Rise in e-commerce concerns flooring retailers

Home Inside FCNews Rise in e-commerce concerns flooring retailers

July 31/Aug. 7: Volume 31, Issue 4
By Ken Ryan

As e-commerce grows in the retail channel, specialty flooring retailers have expressed concern that online sales could negatively impact their business. It’s a subject that has many store owners and managers on edge.

“Don’t get me going on this topic,” Ben Boss, owner of Boss Carpet One Floor & Home, Dixon, Ill., told FCNews. “Looking out 10 to 20 years, I wouldn’t be surprised if the flooring retail landscape is completely different.”

Andrew Wiebe, co-owner of Red Deer Carpet One Floor & Home, Red Deer, Alberta, Canada, echoed those sentiments and fears, adding, “It’s coming, folks.”

Cathy Buchanan, owner of Independent Carpet One Floor & Home, Westland Mich., had this observation: “Just look at Amazon and how it has taken [online retailing] by storm. Our world and the interpersonal relationships are dwindling. I am concerned.”

Looking at news reports, you can understand why dealers are feeling uneasy. Through June 20, there have been 5,300 store closing announcements in the U.S. this year, making 2017 the second worst year on record at the six-month mark. The worst year ever for store closings was 2008 during the Great Recession, when Credit Suisse counted 6,163 closings. Some believe 2017 might eclipse that number.

The growth of e-commerce and what retail experts say is an overbuilt retail landscape has contributed to this situation. According to the U.S. Census Bureau of the Department of Commerce, e-commerce sales in the first quarter of 2017 accounted for 8.5% of total retail sales. That compares to 7.8% of total sales in Q1 2016, 6.9% in Q1 2015 and 6.2% in Q1 ’14. Five years ago, for example, e-commerce represented 5.1% of total retail sales.

So while flooring dealers worry about e-commerce’s rise, there is some encouraging news. The retail consultancy Alix Partners tracked five years of financial performance for 20 publicly traded retailers. For the group, online sales grew from 10.5% of total sales in 2012 to 15.5% in 2016—but margins steadily declined by 150 basis points to 9% in the year. It concluded that retailers’ store fleets were subsidizing their online businesses.

What’s more, it cited a recent study of millennial shopping habits in which 82% of respondents said they still prefer shopping in stores.

While the tactile, face-to-face experience of shopping for flooring in a brick-and-mortar store will likely never go away, retailers like Wiebe said dealers must come to terms with the growing trend toward online sales, particularly among DIY and low-cost segments.

Deb DeGraaf, owner of DeGraaf Interiors, Grand Rapids, Mich., agrees there are consumers who will always want to touch and feel before they purchase, “but in that case some of us are going to be used for the touching and feeling of the product and the customer will then purchase online. I see this being a problem particularly with case goods. Rolls of carpet will remain primarily through retailers and box stores because of the challenge of receiving the roll. It is very important that we as independent retailers create an experience and romance the customers when we get the opportunity.”

As e-commerce sales grow some flooring retailers say they will turn to more private-label goods as a way to slow e-commerce’s growth. Others, however, worry that suppliers can use e-commerce to leapfrog the retail channel and sell directly to the end user.

“We should be very concerned,” said Casey Dillabaugh, owner of Dillabaugh’s Flooring America, Boise, Idaho. “Anything that eliminates the friction of the purchase decision in the eyes of the consumer ought to be considered serious competition. As such, as retailers, we must be willing to explore other non-traditional ways of relating and communicating with our potential customers. With all that said, I do believe there will always be a sector of the community that still wants the experience that only a specialty flooring retailer can provide. In the end, it’s how we relate to the customer that will ensure our survival.”

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