Back in wood flooring's glory years, when every house had hardwood and shipments of strip flooring peaked at well more than a billion board feet, the industry was a tight knit group. Smaller, family-owned businesses were the standard, business was done on a handshake, and personal relationships reigned supreme.
Today, more than four decades later, wood flooring is cruising through new glory years. Business is booming and has been for a decade. But as the industry heads down the road of the new millennium, many find the landscape has changed. The family-owned manufacturers still exist, but they go head-to-head with corporate giants. Chains of distribution are confusing, and companies sometimes find that personal loyalty has ended up on a dead-end street. Relative strangers — huge corporate big box stores — have veered into the path, as have general floor covering corporations. New manufacturers are waiting around every corner. All want to come along on wood flooring's burgeoning ride to financial success.
As 2001 faces a cautious economy and a crowded industry, many are left wondering where they are heading. Will there be room for everyone on the joyride. Will they find new avenues to success, or are some heading for impending gridlock. The multitude of changes in the industry make the map for the future increasingly unclear.
Getting Boxed In
For many in the traditional wood flooring industry in recent years, the single biggest cause of fear, consternation and speculation has been big box home center stores such as Home Depot and Lowe's. As they spread aggressively throughout the world with their impersonal do-it-yourself, bargain-basement price mentality, they are increasingly turning their attention to professional contractor business.
That leaves distributors wondering how long it will be before their manufacturers are selling to the big boxes — direct. Indeed, such retailers offer manufacturers a lucrative package: high volume, wide-ranging exposure, a professional image and high-end marketing that includes four-color flyers and customer events such as how-to clinics. Many wood flooring manufacturers — both unfinished and prefinished — report having been aggressively pursued for years by the big boxes, and many have taken advantage of the opportunity.
"They're at the top of the list of floor covering companies; manufacturers cannot afford to ignore them," says David Wootton, CEO of Columbia Flooring in Thomasville, N.C. "The question is, as they grow, is there going to be enough capacity in the industry to service their needs."
Whereas flooring manufacturers can tap into a thriving DIY big box business, manufacturers of other products in the wood flooring industry aren't yet convinced these stores can serve their customers — the professional installers, sanders and finishers who perform a specialized skill. They haven't followed their wood flooring counterparts in the rush to jump on the big-box bandwagon.
"The major people in the coatings industry right now have not partaken of Home Depot," says Nels Ingebrigtsen, national sales manager of Basic Coatings in Des Moines, Iowa. Ingebrigtsen doesn't see the mainstream wood flooring contractor using Home Depot as a resource. "With certain types of contractors, it has had some effect, but those contractors are probably not doing wood flooring for a living," he says. Manufacturers agree that they perceive the big box contractor as a handyman type rather than a dedicated hardwood professional. A walk through the big boxes today reveals that their wood floor finishes are consumer-oriented products.
Manufacturers of other professional products are also skeptical about how well the big box is capable of serving their professional customers. "I think the hardwood side of their business is going to be difficult for them to manage because of all the products they would need to inventory," says Dick Hammond, application specialist at St. Louis-based machine manufacturer Alto US. Hammond says his company deals with the big box stores only in the rental market, despite being approached to sell the machines. "As it stands today, we have no plans to take our professional equipment in any other channels than we have at present, that being the wood flooring distributor who can service the machines, in particular sanding machines. A drum or belt machine is really a very precision piece of equipment," he says.
"The wood flooring business may be too small," says Paul Murfin, president and director of Aurora, Colo.-based finish, machine and abrasive manufacturer BonaKemi USA. Murfin adds that BonaKemi is "investigating" the possibility of selling to big box chains, but currently plans to expand only through wood flooring distributors. "Maybe right now they're more interested in plumbing or electrical or painting contractors," he says. "When you look at all the different trades that are out there, the home center happens to think ours is one of the more complicated ones."
For manufacturers, whether the big box is appropriate for its products isn't the only question. In a close-knit industry traditionally reliant on dedicated distributed among unfinished oak strip manufacturers, and such a scenario has worked well for unfinished strip manufacturer Memphis Hardwood in Memphis, Tenn. Overwhelmingly, the company relies on its distributors to sell its flooring. But when it was approached by a big box retailer to sell its product in the Detroit market, there was no distributor conflict. The arrangement has been successful, says Memphis' Director of Sales Jim Duke. "That particular region was suited for us — it didn't interfere with anything we were doing," he says, adding that to do it in almost any other region would be "suicide" due to his loyal distributors there.
Of course, one of the most obvious ways to sell in a big box without offending current distributors is to private label products, but at present, no manufacturer will go on the record to admit doing so.
A Bumpy Road
Putting healthy distributor relationships on the line isn't the only risk involved in doing big-box business. When manufacturers decide to pull into the fast lane of home center business, they sometimes find it's a rough road.
