The State of Distribution: A panel of distributors weighs in on their value proposition and strategies for success – October 2024

By Darius Helm

With the residential market down an estimated 10% in sales for the second year in a row, all of the stakeholders are feeling the pinch, and that includes flooring distributors, many of whose business is residential. Floor Focus reached out to a handful of key distributors to ask about the state of business, their strategies for maximizing opportunities and the value they bring to both upstream and downstream partners.

To get the big picture, Floor Focus also touched base with Bruce Zwicker, CEO of Zwicker Advisory and former CEO of JJ Haines. Referencing the current sluggish market, Zwicker notes, “It’s really a game of stamina for distributors, and they’ve been there before-we had the housing crisis in the past, which was worse than this-so they sort of play the playbook: look at your cash, gross margin, and expenses to make it to the other side.” He adds that average flooring prices are down not just because of competition and low demand, but also because customers are trading down, buying cheaper products within a category and also buying a lower category-moving from wood to LVT or LVT to laminate.

Regarding the recent Fed decision to drop interest rates a half point, Zwicker notes, “When you have an interest rate change, it’s not like throwing a light switch. It takes time; there’s a lag effect,” adding that the lower rates won’t have an immediate impact on demand.

In terms of the trend toward consolidation in flooring distribution, Zwicker contends that private equity (PE) will come back in when the market improves, which he estimates will occur in the second half of next year. He adds, “When things start looking good for the housing market, we’re going to see a lot of PE money, and that PE money is going to come into distribution.”

For the distribution update, Floor Focus connected with Kirk Sandifer, CEO of Cain & Bultman; Greg Vale, vice president of sales for Fishman Flooring Solutions; and Tom Duffy Company’s Scott Bertram and Jon Youngberg, vice president of flooring sales and vice president of sales and marketing for installation supplies, respectively.

Q: What are the keys to success for flooring distributors in the current business environment?
Youngberg: I would say maximize your opportunities with your top proven products, be the best at providing solutions with those products, and maintain a reliable inventory availability to your customers.

Sandifer: It’s a very challenging environment currently, but we focus on our regional product trends that work in the Southeast. National manufacturers have to cater to the whole North American market, and many times they miss the regional trend demands.

Local inventory is the key for distribution, but our current focus is on our A, B and C product lines because they are still in high demand during this slowdown in the residential cycle. Diversification is another key for distribution, and the balance between our retail/residential offerings and our commercial portfolio is a tremendous advantage.

Vale: Being the “easy” button for our customers, local inventory and knowledgeable sales representatives that focus on adding value to our customer’s businesses.

Q: Are your customers showing an increasing or decreasing interest in domestically made products? What about products with sustainable attributes?
Bertram: We see our customers very interested in supporting American-made products but not willing to give up style, design and cost to do so. As American-made products become more affordable and more advanced in design, we believe the market will grow.

Vale: With recent financial and logistical challenges of non-domestic products, customers definitely prefer domestic products whenever possible. Sustainability continues to be important, especially within the architect and design community.

Sandifer: Our flooring customers would very much like to source more products that are local, regional or nationally produced for the convenience of the supply chain and will tend to lean on these American-made product solutions, but there still must be a value for their customers along with the greatly improved sourced supply chain.

Q: Do you directly source products from overseas suppliers? What is your strategy on private labeling and building private label lines?
Bertram: We do currently source directly. This was a good move for us, as we already have very strong private label brands that have been in the market for years. Making this move would be much more difficult if we did not already create strong brand recognition in our market with our Mission and Palacio lines.

Vale: At Fishman, our strategy is to carry the top brands that our customers want. We also have our private brand, Landmark Interiors, that consists of domestic and overseas suppliers of LVT, SPC, wood, laminate and sports flooring.

Sandifer: We have a tremendous portfolio of flooring products commercially and residentially, and while our national branded products help build and win specifications, our private label portfolio helps us use a more regional design trend at a typically more competitive pricing structure-very effective in filling voids from our top manufacturers.

We will typically have a private label product for each of the flooring categories: LVT, hardwood, laminate, rigid core, etc. Most of our commercial product lines are sourced from national manufacturers.

Q: As the import market continues to evolve due to government policy, supply chain constraints, and other factors, what have you done to ensure your supply?
Vale: We attempt to secure domestic manufacturers or back up domestic inventory whenever possible. We have to plan more efficiently and manage widely varying ocean-going freight rates.

Sandifer: First, with the imported products, we increase our traditional levels of inventory and focus on our A, B and C product movers to ensure fulfillment of orders. Secondly, we source local products from Georgia, Canada and Mexico to add to our portfolio for greater clarity of the supply chain.

Bertram: This comes down to having the right partners. We have been fortunate to have great long-standing partners, who work with us and communicate with us every step of the way. When supply or costs have hit a tough time over the past few years, our partners have helped us work through it and have been willing to step out of their comfort zone to support us-including investing in domestic inventory of their own to help bridge any issues that come about.

