More than 47 years ago, Manu and Rika Shah started a company called MS International with the idea of making dream surfaces attainable. According to their son, Raj Shah, president, it’s in the company’s DNA to continuously find ways to engineer methodologies in logistics, product innovation and merchandising and marketing strategies to make flooring and countertops more affordable and accessible to the consumer without sacrificing manufacturer or retailer profitability.
Today, the company more commonly known as MSI is eclipsing the $2 billion mark in annual sales and leveraging that volume into providing more value to the end consumer. Shah recently sat down with FCNews co-publisher Steven Feldman to talk about how MSI has become one of the most important suppliers to floor covering retailers.
Is it true that MSI is really one of the 15 largest importers in this country?
This year we’ll surpass 80,000 containers. And it makes us the No. 15 importer in terms of number of containers into the United States. No. 1 would be Walmart. Next are Home Depot, Target, Lowe’s and the list goes on until MSI at No. 15.
How does being a $2 billion company benefit the specialty retailer?
It benefits them in numerous ways. One is the costing of our materials. We’re using volume. So whether that’s in our ability to source from the right country, manufacturer or factory that uses the right technology to produce products with the best looks, best shapes, most trendy and at the best value. We’re able to use our leverage with shipping companies, with logistics providers, put it together with our own trucking, amortize all of that over lower overhead as it relates to sales, marketing, merchandising and logistics costs. All of that put together as volume goes up benefits the retailer.
Somebody once said to me the smartest person in the floor covering industry is your mom, Rika. Why did he say that to me?
My mom is extremely astute and shrewd when it comes to business. She’s extremely competitive, but most importantly, she just has a love and passion for taking care of people. She has that entrepreneurial spirit and put it together with a great team, a great vision and strategy for the company and it has allowed us to pursue that goal of making dream services attainable.
What did she do specifically to springboard this company to $2 billion?
t’s vision, and then it’s reinvest-ing in the company. My mom is old school. She says we should never bite off more than we can chew. We should never pay a vendor a day late. We should never pay a penny more than the right value for a product. So, she has a lot of old-school values whereas many companies today believe in high lever-age and using other people’s money. There’s nothing wrong with that, but my mom doesn’t believe in it and we’ve stuck with our strategy. And to this day, MSI is 100% owned by our family of four.
Tell me a few things the average retailer may not know about MSI.
I would say first, that we exist. Second, the number of product categories we’re in today. We’re in all hard surfaces, we’re in countertops, whether it’s natural stone or quartz, and have leading market share in both of those. Third, I think another misinterpretation of MSI is we’re just the OPP guys. I think a lot of people just think of us as selling the cheap, high-volume stuff, but we do bring a lot of trends to the marketplace, which ultimately helps the retailer. The other thing is my mom and dad will tell you we’re really in the business of information, so our job is to be passing information to retailers so they can pass it onto their consumers. And that comes back to the idea that we want to be the easiest company for them to do business with. So, whether it’s technology, information flow, inventory, order status, purchase orders or accounts payable, we want to make this seamless for a retailer—it shouldn’t be more than a click of a button to place an order with us and to know exactly with complete transparency where that product stands in the channel.
What sets MSI apart from your competition?
The first one comes back to our goal of making dream surfaces attainable. That means affordable and accessible. I think most people in our industry, historically, have been trying to find ways to charge more for products, and we’re always trying to find ways to charge less without sacrificing anybody’s profitability within the system. I think our use of technology separates us from a lot of our competitors. We had RFID (radio frequency identification) in our warehouses, we have AI being used, our marketing is using numerous technologies, including our augmented reality visualizer. We’re really trying to be ahead of the game when it comes to information and technology. In fact, we have an IT team of about 75 people. I don’t think many building products companies have that type of IT investment. We believe the future is IT and information flow, so we’re investing heavily in that.
Tell me the mindset of expanding into all these hard surface categories.
