The State of Flooring Distribution: Distributors discuss the nature of the business today - Oct 2017
The role of distribution in the flooring market is changing, and, with it, today’s distributors must embrace new ways of doing business if they are to remain competitive. Here, Jeff Hamar, president of Galleher; Maybank Hagood, CEO of Southern Diversified Distributors, Inc., which includes William M. Bird & Co., TranSouth Logistics and Southern Tile Distributors; and Craig Folven, vice president of sales and marketing for Herregan Distributors, discuss the techniques they are employing to stay ahead of the pack in the current market.
Q: How has the distribution business changed over the course of the last five years?
Hamar: The Great Recession completely rewrote the rules for distributors. During that time, U.S. manufacturers had five years of really tough business conditions in which they pulled back on marketing and stopped investing in capacity. When the recession lifted, in-demand products had changed-ceramic had shifted to large formats; hardwood had shifted to longer, wider and European white oak visuals; LVT and WPC were coming into play. U.S. factories were not set up to produce those products and largely missed the major trends. Most of the innovation came from outside the U.S. While the U.S. was seen as an innovation leader previously, it surrendered that standing in the recessionary period, and today, distributors who are dependent solely on U.S. suppliers are not growing.
From this, I see four major impacts on distributors. First, the manufacturer brand is a lot less important. Second, there are many more sourcing opportunities around the world making compelling products that the market is demanding. Third, as a distributor, we now have to find ways to create value that are different than simply selling U.S.-produced products-because we’ve done that. We have to add value through new products, new customer channels and new market development opportunities. Fourth, we have to change the way we sell. The role of salesperson is less important. Today, distributors have to employ segment-specific strategies that are data driven. We try to target end-users and go after those opportunities whether we ultimately sell to the end-user or not. We can’t wait around for others to create demand.
Hagood: Distribution has consolidated on a regional basis, and the distributors’ on-line transactions with dealers have increased dramatically. Today, distributor private labels are more prevalent, and customized display methods are popular.
Folven: The floorcovering industry is always changing, and distribution, specifically, has changed tremendously in the last five years. Among the many changes, the huge volume of imported products and shortened product lifecycles have been the most significant. As a distributor, we focus on efficiently turning inventory while maintaining high fill rates. With so many products having three- to five-month lead times, this becomes a tremendous challenge. In addition, the lifespan of a new design or construction could last only for a year before the next best thing hits the market. Trying to stay current with the latest designs and product technologies for our customers while remaining operationally efficient is what we strive to succeed at every day.
Q: What are the keys to success in this business environment? What are the greatest challenges?
Hagood: Anticipating change and responding to it is critical. Our vision is to be the preferred partner with our customers and suppliers through profitable solutions, trusting relationships and timeless values.
Hamar: Proprietary brands; a wholly different sales and marketing approach driven by competition models; the objectives and skill sets of your sales team; greater focus on high inventory levels to meet market demand as well as merchandising systems to get out there; more investment in working capital.
Over the last 25 years, lots of distributors have fallen off, and today, many are not growing. The big boxes and mega retailers have radically transformed the market, which was traditionally the independent retailer selling for home renovation. In addition, there are newer players disrupting the market. Disruption is everywhere, yet we’ve had essentially the same model since the 60s. There are all new rules to the game right now-Who is a customer, and who isn’t? Who can you sell to, and who can’t you sell to?-and in these transitional times, those without traditional relationships are free to do things that others aren’t. Today’s distributor needs to take notice of what areas are growing and redeploy resources to those.
Q: Have you entered into a new product category, market or business in the last decade?
Hamar: WPC and LVT-we’re much deeper into LVT than every before.
In addition, we have significantly ramped up production at our Arizona hardwood factory, which is around 100,000 square feet with multiple prefinished lines and scraping capabilities. We have really expanded our focus in high-end residential and have been able to build our product line around the upper end. That’s where the most dramatic growth in housing is right now, and the traditional U.S. manufacturer doesn’t have a product mix that appeals to the high-end residential homebuyer.
We are also ramping up our mainstreet commercial offering right now. We just added Tarkett Johnsonite in the last six months.
Hagood: We have entered into several new product categories: LVT, WPC, rigid core, and supplies. We also purchased three distributors (Orders Distributers in 2009, Design Distributing in 2010, and Southern Tile in 2012). These three acquisitions enabled us to have a much larger presence in North Carolina and Virginia. New products and further penetration in our marketplace are critical to our ability to offer our customers and suppliers the kind of distribution services necessary to compete.
Q: What benefits do distributors bring to the table for their manufacturing and retail/commercial contracting partners?
Folven: With the exception of a few very large manufacturers, the distribution sales force can be in front of retail customers much more frequently than a direct supplier. It is not economically viable for most manufacturers to have the number of salespeople on the street that distributors do. We spread the cost of our sales force over several product categories, which allows us to better represent all products more frequently in every market. Also, operational excellence across a broad range of geography with consistency is critical to distribution success. Most distributors have become experts at utilizing multiple resources to accomplish consistent service levels while servicing products across multiple categories. This ability takes time to develop in each specific market and is another benefit distribution offers.
