By Steve Tomlinson
The job of the flooring distributor has never been easy and today is no different. In fact, some experts would argue the business environment is vastly more complex than just a few years ago. After all, the marketplace is filled with an increasing array of challenges, from rising business expenses and product prices to increasing competition from imports and soft/hard surface distribution networks operated by Shaw and Mohawk.
“The combination of a soft housing market, rising fuel costs and increasing insurance costs has driven reconfiguration of the company structure and operations tactics,” said Mark Steele, CEO, Hoboken Flooring, Wayne, N.J. “In response, we have reconfigured some of our operations and improved many aspects of the delivery system.” Hoboken also intensified its efforts to focus on historical core strengths, Steele added, and has been able to drive sales by working closer with “valued vendors” to create stronger “go to market” strategies that benefit customers and suppliers alike.
Perhaps more so than ever, margins and profitability are being impacted by cost increases in areas beyond the distributor’s control, such as freight, fuel, health care, worker’s comp and insurance. The influx of hard surface imports is squeezing margins even further as these products are usually priced below domestic counterparts. And if that isn’t bad enough, consider that ongoing competition against Shaw and Mohawk requires extensive investment in resources so wholesalers are positioned to offer comparable service levels, training and inventories.
“Shaw and Mohawk are the biggest of the big boys,” noted Bob Eady, senior vice president sales and marketing at T&L Distributing in Houston. “They have more reps, more trucks, more samples and more resources on the streets than any distributor.”
Not everyone has the ability to withstand these and other competitive pressures. Eady points out that since 1973, some 26 distributors who serviced retailers in T&L’s selling territory went out of business. “The question I constantly have to ask myself is, ‘How does a company the size of T&L compete with what I term the ‘goliaths’ of the industry,’” he said. “These are very large and well run companies that will not be going out of business.”
Indeed, these and other factors are weighing down distributors’ bottom lines in an industry which is already operating on razor-thin margins. “The most difficult challenge for distribution is the same one faced by the entire industry,” said
Jeff Striegel, president and CEO,
Elias Wilf in Owings Mills, Md. “We are experiencing a softening of business conditions within the two largest segments—builder and retail—of the flooring industry simultaneously.
“Unfortunately, there probably isn’t a quick fix or solution, as the problem has been further extended by the most recent liquidity issues within the mortgage and credit arena.”
The slow-down in the builder market has taken the wind out of retail sales. This short-term forecast is spotty, as this segment of the business is not projected to recover until sometime between mid-2008 and early 2009, according to published reports. “The market is very challenging with home sales off significantly,” said Jeff Hamar, president,
Galleher Santa Fe Springs, Calif. “We have responded by introducing many new products and several new suppliers.”
Galleher’s approach is one of a variety of different business paths distributors are taking to keep their operations ahead of the game. “We focused on commercial and changed our sales structure to accommodate for this,”
Bob Weiss, president and CEO, All Tile, Elk Grove Village, Ill., said when asked about how the distributor was addressing the slowdown in residential new construction. “We also focused on the retail remodel opportunity by investing in our sales force and sales management.”
Some distributors are dedicating more resources to technology—such as upgrading computer systems and automating more functions to enhance service levels—and are ahead of the rest in that area. Others may be lagging in technology but have seen their relationships with channel partners improve dramatically by focusing on meeting their ever-changing needs.
“Haines is working hard for our customers to bring them very competitive pricing and a range of services to help them cope,” reports
Bruce Zwicker , president and CEO,
J.J. Haines & Co., Glen Burnie, Md. “Our customers need us more than ever, including credit and inventory, so they can manage their cash well in difficult times.”
The big get bigger
These and other business strategies appear to be working, based on the fact that many of the top distributors are expected to pick up their sales over last year.
Galleher and Herregan Distributors in Eagan, Minn., report having increased their sales force, one of several moves designed to stimulate more business. “We are growing our market share through aggressive programs designed to get whatever business is available,” Galleher’s Hamar said.
Apollo replaced two sales managers and several salespeople, moves that yielded “very positive results,” according to Slobodien. “We continue to move forward and work harder,” he said. “We’ve also increased our product offerings in hardwood floors, which have been tremendous for us.”
The sales growth exhibited by some of the nation’s largest flooring wholesalers reflects various factors positively impacting distribution, namely pent-up demand for hard surfaces, which continues to take market share away from carpet. Meanwhile, further consolidation of wood flooring suppliers is reportedly leading the supply chain to strengthen relationships with the remaining players. “It is complicated for manufacturers, distributors and dealers to figure out who these future players are, which ones to choose and how to maneuver from current to new relationships,” Haines’ Zwicker pointed out. “Also, there are factors that slow the pace of change, such as loyal relationships, and buyers and sellers having difficulty finding the right price in a downturn.”
Customer service is job 1
As dramatically as the landscape has changed over the years, so have service demands of dealers. According to distributors, some of the most important factors impacting customer satisfaction are completeness/reliability of delivery, best value for price, product quality and breadth of product line. Industry studies, if not conventional wisdom, indicate the quality of service wholesalers provide will determine the extent to which they can retain customers and attract new ones.
“We continue to be the innovator in bringing new products and installation processes to the marketplace long before the major manufacturers,” said
John Sher, president, Adleta, Carrollton, Texas.
Further complicating matters is most wholesalers carry the same core products. So the only way distributors can distinguish themselves from competitors—aside from carrying different brands—is through value-added services, such as sales, product, financial and installation training. “People still want quality and are willing to pay for it,” observed Wade Cassidy, CEO, FlorStar Sales, Chicago. “One objective is to show them how we add value with our products.”
While the ability of a distributor to provide its customers with a wide range of services is wonderful, none of it comes without investment. Some are investing resources in technology to meet future service requirements of their customers while driving unnecessary costs from the supply chain. “We have to continue to be as efficient as possible,” Apollo’s Slobodien declared. For example, “we bought a software program that allows us to maximize our delivery routes. So every night after all the orders are done, we run our routing software so we know the most efficient way to route.” Apollo also utilizes two outside carries to augment its delivery service.
Others, too, are taking a hard look at their transportation operations to see if there is a more cost-effective way to deliver products to customers. “We try to consolidate shipments whenever possible for dealers,” said Bob Link, president, Herregan Distributors. “We encourage dealers to combine their freight shipments on some type of timely basis.”
These type of moves appear to be paying off, literally. More than 40% of flooring products sold at retail are moved through wholesalers, according to industry estimates, a figure that continues to escalate. Most of these sales are hard surfaces, product categories which have grown so much they now represent approximately 50% of retail flooring sales.
“For those distributors that have created the key partnerships with meaningful brand name manufacturers,” Elias Wilf’s Striegel said, “have embraced technology to improve efficiencies and reduce costs, have built their foundation on relationships within the dealer community, and understand what value-added service truly means, the future couldn’t be brighter.”
