By Ken Ryan
Indianapolis—Among the highlights of Starnet’s fall meeting here was a trip to the famous Indianapolis Motor Speedway, where members and suppliers rode with professional drivers around the rectangular oval at speeds well exceeding 100 MPH.
The Indy event dovetailed with the theme of the meeting—“Speedway to Success”—and was analogous to Starnet’s year as members continue to outpace the competition, with another record year in the offing. But even amidst these relatively prosperous times for commercial contractors, today’s marketplace is not without the occasional speed bump or caution flag.
“Our members have to be very sharp in what segments they play in,” said Mark Bischoff, president and CEO of Starnet, who was presiding over his first meeting as the top executive. “But our members are smart enough and are flexible about turning their heads to the right segment and showing their expertise.”
Trade conferences are usually feel-good events, and while this one was as well, there were reminders that the red-hot U.S. economy has cooled. In fact, ITR Economics warned of a B2B recession in 2020 as well as a negative first quarter for the U.S. GDP. This slow-growth mode comes as more consolidation impacts the flooring industry.
“Clearly the hot topic of the meeting was dealer consolidation, which is occurring on multiple fronts,” said Chuck Bode, president of Columbia, Md.-based CB Flooring.
Within the last six months, four of Starnet’s leading members were involved in such deals. In September, Chicago-based Mr. David’s Flooring International and RD Weis Companies of New York announced an equity partnership. A month later, New York-based Consolidated Carpet purchased the assets of Vortex Commercial Flooring of Chicago, a move that combines two of the largest, unionized flooring contractors in the industry.
“In a market that is not growing and with soft flooring not in a growth mode, consolidation is going to continue,” James Lesslie, executive vice president of Engineered Floors, said during a roundtable discussion that broached the subject of consolidation.
Consolidation is coming at a time of relative prosperity for Starnet’s 185 members (350 locations) who collectively are poised to surpass 2018’s performance. “The health of membership is strong,” Bischoff said. “Our rebate numbers for ’19 look better than ’18—that is how the trend is going at this point. We’re seeing growth across multiple vendors that outpaces the market.”
Leonard Zmijewski, CEO of Mr. David’s Flooring International, agreed, adding, “We are moving in the right direction and are ahead of the curve. Although there is a lot of work to be done, we are definitely more prepared for the changing future ahead.”Economic outlook
In one of the most anticipated sessions of the meeting, ITR Economics analyst Taylor St. Germain delivered his company’s economic overview/outlook of North American and global markets. Some highlights:
- The rate of growth in the U.S. is slowing and will continue to through the first half of 2020 before a rebound in 2021. “This is not a recession forecast although the first quarter of 2020 is forecast to be in contraction,” St. Germain said. He noted that it takes two consecutive quarters of negative GDP growth to be considered a recession.
- One ominous sign: B2B is going to be worse off than the overall GDP in 2020, likely finishing in the negative. However, St. Germain stated, “While the B2B economy will be in recession in 2020 it really is just a bump in the road.”
- Germain said tariffs are not good for the U.S. economy because consumers are the ones who ultimate pay. “Consumer spending accounts for 67% of GDP, so—with regard to tariffs—leave the consumer alone.”
- After a mild period of contraction in 2019, single-unit housing sales are poised to surge. “2020 looks like a great year for housing,” St. Germain said. “There is a lot of demand to continue building single-family housing, so get in that home now because it’s going up over the next 10 years.” Multi-family housing? Not so much. ITR sees that segment down -0.6% by the end of 2020.
- The labor shortage is real, is a big deal and hurting manufacturing. As St. Germain told members, “Don’t let anyone tell you manufacturing is going to be easy; it is a complete lie. There is a massive number of job openings in the B2B economy because we can’t find people. It is an employees’ market. We need to retain those good employees in a tight labor market.”
- The millennials have taken over, and now represent the largest demographic of the workforce.
- The ‘roaring 20s’: ITR said it “really likes” the U.S. economy through the 2020s. The firm sees a recession in 2023, but overall trends are generally favorable before the predicted “Great Depression” of 2030. “So, get yourself out of debt, have the mortgage paid off, make sure the kids are through school because we think it is going to be a pretty big contraction.”
Bischoff shared some of his main goals as Starnet’s new CEO. Specifically, “preserve it, make it better.” He is well positioned to make that happen given the fact he learned the Starnet culture from the vendor side while working for Johnsonite, Tarkett North America and Mohawk Industries—in positions of increasing authority. He then moved to the commercial flooring contractor organizational side of the business when he came on board as Starnet as vice
president of vendor relations. “The succession here has been great,” he told FCNews. “It helped having worked as a staff member for a number of months, and Jeanne [Matson, former CEO] has been great in making sure the handoff was clean.”
Bischoff said he is proud of the new structure in place at Starnet that will enable the co-op to respond quicker to vendors’ needs at the local level. Eric Boender, vice president of business development, now oversees site-applied surfaces, adhesives, floor prep and moisture mitigation systems as well as the floor care business; and vice president of business development Bruce Campos is tasked with market initiatives for manufactured flooring and accessories, wholesale distribution, business services and business equipment.
The fall meeting was well received by members, in large part for the educational sessions and numerous networking opportunities. “We like the networking time; a lot of major initiatives can take place during those periods,” Bischoff explained.
Starnet members agreed that the time spent together to discuss business issues, challenges and best practices in a non-competitive arena cannot be overstated.“As with any of our live meetings, the greatest value in attending is the networking and sharing of best practices between the members,” Bode said.
Paul White, CEO of The Paul White Company, Portland, Maine, added that the fall meeting is more concentrated than the spring meeting, with shorter time period that covers a lot of content. “It’s less time away from home but still provides ideas to bring into the office on Monday,” he stated.