Retailers, suppliers seize opportunities at the upper end

September 19, 2016

September 12/19, 2016: Volume 31, Number 7

By Reginald Tucker

screen-shot-2016-09-19-at-3-38-31-pmThe abundance of laminate flooring brands in the marketplace has expanded the number of options consumers, builders and end users have when selecting the products best suited for their design needs and budget requirements. But the downside of this tremendous availability is increased pressure on already razor-thin margins as many of the major home centers and discount merchandisers aggressively promote low, entry-level prices to generate traffic and volume.

The good news for specialty retailers is there are still plenty of opportunities in the midrange and upper end of the spectrum, given the right product mix, a targeted marketing strategy and, finally, the discipline to resist competing solely on price. “We don’t go after the low-end business,” said Phil Koufidakis, president of Phoenix-based Baker Bros., which sells the Armstrong brand of laminate flooring. Instead, he markets his company as a “high-service” operation and prices his products and labor accordingly. “When I ask customers how they perceive us in the marketplace, they usually say, ‘You’re the high-priced guys,’” he explained. “Then I ask them if that means we’re too expensive or if we are known for offering high-quality products and services. The question usually stumps them.”

That’s a good problem to have, as it turns out. Having your name associated with higher-end goods and services—supported by a storefront and interior presentation that screams “upscale” marketing and merchandising—bodes well for the retailer in terms of both profit opportunities and differentiation from the big boxes. “When you’re selling high-quality product and promoting high-quality installation, the expectation of the customer is also very high. So we set the bar high for ourselves.”

Of course, focusing on the “high end” with laminate is all relative. With many entry-level products coming in at around $1.19 per square foot, products hitting price points at $3.99 or slightly above are generally considered on the higher end of the midrange. Throw in high-quality acoustic underlayments and installation training by certified installers, and you have a recipe for a much bigger ticket. (All of Baker Bros.’ laminate installers are Armstrong certified.)

For other dealers, the route to bigger laminate tickets lies in strategic product positioning. For example, a $4.59-per-square-foot laminate situated next to a hardwood flooring display that typically houses products double or even triple that amount all of a sudden looks like a tremendous bargain. “When we talk about the difference between laminate and hardwood it is typically someone didn’t realize how expensive some of these hardwood products can be,” said Chris Green, owner of Great Southeast Flooring, Melbourne, Fla. “Meanwhile, their budget is telling them they should be in the laminate category. That’s where we can tell them they can be in laminate and still get the same desired effect.”

screen-shot-2016-09-19-at-3-38-42-pmSimilar product placement strategies are helping other dealers maximize opportunities to sell midrange and higher laminate flooring. At Flooring Town Group in North Hollywood, owner Abe Bashir has seen positive results by grouping laminate, WPC and wood lines from Eternity Flooring all in the same section. “It’s clearly one of the best products I’ve ever had,” he said, citing the above-average margins he earns on the laminate line. Beyond the trendy colors, designs and patterns, Bashir said his customers are increasingly gravitating to the improved performance attributes of the laminate and WPC offerings.

Battle for share

While the big boxes and mass merchants appear to be winning the battle for market share of the laminate business in terms of sheer volume, research shows. “Home centers, by a wide measure, are driving the bulk of laminate flooring sales,” said Roger Farabee, senior vice president of marketing, Unilin North America. “When you combine the home centers, Lumber Liquidators, Floor & Décor and warehouse clubs, this represents more than 70% of the market in 2014. Specialty retail, in terms of the independent dealer, is by far the smallest segment selling laminate today representing about 25% to 30%.”

The good news for specialty retailers, however, is that there are still tremendous profit opportunities available to dealers through step-up products. What’s more, in many cases these upper-tier laminate options come with additional features and benefits such as thicker cores and enhanced surface textures—all of which warrant higher prices at retail.

Given the fact that laminate was a remodel-focused category for so long, the product naturally gravitated toward the home center side. But as Dan Natkin, senior director, residential products, Mannington, reports: “Now we’re seeing more growth on the other side, namely specialty retail, because of increased penetration into the new home construction sector.”

screen-shot-2016-09-19-at-3-38-56-pmTechnological advances in laminate in particular have translated into exclusive opportunities for the specialty retailer. While the home center channel continues to drive volume with low-cost laminate, suppliers agree that specialty continues to win the margin battle by focusing on durable performance and realistic visuals that are differentiated from the home centers.

Hence the reason why major manufacturers are investing so heavily in their plants. Case in point: Swiss Krono recently broke ground on a $230 million HDF mill and factory expansion in Barnwell, S.C. According to Zeb Portanova, CEO, the investment is due to “strong consumer demand for our quality laminate flooring. Our strong retail partners who choose to sell our innovative products are the real foundation on which this expansion is built.”

Laminate flooring manufacturers are counting on continued innovations in the way of performance and design to not only help the category keep pace with competing hard surfaces but also to give specialty retailers more products that can’t be shopped at the big boxes. Many of these advances and developments span new 12mm to 14mm boards featuring improved cores and more realistic wood visuals. Vendors are also showcasing new capabilities in both color renderings and depth of textures.

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