"They're vicious on price and on conditions," says Stan Abel, account manager for flooring manufacturer Amati Hardwood in Markham, Ont. "When you deal with a box store, they dictate to you how they're going to do business with you. If your goods don't sell, one day the truck arrives and your goods come back to you. They really don't promote a product or line; they simply have a hardwood floor section."
Big box stores are adamant about customer satisfaction, and when there's a problem, the impersonal attitude of big boxes toward their suppliers extends to its service. "The experience we've had with the big boxes is that they throw the product out there and if it doesn't work, go see the manufacturer. No manufacturer needs that [attitude]," Hammond says.
There's also an inherent risk involved in having a majority of one's product dedicated to only one outlet. Prefinished floor manufacturer Satin Finish Hardwood Flooring in Toronto is one manufacturer that entered the big box fast lane and pulled right back out. The experience forced the company to analyze the kind of relationships it needs to be successful. "It's not healthy to have all your eggs in one basket. We've seen a lot of manufacturers decide to sign up with box stores and then exit or go down because of the box stores," says Glen Miller, Satin Finish's national sales and marketing manager. One major factor was that box stores will not accept price increases, he says. "We have a rule of thumb that no customer should dictate to us how to do business, so we elected to part ways before they became too big for us." Satin Finish has since concentrated on developing close-knit relationships with a network of dedicated customers — and had a record year without the box store business, Miller adds.
Examining company philosophy about how to do business, as Satin Finish had to, is one component in the big box decision. Another is how a company wants to present its brand. Once a brand name is on the shelves of a home center, the high-end image a company may have spent significant dollars to achieve may disappear. BonaKemi's Murfin compares it to what would happen if Ralph Lauren suddenly decided to put its line of clothing in Wal-Mart — control of the brand image is lost, probably forever.
Those factors are enough to turn some manufacturers, even flooring manufacturers, away from the lure of big box volume. "It's confusing for me, because they don't have the selection and the attention to detail, and they certainly have an ornery relationship with their manufacturers," says Rich Miller, executive vice president of sales and marketing at Anderson Hardwood Floors in Clinton, S.C. "Those shelf positions are given to anybody with the lowest price or the latest and greatest look."
As the big boxes outlets continue to proliferate across the country, how they do business may have to change. The growth is so strong that the stores have begun to compete with themselves, even in the same chain. As they continue their expansion, they may have to make it more appealing for manufacturers to do business with them on a regional basis in order to stock the shelves, say some observers. In the meantime, the increased competition has had a definite impact on pricing — most agree that retail wood flooring prices have reached a maximum and are headed down. A slowing economy and disappointing stock performance of the big box stores in recent months could also contribute to lower prices.
Such economic factors only make it more complex for manufacturers deciding whether to go the big box route. It's not to be taken lightly. "Manufacturers need to tread very carefully and think long and hard before they make the big decision," Murfin cautions. Regardless, many industry insiders think that as the big boxes expand, wood flooring manufacturers with capacities to handle them will be in the big box stores in the near future — if they aren't there already.
Although they may not have been greatly impacted by the big boxes yet, most wood flooring and floor covering distributors are keeping a careful eye on the stores, and they would be stupid not to, say manufacturers. For the most part, however, the impact at present seems limited.
David Rowe, general manager of distributor Denver Hardwood in Denver,Colo., recalls that five years ago he listened to a presentation on the results of a state-of-the-industry study sponsored by the National Association of Floor Covering Distributors. The findings of the study were that distributors were headed for a severe decline due to home center stores. "We do face a multitude of competitive threats; however, some of the fears many of us harbored three, four, five years ago are not coming to fruition," Rowe says.
Part of the reason is the relative strength of the industry in recent years. As the industry's record-setting pace continues, all business is growing, and there seems to be enough room for everyone. "I think people are overstating that the distribution channels are changing that drastically to the big box stores," says John Mayers, national sales manager for Arlington, Texas-based finish manufacturer Dura Seal. "You're having a growth of the business and a growth of buying location opportunities."
While they may be cautious, most specialty wood flooring distributors feel protected so far. They point to the big boxes' overwhelming focus on the DIY market, which few distributors serve, and the service necessary to work with hardwood flooring contractors as factors in their defense. The big boxes aren't service-oriented now, they say, and as they continue to expand, it can only be more difficult for them to become so.
"I just don't see it becoming a long term threat," says Jim Wadsworth, whose NGF Distributors in Alpharetta, Ga., is located just down the road from Home Depot's corporate headquarters. "If it was light fixtures, maybe, because you can stick a light fixture in a home and turn on the lights, and if it works, that's the end of the problem. In flooring, you can have all kinds of callbacks. I don't think the big boxes have the time, expertise or manpower to handle those kinds of problems," he says.
"On the big box side, we see little impact in our areas," says David Williams of Raleigh, N.C.-based Horizon Forest Products. Williams says there are plenty of big boxes around, but they don't seem to be focused on pursuing wood flooring business. "I just don't see them making a huge impact into our contractor base or anywhere else," he says.