Q: What is the greatest value a flooring distributor brings to its manufacturer partners?
Sandifer: A knowledgeable regional sales force that has long-term relationships with the regional flooring contractors, retailers, builders, commercial and multifamily. And local/regional inventory with a logistics model that offers daily delivery throughout the entire territory. Also, payables and receivables throughout the region, which offers manufacturing partners positive cash-flow and localized inventory.

Marketing and merchandising strategies on a regional basis also bring value. Not all strategies work for all regions of North America, nor for all flooring retailers. Having multiple marketing and merchandising strategies to cater to the needs of each dealer.

Vale: Distributors like Fishman can support our manufacturers’ success by providing knowledgeable sales representatives, local inventory, rapid delivery and credit assistance. Fishman is an employee-owned firm and if we help our customers be successful and invested in their business, so too are our vendors and employees.

Youngberg: You need to provide integrity for their products. You must train your staff on your manufacturer’s product attributes and how it stacks up against the competition. Also, as a first-class distributor, you need to back it up with available inventory that your customers can rely on and thus feel comfortable selling to their end-users.

Q: What is the greatest value a flooring distributor brings to its retailers/commercial contractor partners?
Sandifer: Distributors are a local source of flooring knowledge that supports their business with just-in-time inventory, sales support, cash terms, logistical reach and the capability to drive specifications both residentially and commercially. Ultimately, flooring dealers source from distribution because of the local partnership that is formed over decades. We both are experts in our respective flooring roles.

Bertram: In a difficult retail environment like we are currently working through, retailers and distributors must work even closer together. A distributor must have products that separate it from the sea of sameness you see in retail stores. Then you must partner with the retailer to create a sales approach that incentivizes the retailer to want to promote your products. From the owners to the retail salespeople, they all must buy into a program and feel confident and supported with the program.

Vale: Successful distributors shorten the lead time for our customers by providing local inventory-they are a partner to our customers by selling solutions, and they provide rapid delivery and adequate credit assistance. At Fishman, our goal is to delight our customers with every product, service and solution we provide.

Q: Have you entered into a new product category, market or businesses in the past five years? If so, what and why?
Vale: Within the last five years, we launched our private label umbrella brand, Landmark Interiors, to provide our customers with great floors at an exceptional value. We support the brand with a look book for inspiration and a room visualizer to bring our customer’s vision to reality with any wood, LVT, laminate or sports flooring in the collection.

Sandifer: Yes! We’ve added wall base to our portfolio because of our partnership with Tarkett in 2022. And we have come to know that wall base is in high demand week in and week out. Wall base is sexy!

Bertram: It certainly is not a new category, but we have reentered the WPC market category. We still believe in and sell a lot of SPC; but we also feel there is a bit of fatigue in the category. Some retailers and builders feel more confident selling a thicker WPC product.

Q: How have you optimized your service and selection to better serve your customers?
Vale: We have 40 locations across 15 states, and each of those locations is optimized to inventory products that the local market demands.

Sandifer: Years ago, we transitioned to a regional distribution center that is geographically centered in the greater Southeast region, and this model affords us the opportunity to service our dealers’ orders on a next-day basis throughout Florida, Georgia, Alabama and South Carolina.

Our B2B platform has been a huge success for our major accounts that needs transparency throughout their organization. And our online customer portal allows our customers 24-hour access to Cain & Bultman seven days a week.

Q: What ERP system do you use, and how do you use the Internet in serving your customers?
Vale: We use Eclipse and a Web Order Entry platform for our customers to be productive 24/7. Pricing, specifications, inventory and data sheets are all available via Web Order Entry.

Sandifer: Our ERP system is the Kerridge Commercial Navigator system. We have two separate websites for the use of our customers, and so their customers will have a source for their research and validation. And we offer digital commercial drip campaigns on social media platforms on a weekly basis.

Q: What are your greatest concerns right now?
Vale: We are continuing to monitor the macroeconomics in our industry. We need to see more interest rate cuts for our residential new home market to thrive, and on the remodel side, we need inflation to ease. The commercial segment continues to be a bright spot for us, but that vertical can also move negatively if improvements are not made in the residential market.

Sandifer: The distribution platform is alive and well in all markets of North America, and with most flooring categories, distributors have the wherewithal to compete with all suppliers and manufacturers. Our biggest challenges will be tied to the continual chaos with the supply chain in sourcing our products. The more consistent supply and sourcing become, the more predictable we become to our customers.

Keeping up with the technology that is changing rapidly in all aspects of distribution, from procurement of product to logistic deliveries to e-commerce and e-marketing, is another concern. There is a lot to absorb, but it must be a growing portion of our overall focus.

Q: How do you see the distribution business changing over the course of the next decade?
Vale We will continue to see consolidation in distribution, and we are poised to grow and are excited about the future.

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