We want to be the choice for the retailer. We want to make their life simpler. So as we find innovations in each of these product categories, it’s on us to invest in it and bring it in. We can be the one source for the retailer so they don’t have to call five different people that talk about five different product types. And we are indifferent as to what they buy from us. A lot of our competitors are really trying to maximize their margins. We’re indifferent. Whatever the consumer wants is what we want to provide to the retailer.
And if they’re buying everything from you, aren’t they saving on delivery charges?
In fact, in the past year and a half, we’ve invested heavily in our last-mile capabilities. We’ve always delivered the vast majority of our slabs. Now, we are delivering more and more of our flooring products to the retailer, so we control it. The more we’re delivering on a single truckload, obviously that amortizes the freight cost.
Some of the things you are doing to control your own destiny include leasing ships, buying ROKplank for domestic production, having your own fleet of trucks. How does this benefit the retailer?
In today’s day and age, we’ve seen a couple of things happen. We’ve seen trade wars, supply chains being severely challenged, whether that’s related to shipping issues, drayage issues, trucking issues, port issues. And, domestically, we’ve seen raw material constraints. So, we need to have ultimate flexibility within MSI and for the retailer. It’s our job to keep the supply chains open for the retailer and product continuing to flow. And to do that, we can’t be making big bets on what will happen in the future but rather have the flexibility to handle whatever we are dealt. I don’t know where the next trade war is going to go. I don’t know where the U.S. relationship with China will go. I don’t know what will happen to supply chains, if they’ll ever get cleaned up. I do know what we have is our ability to build flexibility and adapt-ability into our model. So, for example, if China becomes a problem, we’re bringing in LVT and tile from numerous other countries. Whether it’s India, Turkey, Brazil, Mexico, Italy or Spain, we have ultimate flexibility. So, if one turns off, we can turn another one on. With supply chains, we did charter our own vessel. That’s not going to take care of the vast majority of our needs, but it does control a certain portion of our requirement and builds adaptability into our system. As for trucking, we’ve invested more and more into our own fleet so we have not only the confirmation that the product will go, but we get full transparency into where it is, and we can provide that to the retailer. So, giving them transparency of information is another big piece of this.
ROKplank?
Yeah, domestic production. We invested in ROKplank, and in 2020 we invested in a quartz countertop manufacturing facility. The two together will only take up a portion of our retailers’ requirements, but it does provide a couple things. One, there is more flexibility because we’re investing in growth. No. 2, there’s a lot of IP involved in the design and trend of the products that both factories will produce, and we will control that IP as well.
You have the capability to grow ROKplank, correct?
Yes. Effectively at the time of its purchase ROKplank was the only domestic factory with Chinese or foreign equipment that was really working. The good news is they were able to make this work during the pandemic when no one could travel to the USA. So, we were really buying it for its knowledge of how to make the product, and now our goal is to significantly expand that over the next year.
You have your own fleet of trucks. So you have a fleet of truck drivers?
We do, but it’s a tough situation to hire drivers right now. Luckily, we seem to have done a good job of recruiting and retaining them. I believe, just based on the numbers, we’re significantly better than the industry on both recruiting and retaining.
Is it because the salary’s a little higher?
The salary is a little higher, more flexibility, they get to stay local and not have to drive long distances, they get to go home every night. There are a lot of benefits to being a local driver with us.
Some trucks can’t actually get to the port in California because of environmental green emissions. Are you struggling with that?
Yeah. We’re buying as many new trucks as we can. Obviously, there are the rules the ports have put into place, but also it’s the right thing to do. This is our planet and we only have one. That’s another thing about my mom: She always tells us do the right thing, even if it costs some profitability.
Everything you do goes into California or Savannah, too?
We actually go into just about every major port in the United States. If you go back to our company’s mission statement, which is to make dream surfaces attainable, that means we have to have the lowest landed cost anywhere in the nation. And with 99% of our products imported, we have to be in every port. So, whether it’s Seattle, Oakland, Los Angeles, Houston, Tampa, Miami, Fort Lauderdale, Savannah, Charleston, Norfolk, or New Jersey—we bring significant amounts of product.
