By Steven Feldman
As part of the recent FEI Group meeting, some of the industry’s leading executives took part in a panel discussion on everything from the industry, the recovery and the future in general to the builder and property management segments in particular.

Participating were Kim Holm, president, Mannington Residential Business; Ralph Boe, president, Beaulieu of America; Frank Ready, CEO, Armstrong North America; Tom Lape, president, Mohawk Residential; and Shannon Watson, director of sales and marketing, Legacy Cabinets. Excerpts follow.

What will the recovery look like over next 12 to 18 months?

Ralph Boe: When you look at all the recessions we’ve been through in the past, we have come out pretty quickly. But today people have become more conservative. So the recovery will be much slower. We think next year will be flat and by 2014 we think we will have gained only half of what we lost over the last three years.

Kim Holm: We are taking a more optimistic view. We think by 2014 we will have gotten back about 75% of what we lost since 2006. We also think the industry will be up about 10% over the next 18 months.

Frank Ready: We see a slow, steady rise. We think the key to look at is unemployment. With unemployment at 10%, that will be a drag on recovery. Another key to watch is what happens with prices. As prices come up, people gain equity and leverage to sell their homes. We also look at new household formation and single-family starts. We think the new normal for single-family starts will be 1.2 million or 1.4 million starts as opposed to the 1.8 million of a few years ago. By the way, the number has gone down to 400,000.

Tom Lape: If we could only get to just a million, that’s 2.5 times this year’s number—a big swing. I think this will be a different type of recovery because of the type of product being sold. The high-end market is not as robust. We see a different type of consumer on the other side. That consumer will find it hard to get financing, hard to live on other people’s money. But the longer we are in the recession, the higher the likelihood that we emerge, the higher the stability of the recovery.

How do you view the multifamily segment in the short term?

Ready: New construction starts will be bad. The opportunity on the multi-family side is refurbish and remodel. Everyone managing properties today has to be competitive because there are fewer people out there. So whether it’s floor covering or cabinetry, it will have to be replaced.

And it will be all about value. It will have to look good, wear well, and help rent that property out. There will be considerable opportunity, and it will all be around value.

Boe: When we were looking at the carpet business a year ago, with everyone moving out, you would think that market would be soaring. But you are seeing young people go back home or move in together. Once employment picks up, you will find more people moving back into their own places, which will stimulate the market.

Which segment of the market would be best to concentrate on today? What should we be most concerned with long term?

Holm: The refurbishment business is probably the sweet spot over the next 18 months and anything that has to do with government work. They are the only ones spending money.

Boe: When we were in trouble at the beginning of the decade, we were working with about 13 banks, and they were very forgiving. Looking at the whole banking business today, none of us would find the same situation. You must maintain a strong balance sheet, manage your inventories and concentrate on your receivables and payables. You must ensure your costs are in line and reduce your expenses.

Ready: There are going to be more people chasing fewer opportunities. You want to align yourself with companies you can bet on. Companies you know can deliver, that are financially strong, that you feel comfortable integrating with. In the hey day of 2005/06, we didn’t worry about inventory. We just made more product. You have to do the same.

Lape: We need to take a long-term view. If you look back in time, the weak go out of business early in the cycle. The strong go out late in the recovery because they can’t fund the recovery. You need to make sure when this thing recovers, you not only can get the business but fund the business. It’s not that you make it tothe recovery, it’s that you participate in the recovery.

Holm: There has been very little shakeout in the industry. There’s more likely to be shakeout on the way up.

What fundamental changes do you see in product development or the distribution models you currently have for those products over the next five years?

Holm: From a hard surface standpoint, there has been a movement to more easily installed products. We will continue to see those products become more popular in the marketplace. As for distribution models, back in 2005/06 there was pressure on the manufacturer to sell the builder direct. I think that will go away.

Ready: From a product perspective, I can’t tell you what the specific innovations will be, but there will be a drive for innovation that you have not seen before: Innovation with functionality, things that make the consumer’s life much easier in the home and the drive toward environmentally friendly. Today, it is great to talk about green but no one wants to pay for it. As the market comes back, you will continue to see a drive there.

On the distribution side, there are going to be fewer people, which will clear up some redundancies.

Lape: Differentiation is something you are already starting to see, even in a market as mundane as multi-family. It can be in service plans or warranty plans. It can be something more functional, practical or economical for the consumer. All of that drives value. Five years ago we wanted to make it the same; now we want to make it different, better and easier for the end user.

Boe: We are looking at three things: costs, sustainability and innovation. What’s bringing value to your customer? Sustainability: We are all looking at ways to use more post-consumer product in our products, but we have to be realistic. We will see a lot of intense effort going forward. We have to figure out how to do that and sustain the cost.