Volume 27/Number 19; January 20/27, 2014
By Ken Ryan
From still-lingering issues about the strength of the economy and government inaction to non-traditional competitors and an aging dealer base, there is no shortage of questions and issues on the minds of flooring professionals as they enter 2014.
Perhaps the most pressing issue for the industry is the state of the economy, which showed improvement and stability in 2013. Some analysts believe the economy will continue to grow stronger over the next four years, but others in the industry want to see more proof first.
As well, there are some matters affecting flooring that have very little to do with how well the economy is performing. FCNews spoke with industry experts about the concerns that keep them up at night.
The economy
Scott Rozmus, president of distributor FlorStar Sales in Chicago, said his chief concern is macro, specifically the machinations taking place in Washington. “My No. 1 question is whether the federal government will do things that impact the economy, like another shutdown. Are they going to do things or not do things, act or not act, in ways that have a negative impact on our economy?”
According to Gallup, a research-based, global performance management consulting company, the 12-point drop in consumer confidence following the 16-day partial shutdown and possible fiscal default in October 2013 was the biggest decline since Hurricane Katrina in 2005. The plunge affected the economy as a whole, and specifically the flooring industry as consumer confidence is critical to the field. “Flooring is generally a purchase that can be postponed,” Rozmus said. “If you have nervous people and they can delay a purchase, they will.”
Still, the signs are mostly positive for flooring entering 2014. Housing has improved, the economy grew by 4.1% in the third quarter, and lawmakers on Capitol Hill forged a budget agreement that would keep the government operating for two years.
Some suggest that while the economy is improving, it looks better only when compared with the deep recession. “It’s like knocking your head against the wall—it feels good when you stop,” said Sandy Mishkin, president of CCA Global Partners. “Anything positive in the economy represents your head when it stops hitting the wall. I wouldn’t call it euphoria, but it’s better than being at the bottom.”
Barring what he called an “earthshaking” event, Mishkin expects the industry will grow 3% to 5% in 2014, which is in line with many industry forecasts.
Brand disloyalty
Advertisers have always targeted the 18-to-34-year-old demographic, not necessarily because they spend the most, but because—the theory goes—if you hook them while they’re young, you might have a customer for generations to come. However, according to some flooring dealers, this theory belongs on the endangered list.
Jon Pierce, general manager at Pierce Flooring, with retail stores and outlets throughout Montana, admits that Millennials won’t necessarily shop like their parents and grandparents did—which means they might not be trustworthy Pierce shoppers.
“People are less loyal today than they have ever been,” Pierce said. “They will jump-ship you on a dime. We used to have generations of customers; now their kids are bypassing us because they think Lumber Liquidators or Home Depot or the Internet is cheaper. They won’t even give you a look.”
Hard surfaces/soft surfaces
Hard surfaces—primarily hardwood and ceramic—are growing in popularity, and that has some experts worried. Why? Because hard surfaces do not get replaced as often as soft.
The harsh reality may not manifest for a few years, but it eventually will. “This is something to be aware of,” Mishkin said. “It’s a reality that will affect us years down the road when the replacement market won’t be as robust.”
Jeff Striegel, president of distributor Elias-Wilf, agreed. “Carpet and vinyl are temporary and wood and ceramic are permanent,” he said. “Customers shopping for flooring less often is not a winning combination. If you put a wood floor down today you may not see your customer again in your lifetime. Those flooring dealers who diversify into grout cleaning and hardwood finishing will have a better chance at fighting off these challenges.”
New kids on the block
Competition isn’t new to the flooring industry; what is new is the level of competition. Today’s independent dealers are not just competing against each other or the traditional big boxes (Home Depot, Lowe’s), but also Lumber Liquidators, Shop At Home, Floor Décor and the Internet.
The average dealer doesn’t have big pockets, so he can’t advertise to the degree some of the newer players can. Some see the non-traditional dealers coming into flooring as game changers. If not, they are certainly disruptive influences.
“The fact that those businesses are growing is one threat,” Striegel said. “The second part of that threat is our dealers’ ability to respond. If they think they are going to be price merchants, they will truly lose. [Independent dealers] can win the battle if they are capable of raising the bar. They have to fundamentally outsmart, outwit and outlast these non-traditional dealers, and that is not going to be easy.”
The next generation?
Another issue at hand for the industry is the lack of presence from young people. This is certainly true with installers, but other areas are seeing it as well, particularly on the retail side.
The recession cleared out hundreds of independent dealers, mostly veterans whose offspring will find another line of work, experts said. Said one retailer, “We have aging dealers, and if we don’t have younger people coming into the industry…” At this point, without an incoming generation, the future for flooring is unknown.