Strategic Exchange - March 2009

By Kemp Harr

The key to survival this year may be hidden in the name of our publication—Focus. Know who you are, know what you’re good at, know what you’re known for—and focus on getting even stronger in those areas. And remember, if you don’t position yourself, you will be positioned.

For those of you who weren’t able to attend the opening session of Surfaces Expo in Las Vegas, where the leadership of many of the top flooring manufacturers spoke on the topic of “prevailing in the current economy,” two additional key messages for survival rose to the top—operational excellence and customer intimacy. A company with operational excellence is focused on making sure all its costs are streamlined toward attracting and servicing the customer, cutting everything that is not essential from a cost standpoint. And customer intimacy is being passionate about connecting with them, satisfying their needs. Giving them the level of service they can’t help but tell their friends and family about.

Paralyzed by Fear
The easiest thing to do during times like these is to take no action at all, which is often what happens when people are afraid. Fear is in abundant supply today, and there’s good reason for some of it. But we are far more fearful than we need to be and it’s making too many people sit on their hands when they could be taking meaningful action, both in business and in personal life. For example, look at the number of people who have taken their money out of the stock market and are just holding it in 30 day treasury bills, which at the current yield is about as rewarding as stuffing your money into your mattress.

A major and unprecedented factor in this fear and paralysis is the way news and information are disseminated through the Internet and 24 hour news. This is the first major economic dip that we have experienced since the newspaper and network television have been replaced by 24 hour cable news and the Web as our primary sources for breaking information. Information that would have taken several hours or even days to reach a wide audience back in 1980 today can reach most people within minutes. But in a rush to be timely, both cable news and the Internet contain a huge amount of false or misleading information that has not been adequately researched, and it’s not always easy to know what is true. In a poll conducted in December by Opinion Research Corporation, 77% of Americans blame the media for making the economic crisis worse by projecting fear into people’s minds.

The constant drumbeat of negative information soon becomes just part of the background and affects everything we do. Just take a look at the buying habits of today’s consumer. Prices have never been lower for almost everything, but people are afraid to spend their money. Constant bad news affects the consumers’ willingness to help turn the tide.

I’m often reminded of the Don Henley song Dirty Laundry when I think of the consumer media—“Kick ‘em when they’re up, kick ‘em when they’re down.” Reporting the doom and gloom sells papers and sensationalizing this economic downturn is good for their advertising revenue. But some papers are quite possibly finding out that it’s a self fulfilling prophesy. If you are following the predictions, many stories in the media are moving the timing for a potential economic about face from the third quarter of this year to the forth quarter and beyond. But I’m not there yet.

There’s a lot of opportunity for those who are simply willing to take it, and those who do will be rewarded. Consider this. In a recent article in a Georgia newspaper, Chris Davis of the World Floor Covering Association was quoted as saying that he expects about 25% of all floorcovering retail operations to go out of business during the downturn. That certainly seems like a high number, but each and every year about 15% of flooring retailers exit the business and an equivalent number enter it, so the bigger issue is how many folks will get into the flooring business during the downturn and how they will fare, and that’s harder to predict. It’s just the nature of the industry, because the barriers to entry are far too low. Some more seasoned retailers have suggested that manufacturers should require higher minimum order or more stringent requirements for opening an account. Its hard to say what the solution is but the fact remains that this economic downturn could take out a higher percentage of retailers, and that eventually could mean more business for everyone who has thought ahead and prepared for it. However, if you just zero in on the 25% figure, it can be almost paralyzing.

Another thing that happens in a fearful climate is that business owners start dabbling in areas where they have very little expertise, mostly out of desperation. That’s happening on the contract side. As one business owner told us, in situations where he used to see six bidders, this year he’s seeing a dozen, most of them he’s never heard of. Many of these new bids are coming from retailers who are under the impression that they can make more money on the commercial side, but they often have no idea what they’re doing. They under bid jobs, as much out of lack of experience as anything else, which not only hurts experienced commercial businesses but gives everyone a black eye down the road when the contractor cuts corners or tries to recoup losses in some other way.

As I mentioned above—know who you are, know what you’re good at, know what you’re known for.

The future of Surfaces
Surfaces is always an interesting show and this year was no exception. It came as no surprise that attendance was down. And we also weren’t surprised to see that several manufacturers either pulled out or cut the size or glitz level of their exhibit space.

It will be interesting to see what happens next year if the economy is still slow. There were vendors like Mannington, which last year had the largest display on the main floor, that instead set up in a side ballroom as a way of holding down expenses. Several other companies, like Armstrong, which hadn’t exhibited at Surfaces in six years, also used a ballroom rather setting up somewhere else in town. Are these ballroom exhibits the beginning of a trend? It’s hard to say, but we did hear from one company that it costs roughly twice as much to display at Surface as Domotex, not so much because of the square foot cost but because of all the logistics involved to use the space.

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