By Ken Ryan
Amid the deepening housing downturn in 2008, Jaeckle Distributors’ president Jeff Jaeckle decided the best course of action was to spend money. Specifically, he chose to invest in new product lines, primarily hardwood.
“We knew it would be a risk because no one knew what the economy would do, but we thought it would be a bigger risk to do nothing,” he said. “We added some new hardwood lines, including Mercier and Somerset. We already had strong existing lines, like Mannington, so we felt blending them with new products would work for us.”
That bold move proved successful for the Madison, Wis.-based distributor, which saw its wood business increase 5% from 2010 to 2011 and 17.7% from 2011 to 2012.
Jaeckle’s increase in hardwood flooring sales, while robust, is not an anomaly among flooring distributors in today’s market. Despite the continued struggles of the builder market, which is showing signs of recovery, hardwood has managed to persevere.
When the builder market faltered, the bulk of the business shifted to residential replacement. As Jeff Striegel, president of Elias Wilf Corp., Owings Mills, Md., said, “Tales of the decline of the wood category were greatly exaggerated when builder fell off.”
According to his industry data, in 2002, 61% of hardwood flooring went to builder, 26% went to residential replacement and 13% to commercial. In 2011, builder was down to 18%, commercial 23% and residential replacement 59% of the market.
Market share gains
Growth for many distributors, regardless of product segment, has come by gaining market share from weaker rivals. Some of these companies lost key product lines, were acquired or went out of business.
In September, Belknap-White Group, last year’s No. 4-ranked industry wholesaler, acquired Patriot Flooring Supply, then the No. 2-ranked hardwood flooring distributor with 2011 sales estimated at $67 million. Belknap-White, which was No. 7 in hardwood a year ago with sales of $50 million, has now become a hardwood stalwart in the Northeast.
Ray Mancini Jr., CEO of Belknap-White Group, said the acquisition positions the distributor into new markets in New York and New Jersey. “We already have some synergies in the Northeast territory so it will improve our customer service and logistics. We believe regional players have better economies of scale, superior service and faster turns. We’ll be able to compete with anyone who comes our way.”
Another distributor that has taken advantage of industry consolidation is Galleher Corp., Santa Fe Springs, Calif. After Golden State Flooring went under, Galleher hired 60 former Golden State employees, set up seven new locations in Golden State territory and managed six of its eight exclusive lines. “We took over Golden State without buying them,” said Galleher president Jeff Hamar. “Being in this bad economy for so long, and with a number of competitors not being able to survive, we’ve benefited. And we’re not done with this [consolidation] yet.”
Despite the economy, Galleher enjoyed a breakout 2012 in hardwood flooring with sales soaring about 50%, according to Hamar. “Wood and wood-related products are still 85% of our business, but laminate and vinyl are growing as we added Formica and IVC this year,” Hamar said. “While I think business in our region is close to flat compared with last year, our success is driven largely by significant market share gains.”
The new normal?
There was a general consensus among distributors that the halcyon days of the builder boom in the 1990s and early- to mid-2000s wouldn’t be replicated anytime soon. While slow recovery is in the forecast for builders over the next 12 to 24 months, Striegel noted, “No one is naïve enough to think the bad times are behind us. It is better—we as an industry are only off 64% from the flooring peak compared with 78%, so I wouldn’t break out the champagne just yet.”
However, on a positive note, builders started construction on single-family houses and apartments in September at the fastest rate in more than four years, the Commerce Department reported. Some flooring distributors have confirmed the builder segment is improving at least slightly, although they remain cautious in their assessment of future market conditions.
Rick Holden, executive vice president of Derr Flooring, Willow Grove, Pa., said the builder market should be better next year, “but currently the homes being built are smaller than the recent past. Almost all of them are being built entirely with base-grade products, which restricts wood flooring opportunities.”
David Rowe, executive vice president, Denver Hardwood, said his company is seeing improvements in builder-related business. “However, the emphasis continues to be on lower-price-point items. Premium domestic products and exotic species, which both carry higher price points, have not rebounded in the fashion that unfinished commodity hardwood products and lower-price-point, prefinished products have over the last several months.”