Every business sector faces its own unique set of challenges, and distribution is no different. Yes, wholesalers have to deal with a changing economy and be on top of industry and consumer trends like everyone else, but as the proverbial middle man, they must react to being pushed and pulled by their suppliers and retail customers alike while also being proactive in advancing their place as a valuable and necessary cog in the industry.
In recent years, distributors have dealt with a roller coaster-like economy—from the boon of the mid to late ’90s to the post 9/11 effects, to the housing explosion to the housing implosion. As they have to deal with changing from past to present, they must also anticipate what they will have to adjust to next.
Put simply, distributors have to change or reinvent themselves more often than any other entity to remain a viable link in the selling chain. There was once a time, for example, when carpet made up the bulk of a distributor’s sales. While broadloom is still a part of most distributors’ product mix, it has been relegated to a company’s third, fourth or lower best-seller as wholesalers replaced the business lost when carpet mills started going direct with product such as wood, ceramic and, in the mid-1990s, laminate.
“It’s a different world out there,” noted Bob Weiss, president and CEO of All Tile in Elk Grove Village, Ill. “You no longer take a swing for the fences with a product line; now you look for singles and doubles. We study our suppliers for their stability and financial strength; as opposed to companies looking at us, we are looking at them. We want a solid group of suppliers we have trust in. Everyone went through the BR-111 fiasco, and when the economy kind of ditched, we wanted to make sure our investments would be long term. Being form the Midwest we appreciate stability; we want strong partners.”
In the ’90s, he added, “They said you would either be a huge national player or a niche player. And anything in the middle would be in trouble. By the carpet manufacturers going into hard surface, they became the national model of a distributor. And the guys who once would have been classified as large moved down a level to regional.”
Bob Eady, senior vice president of sales and marketing for T&L Distributing, feels the biggest change has been the globalization of the economy. “Ten years ago we bought nothing from outside the U.S. and now we buy wood, LVT, etc., from other countries. We have a global floor covering market as far as suppliers; unfortunately this is to the detriment of domestic suppliers. It’s less expensive to buy from overseas, which creates a more competitive market.”
Generally speaking, distributors say while technology has helped them handle many of the changes and allowed them to succeed, it is also one of the main reasons why distribution has become more difficult in recent years.
Torrey Jaeckle, vice president of Jaeckle Distributors in Madison, Wis., noted things are more challenging because the available technology has become more complicated, even though now it is more necessary to have. “Twenty years ago bar coding and GPS weren’t technologies you saw employed widely in flooring distribution. Now you do.”
Another change that has occurred, she said, is visibility has increased throughout the supply chain. “The ability of the distributor to track product from the mill to its distribution center, through its stay in the warehouse and out to the customer has increased tremendously. In addition, thanks to the web and flooring B2B, retail customers have been given more visibility into the supply chain, and distributors’ systems. Real-time visibility of the supply chain was not something we had 20 years ago. Now we do—although there is still room for great improvement.”
Scott Rozmus, president of FlorStar Sales in Chicago, said the economic downturn has “impacted all areas of business.” As a result, he pointed out many companies have stopped investing in upgrading equipment, software and other technology. “While this may be necessary for survival in some cases, failure to make such investments will have an impact in the long run because it is hard to play catch-up.”
Hoy Lanning, CEO of CMH Space Flooring Products in Wadesboro, N.C., added, “It’s hard to believe we can do the amount of business we do today with the number of people and trucks. No way could it be done without the technology we have. In the 1990s we had a cardex file, or index card with inventory. Back then having an 800 number was an added benefit. Today, a dealer can call at 3 p.m. and we can get the order to him by 7 a.m. the next day.”
He added technological advancements now allow a salesperson to check stock at night, on weekends, whenever. “This is one of the newest things we’ve done. This way if you are selling a job on the weekend, you can see if the product is available, and how much is in stock so it will allow them to commit inventory to the job and will then get it right away.”
Rozmus said the economic downturn has also played havoc with inventories, a vital function of distribution. “Many mills have reduced their own safety stocking levels while at the same time introducing more and more SKUs to ensure they are offering dealers and consumers maximum choice. These dual developments have placed significant and increased pressure on distributors to provide logistics services, including meeting fill rate expectations based upon historic norms.”
So where is distribution heading? While no distributor owns a crystal ball, executives did point to certain historical trends as well as recent events they feel lend clues to their ability to service retailers in the years to come.
“The one thing that has not changed over the years is the necessity of servicing the customer and exceeding their expectations,” said Jaeckle. “The one thing that has changed, however, is the expectations bar has risen thanks in part to the new technologies that have allowed distributors to create more efficient logistical systems. This is good because it has moved our industry forward and has improved service levels for the consumer.”
She expects consolidation to continue as well as the use of technology to continue gaining importance. “It remains to be seen how newer technologies such as RFID tags will impact the flooring industry, if at all, but it bears watching. I would expect supply-chain visibility to continue to increase as well. Software suppliers are already talking about web services as a means to provide stock visibility for the retailer into the distributor’s system, and the distributor into the mill’s. Certainly giving the retailer visibility into both systems is within reach as well.”
Weiss feels there could be alliances in the future, “where a distributor could work with another distributor in another territory for best practices, but it’s hard to envision a national distributor that is privately held. Why? Because geographies have unique characteristics. Those closer to the ground and intimate with their customer base are able to fill their needs better than a national distributor.”
Rozmus agreed that increased expenses will put pressure on “creating strange bedfellows as distributors, particularly those servicing widely dispersed customer bases will, over time, find ways to share non-competing services in order to continue to provide retailers and customers with high quality support while at the same time reducing expense. Areas such as customer service or zoned delivery of a competitor’s goods and vice-versa may be included in such models.
He added, one thing is for sure when it comes to expenses, “diesel fuel costs will only increase as petroleum becomes more scarce. Certainly, trucking firms will react by providing vehicles with more efficient engines, etc. Nevertheless, I foresee a time where fleets will shift from diesel-based to alternative fuels, including but not limited to natural gas, a product we have in relatively abundant supply nationally. What is challenging short term is the absence of refueling stations in most parts of the country, as well as the will to change. Without being a conspiracy theorist, the bottom line is there are many companies with significant vested interests in the status quo and less folks willing to invest in change. Change, though, is inevitable.”
Rozmus said the changing shopping habits of consumers is also an area that can have an affect on distributors down the road. “It will be interesting to see how the continued growth of online shopping generally, as well as the advent of a generation that is accustomed to texting rather than calling, tweeting rather than talking, emailing rather than writing, and Facebooking rather than meeting face-to-face, impacts flooring sales and distribution.”
In some ways, he explained, the role of the distributor could become more important as retail showrooms may become smaller over time, with many consumers going online to qualify and narrow down their selections and only needing to review a few, final choices “in person” with their retail provider. “As a generation used to transacting impersonally becomes economically empowered, they will have vast experience with service providers who get it right, albeit more impersonally than many of us are used to today. Accordingly, it will be incumbent upon distributors to continue to invest in technology and systems that allow them to provide their core services at the lowest cost to the market.”
Jaeckle said retail groups also bear watching. “It is possible some could consider self-distribution of certain products as a means to cut out the middle-man and save costs. However, there are certain steps that have to be taken to get product from point A to point B, regardless of who performs them. I am confident in my company’s logistics system, as well as flooring distributors in general, and believe our focus on logistics will ensure that we continue to be one of the most efficient and effective means of moving product for years to come.”