In Hot Pursuit
If professional wood flooring contractors aren't heading to the big box stores in droves, it isn't because the big box stores don't want the business. Observers point out that the chains can only expand in number of locations for so long until the market is saturated. At that point, they need to find another way to maintain their incredible growth, and pursuing professional contractor business is a logical step. Some of the stores offer special contractor hours and a contractor desk to make it easier to shop there, while others even deliver to job sites. Given their omnipresence, they can be a more convenient stop than a distant specialty distributor.
Out on North Carolina's coastal islands, Joe Halbig, owner/proprietor of Halbig Floor Sanding Co. in Oak Island,N.C., finds that the big boxes can be more convenient and cheaper than his distributor, who is 50 miles away and delivers once a week. Those two things — convenience and price — are the only benefits of the big boxes, he says. "I don't think they really check out the credentials of those people," Halbig says. "If you followed some of their advice, you'd ruin your house." At a local big box, Halbig says, what looks like No. 1 common oak is sold as select — he believes that the salespeople don't know the difference. While he still prefers to buy from his distributor, Halbig says that many of his contractor colleagues always go for the lowest price, and that's always at the big box stores.
"We mainly buy from our distributors, because we want to keep the best possible business relationship with them,"says Sharron Frink, office manager for contractor Custom Wood Floors in Cedar Bluff, Ala. "They help us, appreciate us and do things for us that Home Depot can't." Frink says they only go to a big box store in a pinch, even though their distributor is 75 miles away, and the local Home Depot is only 35 miles away.
Contractor Dave Jessop, owner of Habitat Hardwood Floors in Richmond,Calif., says he and other nearby contractors try to avoid buying at the big boxes. "Sometimes if I run out of a sheet of plywood or some nails, I'll go there on a Sunday," he says. "But my distributor is open on Saturdays, so that helps a lot." Helikens buying from his distributor to buying at a small neighborhood book store instead of at a huge chain. "If one person has a monopoly, you won't get the selection or price you once had, so we really try to spread it around," he says.
Cruising for Contractors
Increasingly, there is another motivation for contractors to avoid shopping at the big box stores. Not only are they competition for local distributors, many now advertise their own contracting service for a certain dollar per square foot. For the most part, these are floor men hired as independent contractors, not big box employees.
In Bob Gamble's area in Amarillo,Texas, the local big boxes try to lure contractors by offering special deals, doing direct mailings and even holding special contractor breakfasts. "They have asked us directly if we'd be interested in handling the installation of their products,"says Gamble, whose businesses Arbo's Hardwood and Sports Floor Supply and Arbo's Floor Service cover both the distributing and contracting ends of the business. "Really, they're our competition in both sides." Gamble says to the best of his knowledge, none of his contractor customers have taken the companies up on their offer.
The last thing most contractors need is increased competition in their market. "As a small company, I find it very hard to compete," says Todd Theisen, owner/operator of contractor TMT Integrity Flooring in St. Cloud, Minn. Interestingly, Theisen finds the big box stores are able to win over customers with either high or low prices for installation. "They can under-price us small people and steal our customers until we starve to death, but on the flip side they can also get a lot more money if they want to," he says. The lure of a big, well trusted name customers can go to if they have problems is what makes the difference, he says. Theisen's strategy for the future is to avoid the pricing wars entirely by getting into higher-end custom work with borders and inlays.
Alexander Rosario, hardwood specialist at Designer's Choice Unlimited in Ft. Myers, Fla., says he wouldn't buy products at a box store because they are his competition. Ironically, he finds that his company directly benefits from the big box stores' attempt at contracting work, because he gets called in afterward to fix the floors. "We reap the benefits of that, because a lot of times it was the big box [that installed it], and the customer has had it with them. We're tearing the whole thing out and putting it in the right way," he says.
If hardwood retailers compete solely on price for DIY customers, it has become very difficult for them to match the big box prices. However, once the customer wants installation, the playing field levels, most sources agree. "If you want to go and buy something and do it yourself, Home Depot can be more economical. If you want someone else to install it, then we find the retail stores that are our customers become very competitive," NGF's Wadsworth says.
One thing is certain for businesses at all levels of the industry — the big boxes are here to stay, and how companies prepare for the future will determine whether they make it. "They're here, suck it up, there's no choice in the matter," says Portland, Ore.-based contractor Doug Lux, who is also president of the National Wood Flooring Association. "We're going to have to get smarter. If anything, it's probably a wake-up call to look at how you're running your business and find what niche works for you."
The Bargain Lot
A key to finding that niche is focusing on not just surviving, but rather strategizing how to prosper. To do that, distributors need to get past survival mode and avoid the pricing rat race. The key is making contractors see the value in paying a little more for their supplies. In a consumer world dominated by comparison shopping, markdown madness sales and double-coupon days, it's hard to blame contractors for counting every penny. "The feeding frenzy of cheap goes down to the home owner," says John Erickson, president of distributor Erickson's Decorating Products in Chicago. "They're all trying to find the best deal. These poor contractors go to home owners and they already have 10 estimates. Who has time to do 10 estimates."
