There is no escaping it: 2020 is the year of COVID-19, and flooring distributors of all sizes dealt with the myriad effects—an abrupt shutdown that upended the second quarter followed by a resurgence. As 2020 winds down, the industry’s top wholesalers are looking for a strong finish to a challenging year.
FCNews’ annual top 20 distributors’ listing not only looks at the industry’s leaders but also reveals the 10 highest-volume wholesalers in the waterproof vinyl flooring category as well as the hardwood segment. In most cases, the information was obtained from high-ranking executives.
By Ken Ryan
The speed with which the COVID-19 pandemic swept through the flooring industry during the early spring wreaked havoc on distributors nationwide as they suddenly faced product shortages resulting from disruptions at manufacturing facilities and shutdowns at the retail level. What began as a solid start to 2020—with many distributors seeing single-digit to double-digit gains—turned into gaping deficits in the second quarter.
While the specialty retail channel responded quite nicely on the strength of a surging home renovation push, distributors’ comeback has lagged as they sort through supply chain issues. Based on discussions with two-dozen wholesalers, the consensus is that most of the upper-echelon firms will see declines in top-line revenue in 2020 vs. 2019.
Elias Wilf, Owings Mills, Md., epitomized the typical distributor experience. “Our area was shut down hard for two months,” said Jeff Striegel, president. “We were up over 20% in the first quarter, then down 45% in April, then positive by July. It was like a 60-day downturn.”
The good news for distributors is they have momentum on their side, albeit many are still playing catch up. Of bigger concern is the strength of this unique situation—an abrupt shutdown followed by a sharp rebound—has caused a supply/demand imbalance. First, many manufacturing facilities were closed during the lockdown; then, once the economy reopened, warehousing and logistics were impacted by COVID-19-related absenteeism.
This inability to simply turn on a dime created some unevenness in the market, observers say. “In reality, nobody could have anticipated what has occurred and we’ll simply have to work through it during the fourth quarter,” Striegel explained. “We expect the more traditional slower first quarter [in 2021] will provide some breathing room to allow outages to improve dramatically in the near future.”
However, not all distributors are forecasting a decline for 2020. Herregan Distributors, Eagan, Minn., said it expects to see a roughly 5% increase this year. As Craig Folven, president, explained, “First, we started the year off really strong and after business dropped significantly in April and May, we started posting increases again in June. Second, we gained additional distribution area with one of our core vendor partners, and that has resulted in additional business in 2020 vs. 2019. Combining the additional distribution area along with strong organic growth, we have managed to increase our business even during a very volatile year.”
Historically during challenging economic situations—and the U.S. economy is currently in recession—flooring was typically among the first large discretionary consumer categories to take a hit and builder would wilt as well. Conversely, entertainment expenses such as dining out or a weekend getaway prospered. But COVID-19 essentially flipped the script. Consumers today aren’t spending as much on entertainment and travel abroad; instead, they have channeled those dollars into home improvement, including flooring. As for builder, the exodus out of the larger cities, a historic inventory shortage and record low sub-3% mortgages have led to a record level of optimism among the nation’s largest new home builders.
Distributors who were able to shift work remotely during the COVID-19 outbreak without missing a beat are best positioned for the rebound. A case in point is Elk Grove Village, Ill.-based All-Tile. “COVID-19 accelerated changes within all industries,” said Bob Weiss, CEO. “Fortunately, our systems allow us to maintain our office personnel to remain in a work-from-home environment. Our logistics and warehouse teams have really been pivotal in our abilities to keep up our service levels. The temporary, forced closings of some of our locations and quarantine situations led to an obvious decline in business, but it is returning quite strong in the third and fourth quarters.”
That sentiment is repeated elsewhere as well. Santa Fe Springs, Calif.-based Galleher, a top 5 distributor, has enjoyed exceptionally strong second half business across its 25 locations in three Western states, with Northern California the strongest. “Never have we been at the levels where we are today, with our open orders 20%-25% ahead of last year,” said Jeff Hamar, president. “Our backlog is quite strong. The fundamentals of housing showed there would be a snap-back in the economy. In fact, I’m a little surprised by the intensity of how much it has come back. Our business has strengthened from even a week ago. We will be up for the year; this is a remarkable result.”
