When the going gets tough, Abbey makes dealers better

Home News When the going gets tough, Abbey makes dealers better

Now more than ever, flooring retailers are finding the value of alignment. Some choose retail groups, others opt for manufacturer or distributor organizations. But it is inarguable that alignment provides advantages the average independent simply does not have the resources to take advantage of, whether it be national advertising, comprehensive websites and more.

The oldest floor covering franchise group is Abbey, which has been around for more than a half-century. Floor Covering News associate publisher and editorial director Steven Feldman recently sat down with Phil Gutierrez, CEO, and Steve Silverman, president and COO, to discuss the company’s current state of affairs.

Let’s begin by talking numbers. How many Abbey members, how many Floors to Go members, how many storefronts?

Steve Silverman: We have about 640 Abbey members representing about 700 storefronts and 150 Floors to Go members with 165 storefronts.

How has that changed over the past year?

Silverman: If you go back to 2007, which is the barometer we use since things started turning south in September 2006, suppliers tell us they’ve lost between 20% and 25% of their dealers. If that is true, then logic would follow that is also true with the groups. But while we’ve lost what we consider a large number of members in the past three years, the volume of those we have opened surpasses that of those we have lost.

Why do you think you lost those members?

Silverman: The stores we have lost, for the most part, were smaller stores, the typical mom and pop, that closed their doors. The economics have been so severe. A small store does not get a large amount of traffic and during the downturn saw what could have been 50% fewer customers. Then people get desperate and go to lower margins, and they make less money on the sales they can still get. Eventually they run out of money and are forced to close.

Phil, Abbey’s been around for 50-plus years, and you’ve been around for many of them. Is this the worst you’ve ever seen it out there?

Gutierrez: I’ve been in the business since 1965. I’ve seen things just as bad, but for a much shorter period. The worst recession was in 1973 because of the oil crisis, but that only lasted 15 to 18 months. Then in the early 1980s we did not participate in the recession because we were starting to sign franchises, so we had a net increase in volume. Since then, we have had double-digit volume increases every year until 2006.

Silverman: The other factor that came into play is consolidation. In the past a retailer could spread his credit around to 20 or 30 suppliers. Now with three or four he can’t.

If I’m an independent retailer and I’m thinking of joining a group, why Abbey? Why Floors to Go?

Silverman: We can do things for retailers, no matter how astute they are, no matter how large their volume, they could not do on their own as they lack both human and financial resources. They are spending their time with their customers and installers. Take national advertising. Abbey’s investment in consumer advertising is well into seven figures with 48 insertions in seven national publications this year alone.

What does that do? It drives consumers to the website, and that, coupled with local advertising, drives consumers into member stores. National advertising is more institutional and creates credibility and brand exposure. Local advertising is a call to action. We also do all the production for the local ads. That enables the member to advertise more frequently and more professionally.

We have an interactive website with over 7,500 images of flooring products. We have walkout videos, and we give our members the ability to put 10 custom pages of their own on the website—a personal message in their local market. We do it for them and they can update is as often they choose.

Gutierrez: Proprietary brands, which is a step beyond private labeling, is important. A label is taking a sample and relabeling it. We have private brands for carpet, wood, ceramic and laminate. With Mohawk we have the rights to Alexander Smith, the oldest existing brand in floor covering. We take an existing product, enhance the warranty and market it in our own merchandising system all the way to color. We do the same with Shaw with the American Showcase brand. What does it add for the member? Five to eight points gross margin because they can’t be shopped.

Silverman: We also have a private members-only password protected internal website called the Infonet. It contains every ad we have developed, archived over the last 10 years— radio, TV, print. It also keeps track of member rebates, provides all price changes and a complete product catalog with supplier and product names. So if a consumer comes in with a Shaw product but wants to see what the Abbey member has, all the dealer has to do is enter the name of the Shaw product and the Abbey name will come up.

What about the difference between Abbey and Floors to Go?

Silverman: The basic difference between the two programs is Abbey does [a great deal of] national advertising and Floors to Go does very little. The dealers get the same products but under different brands. They have the same access to suppliers. We have some members who like the Abbey name, we have some members who like the Floors to Go name. But for an independent retailer to have a choice, there would have to be an opening in his territory for both franchises.

Gutierrez: As far as quality of retailer, there is no difference. The requirements of membership are the same for both Abbey and Floors to Go in terms of level of volume. When we bought Floors to Go eight years ago, the members were smaller retailers. In fact, we probably have only 25 members that remain from when we purchased the group. That former member has not been replaced with the same type of member. We have raised the level of professionalism.