"You have the ability to differentiate yourself. If you do that, you can exist. If you choose to play that [pricing] game, you'll go out of business," says John Peterson, flooring division general manager at Portland, Ore.-based Emerson Hardwood Company. "For a whole lot of people, cheap is better. When that becomes an overriding mentality, sometimes what distributors do becomes questionable." Delivering product directly to job sites and checking floor and subfloor moisture content are among the services his company performs that go above and beyond simply order-taking. Commonly, distributors also fix machines, go to job sites to help fix problems and perform other personal tasks.
At distributor/manufacturer Harvester, based in Westwood, N.J., Vice President Greg Fuller sees other distributors selling at "unbelievably low margins," but it doesn't affect his business, he says. "They're not a threat to me, because I try to provide as good a service as I can. I always help my guys, and hopefully they'll keep coming back tome," he says. "If I lose guys because of price, so be it. They'll come back to me someday." The last thing he's going to do, he adds, is cry over somebody making less money.
Lux says that at times, his distributor has even inventoried his supplies for him. "I can't imagine not having a distributor," says Lux. "I need one to keep upon all the different products, materials, shipping, convenience and credit terms."
Contractors aren't the only ones who need help with their wood flooring business. Anderson's Miller says that as builders increasingly rush to build homes in shorter time frames, it bodes badly for wood flooring, and West Coast builders are increasingly avoiding wood. "If you don't have a high-quality, focused wood flooring distributor with good solutions and the ability to hold hands, wood flooring is losing position," he says. With their multiple types of flooring, floor covering distributors don't have the same vested interest in preserving the market share of wood, he says.
"They have to capitalize on the box store weaknesses, which are lack of people who have knowledge and experience in the wood flooring business, the ability to get the contractors in and out quickly and education about better methods and about how to save money," Ingebrigtsen says. "Price shouldn't be the major issue in trying to combat them, because you're going to lose if you're going strictly on price." Murfin agrees. "Distributors can't not take Home Depot and the like seriously. I would encourage the specialty wood flooring distributor to really focus on being the expert," he says.
Even as smart distributors concentrate on their areas of expertise, they see big boxes pursuing manufacturers more aggressively to fill new store shelf space. At service-oriented distributor T&G Hardwood in Roseville, Minn., CEO Tim Valder doesn't feel threatened by the big boxes competing for his customers, but he doesn't like the way they go after his suppliers. "The big box is going to my suppliers and threatening them by saying, 'If you don't sell us now, you'll wish you would have two years down the road.' " So far, Valder says, his suppliers have not succumbed.
At Loyalty's Dead End?
Big box stores are far from the only factor effecting changes in manufacturer-distributor relationships. There is an inherent tension in any manufacturer-distributor relationship — "distributors have felt threatened by manufacturers since the beginning of time" is a common manufacturer comment. But recent years have seen a growing decay of the relationship, as each side accuses the other of disappearing loyalty. Manufacturers say distributors simply take orders as they try to emulate the big boxes, carrying every product line and being everything to everyone. Meanwhile, distributors lament the lack of support from their manufacturer partners.
All this factors into a market that's increasingly confused. There are distribution plans in today's industry that may have been unheard of not long ago. "You might sell to a wood flooring distributor in one market, a floor covering distributor in another market, and direct retail somewhere else. A lot of that's going on – it's not very stable," says Memphis' Duke.
For manufacturer Linden Flooring/Medallion Hardwood Flooring in Linden, Ala., the changing world meant some creative approaches to getting its product on the market. When the company had difficulty finding the right distribution in certain markets, it opened up its own distribution centers — currently there are two — for its prefinished and unfinished flooring. "Philosophically, where we're at is times are changing, and I think you have to be willing to roll with the punches in any given marketplace," says Rick Knowles, vice president of sales and marketing for flooring.
In today's market, distributors are flooded with options in almost every product category, and deciding which to take on can be both confusing and time consuming. Adding to the confusion is fiercer competition. The recent years' non-stop economy has encouraged growth in distribution in almost every geographic market. New distributors started up, and existing distributors spread into nearby regions.
The competition can make it difficult for distributors to resist taking on a new line. After all, if it turns out to be a successful item, it shouldn't be the distributor down the street selling it. However, manufacturers point out, distributors only have so much time to sell product, and every line taken on is time taken away from them. Many distributors agree.
"We'd rather focus on upper-end manufacturers and do them justice as opposed to having 15 water bases and three or four acid cures and four or five polys, because you turn your people into order-takers instead of order-makers," Peterson says.
