Strategic Exchange: Mortgage rates to drop soon – Feb 2024

By Kemp Harr

The good news that inflation on a monthly basis, excluding food and energy, has been at or below 2% in six of the last seven months is reason enough for the Fed to start cutting interest rates. So, the debate now is not if, but when. According to a Wall Street Journal article at the end of January, it could be as soon as March or as late as June.

Once rates come down, demand for flooring will pick up as mortgage rates drop and home sales, both new and existing, are reinvigorated. This has been a tough 18 months for many suppliers and residentially focused retailers and its reassuring to know the storm is about to come to an end.

CONSOLIDATION AMONG DEALERS
I mentioned at the end of this column last month that 2024 will be a big year for change. For one, consolidation, in both the retail and commercial contractor businesses, has reduced the total number of dealers in the flooring business. This consolidation hasn’t drastically reduced the number of store fronts, although some businesses have exited the flooring business, but it has reduced the number of accounts, because successful businesses have expanded by buying out retiring owners of other flooring businesses. The end result is a net loss of total business owners, as the owners that stay in the business grow as multi-location businesses.

We’ve covered the big aggregators, like Diverzify in the commercial segment, Artisan Design Group in the builder segment, and America’s Floor Source and 31st Street Capital in the retail sector. But there is another layer of consolidation that’s not quite as evident. Within CCA Global, for example, the member count has dropped to around 1,200 from approximately 1,500 pre-Covid, with more of the members owning more than one store.

Probably the biggest driver of this consolidation is the ageing of the Boomer owners of these dealer locations, who are seeking an exit for retirement. Those owners who have no heirs who are interested in taking over the business have sold, and they’ve used the healthy financials from the post-Covid surge in sales to establish their business’ value. Now that business is soft, that wave of transactions has passed until the next surge in business increases values again. All indications point to very strong demand for flooring starting in the latter half of this year and extending through 2025, with the commercial sector lagging behind that cycle.

NEXT GENERATION STEPPING UP
Refreshingly, those owners who do have heirs are allowing the next generation to step in and take over the day-to-day. And these Millennials are retooling the business with fresh ideas. Three examples within the National Floorcovering Alliance (NFA) come to mind. At O’Krent Floors in San Antonio, Jason O’Krent, the nephew of CEO Sam O’Krent, is stepping in as the fourth generation leader; we recently learned that Jason has given all of the RSAs iPads to increase their efficiency, and now they can’t live without them. We’re also watching Sam Robert’s daughter Alex take over, as Sam turned 70 in October and handed over the reins at Robert’s Fine Floors in Houston. And Steve Coles in San Diego is also giving more control of his retail operation, Coles Fine Flooring, to his daughter Lauren.

On the commercial side, we’re watching as Richard Freidman at DFS in Los Angeles brings in his son Josh, and Steve Cloud at M. Frank Higgins in Connecticut is grooming his son Travis.

We continue to give recognition to the emerging leaders who are under 40 in our annual contest. This year’s winners can be found in this issue, starting on page 68. Several of these individuals will eventually be taking over their family businesses, and we will be watching as they bring in new ideas that strengthen their position in the market.

SHIFT IN CONSUMER PRIORITIES
The consumer continues to evolve, and the primary drivers for the flooring they select are changing. While many of the large suppliers would have you believe that waterproof is the key driver, sustainability, authenticity, local sourcing and discounted price rank higher on their list. It’s not that they’re looking for cheap, it’s that they want to feel that the place where they’re shopping can tell a story about why they are the best value in the community. Once a dealer understands this “why” focus, it’s easy to present a solution that works.

Statistics are now telling us that the decision on who the consumer chooses to buy from begins online, often before they ever visit the store. So, the “About Us” area of the website is crucial to not only tell who you are but also your “why” story. Photos that show your support of local teams and donation of remnants to local school classrooms should go in this area. It’s also important that customers know that your talented team of designers can curate their space so that it is unique to them. Lastly, they need to understand how the scale of your operation gives you discounted purchasing power so that you’re able to offer higher-quality flooring at unbeatable pricing.

It also doesn’t hurt to ask the consumer to bring in a photo of the space they are upgrading so you can plug that into your room visualizer.

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

Copyright 2024 Floor Focus

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