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.