"I have great respect for most of our manufacturers," says Erickson. Distributors need to recognize and utilize the vast resources a good network of suppliers offers, he says. "If the distributor is like the chairman of the board and all the people around him are these talented, insightful people, you can get through a lot of things," he says.
Denver Hardwood's Rowe agrees. The investment in a product line goes far beyond inventory to include sampling, displays, product knowledge — an entire relationship, he says. "Some distributors are not best suited to take on every single line that comes along," he says. "Some do so simply to tie up lines. In the end, they lose their focus and do not do justice to the lines they carry."
In large part, however, taking on multiple lines can be a method of self-defense, especially where flooring is concerned.
"That way, if any one or two suppliers and the distributor part company, it won't have any major effect on the distributor," says NGF's Wadsworth. "In Georgia, we've had some distributors that have gone out of business because they've lost a major manufacturing line." Distributors also want to make sure they have enough product, even in months such as July and August when supplies can run low, and carrying multiple lines can alleviate that concern.
Not all manufacturers see multiple lines as a threat, either. "I don't think I've ever been concerned about some distributor taking on another line that's competitive to mine," says Roberts. "I just have to do a better job to support him and make him less interested in taking on another line."
For Alto's Hammond, more lines simply means more competition, and he's not going to whine about it. "Many years ago, you found distributors who carried maybe one line or at most two," Hammond says. "Today you find them carrying multiple lines. It makes it tougher for us to have to compete with it, but there's nothing wrong with competition… that is really what breeds innovation."
Like most relationship problems, this one boils down to lack of trust and communication. "Provided they have solid communication, there's no reason why the manufacturer-distributor relationship can't thrive," Murfin says. "It's kind of like a marriage. If you don't communicate with your wife on a regular basis, you don't really know she's upset with you until one day she calls you up and says, 'I'm leaving you,' and you say, 'What the hell happened.'
Down the Road
Distributors who rise above the fray of big boxes, direct selling and increased competition in the future will have to be absolutely service-oriented, observers say. Their technical support must be outstanding, and they will need to become more efficient, professional and corporate-like while keeping an interest in every customer.
Amati's Abel observes that some hardwood distributors have already begun to evolve. "Now distributors are starting to talk to us in terms of UPC coding the material, streamlining warehousing and keeping inventories under tight control, whereas before the entrepreneur distributor would say, 'Hmmm, I need some more strip today, let me pick up the phone,'" Abel says. "It's become very streamlined, and that's a good thing, because our industry was always very unsophisticated."
Valder thinks that hardwood distributors might be wise to expand their businesses beyond just wood, and many have already done so. "The distributors who are going to stay alive are going to have to be a little more diversified; they'll have to offer laminates," says Valder. "They used to say it was really eating more into the vinyl side of the business, but not anymore."
While companies try to improve their efficiencies and become more professional, they must remember that sales is all about people, and people buy from people they like. Many successful distributors still talk about their contractor customers as not only customers, but as friends. "If you make money, I'll make money. If you go with that outlook, I think you'll always survive, in fact, you'll thrive. But you almost have to care about them first," Erickson says.
Prepare to Merge
One needs only to read the business section of the newspaper every day to see what's going on in the corporate world — consolidation. Whether it's in banking, airlines or automobiles, consolidation is a global phenomenon, and it has hit both the floor covering and wood flooring industries at all levels.
"In almost every category of flooring, there's only three to five players who control about 80 percent of the business," says Murfin. "So if you just have three to five manufacturers that control the bulk of the market, by definition you're only going to have three to five distributors max in most marketplaces. In full-line distributors, you're really seeing a sort of shrinking."
Wootton predicts that trend will continue. "I expect to see more consolidation at the distributor level as they try to reduce their costs of getting goods to market," he says.
Ironically, as manufacturers get larger, their distributors feel increasingly uneasy about dedicating so much of their business to one supplier. If, for example, another large merger happened, some distributors could be left out in the cold as they lose their main brand. The situation can actually encourage distributors to bring in more competition in an effort to protect themselves.
That tactic isn't always successful, however. "I've seen a lot of large distributors in town have to change what they considered a very comfortable set of product lines to other product lines simply because manufacturers dictated those changes — it's not so much a customer-friendly environment when you look at the manufacturer and distributor relationship," NGF's Wadsworth says. "The manufacturers are trying very hard to become very large and in doing so are trying to bring on board very large distributors, also."
Anderson's Miller agrees that distributors are having to make increasingly difficult decisions with their supplier relationships. "They have too many things to select from, and whoever their lead brand is tells them not to take any new product on," Miller says. "At the same time, that manufacturer is dictating margin and that margin doesn't make any sense." If the distributor ignores the directions of its main supplier, they may lose the line entirely or suddenly find themselves double- or triple-distributed in their region.
"These brands think they know it all, but they can't be everything to everybody. They fool themselves when they take the margin out of it for the whole channel and dictate that," he adds.
