Strategic Exchange: Raw material headwinds persist, but flooring sales remain healthy - Oct 2021
By Kemp Harr
Just as the economists predicted, sales velocity for flooring products at retail is cooling down a bit but still very healthy. The builder sector is strong, and the commercial market is building momentum. Hopefully, this slower growth will enable the supply base to catch up.
Most of you know firsthand that there have been six price increases in the last 12 months, and justifiably so. Transportation costs are still through the roof with offshore container costs running at ten times normal and no relief on the horizon. Labor is also a big issue, both for production workers on the supply side and in the sales and installation segment of the equation. To keep these positions filled, wages are going up. And last but not least, raw material costs for materials like polypropylene, latex and other petroleum-based flooring components are up between 80% and 100%. Fortunately, most consumers are tuned into the need to pay more and are willing to do so. The alternative is to wait for the next dip, which could be several years away, and most consumers aren’t willing to wait. Home values are at an all-time high, and with consumers spending more time at home, the inflated investment seems justifiable. My advice to retailers is pass the increases along because there’s no such thing as making it up in volume.
Hopefully, you’ve taken note that consumer sentiment has taken a dip, and we need to keep an eye on that. Unfortunately, too many consumers still haven’t learned to turn off the news, and they’re getting jittery, listening to stories designed to build a fearful audience-not reporting on the facts. The good news is that as growth in the residential remodel sector starts to moderate, builder and commercial will continue to drive gains, and those two sectors represent around 55% of the total flooring market.
We’re also continuing to see consolidation within the channel. It’s happening with commercial contractors, who recognize that they need financial backing to build the 75 days of cash necessary to float the bid work, and it’s happening on the residential side because of the abundance of cash seeking a home within private equity firms. The leading contenders are Diverzify on the commercial side, Artisan Design Group on the builder side, and 31st Street Capital and America’s Floor Source in the retail sector. In the last month, Jason Goldberg at America’s Floor Source bought JP Flooring from Phil Schrimper in Cincinnati, and Nick Bock at 31st Street Capital added Houston-based Floors for Living and Chicago-based Total Flooring to his two previous retail acquisitions.
AHF PRODUCTS’ ACQUISITION OF AMERICAN OEM
On the topic of consolidation, let’s discuss AHF Products’ decision to buy Don Finkell’s American OEM, which makes AHF Products the largest supplier of hardwood flooring in the U.S. You may recall that private equity firm AIP bought Armstrong’s hardwood business in 2018 for around $100 million, renamed it AHF Products and brought Brian Carson in from Mohawk to run it. This past January, AHF bought Parterre and then in late August bought American OEM.
Don spent over 30 years at Anderson Hardwood, until he sold it to Shaw industries in 2007. He then led Shaw’s hardwood business for four years before retiring. In May 2013, he started his own private label hardwood factory inside a prison in Burns, Tennessee. Over time, the business grew to roughly $30 million in sales. Last month, I asked Don why he sold, and his answer was “I’m not a spring chicken anymore.” He currently has a role at AHF Products, but Don’s an entrepreneur, so it will be interesting to see if he’ll last as long there as he did at Shaw.
Don told me in a leadership interview that we did in Floor Focus in April 2015 that his passion, outside of the hardwood flooring business, is history and nature, so I’m guessing his check from AIP is probably big enough to fund a little travel to outdoor places with significant historical significance.
STARNET’S DECISION TO CANCEL ALL MEETINGS
With NeoCon just around the corner and the Floor Covering Industry Foundation Gala (FCIF) in New York right after that, we were disappointed to learn that Starnet was cancelling all of its meetings for the remainder of the year. I’m not weighing in, but it is a shame that the group will miss yet another year to connect and network with each other face-to-face. I know the group is large, and that alone makes distancing difficult. As mentioned earlier, momentum is building in that sector of the business, so hopefully we can all get together in ’22 to celebrate. I believe that will be Starnet’s 30th anniversary. Jeanne Matson is one of the honorees at the FCIF Gala on October 9, so hopefully some of the group will come to that event.
If you have any comments about this month’s column, you can email me at email@example.com.
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