How does sourcing from countries beyond China and Vietnam benefit the retailer?
China has gone through numerous trade wars with the U.S over the last three or four years. We saw anti-dumping on quartz, we saw anti-dumping on ceramic tile. We saw section 301, which added 25% duties on effectively everything from China. Vietnam was recently discussed as a possible currency manipulator, which could add sanctions to Vietnam in the future. So again, our goal is not to forecast what will happen. It will be that we keep the supply chains open. And the only way to do that is to import from numerous countries.
How do you ensure the factories you deal with are top notch in terms of quality?
We have a huge sourcing team overseas, and ensuring quality is in the DNA of effectively all of our sourcing personnel. We’re doing ongoing inspections—both by MSI people as well as third-party audits that are done on these factories. We’re continuously checking product at the point of production and when it lands here in the U.S. Ultimately, with most of these factories, we are by far their largest outlet, so there’s a huge incentive to make sure the quality stays within the specifications originally provided to them.
You told me a couple of months ago you were paying $10,000 for a container. How do you pay $10,000 while others can’t pay anything less than $20,000?
We have direct relationships with the shipping lines, while most smaller competitors can’t work directly with shipping lines. They have to work through freight forwarders. That is the price with the freight forwarders. And again, it’s our volume that the steamship lines like, and our flexibility. We can pick up at different ports, we can drop off at different ports. Most of our smaller competitors can’t just say, ‘Oh, you have space in Savannah, not in L.A, bring it to Savannah.’ We can do that.
Did the fact that you were paying much less per container than the competition allow you to institute fewer price increases than others in 2021?
Yes. But I’m not sure the right metric is number of price increases. I think we all have to look at what the starting price point was in the first place and then work out the math. And then it’s not just the price of the product, but the overall cost of doing business with that supplier. Is it easy? Is it one call or one click? Do I get the fluidity of information I need? Do I get some receivables flexibility? There are a lot of metrics out-side of price alone that retailers are looking at that lowers their overall cost of business. Do we share in merchandising costs, are there marketing opportunities on which we can work together that produce demand?
For MSI, is the bigger issue cost or product availability?
I would say availability right now. Homeowner demand has remained strong throughout the year. We’ll see what hap-pens as inflation continues to creep in, but we believe all the macroeconomic factors related to home ownership, home improvement remain strong and we don’t see that diminish-ing in 2022. We believe demand will be there even with price increases. It’s really a matter of availability to meet demand.
Is demand for ceramic and porcelain and stone equally as strong?
Obviously, 2020 was a strange year with the pandemic first coming into place. But demand for tile is strong out there. Home ownership is increasing, the amount of space in a home is increasing. With younger people moving from urban set-tings to more suburban settings, the amount of square footage available to tile is going up. And things like wall space, pavers, countertops in some cases, are all being taken advantage of when it comes to ceramic now.
What challenges do you foresee for the retailer in 2022, and how can MSI help alleviate some of those challenges?
Supply challenges are probably going to be first and foremost. We’re in a tough situation now as an industry and all the reports suggest it’s not getting any better. So, for retailers, the goal is to work with us continuously—let’s communicate, let’s get ahead of the game and not wait until the last minute. But I can promise we’ll provide the highest flexibility for them. And if anyone’s going to get it to them, it’s us because we’re going to take advantage of every possible solution working 24/7 to do it. I also think marketing is a big opportunity as the pandemic has changed some thought processes about going in store versus online-type things. There are a lot of opportunities to inspire the end consumer today that may not have been as popular pre-pandemic. And we have most of those tools available for the retailer.
Would you advise a retailer to partner with a supplier that has a very strong inventory position?
Absolutely. And that goes right back to the supply chain. We’re building more warehouses, try-ing to get closer to the retailer, reduce the amount of time and logistics involved between us and them. But we do carry an extremely heavy inventory. We don’t believe in this whole real-time inventory system the world had caught onto. We are going to stock heavily and take care of our retailer customers. In fact, one of the last metrics we look at is terms. Because it’s more important for us to have the supply for the retail.
