Strategic Exchange: With the election behind us, businesses are anxious to move forward – December 2024

By Kemp Harr

When I last wrote this column, we were on the eve of the election, and almost everyone thought the outcome would not be decided overnight. Now, the American people have spoken, and unlike Trump’s victory eight years ago, this time he won the popular vote, as well.

The advisors at ITR Economics tell us that party affiliation for whoever wins the presidency has little impact on the trajectory of the economy over the long haul, but the recent uptick in the value of the stock market says American investors are happy-at least for the near term. How will Trump impact the building and interior finishes market? He’s promising to lower the regulatory costs of building, but, at the same time, increase import tariffs on imported goods, which will most likely be inflationary. Granted, we’ve seen some price deflation on imported LVT in the past two years, so increased tariffs could level the playing field and put domestically produced LVT on par from a cost perspective.

In my travels since the election, I’ve had the opportunity to speak to many small business owners in the industry, and they are overwhelmingly happy with the election news. If for no other reason, they are happy to have the divisive rhetoric behind us. Initial estimates are telling us that over $10 billion was spent in advertising for this November election-$1.2 billion in Pennsylvania alone. We are all relieved that the noise has subsided, and no one is debating the final results.

ONGOING CHANNEL CONSOLIDATION
Consolidation continues to be a factor in every channel through which flooring is sold, and the distribution channel is being impacted, as well. When the National Association of Floor Covering Distributors (NAFCD) met in New Orleans in mid-October, consolidation was a big topic of discussion. The news broke on the first day of the event that Transom Capital, the private equity owner of Virginia Tile, Galleher and Trinity Hardwoods, had acquired Tom Duffy Company from owner Anne Funsten. And much like Belknap White/Haines/Swiff-Train’s decision to rebrand under the name UCX, Transom announced it would name its new distribution conglomeration Artivo Surfaces.

Last year alone, the number of members within the NAFCD dropped by 30. In most cases, the companies aren’t gone, they are now just part of a bigger entity. During the meeting, I interviewed both the incoming president, Brian Green, and the new executive director, Michael Wilbur.

On the retailer front, the latest consolidation news was this month’s announcement that America’s Floor Source (AFS), led by Jason Goldberg and Michel Vermette, had acquired Memphis, Tennessee-based Flooring Solutions. Jon Straub was the founder and owner, and his operation had annual revenues of $10 million prior to the acquisition. Unlike many transactions we’re seeing today, Jon’s decision to sell was not motivated by a desire to retire. Jon learned about AFS when he attended its boot camp seminar and was attracted to the concept of being part of a bigger organization. Flooring Solutions has already been rebranded as AFS Memphis, and Jon is staying on board to run the western Tennessee branch. AFS now has 13 locations in five states with an estimated $200 million in annual flooring sales.

On the commercial contractor front, Diverzify just announced the acquisition of a poured floor contractor in Dallas named DecoCrete and the subsequent formation of the new HPF (High Performance Floors) division focused on poured floors. This is Diverzify’s 26th acquisition since 2019. The two other private equity-based consolidators in this space, Lynx Equity based in Canada and SCI Flooring based in Detroit, have been quiet lately. Lynx’s last flooring acquisition was Resource4Floors based in Fort Lauderdale in 2022, and SCI Flooring’s last acquisition was Indianapolis, Indiana-based Carpetbaggers in June 2024. We expect more activity from all three of these firms in the coming year.

IMPROVED PERFORMANCE WITH SCALE
We’ve been watching a trend among retailers over the last two years as demand has been soft. Larger retailers outperform their smaller competitors in annual growth. We called this out in our Retail Top 100 article in the November issue, and we saw it firsthand at the NFA meeting in late October in Washington, D.C. Those buying groups that segment their membership by size also confirm this trend. In fact, CCA Global uses this data to encourage its members to take on more storefronts so they can take marketshare from their smaller and more stagnant competitors.

At this last NFA meeting, Benjamin Liebert, Shaw’s executive vice president of residential, presented some interesting statistics from a McKinsey study that reinforces this growth trend among dealers with scale in the building/construction supply category.

I interviewed Jeff Meadows, Mohawk’s president of residential flooring, about this topic a couple of weeks ago, and he said Mohawk is seeing this among its dealers, as well. “People that are really good at what they do are going to beat the market during tough times,” he reported. Jeff added that consolidation doesn’t have to be driven by private equity-funded investors. Family-run businesses that are in one market can easily expand into adjacent markets if the owners in that adjacent market are ready to sell.

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

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