By Reginald Tucker
Dallas—Politics, trade tariffs and global economic issues took center stage here earlier this month at the North American Association of Floor Covering Distributors conference (NAFCD), held in conjunction with the North American Building Material Distribution Association (NBMDA) show. Attendees representing virtually every channel were on hand to take part in industry discussions, education and networking events.
“I think we broke 1,000 attendees overall, which might not be a record but is definitely up there,” said David Powell, president of NAFCD. “We’ve had strong momentum and we obtained a lot of unsolicited feedback. Membership is up among suppliers and distributors alike this year. People are really happy with the direction we’re going.”
Success was also evident by another metric—the growing number of vendors on the show floor. “We had 51 first-time exhibitors this year, which is a good indicator of where we are going,” said Steve McKenna, NAFCD president-elect and president of McKenna Distribution, Regina, Saskatchewan, Canada. “There’s also a waiting list to get on the board. People are recognizing that there’s value in the organization and the education and networking NAFCD provides. It’s something they can benefit from, both professionally and privately.”
That strong focus on education and information sharing was readily evident in the robust, two-day program NAFCD put together this year. One of the main highlights of this year’s conference—if not the primary draw—was the highly anticipated economic keynote presentation by Brian Beaulieu, CEO of ITR Economics. Beaulieu, an in-demand speaker at past NAFCD events and other high-profile industry conferences, is known for his spot-on economic forecasts and valuable insights that impact the flooring and construction industries. This year was no different, as his comprehensive, 90-minute presentation, “Winds of Change,” sought to impart even more timely knowledge, statistics and general observations.
Not surprisingly, tariffs were high on his list of topics to cover. “For most people, tariffs are about fair trade, but there are winners and losers,” Beaulieu told attendees. “I maintain competition is a good thing for all of us in this room—sometimes it’s fair; sometimes it’s cruel. Two titans [China and the U.S.] are about to have a serious discussion about what’s fair.”
Beaulieu, who displayed a vast array of data-laden slides illustrating not only U.S. production but also global production, said the flooring industry is likely to see even more supply chain disruptions once additional tariffs are imposed in early 2019. He also said tariffs are creating demand for jobs in the U.S. at a time when qualified labor is becoming harder to secure. “China has been working rapidly to insulate itself from the U.S. tariffs by going deeper into debt,” he explained. “Don’t expect China to get down on their knees. I encourage all of you to find a way to take advantage and move on.”
Many flooring distributors intend to do just that. Powell, who also serves as marketing/IT director for Ferndale, Mich.-based Erickson’s Supply, has a plan. “For our part, it’s about working with our supplier partners to try to mitigate some of the increases to dealers and consumers,” he told FCNews. “But ultimately, from our perspective, you have to pass it through. We’re in business to be successful and maintain a healthy bottom line, so hopefully the retailers will do the same.”
Dunn Rasbury, distributor director with NAFCD and director of flooring with Marietta, Ga.-based A&M Supply, is also planning accordingly. From his view, he said suppliers have already begun to adjust by moving production to other countries. While he describes the initial 10% tariff as a “non-event—barely a ripple that was overdue based on pent-up price increases that needed to be enacted,” the upcoming tariffs could be another story. “The 25% tariff could be disruptive to the retail channel and perhaps lead to a few slow months before everything settles in.”
Canada-based McKenna Distribution, which has had its own issues coming to grips with contentious trade negotiations with the U.S., said discussions with its vendor partners on the topic are necessary. “From our perspective, we will evaluate where some of our goods are coming from,” he told FCNews. “We will evaluate some of those and have discussions with our existing vendors and ask them if they are intending to mitigate some of these increases.”
However, he doesn’t anticipate a wholesale change in his supplier lineup. “For the most part, most of the relationships we’ve had with our partners are very long-term relationships. We will just sort out these fluctuations between us and try to stick with the existing vendors as much as possible.”
Akin to the tariffs issue is the outcome of the recent mid-term elections in the U.S.—an event that many in both political and economic circles have referred to as a “referendum on President Trump’s policies.” With the House majority now swinging back in favor of Democrats—and the Senate picking up a few more seats—many distributors are just hoping to see the parties come together in support of programs and initiatives that will continue to drive economic development in their respective markets and territories.
“I think the end of the trade war would be a positive thing for the floor covering industry—basically just some clarity on tariffs,” Powell said. “There might be some people in the industry who feel differently depending on where they source or manufacture.”
For McKenna, free trade represents the best option for his business. “It doesn’t look like we’re going to get to a purely free trade agreement like we had previously, but hopefully something relatively close to that.”
During his presentation, Beaulieu cited forecast data showing a potential slowdown in retail sales in the U.S. This is due, in part, to a sophisticated algorithm ITR Economics developed to accurately predict retail activity. “Although retail sales are growing at a healthy pace now, we expect that trend to change in 2019,” he told attendees. “The slowdown in retail sales growth is likely to be pronounced enough to mean gross domestic product (GDP) along with industrial production will, at best, stall.”
At the same time, Beaulieu said it’s no cause for alarm. “If you were busy in 2018,” he told attendees, “you are going to be just as busy in 2019 and 2020. We are always adjusting for business cycles; I suggest you manage the business cycle to maximize profits.”
At A&M Supply, which is coming off a solid year in which sales of LVT and hardwood were “off the charts,” there is no sense of panic. “I don’t know that it’s necessarily going to be a downward cycle, but certainly a smaller growth cycle beginning late 2019 and into the start of 2020,” Rasbury predicted. “We’ll make adjustments on the supply chain side and the hiring side moving forward knowing that growth won’t be as robust going into those quarters.”
Rasbury, who sees a lot residential replacement/remodel and new construction work in his area, is also finding market opportunities emerging elsewhere. “We’re seeing some really significant growth on the commercial side, especially Main Street/commercial. That’s what I see leading the way in 2019 and perhaps mitigating some of the projected softness going into 2019 and 2020.”
At Erickson’s, which celebrated 75 years in business last month, the outlook is equally positive, albeit a little more tempered. “2018 was a good year, although there wasn’t the massive growth that we saw in the first couple of years coming out of the last recession,” Powell stated. “But, we’re strong and healthy, and we’re looking to continue growing our business in our local markets. We’re seeing a lot of reinvestment in Michigan, so we’re optimistic. It’s hard to predict the business cycles, but I will say there’s a lot of opportunity for us to take market share and grow our business.”