Focus on domestic private labeling
By Steven Feldman
Don Finkell is back in business. After piloting Anderson Hardwood Floors to a reputation of unprecedented innovation and quality before selling the company to Shaw Industries in 2007, Finkell, leading his team of experienced industry veterans, will launch his new venture, American OEM, at the National Wood Flooring Association (NWFA) convention April 16-18 in Nashville.
American OEM’s business model, at least to start, is to go after the private-label business currently being dominated by Chinese companies or importers of Chinese hardwood products. “The Chinese have captured at least as much business as is being done by U.S. manufacturers,” Finkell told FCNews. “Almost all of it has been private-label programs for wholesale distributors, large retailers, buying groups, big boxes and Lumber Liquidators.”
Against that backdrop, American OEM will target any company that has a need for a private-label program, primarily wholesale distributors. “There are not many domestic companies making private-label products. We believe there is a niche here to do that. We will try to get as close to the Chinese import price as we can, but with faster delivery and closer proximity to the marketplace.”
Indeed, research reveals that about 42% of the hardwood flooring sold in the U.S. is manufactured domestically, while 43% comes from China. “Almost all that Chinese business is done through private label,” Finkell noted.
The Chinese have been able to master the private-label concept, Finkell said, because American manufacturers are burdened with a higher cost structure to go to market, which includes marketing and sales forces. But Finkell, taking a page out of the book he wrote at Anderson, believes he has come up with the secret sauce to effectively compete with Chinese private-label programs: the prison system.
“We know the prison model is the most cost effective way to manufacture in the U.S.,” he said. “This will be the eighth prison plant I’ve started up. We started manufacturing flooring at Anderson within the South Carolina prison system in 1996, and five years later started the scraping process. You get a very dedicated, and an increasingly skilled, workforce. They tend to appreciate the job more and, thus, do a better job. Plus, there’s less turnover in the prison system.”
Inmates make the same wages as would civilians in the local community. However, Finkell said if you give a labor-intensive, rather mundane job like handscraping to a civilian, he will only perform that job until he finds another. “The inmates like the work, stay with it and make more money than they would performing another job because we pay a bonus for production.”
The program has also proven to give participating inmates a new lease on life…literally. “At Anderson, we hired people who came out of the prison program and had success with them,” Finkell explained. “In fact, we have ex-offenders who worked for Anderson currently building this plant.”
The statistics don’t lie. The average recidivism rate for inmates across the country is about 50%. But for those who come out of this program, the rate is less than 7%. “That’s because they have learned a skill that can be applied when they get out. Also, there is a forced savings component to the program, so when they get out it is easier to readjust. And finally, they are able to send money home to their families, so the families stays engaged and are happy to see [inmates] when they are released.”
Working inmates aren’t the only ones who can’t seem to leave the industry. After retiring from Shaw, Finkell spent a year traveling to six different continents “but couldn’t escape the fact that I love making hardwood floors and am not ready to quit doing that.”
Nuts and bolts
American OEM will manufacture engineered hardwood products at its plant in Only, Tenn., (halfway between Nashville and Jackson) in a range of styles and species such as red oak, white oak, hickory, maple and walnut. The lineup will span traditional to rustic, entry level to upper end. “[The assortment] all depends on what people want,” Finkell said. “I think we will be pretty competitive at the entry level, but our greatest competitiveness will be at the higher end. We are putting a plant together that has a lot of flexibility.”
Product development will be a collaborative effort between American OEM and its customers. “They can tell us what they think will be effective in their markets and we can come back with something that’s pretty close within our parameters,” Finkell explained. “We just need economies of scale to achieve a certain price point.”
This is not much of a departure from his Anderson days, where most of that same innovation happened because distributors came to the company with ideas. “We see the same thing happening here except in a private-label brand instead of our brand. That’s why we want partners and not customers. We want to have a relationship where we are not competing with our customer and let some good things happen.”
While the factory is slated to be operational by the end of summer, Finkell said he is already in talks with several prospective customers, some having expressed high interest when American OEM is ready to sell them. In fact, this initial response has Finkell believing American OEM can, in fact, be successful. “Although the company has a large capacity and opportunity for tremendous sales growth, I will be satisfied if we just have a sustainable and profitable business. I want to build something I can pass on to my grandchildren.”