While the big wood flooring brands wrestle for market share, they find a multitude of startups nipping at their heels, most of them offering some form of prefinished flooring. The companies offer product from all over the world, with all levels of quality and an increasing range of species. Sometimes products are entirely new, but sometimes they are simply private-labeled. Most are smaller players, but many are established unfinished manufacturers that decided to also offer prefinished products. There was also a soft-surface crossover in 2000, as two of the mammoths of the floor covering industry — Mohawk and Shaw —also entered the prefinished wood flooring fray.
The stampede to make prefinished wood flooring reflects several factors. First, the wood flooring industry's seemingly unstoppable growth has been too appealing to resist. Second, prefinished flooring continues to increase percentage-wise over unfinished. Third, manufacturers can make more money with prefinished than unfinished flooring.
The increasing preference for prefinished flooring comes from all directions. As tract builders try to turn around homes in record amounts of time, prefinished wood flooring becomes their only option. Many installers are pushing prefinished flooring to avoid the mess and hassle of job-site finished floors.
Even in his traditional market of Minnesota, Valder is seeing the switch to prefinished flooring as a major trend. "Mainly the big tract home builders are going to all prefinished products," he says. "Builders along with retailers are pushing that. There will always be a custom stain market, but it will be with very, very upper-end home owners who want something very different."
Some people question whether there is room for all the business, especially when some products seem the same. "I'm not sure where all these manufacturers are going to fit," says Roberts. "Many manufacturers are going to a distributor and offering me-too products. I don't see how it's beneficial for the distributor to take on another line that's identical to the one he's selling."
"It's more and more difficult for retailers to differentiate between products and their quality," concurs Knowles. "I don't know how long everyone who's in can stay in, because the price of entry in prefinished is very big… you have to establish a certain amount of market share to make it."
Startup costs aren't the only problem with manufacturing prefinished flooring, experienced suppliers point out. Once the expensive equipment is bought, it takes experienced technicians who know how to handle fussy prefinishing lines, which have technology that must be updated constantly. Milling is a greater concern than with unfinished products — it must be precise. Possible questionable quality from startups should be a concern for the whole industry, observers say. If the floor fails or simply looks bad, customers will badmouth wood floors in general, not the specific product.
"Lots of people are jumping in and out of the business, and who will customers go to when they're out of business. We believe if you put a 20- or 30-year warranty on there, you better have been in business that long; we want to make sure there's some value," Satin Finish's Miller says. Manufacturers agree that increased competition will contribute to keeping prices "competitive" — or lower — for the near future. Anderson's Miller points to Europe as an example of what could happen in the United States. There, he says, foreign competition forced the market to rock-bottom prices. Now, they are turning to the United States as an unspoiled market.
"All these world markets are confused and not making any money. They can make twice the money here in the United States. Anything you like, they'll make it and it will be cheaper and cheaper," Anderson's Miller says.
Is Unfinished Out of Gas?
Just because there's been a boom in the prefinished market doesn't mean the industry should sound the death knell for unfinished flooring, however. "Rumors of the demise of unfinished strip are greatly exaggerated," says Wootton. "I fully expected prefinished to take more of the unfinished market, but what's happened is the pie has gotten bigger for all of us."
In some traditional markets, prefinished still has a long way to go before it dominates its unfinished counterpart. Williams says that in his Raleigh, N.C., market, interest in prefinished is still minimal. And in Peterson's market in the Pacific Northwest, unfinished flooring is still the overwhelming choice, even with builders.
That doesn't mean that the unfinished market is unaffected. The insatiable demand for prefinished flooring leaves some companies dedicating their unfinished flooring to their prefinishing lines. "Lots of people are jumping in the prefinished market, and it's putting huge voids in the unfinished market… the prices of unfinished are going to go up soon because it's unavailable," Satin Finish's Miller says.
"Fortunately for me, I have enough other unfinished suppliers that I can keep my customers happy with quality products, but I know a lot of other distributors who don't have that privilege. They are really concerned about getting certain products from manufacturers who do both prefinished and unfinished," Valder says.
For years now, the wood flooring business has roared nonstop along with the incredible economy. Now all the economic indicators point to a slowdown, but will that be mirrored in the industry. Although industry participants are more cautious with their optimism for the coming year than they have been in years past, by no means are they forecasting a nasty downturn in business.
"Even with all the doom and gloom everybody's talking about, it's still a hot market out there," says Amati's Abel. "It's going full blast," agrees Satin Finish's Miller. "A lot of builders say they haven't seen it slow down yet. We're forecasting a strong, strong builder segment this spring."
Even if the builder market starts to weaken, manufacturers expect a healthy remodeling market to help pick up the slack. That may not be enough, however, to keep the many new players in the market afloat.
"Everything is based on how strong the builder market continues," Lefkowitzsays. "The builder market's been good; we've been riding it for the last 10 years. If that takes a severe downturn, you're going to see manufacturers and distributors cave."
