Chicago—In addition to the usual conference slate of educational seminars and networking sessions, the National Association of Floor Covering Distributors (NAFCD) featured a first-time ever event as it brought together a quartet of presidents from four major floor covering manufacturers for an informative, and sometimes entertaining, panel discussion during its 32nd annual meeting here. “State of the Industry: View-points From Floor Covering Leaders,” saw industry executives Tom Davis, president and CEO of Mannington Mills; Michael Lockhart, CEO of Armstrong Holdings, parent company of Armstrong World Industries; Roger Marcus, president and CEO of Congoleum Corp., and Ulf Mattsson, president and CEO of Domco Tarkett, discuss a wide range of topics including everything from the current economic climate and how it pertains to the flooring business, to the myriad of innovations currently taking place in the resilient category to Surfaces.

The discussion also included a question and answer session with journalists from several industry trade publications in which the association’s members were invited to follow up on. The conference—appropriately dubbed “Leaders Meeting Leaders”—was supposed to have taken place in Toronto but was moved due to the health concerns surrounding the SARS virus. The meeting was relocated to NAFCD’s hometown of Chicago and took place at the Westin Hotel on the city’s famed Michigan Avenue. The move to relocate didn’t hurt attendance however, as 302 people were on hand for the event, eclipsing last year’s total. “The issues in the general economy, both here in the U.S. and globally, has made all of our lives challenging,” Davis told the members, “not only in flooring, but in other industries as well. At least in flooring, we’ve had the benefit of the housing boom, which has been terrific. Be thankful you are not in the airline or the textile industries. Talk about having a mountain to climb.”

Davis went on to mention that domestically, America had lost about “2.5 million jobs because of imports out of Asia, chiefly from China. A lot of that is being driven by the fact that China’s currency is valued at about 40% below ours, if you look at it from a pre-market standpoint. Adding to those woes, we’ve all felt the incredible cost increases. Whether it be raw materials, energy, pension costs, or healthcare insurance, we’re all feeling it.” However, Davis noted, things are beginning to turn around. “What we’ve been seeing is, a few good weeks followed by a few bad ones. But things are picking up. The overall trend is going in the right direction and I’m excited about that. There is a lot of pent up demand from consumers that we are all going to benefit from.” “We have a strengthening economy,” said Lockhart, “so we’re going to see some pick up in the commercial business, which, for us, will be a terrific benefit. We’re also going to see a pick up in renovation business. On the other hand, you have higher rates, and that is going to hurt housing. It already has in certain parts of the country. That’s a mixed blessing. New starts and renovations will help margins.

As far as the continued growth of the big boxes, Lockhart said this could be a “potential negative. Many of you must be wondering how the flooring industry will avoid looking like the general merchandise industry where WalMart is the big player. There are some things the big boxes don’t do very well; you guys do a lot of things a lot better than they do. “What our customers really want is, an affordable, nice looking floor installed in a way that makes it deliver the durability we promise,” he added. “So, if we do a good job of meeting what customers want, product will move off the shelves. If we attack the affordability side of things, we’ll have attractive margins.”

Marcus noted, how it looked like the resilient segment was doomed just a few years ago. “A decade ago, many had given up on us. In the mind of many, our business was on the way down due to alternate products. People thought we were married to the big boxes and the conventional flooring distributor would no longer have a place in our industry. Many thought the big boxes would surpass the specialty retailer business, and, if you, the wholesalers, didn’t have those dealers to supply, you wouldn’t be as viable in the industry as you would’ve hoped. “All these things that were supposed to have taken place in the last decade never did,” he explained. “We are still here to support you.”

Mattsson touched on several issues, including the growth of the hard surface market. “The laminate, hardwood and resilient categories are an exciting part of the market. Innovation and designs mean better products are being brought to the market. Environmental issues, especially among commercial specifiers will play an increasingly critical role in the future, as will industry consolidation.” He noted the two-step distribution system versus the one-step is already a growing concern.

When the subject of Surfaces was brought up, Davis noted, Mannington’s support remains steadfast. “We view the health of Surfaces as being very important to the health of the industry. We see it as very important to the specialty retailer. In light of their importance both to us and to you, we believe it is a [crucial] part of the industry. It is the one opportunity the retailer has to see what is available in the world. “They will not see that at regional events,” he explained. “They will not see that at company-sponsored events. I don’t think they have a chance to interact with as many as their peers without Surfaces. For that reason, we will continue to support Surfaces in a big way. The future of the show will depend by how many retailers, we as a group, can get there every year. I think the job we do is, helping the dealer understand how important we think it is, with the help of the industry.”

