Mid-year report: After dull half, dealers, distributors hope for rally

July 10, 2017

July 3/10: Volume 32, Issue 2

By Ken Ryan


Screen Shot 2017-07-10 at 2.40.40 PMFollowing a first half that some flooring retailers and distributors described as “fair at best” and “lackluster,” industry executives are hoping the second half will yield more robust activity. At the same time, however, they expressed concern that pent-up demand remains bottled up and could dampen what many hoped would be a strong 2017.

To be sure, some dealers reported healthy increases in the first half but there was clear consensus that the business climate today is uneven and lacking any discernible momentum.

The macro view of the economy would seem to bear that out. The Federal Reserve Bank of Atlanta’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 was 2.7% on July 6, down from 3% on July 3. The expectations have dipped amid fears of lackluster consumer spending.

These days encouraging news seems to be tempered. The Labor Department on July 7 reported the U.S. economy added 222,000 jobs in June, more than economists were expecting. However, wages grew 2.5%, well below the goal of 3.5% set by the Federal Reserve. Wages are one of the last indicators to take off since the recession ended in 2009, and economists suggest the paltry increases could be one reason why consumers are still hesitant to splurge for high-ticket items like flooring.

Retailers don’t need to read government reports to know that business on the retail side continues to underwhelm. “Retail floor covering remains relatively weak, and absent income tax reform and/or reduction, I don’t see legitimate cause for confidence in near-term improvement,” said Sam Roberts, president/owner of Roberts Carpet & Fine Floors, with 12 locations in the Houston area, echoing a sentiment shared by others. “We all have to persistently adjust to new realities.”

Olga Robertson, president of the FCA Network in Shorewood, Ill., sounded another familiar theme when she said there was no “rhyme or reason” to what is happening in the market today. She noted that retail has been dull, commercial is flat, and the builder business is either booming or non-existent. “If you go to states like Tennessee, South Dakota, Kansas, Iowa—the Corn Belt, so to speak—they are building 800-home subdivisions. Even in Illinois, a home doesn’t stay on the market for more than two weeks so inventory is down but not a lot of new homes are being built.”

Some flooring observers suggested that 2017 was going be the year when pent-up demand would finally be unleashed after years of tepid activity. However, dealers and distributors told FCNews that consumers still seem unwilling or hesitant to spend on flooring. “There is a lot of desire to do projects out there; it is just a question as to whether people will go through with them or not,” said Mike Foulk, owner of Foulk’s Flooring America, Meadville, Pa., who called the 2017 first half “a roller coaster.” He noticed there is no set pattern for when consumers shop. “They purchase when the mood strikes them, and they are not going to purchase unless it is on sale or some type of discount or incentive is being offered. My concern is people are on edge and may hold off on purchasing.”

Robertson wonders why consumers aren’t making the investment considering there is very encouraging data out there. “The stock market is up and everyone’s 401(k) has increased over 13% this year; the banks are lending with low rates on [refinancing] with no fees. Everyone should be spending money on their home—as that is your best investment—but for some reason they are not willing to pull the trigger.”

Screen Shot 2017-07-10 at 2.40.51 PMCarlton Billingsley, owner of Floors and More, Benton Ark., noted that while the consumer is cautious as a whole on the retail side “many of our older clientele are spending bigger dollars to upgrade for more luxurious items with walk-in showers, under floor heating, etc., to help offset some of the cautious consumer spending.”

What’s frustrating to flooring retailers and distributors is there have been pockets of decent activity in 2017, albeit with no carryover quarter-to-quarter or sometimes even month-to-month. Bob Eady, president of T&L Distributing in Houston, said 2017 has been a “month-to-month battle for business due to the softness in the economy. I believe that until our political leaders (both parties) improve consumer confidence with lower taxes, both personal and corporate, the healthcare reform debate, deregulation, etc., we will continue to find business very sluggish. I believe the news media has done a tremendous job of ruining consumer confidence.”

Scott Roy, president and CEO of Gilford-Johnson Flooring, Jeffersonville, Ind., observed that while the spring was slower than what had been forecast, he remains optimistic the market has or will turn. “June was better than May, and I’m seeing and hearing retailers are getting busier and commercial business for us is looking more optimistic. A lot of my optimism is based on what we are doing to generate more business.”

Allen Gage, president of Tri-West in Santa Fe Springs, Calif., said business has been “good but not great,” and that demand has been inconsistent in the West. He noted sales have not matched the enthusiasm shown in the stock market, especially in the commercial sector. As for the second half, “If people believe something is getting done on healthcare and taxes then things will take off nicely.” However, he is concerned that issues such as failure to pass legislation could put a damper on the second half.

The Vertical Connection Carpet One in Columbia, Md., enjoyed a stellar first half with double-digit sales increases driven primarily by the investment in new hires during the second half of 2016. For Adam Joss, co-owner, the concern isn’t so much today but the future. He is worried that the retail shopping environment is changing faster than ever and that the flooring industry is not insulated.

“E-commerce will become a more common way for consumers to purchase flooring online,” he said. “We all know, at this point, that homeowners begin their research online. That’s not good enough, though. More consumers want to complete the entire buying process online. I’m a firm believer that store traffic will never return to what it once was.”

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