Hagood: For our manufacturer partners, we offer local stock, credit, sales, marketing and logistics. For retailers and commercial contractors, we provide reliability and relationships generally. More specifically, we provide in-time inventory in flexible quantities, and most importantly, a team of associates that is dedicated to a group of customers in a specific region of the country.
Q: Availability and timely delivery are of utmost importance to customers today. How have you worked to improve your service in these regards?
Hamar: Massive inventory. Distributors today have to recognize that the traditional turns that a distributor gets aren’t sustainable in this new economy. You have to be willing to have a lot of inventory. We have leveraged this low-interest-rate environment and our good balance sheet to carry twice or more inventory than we had five years ago. It’s critical to success. Today, 65% of our orders are probably shipped within 48 hours.
Hagood: We have a separate sister company, TranSouth Logistics, that provides state-of the-art warehouse services to both Bird and approximately 50 third-party logistics customers. Our fleet of trucks has transportation management equipment that provides real-time location and ETA status, optimized delivery routes and constant contact with our drivers.
Q: Has the proliferation of product categories and products posed a challenge for your business?
Folven: The proliferation of products is definitely a challenge but not necessarily a bad one. We manage this in two ways. Specific to SKU counts within an existing line, we are constantly monitoring individual SKU success and making drops and adds more frequently than we have in the past. As it relates to inventory, we have become much more scientific in our approach to purchasing by utilizing complex forecasting models and ordering in lesser quantities but more frequently.
Hagood: Our inventory philosophy is to focus on fewer SKUs with higher stocking levels. We want our customers to count on our availability, and that commitment is very important to us.
Hamar: It’s a huge problem, and events like Surfaces don’t help. We’ve had to back away from U.S. suppliers because there is a constant drive to keep sales up by throwing more stuff at the wall. And most of it doesn’t work. We track success over time. There is a very small percent of product that actually becomes successful.
Q: Do you private label products? And, if so, why should a domestic supplier trust you to adequately represent them if you also source products directly from foreign sources and private label them?
Folven: We do private label several products. We started our private label in 2006 out of necessity. We had a product void in solid hardwood, and there were no major brands available for distribution, so we decided to develop our own. Our private label business has grown over the last 11 years to include every major product category. We source both domestically and internationally. Our strategy has always been not to duplicate products or technologies that our branded manufacturer partners offer. We have been very successful maintaining very strong relationships with our core suppliers because we recognize and value the brand equity they have built and the products that they bring to market through us. We only offer private label products that the market desires, and that our current branded manufacturers do not offer to us. This has been a successful recipe for us.
Hamar: Yes, we started back in the early 2000s with our first proprietary brand. Today, Galleher has five proprietary brands. These are mostly sourced globally but some come from on-shore. To support these endeavors, we have employees in multiple countries now.
Domestic suppliers have the advantage of a shorter supply chain-if they manage it correctly. They can get product to market much more quickly, and if they understand the market, they can produce products that are more cutting edge. But if they don’t do it; they miss that opportunity.
Major manufacturers have less leverage with consumers than they did in the past. If U.S. suppliers can find compelling opportunities, products, markets that make sense, consumers will embrace them. If they are trying to sell boring, overpriced product by slapping a U.S.-made label on there, the market is past that.
Q: Where is the flooring brand-at the retail or manufacturer level?
Hamar: Neither. Go to a high-end home and ask them about their purchases. Sure, they’ll know that they have a Viking range, a Sub-Zero refrigerator, a Moen faucet. But if you ask, ‘whose floors are these?’, they won’t know. They’ll describe it-its wide-width oak in gunmetal grey-but they won’t know the brand.
Hagood: The brand may still be at the manufacture level, but a retail or commercial contractor salesperson has tremendous influence on the product selection.
Q: How do you leverage social media in distribution? What forums are most effective for the business of distribution?
Hagood: We use them all. Facebook, Houzz and Pinterest are our most successful to date. We want to provide the content everywhere and let our customers decide which is the most relevant.
Hamar: We are using an agency that is exceptional at creating social media connections with the A&D community. We’re trying to create demand that will pull through via Facebook, Houzz and Pinterest. We have six websites that our company operates. Our social media program is fairly robust.
Q: We watched Pergo use a distributor in the early stages and then go direct. What will keep the same thing from happening in the LVT and WPC markets?
Hamar: Pergo had the brand but became Kleenex. It was first in. It spent a ton on inventory. And then it screwed up its channel strategies.
I don’t think anyone in LVT will have that same brand power. But what’s happening is that where the real volume is, more is going direct. Today, there’s so much access to information. In the past, the end-user couldn’t see how to buy product direct, but global overcapacity leads to new tentacles in the market. In our economy, it’s all about taking cost out of the value chain. Consumers don’t want to pay more than they have to.
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