By Ken Ryan—Despite myriad challenges, many flooring distributors are benefiting from the continued strength of the home improvement/retail sector as well as the SPC/rigid core category to post healthy gains in 2021—with some wholesalers up 50% or more from 2020. And while the issues that have been wreaking havoc on distribution are likely to continue into 2022, such as the congestion at the ports, the near-term outlook looks bright, executives say.
FCNews’ top 20 distributors issue not only looks at the industry’s leaders but also includes stories impacting the wholesale flooring segment at large.
(Editor’s note: FCNews’ annual distributor listing includes companies that deliver products for various manufacturers. We do not consider companies that solely handle their own wares as eligible for inclusion on the list.)
With apologies to Charles Dickens, 2020/21 truly has been “the best of times and the worst of times” for flooring distributors. Seasoned executives who have experienced economic peaks and valleys in their day say nothing can quite compare to the period between March 2020 and the present day.
On the one hand, there is the well-publicized logjam at the ports that has constrained supply chains and kept upward pressure on prices; there are labor issues that have acutely affected flooring distributors; and inflationary pressures that have impacted freight and raw materials.
And yet, despite these obstacles, distributors are sailing along with healthy increases—mostly double digits—in 2021 after a challenging 2020. “It is a bizarro world—good and bad at the same time, the most ironic situation I have seen in my 45 years,” said Jeff Striegel, president of Elias Wilf, the No. 20-ranked wholesaler. “It literally is the best of times and the worst of times happening simultaneously. It’s just insane.”
Most observers agree that the supply chain issues, which include extended ocean travel times and congestion at the ports, will continue well into 2022 and perhaps beyond (See Port Update story).
In the meantime, as distributors work around shipment delays and product outages, they are taking advantage of the still-surging waterproof vinyl category and parlaying the strong home improvement/retail side of the business into healthy gains. The West Coast is especially vibrant as top-tier distributors Galleher and Tri-West, for example, are reporting revenue increases of 50% or more on the strength of acquisitions, territory expansions and overall strong activity.
“Acquisitions in the Pacific Northwest and Texas have had a very positive effect on the business,” said Ted Kozikowski, president and CEO of Galleher, now the industry’s No. 2 ranked wholesaler with 2021 sales projected at $335 million. “Our renewed focus on commercial sales has contributed to our Its Southern California neighbor, Tri-West Ltd., is also on a tear, with a sales increase of roughly 52% year-over-year, catapulting it into the No. 3 position overall, just a tick below Galleher at $330 million. “Our expansion to the Northwest, and huge growth in the other outer markets, as well as slight underreporting in previous years, is why the number is significantly greater,” said David White, vice president of sales and marketing for Tri-West. As well, Tri-West has been aggressively launching new products across all four of its market segments—retail, builder, commercial and multi-family—that will continue into early 2022.
Not to be outdone, Manteca, Calif.-based Tom Duffy Company (part of a brand transition of B.R. Funsten and Tom Duffy) said it is realizing 15% growth in 2021; this despite parting ways with Armstrong Flooring, which is now a Tri-West brand. By combining decades of experience, technical expertise and its portfolio of supplier partners from two entities into one, Tom Duffy Company is well positioned for the future, according to company officials. “Our strong supplier relationships have allowed us to secure product allocation enabling us to meet order fulfillment demand as best as possible in this environment,” said Donna Lagano, vice president of marketing and digital strategy, Tom Duffy Company. “Continued growth in the strong waterproof category along with ample inventory has been beneficial for our business.”
Acquisitions/territory expansions by Galleher and Tri-West, respectively, and the integration of B.R. Funsten and Tom Duffy are emblematic of the current state of distribution, where consolidation is becoming more prevalent with the bigger players buying out smaller ones or taking on additional territories and product lines (See Industry Consolidation story).
The biggest get-together is at the top, where No. 1 Haines and its controlling interest partner, Belknap White Group (previously No. 6), now go to market as Belknap-Haines. Although the official announcement of the name change has not been made, Belknap-Haines president, Paul Castagliuolo, told FCNews that they have been using the new name in correspondence and industry announcements as well as a distributor show in late July. “We will have a marketing campaign beginning 2022 highlighting the change,” he shared increase in sales as well. Overall, the largest part of the increase is related to an increase in sales of our proprietary products driven by very strong remodel demand.”
