October 23/30, 2017: Volume 32, Issue 10
By Ken Ryan
Specialty flooring dealers who say their profits rely heavily on term discounts offered by the two major mills applauded Mohawk and Shaw for reinstating terms on residential carpet products.
Terms are percentage discounts for paying bills within a certain time frame, often within 10 days of receipt of invoice. Terms are a huge deal for legions of flooring dealers, as many view the payment discount as the single largest contribution to their profitability. As such, losing such a perk would strip thousands, if not tens of thousands, right off a dealer’s bottom line.
“I would say 99% of retailers base their selling price on the cost of the material with freight added,” Paul Johnson, owner, Johnson Floor & Home/Carpet One, Tulsa, Okla., explained. “No one subtracts the discount term and then figures their margin. So the best, most financially astute retailers pay their invoices on time and take the discount. The discount literally drops to the bottom line.”
Johnson noted that the World Floor Covering Association has conducted many profitability studies over the years and on average a “good” flooring retailer makes 2% net profit. “So you can readily see the positive effect discount terms have for the profitability of retailers. The best thing hard surface manufacturers and distributors could do to help the profitability of their retail partners is start offering discount terms for timely payment.”
Cathy Buchanan, owner of Independent Carpet One Floor & Home, in Westland, Mich., can attest. Each Thursday at noon she sits with her office manager and goes over the existing bills. She takes pride in knowing that over the past two to three years Independent Carpet One Floor & Home has been taking discounts. “We are totally caught up to Nov. 14 [on Oct. 24] we paid $21,824.44 [in bills] and took in a total of $841 worth of discounts from Shaw alone. To think we would be losing those discounts truly hurt and cut into my excitement every Thursday of showing my mother how much money we saved and to see her smile.”
Buchanan said a price increase of 5% isn’t the same as losing a 5% discount on terms because with price increases she can pass the increase on to her customers and reprice her showroom floors. “Yes, it is a burden especially within my 10,000-sq. ft. showroom to do that but the burden is a lot less than punishing the retailers that do take discounts. When we make our desired margins—and make money at the end of the year—everyone is happy.”
On Oct. 12, as part of an announced price increase on residential and Main Street carpet products, Mohawk had announced plans to eliminate discounted terms on residential carpet products, if purchased on that basis, in lieu of a price increase. But perhaps bowing to industry pushback, the carpet rescinded that portion and allowed the exchange of discounted terms in lieu of the announced price increase. The announced price increase of 5-6% on all of its residential and Main Street carpet products will be applied to all customers in similar manner for orders placed on or after Nov. 27 and shipments after Dec. 29.
In an Oct. 6 letter to dealers Shaw stated that instead of a standard price increase, it would move to standard billing terms of net 30 days company-wide. The manufacturer said the move would standardize terms across flooring categories and bring it in line with other building material suppliers and providers. For carpet products already sold on net terms, prices would increase 5-6%, with the changes to take effect with orders on or after Nov. 13, and shipments on Dec. 4. Shaw similarly reinstated the discount.
Flooring dealers understandably let out a collective sigh of relief. “We were happy to see they rescinded doing away with terms and decided to raise prices instead,” said Ben Boss, owner of Boss Carpet One Floor & Home, in Dixon, Ill. “Shaw and Mohawk’s concern of a level playing field is valid. Shaw and Mohawk have competitors that do not offer terms. Many dealers and their sales staff forget about the terms Mohawk and Shaw offer and will take a price without terms and unfairly compare the two prices.”
The way Billy Mahone III, manager at Atlas Floors Carpet One in San Antonio, sees it, terms are a win-win for both parties. “To me terms are an important tool for both mill and retailer, improving cash flow for the mills and helping retailers with their bottom line. I’m glad both mills reversed their decision to do away with terms because we take advantage of terms any chance we can get.”