Distributors in the Northeast were hit particularly hard by the coronavirus pandemic, given that they were hit first and likely face a longer road back. Still, wholesalers like Augusta, Maine-based NRF Distributors reported that business is growing steadily, with September representing its high-water mark so far. “We had a tough couple of months—not surprising—in April, May and June considering that many of our customers had to close their doors,” said Terry Pomerleau Gray, senior vice president of marketing. “The other months have been close to our projection from last fall. In addition, despite the recent price increases and tariffs imposed on the LVT category, our retailers are buying, and our inventory has been sufficient to fulfill all their needs.”
Two years ago, distributors openly worried that a potential 25% tariff on Chinese imports could cripple the exploding LVT category and seriously impact business. Today, that 25% figure is still in play, and yet wholesalers are barely batting an eye. What some thought would be a cataclysmic event was more like a speed bump.
For some, tariffs remain a challenge given the mass movement of the supply chain toward non-Chinese sources. “The concern here is that there’s only so much capacity, not merely in terms of plant output but also with regard to logistics,” said Scott Rozmus, president and CEO of FlorStar Sales, Romeoville, Ill. “Furthermore, it’s not as simple as deciding one will produce in Vietnam, Taiwan, etc., and opening the factory up without issue the following Tuesday. Some very sophisticated players have had serious troubles producing consistent, high-quality product outside of China. It remains to be seen how the upcoming elections and the political aftermath impact this issue.”
For some executives, the trick to dealing with tariffs is to choose your suppliers carefully. “While tariffs continue to impact the market, our manufacturing partners are doing a great job navigating the volatile trade environment by helping us maintain healthy inventories and minimizing the price impact of the tariffs,” said Ted Gillgrist, vice president of marketing for William M. Bird, Charleston, S.C. “Overall, we are thankful for the depth of relationships we have with our customers and manufacturing partners.”
Likewise, executives such as Keith Slobodien, president of Apollo Distributing Company, Fairfield, N.J., have been working closely with vendor partners in China to effectively manage the impacts. “We are also exploring options to transition some of that business to other regions not impacted by tariffs,” he said. “Our preference is to ultimately transition that business to our U.S. partners, if possible, as stateside capacity becomes available.”
On the wood side, Galleher is completely out of China—a transition that began nearly a decade ago—with production moving to Vietnam, Malaysia and Cambodia. “To move out of China, we had to discontinue 10 to 12 products,” Hamar recalled. “It was a complicated transition.” (Galleher still sources LVT from China, but less each year.)
While tariffs have not dented LVT’s armor the way some had feared, it has fueled other segments, with laminate being the biggest beneficiary. When positioned against WPC, for example, waterproof laminate is gaining the upper hand thanks to more authentic visuals and greater scratch resistance, executives say.
The rising cost of freight was another thorny issue for distributors heading into 2020. No one knows that more than Hoy Lanning, CEO of Haines, the industry’s largest wholesaler. “We are all faced with the competitive freight industry, and federal regulations—and retaining good drivers—is a challenge,” he said. “We are all working hard to hang on to our good people and encourage new people to come into our industry. Freight costs continue to grow as drivers are in high demand, and distributors are getting hit with additional delivery fees.”
Freight has been a particularly sensitive issue for Phenix-based Big D Floor Covering Supplies, which has 28 locations in three states. “We have had situations where we have run short of products in some of our branches,” said Steve Kleinhans, president. “It has been a real battle for our vendors to get product shipped timely. Our vendors have also had an issue keeping their manufacturing plants open due to COVID-19 and the government unemployment subsidy. I should point out that even though we have run out of certain manufacturers’ material in some locations, we always have had crossover products from other manufacturers to substitute the missing items. It is important for many reasons to have multiple vendors with product duplication.”