Anderson-Tully's Roberts agrees. "If you look at all the manufacturers currently selling hardwood floors, they can probably be successful in a real strong market," he says. "But if the market changes, I think there certainly will be some fallout."
In the event of a fallout, it will be the companies with a strong foundation and an eye on the future that will persevere. Above all, they'll have to be proactive in nurturing the relationships they have and developing new ones. Although the wood flooring industry today bears little resemblance to the one of years past, the two still have that much in common.
While both of the major contenders in the big box world ended the fourth quarter of fiscal 2000 with disappointing sales results, they remain a force to reckon with:
Home DepotAt the end of fiscal 2000:
• Sales of $45.7 billion (19 percent increase over 1999)• Comparable store sales up 4 percent• 1,134 retail locations
1,029 Home Depot stores (U.S.)67 Home Depot stores (Canada)7 Home Depot stores (South America)26 Expo Design Centers4 Villager’s Hardware stores1 Home Depot Floor Store outlet
• 204 stores opened in 2000• Stock value at press time (mid-March): $41.62/share
One-year high: $70.00 (April 12, 2000)One-year low: $34.69 (October 12, 2000)
In 2001:• Expects to open 200 more stores
Lowe’sAt the end of fiscal 2000:
• Sales of $18.8 billion (18.1 percent increase over 1999)• Comparable store sales up 1.2 percent• 650 stores in 40 states• 100 new stores — including 20 relocations — opened in 2000• Stock value at press time (mid-March): $58.72/share
One-year high: $67.25 (April 12, 2000)One-year low: $34.25 (October 12, 2000)
In 2001:• Expects to open 115 to 120 stores
A Direct Route
One trend many observers have noticed is the proliferation of companies selling direct. It’s not necessarily that the stalwarts of the wood flooring manufacturing world are suddenly bypassing distribution, but rather there is a sharp hike in the number of companies selling everything from prefinished flooring to finishes. Most can’t find distribution and start pursuing the contractor direct — an act of desperation, say most manufacturers.
Contractor Doug Lux of D-Lux Hardwood Floors in Portland, Ore., says he is approached all the time, mainly by prefinished manufacturers, to buy direct. “What kind of warranties do they have?” he asks. “How is this going to affect our industry in the future when we go in to remodel a house and people want to match an existing product? You have no clue what it is or if it’s still in existence.”In the end, he says, it will probably be the flooring contractor getting burned.
Contractor Dave Jessop, owner of Habitat Hardwood Floors in Richmond, Calif., says he gets many faxes and calls from lumber sources and overseas producers to buy wood direct. The offers come from all over the world, going beyond the United States and Canada to places such as Romania and China. Despite the offers, Jessop still relies on his wood flooring distributor for his wood. Buyingdirect would be impractical, he says. “I don’t have time or the inclination to wait for these deliveries,” which may arrive days after they are expected. His distributor, on the other hand, is a reliable source. “If my distributor says it will be there, it will, or he’ll tell you it isn’t,” he says.
One area in which traditional manufacturers are selling direct is on the commercial side of installation. Lux finds that he is doing more commercial work than ever before, and increasingly, the jobs have material already supplied. Retail outlets such as the Gap, Eddie Bauer or Banana Republic may remodel more than 500 stores a year, and they bargain directly with manufacturers for volume pricing. “A couple are working with distributors, but they’ve locked in price; the manufacturer dictated the terms,” he says.
Direct competition is also coming down from the north — Canada, where the flooring business in Ontario and Quebec evolved in large part without distribution. “There’s just a lot of product, that’s the problem. There’s a lot more supply of finishes, even wood products, than there is demand right now. I don’t know where all this prefinished strip is going to go,” says Ira Lefkowitz, CEO/executive vice president of Hoboken Floors in Wayne, N.J.
According to this year’s survey, the products contractors are most likely to buydirect are:
1) Wood Flooring2) Abrasives3) Finishes Sanding machines (tied) 4) Installation tools5) Adhesives
Beyond the Horizon
The hardwood industry is hardly alone in its concerns about changes in distribution. Other similar industries face the same issues. The National Association of Wholesaler-Distributors examines these issues with its Forces of Change study, which is handled by Pembroke Consulting. Here’s what Gregg Ruppersberger, senior analyst for Pembroke, has to say on…
… Big Box RetailersBig box retailers pose the most obvious threat of disintermediation to many distributors. These companies bypass the wholesale channel by having high-volume products delivered directly to stores, making it difficult for distributors to compete on price. In recent years, big box retailers have made a concerted effort to capture a share of the contractor market. Because contractors are highly fragmented, big box retailers may offer an effective solution to small customers, many of whom purchase products in the same manner as do-it-yourself customers. Similar big box trends have already begun to occur in other industries, such as plumbing, HVAC, and electrical. The question for distributors is whether or not they demonstrate their value to contractors. If your contractor customers are only purchasing on price, then maybe they are not the customers you want.
