November 9/16; Volume 30/Number 11
By Steven Feldman
Tucson, Ariz.—Business is better than it has been, and FEI Group is doing its part to ensure its members get better as well. Whether it be the Home Solutions (builder), Multi-Family Solutions (property management), KBx (kitchen and bath) or now Kitchen and Bath Alliance member, the overriding theme at the group’s recent convention here was improvement—both as companies and as people.
As an example of the latter, the FEI Group fitness pledge was launched. “We are about the whole person, not just the business,” said Dave Gheesling, CEO. “One of the core values in our vision statement is you must be physically fit before mentally fit. The first wealth is health. You need to have that aspect of your life under control or you are limited.”
The fitness pledge is a 90-day program in which members were asked to write down their individual goals by Nov. 1 and pledge to meet them by Surfaces 2016. It’s a commitment to eat better and exercise six days a week. About 100 members signed up and were asked to choose an accountability partner.
When the focus shifted from the health of the individual to the health of the business, every educational session was designed to move members forward. These sessions included a panel discussion on organizational leadership. The panel was moderated by Jay Smith, president, and featured Randy Merritt, president of Shaw Industries; Jerry Hosko, president of Redi Carpet; Marty Van Doren, executive vice president of Masterbrand; and Adam Nonn, president and CEO of Nonn’s Kitchen Bath & Flooring, Madison, Wis. Other topics of note focused on hiring better people and selling better goods to having the best looking and highest performing design centers.
“Things are better,” Smith said, “but good is the enemy of great. We have to keep improving.”
Welcome to the family
Among new initiatives, FEI Group’s family of companies is growing with the launch of the Kitchen and Bath Alliance (KBA). “We have a successful kitchen and cabinet group, KBx,” Smith said. “Our desire is to grow that whole kitchen and bath side. Many of our members are having segment extensions, so we have to be there to help them as they enter the cabinets, countertops, plumbing, lighting and decorative hardware businesses. It’s all about the interior of the residential home or apartment.”
KBA has launched with 23 members. The typical member will do between $2 million and $5 million a year with a focus on the remodel market. This is in contrast to KBx members who are larger, multi-location, installation distributors of cabinets and kitchen and bath products, and more serving of the builder or builder customer.
“We see the bundling of interior materials as a growing trend,” Smith said. “To be meaningful to all our customers, we need to be in more product lines, and we see a need in the kitchen and bath space to be the top place for independent entrepreneurs for support in buying, training, marketing, networking, street intelligence and financial metrics. We intend to be that place.”
Suppliers and their products
According to Andy Hogan, executive vice president and co-founder of the group, FEI leans on its partner suppliers to offer aggressive support to the membership. “We have a very supportive group of partners on the supply side. We drive ourselves and our partners to make sure we are always maintaining a competitive advantage in each marketplace. As you can see at our Supply Connect event here, we are all working very hard in this area.”
Hogan cited Shaw as an important carpet supplier to the group. “We think they are an excellent manufacturer of quality carpet and do a good job in the builder and multi-family space.”
Merritt was likewise complimentary of the group. “FEI represents some of the very best in their field on both the multi-family and builder sides of the business. They are great to work with. People use the word ‘partnership’ loosely sometimes. But what we have experienced is more than a supplier/customer relationship. They work hard to understand what we are trying to get done and we work hard trying to understand what they are doing. And the result is usually very positive for both sides. That’s what makes for a good partnership.”
Merritt provided insight as to why Shaw was an ideal fit for the group. “Builder and property management have always been important markets for us. And now they are important not only from a carpet perspective but from a hard surface one as well because things have changed in those markets. Other people at different times in their planning will exit those markets when others get better. We never have.”
Hogan also cited Dal-Tile as an example of a true partner. “Dal-Tile has been with us since the very beginning. They understand our members and our needs and are responsive to them.”
In terms of product, carpet is facing pressure from LVT, but Hogan believes there is hope. “In an apartment installation, LVT is twice the investment for the property management company than it is for carpet. So if a property management budget is tight, they can lean back to carpet. Plus, in the Northern states if you glue down LVT on slab it is cold [underfoot].”
Of course, it is more beneficial to install carpet than LVT because of the longer replacement cycle inherent in hard surface. “Everyone who makes carpet and those who install it are concerned about that,” Hogan said. “LVT will not turn like carpet does on the multi-family side. We do, however, see some styling issues that may help with turns. Plus, the competitive arena for the tenant may force turns.”
One trend Hogan sees is a return toward slightly better carpet. “During the recession, there was gravity of 25-ounce carpet down to sub-FHA 16- and 18-ounce carpets. The mix took a tremendous hit. It is slowly recovering back to 25-ounce fabrics, but even so, with LVT in the mix, carpet is still in a challenged state.”
FEI Group members have had a good year, Smith said. “But because of the choppy nature of the comeback, we are hoping there is more longevity in that.”
Business has been stronger on the multi-family side than builder, but both have been positive in 2015. “New construction in multi-family is good, and major rehab business has been off the charts,” Hogan said. “There has been lots of investment in apartment development. This summer’s apartment turn season was very robust. The vacancy rate is 4%, so rents are robust.”
On the builder side, starts are projected to be up 10% from 2014 but short of Wall Street’s projections. Inventory is still in a manageable position. “There has been a slight mix improvement in the channel toward better goods,” Hogan noted.
The biggest challenge for both sides of the business, as it seems to be everywhere, is labor. “Builders are having to refund money because they can’t build houses,” said Scott Hanson, Images Flooring, Englewood, Colo., a brand new Home Solutions member. “I had one of my suppliers buy a house last December with a July completion date and they are just starting to break ground now. It’s all because of subcontractors. Many people went to North Dakota because of the oil, some laborers went back to Mexico. Some just retired.”
Nick Freadreacea, The Flooring Gallery, Louisville, Ky., has been a Home Solutions member for 14 years. He, too, cited labor as his biggest challenge, hands down. “It’s tight in every market we are in. It’s hard to recruit them, hard to keep them, hard to get them to meet all the requirements they need to have to work for us, like workman’s comp. Many have moved away. The good news is we are busier; the bad news is it’s hard to get [product] on the floor in a timely manner. But I would rather be crying over not having enough labor than wondering where my next job is coming from.”
He is particularly having a difficult time with ceramic. “Almost everything in ceramic right now is custom. No one does a straight layup, so you need to have the better installers. And even with LVT, a lot of people want to grout, so you need a better installer so it looks perfect, like real ceramic. All the skills have to be a little better than they used to be.”
But despite the challenge, FEI Group members are better positioned than others and can actually use labor as a strategic competitive advantage. “It’s constrained, but we have an advantage there,” Smith said. “Labor flows to where the work is, and FEI members have the work. Our members are big enough that when things get tough, labor tends to line up with them.”
Hogan added that FEI Group is well positioned to compete. “We take pride in making sure our members are up to speed with the right knowledge, the right products, the right deals and the right strategies to compete and win in today’s marketplace.”
And that goes back to partnering with the right suppliers. “We do that by not buying from everybody,” Gheesling said. “We are consolidating our buying with fewer vendors. This way we remain important to them.”