By Steven Feldman
San Diego—When the FEI Group converged here Oct. 5-7 for its 20th anniversary, leadership paid homage to the past but was much more focused on the next 20 years. Makes sense given how the group which began as Floor Expo with about 10 members servicing homebuilders has evolved to four divisions, including two in the kitchen and bath space.
“We’re working in the here and the now,” said Jay Smith, president. “We feel like it’s a service moment where the control of labor—and doing that effectively, efficiently and with speed and accuracy—is our moment right now. That’s what our customers are looking for, and that’s what we deliver.”
With that, the theme of this conference, “Rock the Boat,” epitomizes what FEI Group is all about. “We’re about action,” Smith told FCNews.“We’re about forward momentum. We’re about dealing with disruption moving forward together. I think it’s a pretty good description of who we are and what we do.”
While the group has certainly evolved over these last two decades, the biggest evolution has been what hasn’t changed, according to Andy Hogan, executive vice president and chief product officer. “We were founded to be of, for and by the contractor and support them and their profitability. And to add every link in the chain along the way. That has not changed. What has changed is the scope of where and how we apply that, because back then we had a very small group of eight, 10, 12 companies all builder focused. Today, if you look at the scope of the FEI Group, we have four very robust businesses, Home Solutions on the builder side and MultiFamily Solutions servicing apartments, each with markets shares around 33%. We also have a huge footprint now in kitchen and bath with two organizations there. So that scope and that change has brought us to over 550 total locations.”
These days, the biggest challenge for FEI Group—as it is for almost every company—is people. But Smith noted the group is applying its resources to address those challenges for the membership. “Right now we’re dealing with a full-employment environment. Unemployment is 3.9% in the United States. That means everybody who wants a job has one. Therefore, we are working very diligently on programs to attract and maintain the best people.”
In illustration, FEI Group at this conference launched the Climb Leadership Program. Climb is for members’ high-potential employees who will attend two three-day sessions, one in spring and one in fall, where leadership skills will be developed. These skills include managing people, working individually, business communication skills, public speaking, conducting effective and efficient meetings, understanding balance sheets and P&L, negotiating/selling skills, etc.
Another challenge the group is facing today is over-demanding customers, Smith said, whether it be on the builder, property management or remodel side. “The old saying was ‘You want quality, you want speed, you want price—pick two.’ Today they’re picking three out of three every time.”
FEI Group addresses this issue by ensuring members’ financials are in order, “being lean and mean,” and to that end Big Rocks Financial Metrics was launched at this conference. This initiative allows members to share financial information in a non-threatening way because it uses percentages rather than real dollars. “The output is super actionable,” Smith explained. “It allows someone to see where he is strong, where he is at the median and where he is weak.”
Believe it or not, the labor shortage has been less of an issue for FEI Group members than others because, as Graham Howerton, vice president, said, the longevity of the labor shortage has sought its own level. “And while it has definitely impacted cycle times around the country particularly on the homebuilder side, most of our members have the labor they need to do their work. It’s an ongoing issue for sure but it’s at a level that is now manageable.”
FEI members may be in a better position because of their success and ability to pay a little bit more than the next guy. “Labor needs to be managed effectively because if you’re not lean and mean in today’s market it is very difficult to compete,” Smith said. “But we think this moment is about service, and I think the FEI group has a huge competitive advantage in that space today. In spite of the challenges it’s an advantage for us.”
Multifamily has been strong in 2018, somewhere between 345,000 and 350,000 starts. “It’s not where it was at the peak but it’s still consistently strong,” Smith said. “There’s still a high demand for apartment-style living. And the turns business is up considerably. All indications are 2019 is going to be a strong year as well.”
Consolidation is the story on this side of the business as large property management companies are buying up portfolios all around the country. In fact, the top 50 management companies now represent about 20% of all the units nationally, according to Howerton. “There’s good and bad with that. Hopefully you get more professional, more organized management teams with more focus and more resources dedicated toward partnerships with the big service providers in that space, including flooring. So what we have seen is a little more concerted effort to direct purchases and specification to those companies that are providing all the furnishing install elements. That has helped us because we’re the largest provider of floor covering services in the multifamily space today. We have approximately 700,000 units in our national accounts program. As they are better able to drive those programs down to the local levels, that is a positive for us. The group as a whole, if you look at all 50 member companies and roll up all their customers, we’ll handle the flooring in just over 5 million units nationally. That’s a little over a quarter of all the apartment turns in the U.S.”
But with every positive comes a negative. “The negative is the bigger are getting bigger and they demand more of us,” Howerton explained. “Service demands are more extreme and more difficult to manage than ever. Plus, there’s tremendous margin pressure as these big companies have analysts who watch every penny that is spent.”
Conventional wisdom stipulates that apartments and builders run counter cyclical. But that’s not the case today as both categories are solid. And the issues are the same: demanding customers leading to margin pressure being the biggest. “Staying up with demand for the management of labor is the big challenge we’re working on there,” Smith said. In addition, Home Solutions members are finding many of the top 20 builders are building a lot of base grade, entry-level homes. With that comes limited exposure for upgrades. “That puts more of an emphasis on the smaller to medium and custom home building because it is more margin producing. There are better products installed. So those entities are catered to by our members. It’s business our members control. These builders utilize our members’ design centers, which we refer to as house business.”
Smith added that Home Solutions members must have more efficiency in their design centers than ever before. FEI Group helps members here in a couple of ways—first with the layout of the design center itself and then on the technical side with selection software. “We have Jane Meagher, who is the best design center operations person out there,” Smith said. “And we also have an exclusive partnership with a design center studio build-out firm that develops the best-looking design centers not only from a design standpoint, but they also have their own in-house millwork company for custom millwork and fixtures in this space. Then, over on the software side, we have a partnership with VEO selection software systems to have best-in-class selection capability in design centers.
As the pendulum swings toward LVT in single family, the result has been fewer callbacks, especially with floating installations, Smith said, acknowledging that this is still in the “birthing” stage. “The only challenge is on slab so far with glue-down LVP, because of the moisture content on the slab, it might not be dimensionally stable like it needs to be.”
WPC and rigid core are also gaining ground. “Especially for next year with the footprint that Shaw and Mohawk have with our members,” Smith said, “and then also they have relationships with some of the big builders they will also be trying to specify LVT, floating LVP, SPC rigid core. It will grow not only from a specification standpoint but also for our house business—business we control—because of the fewer callbacks so far in LVT and the price value affiliated with it and the ease of install, our members will be also pushing LVP on house business with a small to medium and custom builder.”
Dave Gheesling, CEO, summed it up: “It has been a great 20 years. And while we celebrate that we are so excited about the next 20 years. The group has never been stronger. We’ve added more members in the last couple of years than probably in the decade prior. We have plenty of momentum.”