… Selling DirectJust because manufacturers attempt to “own the channel” doesn’t mean they’ll be successful. Distribution is a very different business than manufacturing. Over the past five years in the HVAC industry, for example, several manufacturers have either attempted to own their distribution or bypass it altogether. These attempts have led to direct competition between manufacturers and independent distributors. This competition can lead to a sharp drop in manufacturer sales during thetransition period. The majority of these attempts have occurred with manufacturers of branded products, who have had a tough time making this model work. The implications are even stronger for commodity manufacturers, mainly because manufacturers of commodity products rely heavily upon wholesalers to market and sell their products. In the end, both manufacturers of branded and commodity products take a big risk by selling direct to a large builder or contractor.
… E-CommerceIt is difficult to get contractors to buy online — many don’t even have the technological capability. Contractors also like being able to talk to a real person when placing an order or requesting service. So far, dot.coms have had trouble gaining traction in the contractor market mostly because so much of the industry is relationship-dependent.
In the wood flooring industry, the shining example of industry consolidation is Triangle Pacific Corporation, which one by one bought the Bruce, Robbins, Hartco and Premier brands into its fold. In turn, TriPac was bought by floor covering giant Armstrong. Frank Riddick, CEO of TriPac’s Wood Products Division, offers his thoughts on…
… Changes in the marketplaceFavorable exchange rates and the decline of Asian markets, typically served by Canada, perpetuate increased competition in the United States markets from Canada. That coupled with more raw lumber being shipped to Asia, where it is fabricated and then shipped right back to the United States, has created an even more competitive market. Furthermore, growth in local markets has brought about increased competition from small start-up manufacturers. Due to low entry level costs, it has been relatively easy for these smaller manufacturers to enter the market, thus creating greater demand for raw material and driving up material costs.
… Changes in distributionThe most dramatic trend has been that even though there is a decrease in the number of distributors, those distributors now cover a larger territory. Through consolidation, acquisition and the like, distributors who once sold to one regional area are now covering two and three, or more. We have also seen the most successful distributors are those who focus specifically on flooring — from the top down. Additionally, we have noticed a trend for distributors to use computerized or Internet-based systems to work with manufacturers and retailers alike, and we expect this trend tocontinue to grow.
… The big boxesThe big boxes have had a very positive influence on our industry in general. The incorporation of these outlets have forced us all to become better product innovators, better manufacturers and better marketers. Big boxes service a segment of the market that for years was incredibly under-serviced — the entry-level segment. All wood flooring retailers, including big boxes, have the advantage of tailoring their business to focus on the entry-level market with entry-level products— or to sell the middle of the market, or concentrate on the top-notch premium segment of the market. We believe that different consumers have different service requirements, knowledge and product preferences and that there is a role for each channel of distribution that can be managed successfully. The role of the manufacturer is to provide the appropriate differentiation of brand, product and service to support each channel.
…Distribution’s futureBoth specialty and general floor covering distributors are an integral part of the floor covering industry. We see the continued need for both in our hardwood business. Any distributor who can add value to our programs and product offerings will always be necessary to our business.
The buzz in the industry was that business was nonstop, and the numbers in this year’s survey reflect that once again. For the sixth year, Hardwood Floors magazine sent out an industry survey in January to a random sample of wood flooring distributors and contractors. Here is what they had to say about the year 2000.
Contractors’ business in 2000...
Distributors’ business in 2000...
In 1999...• 67 percent of respondents indicated that business increased• 26 percent stayed the same• 7 percent decreased
Finish Sold by Distributors:
Finish Sold by Contractors:
The numbers in 1999 for distributors were nearly identical. For contractors, they were...• 53% oil-modified• 39% waterbased• 4% moisture-cure• 3% conversion varnish• 1% wax
Species Sold by Distributors:
Species Sold by Contractors:
The numbers in 1999 were...• 56% red oak• 19% white oak• 13% maple• 8% other domestic species• 4% imported species
*Other domestic species: ash, hickory/pecan, cherry, birch and beech
Contractors are selling...
Numbers in 1999 were...• 73% unfinished solid• 7% prefinished solid• 18% prefinished engineered• 2% unfinished engineered
Distributors* are selling...
Numbers in 1999 were nearly identical...• 60% unfinished solid• 22% prefinished solid• 16% prefinished engineered• 7% unfinished engineered
*71% of distributor respondents specialized in wood flooring, while 29% were general floor covering distributors.
What they do...
Doing It Over AgainContractors’ answers in this years’ survey may indicate the beginning of the expected surge in the remodeling market. In the previous five years of the survey, wood flooring installation versus sanding and finishing hasbeen consistently split evenly. This year, respondents indicate that they do more sanding and finishing/refinishing than installation. On a related note, contractors this year answered that they are doing more remodeling work — last year the split was 56% remodeling and 44% new home construction.
Old vs. New