As a combined entity, Belknap-Haines is projected to hit $600 million in 2021, up from a combined $570 million in 2021, far and away the No. 1 distributor in terms of revenue.
Labor quandary
Among the thorny issues keeping distributors awake at night is labor, notably drivers but warehouse and back-office personnel as well. Indeed, next to installers, arguably the most sought-after position in flooring these days is truck drivers. Problem is, they are hard to find—and even harder to retain.
According to statistics compiled by the American Trucking Association (ATA), the average annual turnover rate for long-haul truckers at big trucking companies has been greater than 90% (for LTL drivers it was considerably less).
The situation worsened a few years ago when the government mandated electronic logging devices (ELDs) for all trucks model-year 2000 or newer engaged in interstate commerce. The new rule made it virtually impossible for drivers to work more hours than the legally mandated limit and was seen by workers as overly intrusive. “A lot of trucking businesses went out of business and drivers left,” Elias Wilf’s Striegel explained. “It’s hard finding new drivers, especially young ones. What 18-year-old kid wants to enter a field where he will be regularly drug tested, where if you get a positive drug test you lose your license and it takes you off the road for 30 days? We have no pool for new guys coming in. As the economy got stronger there was a higher demand for drivers at a time when there is a shrinking pool of them.”
With the shortage of trucker positions expected to reach 175,000 by 2024, according to ATA, companies are looking for ways to incentivize people to join or at least sweeten the pot for those already employed.
Galleher, for example, has adjusted salaries to the new market rate, particularly for drivers and warehouse workers. Average salaries for drivers and warehouse employees are up 7%-10% over last year, Kozikowski said. Belknap-Haines, meanwhile, raised pay, offered sign-on bonuses and implemented a more lucrative employee referral program, Castagliuolo explained.
A referral program has also benefited Herregan (No. 8), according to Craig Folven, president. “We are very lucky to have long-term employees throughout our company. Where we have had to replace or add people, we have utilized a referral incentive program for our current employees to refer a friend or family member. This strategy has worked very well for us.”
Other wholesalers are trying different strategies to retain or recruit talent. “We are spending a lot of time recruiting people as well as working to utilize technology wherever possible to help create efficiencies,” said Scott Rozmus, president and CEO of Romeoville, Ill.-based FlorStar Sales (No. 12). “There’s no apparent silver bullet as most of our fellow employers in the region are facing similar challenges and employing similar tactics.”
Earth City, Mo.-based E.J. Welch Company (No. 9) has been working with qualified hiring agencies to find people. “You have to be nimble and quick when finding strong candidates,” said Tressa Samdal, vice president of marketing for Welch. “We are reinvesting company profits starting in 2022 to retain our employees and reward them for a higher level of performance.”
Outlook
Looking ahead to 2022, distributors remain optimistic. While the same issues plaguing them now are expected to continue, there are positive signs as well. For example, the stock of housing under construction increased in September to its highest level since February 1974. Why is this good news for flooring? When these homes are finally completed—and projects are not being canceled—flooring benefits by being one of the last products going into the home, observers say.
“Somewhere between the fourth quarter and first quarter of 2022 will be a humongous surge in business as these homes are completed,” Elias Wilf’s Striegel said. “As this starts to hit, it’s going to create pandemonium for cabinets and flooring to get homes across the finish line. There is a huge groundswell of activity that even if new business dropped off in the fourth quarter there is so much in the pipeline already—and with pent-up demand—it should be a great fourth quarter. This year has been a beast, and it’s looking good for the next six months.”
Other executives agreed. “Although we’re still heavily impacted by ocean freight delays, we anticipate business to remain brisk,” said Terry Gray, senior vice president, marketing, for Augusta, Maine-based NRF Distributors (No. 6). “The feedback from our customers remains positive. Consumers continue to be concerned about COVID-19 but are also looking for some normalcy and are ready to buy.”