What is the average margin for an independent retailer vs. a Floors to Go or Abbey member?

Silverman: An Abbey member or Floors to Go member works on 5% to 8% higher gross margin. Then there are the operating expenses. If they follow the plan, operations can drop a couple of points. Plus, they now have rebates.

Gutierrez: The program is most effective for those members who have Abbey Carpet in their name. National advertising does nothing for someone who will call themselves Steve’s Carpet.

Let’s talk about specific competition. Give me an Abbey member’s competitive advantage against:


Silverman: Our members have something to back them up: brick and mortar stores. If the consumer wants to close the sale in the home, that’s fine, but sometimes she wants to come into the store and look for additional products, including area rugs. Shop-at-home is an extension of the brick and mortar store. By the way, competing against Empire is easy if you can talk to the customer.

Lumber Liquidators.

Silverman: It starts with quality and service at our stores. Just by the name itself. If you go into Lumber Liquidators, you expect something cheap. You hope it is first-quality, which is not always the case. Very few Abbey stores ever lose a sale to the big boxes if they get to the customer. That’s why advertising you are locally owned and operated is so important.

How have your members been doing with the shop-at- home component you introduced a few years ago?

Silverman: About 25% of members are participating. And those who are participating are doing about 20% of their overall business in shop-at-home. They may not close the sale in the home, but they go in and bring the customer into the store, where they get exposed to hard surface, which is hard to show in the home. It’s a bigger ticket, not so much because the price is higher but because they are adding on an area rug or window coverings. They may even do an extra room.

Laminate: The category is under all kinds of pressure. Can an Abbey member still make money in the category?

Silverman: Yes. Right now we see laminate selling in the upper end or very low end; the middle price point has gone away. You can still make money, but the dollars are going to be a lot less. The problem is that high-end laminate costs the same as wood and installation costs are similar, which is what drives people to the less expensive laminate. This happened in Europe so we saw it coming.

With the banks tightening the screws on credit, are fewer customers getting approved?

Gutierrez: Our approval rating is still 87% to 88% with Wells Fargo. At the high point it was 93% to 94%, so it hasn’t changed much. But in general, the amount of credit sold compared to furniture stores is still pretty small. Most sales are still done with cash or credit cards rather than house credit.

In the aftermath of that rebate issue that led to the severing of ties with one of your major suppliers, how has the group gone forward?

Gutierrez: Losing a supplier has happened before, so it’s not anything we didn’t have experience with. We lost Shaw at one point, which was much more significant. The year after, we signed up more franchises than we ever had. So what looked like a catastrophe at the time turned out very well. At another point Pergo wanted to be our only approved laminate supplier, so we had to tell them to take their ball and go home. Their business with us fell off 85% and three other suppliers took it. It’s unfortunate when something like this happens, but what we do is help our stores replace that supplier. There is nothing they make a store cannot replace. We have strengthened programs with their competitors, and we are not done yet.

Silverman: Doing business is much more about trust, merchandising and long-term relationships than it is about rebates. We are in the process of introducing a new program with Armstrong. Is it quick? No. Is it long lasting? Yes. Our group has shown unification. But it’s one step at a time, and not some- thing everyone jumps on board with at once. It will take several months, but by the end of 2011 I don’t think our former supplier will be missed by our members.

What was your reaction to Armstrong’s direct deal with CCA, and is that something you would consider exploring?

Gutierrez: Armstrong offered us a direct billing program a year-and-a-half ago, but the timing wasn’t right for them. In talking to our stores, they don’t really care who bills them. All they care about is service and price. Armstrong is in the process of hiring its own sales force to service CCA and our group. Once that is in place, we will see what happens.

Silverman: We have an outstanding relationship with Armstrong management, which has evolved over the past two-and-a-half years. Everything they have told us they would do over that time they have done.

Talk a little about the Floor Club? How is that doing, and how many members are you up to?

Gutierrez: There are 15 Floor Club showrooms, and those to-the-trade stores are solid and doing well. But this is not the time to pursue additional franchises because it is a start-up with a high investment, between $250,000 and $300,000. When you consider business conditions are about 50% of what they used to be, it’s probably better to wait on that.

What’s the next big thing for Abbey?

Silverman: All I can tell you is it is big and is in the works. You will see it in Reno.

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