the next year. And to date, the S&P is 21% higher than it was at the beginning of the year. And let’s not forget that third-quarter GDP was up 2.8%. 

So what’s got consumers in such a funk? Consumer confidence has been waffling below 50 for the last three months. Is it because unemployment is high and isn’t showing signs of recovery? Is it because the federal budget deficit is $12 trillion and the value of the dollar has dropped 18% versus the euro in the last 12 months? Is it because Washington wants to make sure that 30 million people are added to the ranks of those with healthcare insurance? 

It is difficult to make sense out of all of this. You don’t know whether to laugh or cry. But just as it’s important to remember your family roots, it is also important to remember a few fundamentals about the USA. We are currently in a downturn that, albeit steep this go-round, is part of a normal economic cycle. Our nation was founded by some of the smartest minds in the world and our free market system is still the best in the world. Even though we’re in an economic funk, we still produce more goods and services by a factor of 2 to 1 than any other developed country. And right now, a weak dollar makes our goods and services more competitive in a global economy and puts our people to work faster than, say, Japan and Germany.

Freedom is, and always will be, our trump card. But only if we stay focused on the fundamentals of what makes us free and work hard to maintain our competitive advantage.

Social Media
Since I own a media company, one might think that I fear this budding phenomenon called social media because I see it as a threat to traditional media. Do these new networking forums such as blogs, tweets or Facebook newsfeeds allow anyone with a computer to be a publisher? The answer is yes. Do search engines like Google treat this published work with the same level of credibility when someone is looking for information? The answer is yes. So do I feel threatened? The answer is no—not as long as thinking people remain at the helm.

The fact remains that we all still only have two eyes and 24 hours in a day. Time is precious, and media professionals who are classically trained to vet out the truth to a defined audience with a common interest will always prevail over gossip to a group of social friends. True journalists have been trained to be unbiased, credible and responsible. As we are taught in journalism school, objectivity must prevail regardless of the sponsor or personal feelings. 

So what is the role of social media in the flooring business and should you make it part of your promotional mix? It’s indeed an inexpensive way to talk to a group of followers, and if you can amass that group and influence them for the benefit of your business, then you’d be making a mistake not to do it. One of your goals should be to increase the visibility of your brand, and on the Internet, most brand messages come in the form of a website. It has been proven that you can improve the organic prominence of your website by becoming more active with Twitter, Facebook, You Tube, LinkedIn or by creating a blog. And while this technique will only cost you the time it takes to set it up and do the posts, only you can determine if the results are worth the effort. Some experts say that social media works better for B2C relationships than it does for B2B promotion. 

Starnet’s Fall Meeting in Washington, D.C.
Most of you know that Starnet is a co-op of commercial flooring contractors with roughly 170 members primarily in the U.S. and Canada. Last month Starnet held its fall meeting in Washington, D.C. and member attendance was stronger than last year, and despite the somber outlook for the commercial market for the near future, the tone was upbeat and attentive. Most of Starnet’s members are seasoned veterans and they’ve made the necessary cuts in overhead to match their current level of business. Several of the members have built a strong maintenance business, and others have added a business development position to strengthen their visibility with A&D, building owners and facility managers. 

Over the course of the day we heard from a lawyer, a banker, an accountant and an economist. While that does sound like a great setup for the joke about a plane with not enough parachutes, the audience was given great advice on subcontractor agreements, banking relationships and tax planning. 

Probably the most noteworthy presentation was from Bob Murray, McGraw-Hill’s chief economist and the author of the Construction Outlook. Murray predicts that single-family housing units will advance 30% to 560,000 units. Granted this is still 65% below the peak activity of the mid-decade but it is probably in balance with the existing home inventory that needs to be absorbed. Multi-family housing will improve 14% in units to 160,000 units, which is about even with the level of building we saw in this sector at the end of the 1990s recession. 

Unfortunately, commercial building activity will continue to decline 4% in dollars next year, which will seem moderate compared to the 43% drop in 2009. A few bright spots will be seen in institutional, government and healthcare buildings, but most vertical segments will continue to decline. Hospitality will be hit the hardest, followed by office, retail and education.  In closing, Murray remarked that this recovery would take a “U” shape with very slow rate of growth in the near future. His GDP forecast for 2010 was +1.8%.

LEED for HomeS
Last month, while attending Michael Vogel’s DCS Partnership meeting in Sonoma, California, I ran into Nate Kredich, who is now leading the U.S. Green Building Council’s LEED for Homes initiative. (Prior to joining USGBC, Nate was with Creative Touch Interiors, and prior to that, with the Bluebolt Network, along with Al Kabus). While green hardly registers among residential flooring consumers when they are polled for their purchasing criteria, the LEED for Homes movement does seem to be gathering steam. Since its launch in early 2008, 3,600 new housing structures have been certified and 20,000 additional projects have registered to pursue certification. If you measure that total against current housing starts, that’s a 1.5% marketshare.

It is important to note that while flooring can contribute up to 2.5 points of the 45 points required for certification, the wrong flooring choice can completely derail the entire certification. If someone, for example, installs non-FSC certified tropical wood in a home, it can never be LEED certified. 

Nate also pointed out in our conversation that the biggest environmental gains to be made in the housing sector will come on the remodel side. While there are roughly 400,000 new homes being built today, there are over 120 million homes in the U.S. now—many of which were built prior to the energy building codes that were established in 1979. The USGBC is working with the current administration to address the proper way to retrofit these homes efficiently..

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.  

Copyright 2009 Floor Focus

Related Topics:Creating Your Space, Starnet