By Liz McKay
Retail sales in the U.S. began a steady decline in the middle of July, and the flooring industry did not escape unscathed. A number of factors contributed to the decline: the slowing of housing development, imports from Asia and increasing interest rates that are making the bills harder to pay.

The initial amp up at the beginning of 2006 propelled everyone into action, from manufacturers to retailers. “It’s what I like to call a mini gold rush,” said John Pierce of Pierce Flooring & Design in Billings, Mont. “We saw a great deal of new construction and home building at the beginning of the year that slowed down very quickly, and those retailers who rushed to meet the initial demand most likely ended up with an overstock problem.”

So what will retailers do to maintain profitability in 2007? Pierce believes diversification is the answer. “Our company is not heavily reliant on one aspect of the business. This saved us a bit and allowed us to remain mostly unscathed in a downturning marketplace.”

About one-third of Pierce’s business focuses on new construction, with another third geared toward the residential replacement arena. “In Montana, the people hit hardest were those interested in developing. However, when you can’t afford to build a new home you might as well fix up the old one. We were therefore able to shift our focus to residential replacement because we are a diversified company, and that will continue to be our strategy this year.”

Flexibility is important to many retailers who plan to broaden product offerings at multiple price points. “The middle is getting squeezed out,” said Andy Brumlow, director of merchandising at Carpets of Dalton, the destination store on I-75. “Keeping both high-end and lower-end products in stock will be essential.”

Some, like Michael Henry, a Carpet One retailer in Miami, are predicting that many dealers will shift their focus away from residential business toward commercial. Although he did note that their marketing focal point will still be high-quality floor coverings, regardless of industry sector.

Gary Cissell, director of flooring at Nebraska Furniture Mart, one of the largest flooring retailers in the country, agreed. While the dealer will probably put slightly more emphasis on laminates and wood, it will not adjust sales strategies to target specific areas of business. “We’re not letting up on any area. Residential contractors will be offered competitive rates, as will contractors on the commercial side.”

Choosing the practical approach

Aaron Pirner, owner of CAP Carpets in Wichita, Kan., has his own game plan. “In the flooring industry, we often do the exact opposite of what we should do. The industry will typically stop advertising and cut prices. What begins to happen is the losses you have seen become even more compelling losses.”

Conversely, he believes that what the industry should be doing is actually investing more into the business. “We also want to continue making it fun for our sales forces. Creating a sense of excitement and enthusiasm on the floor is what will lead you in the right direction.”

Pirner added that he will be more aggressive in 2007, raising margins and spending additional advertising dollars. “There’s always a point where it may come down to reductions, but we’re not there yet. We look at a softer economy as a blessing in disguise that leads us to finding more talented people to work with and make part of our team. At the end of the day it’s all about the people, not the spending trends.”

Nebraska Furniture Mart’s Cissell follows the same school of thought as he will step up his advertising in what he expects to be a difficult year. “We’re planning on advertising more, not less. Garnering added market share is the focus here, so we’ll adjust prices based on competitive moves. If there are fluctuations in the market, we will keep up with them.”

Relying on relationships

Some retailers say they are almost immune from fluctuations in the economy. Take Home Carpet One in Chicago for example. Mark Gustin, sales associate, said the retailer plays the experience and relationship card. “Huge for us, and also different from a lot of retailers, is that we’re old school,” he said. “We have an older sales staff with a great deal of experience that always keeps business coming in due to their relationships.” He added that its selling system is not dependent on walk-in retail traffic, but is more focused on customer follow-up and mining within the customer to find out what else she may need down the road. “In this respect, our sales process helped us avoid being affected by the economic downturn. We’ll continue utilizing every tool available to us this year.”

At Carpets of Dalton, Brumlow offers a similar outlook. “Of course everybody refocuses on what makes them profitable and looks to stock the products that make them money,” he said. “But for us building a solid repeat and referral base is central to success. We’ll invest in better education and training for our sales force to ensure an increased customer retention rate.”