Armstrong’s Lockhart saw things differently. “While I don’t view the future of Surfaces as appropriate to me to comment on because I’m not worried about the future of Surfaces, I’m worried about the future of Armstrong. In our view, Surfaces is not a cost-effective way to reach the retailers we want.” For all the NAFCD members in attendance, whatever side of the issues covered they were on, all were thrilled and appreciative of the fact that they got to see some of the industry’s biggest leaders express their views. While the meeting’s keynote address was delivered by former Pittsburgh Steeler great and Vietnam veteran, Rocky Bleier, the inspirational presentation by the football star was overshadowed by the appearance of the four executives.

“It really humanized these guys,” said Peter Rincione, of PTS Distributors in Denver. “You hear about these guys, who have a great deal to do with what happens within our industry, and it’s kind of interesting to see that human touch. That’s what was important to me.” “The panel discussion was very interesting,” said Bill James of Cascade Pacific Floor Distributors of Portland, Ore. “It was good to get those four leaders together in the same room and to ask them all the same questions. I found it very interesting, not necessarily the answers but maybe the way they answered, what they talked about, what they didn’t talk about.” “To have all four industry leaders get together like that and have an opportunity to have them present their views relative to the industry—both present and future—and to answer questions we’ve all had on our minds was definitely the highlight of the conference,” said NAFCD’s immediate past president, David Rowe of Denver Hardwood Co. in Denver. “As a board member, I think this really validates the relevance our association has within the industry.”

“To me, if you’re a distributor doing business with the people on the panel, you’d want to continue doing business with them,” said Steve Bunch, director of business development for Columbia Flooring. “The humor they showed was great. All in all, it was a good beginning to do those types of forums in the future.” Another conference highlight was the presentation of NAFCD’s Channel Economics Study. Commissioned by the association, the study was conducted by Frank Lynn & Associates, which used its channel economics body of knowledge combined with a fact-based perspective from the floor covering industry. This was accomplished through debriefs with NAFCD leadership, flooring industry interviews with both manufacturers and distributors, an e-mail survey to the NAFCD membership, and benchmarks from within and outside the industry. Several of the findings from the study included:

• Distributors are facing a continual profit squeeze. Gross margin is decreasing for both high profit and typical wholesalers. Dis tributors are running leaner than five years ago;
• Market power is largely dictated by size and scale. Profitability is largely dependent upon sophistication and ability to delight customers, manage costs, select suppliers and products, and negotiate with vendors;
• Distributor consolidation, increasing sales requirements, increasing delivery requirements, off-shore sourcing, global competition, big box proliferation, buying group power, contractor consolidation and retailers outsourcing installation are all trends driving change in channel economics;
• “Unique” products and accessories, such as wide board planking, handscraped floors, exotic species and specialty ceramics, enable distributors to earn the highest margins;
• Most retailers operating today have aligned with a buying group. Buying groups have altered the channel power dynamics between manufacturers, distributors and retailers;
• Major floor covering manufacturers have pared down the number of distributors serving any single market. Exclusive distribution works well to maintain wholesalers margins as long as the distributors aggressively serve each of their markets, and • Sales per employee for a typical floor covering distributor is $396,123 with gross margin percentage of 23%, while a high profit wholesaler sales per employee is $412,889 and gross margin percentage of 26.2%

“This is the type of thing many of us talk in the industry talk about on an ongoing basis,” said Rowe. “The industry leaders touched on some of the issues relative to channel economics, so I think it’s timely that we had commissioned this study to evaluate the flooring industry and the economics of the channel, and analyze things like who is bearing what costs, where can efficiencies be made and where they can’t be made. It’s a very exciting study.” For more information on the results of the NAFCD Channel Economics Study, call the association’s headquarters at 312/321-6836 or visit www.nafcd.org.

Finally, during NAFCD’s annual membership luncheon, the association named Scott Rozmus of FlorStar Sales its Young Executive of the Year. The award recognizes executives younger than 40 years of age with the potential to successfully lead their distributor organization in future years. As a result of this honor, stated Mariann Gregory, NAFCD’s executive director, Rozmus will receive a scholarship to attend the upcoming National Association of Wholesaler-Distributors Executive Summit from Jan. 26 to 28, in Washington, D.C. NAFCD’s next annual conference and business meeting will take place Oct. 8 to 11, 2004, at The Sheraton Wild Horse Pass in Phoenix.