January 6/13, 2014; Volume 27/Number 18
By Ken Ryan
By most accounts, 2013 was a good year for flooring distributors—actually, one of the best in a long time. And, better yet, 2014 has the potential to surpass 2013 in sales growth.
However, this positive outlook doesn’t mean distributors enjoy a worry-free existence. In fact, today’s wholesalers—especially the smaller ones—face numerous challenges, including costs, government indecision and internal struggles such as suppliers selling direct.
FCNews spoke with several distributors about the issues facing their businesses for 2014 and beyond.
Sequestration. Debt ceiling. Fiscal cliff. Shutdown. All these noxious terms played out in Washington in 2013 and, in some measure, affected the distributor’s ability to conduct business.
Thankfully for them, it’s 2014. Although it is a mid-term election year, so far 2014 started off less onerous than the previous year. Still, one budget agreement pieced together in December is not enough to allay the concerns many distributors harbor.
“Government uncertainty is the major issue that is negatively affecting our business,” said Hoy Lanning, CEO at CMH Space Flooring, Wadesboro, N.C. “We need to know the government will work everything out to keep functioning and correct our federal debt.”
Bruce Zwicker, CEO of Haines, Glen Burnie, Md., the industry’s largest wholesaler, said the uncertainty in Washington “can’t kill the recovery, but it can make it more volatile.” Unpredictability on Capitol Hill makes it more challenging to plan and operate, whether it is making investments in hiring, warehouse, fleets and so forth.
Issues with selling direct
The practice of bypassing the distributor to sell direct to retailers has grown exponentially in the last five to seven years, according to John Anderson, vice president of sales and marketing for BPI, Memphis. “Some of these vendors are our biggest customers, so we have a mixed relationship. We have a great partnership but at the same time we are competing with them. We have asked them to give us differentiated product—price, color, pattern, design.”
While selling direct can hurt a smaller distributor in certain markets, a large distributor like BPI has the wherewithal to still thrive and continue to add value. “We have the logistics whipped,” Anderson said. He believes BPI probably operates with some of the most sophisticated technology when compared with other distributors in the country having invested “heavily” in technology and logistics. “We have that down to a science. That keeps our costs down.”
Strength, length of recovery
Zwicker said the biggest challenge is the ambiguity surrounding demand, which comes from waiting for a firm recovery in the remodel sector. “Every time we get a little traction, something happens to hurt consumer confidence. The biggest factor is our government, and that volatility in demand is going to remain because the political situation remains unstable. It’s a drag.”
There is still strength in the new home sector, according to distributors, but there are headwinds primarily because of credit and home affordability. The commercial sector is showing signs of recovery, which is more predictable.
What is also uncertain is what to make of the recovery. How long will it last? How strong will it be? These are questions that play into how much a distributor can and should invest in operations and potential expansions or acquisitions.
“The recovery is going to be good; we just don’t know how good,” Zwicker said. “Are we looking at two strong years or four strong years? It makes it difficult to make the major investment decisions of warehouse capacity, size of the fleet, hiring and technology.”
Other consequential variables
The rising cost of raw materials and the availability of lumber are additional challenges facing the largest distributors. According to Scott Rozmus, president of FlorStar Sales, Romeoville, Ill., it’s difficult for manufacturers to schedule their products and raw materials for purchases, particularly wood, with the situation of supply and demand and considerable variable of input costs of lumber.
“Unfortunately, ultimate management of such issues is beyond the total control of any single firm,” Rozmus explained. “Consequently, businesses must develop contingency plans and remain nimble enough to capitalize on all the positive opportunities while being vigilant for, and swift to respond to, any signs of softness.”