Distributors emerging from economic stronger, more relevant than ever
By Ken Ryan
Oct. 21/28 2013; Volume 27/number 13
Distributors. They are the backbone of the industry, the group on which manufacturers rely for moving their products to the point of sale. It is a segment that faces as many challenges as any and works on razor-thin margins.
Still, the good ones have not only succeeded but thrived. In fact, most project growth of 5% to 15% in 2013, driven in part by a housing comeback, both remodeling and new construction.
FCNews’ annual top 20 distributor listing not only looks at the industry’s leaders but also reveals the 10 highest-volume wholesalers in the resilient, wood and laminate categories. In most cases, the information was obtained from the respective high-level executives.
Oct. 21/28 2013; Volume 27/number 13
By Ken Ryan
The famous quote, “What doesn’t kill you, makes you stronger,” describes today’s leading flooring distributors fairly well, many of whom have weathered the years-long downturn as smarter, more efficient and better positioned businesses. Despite facing a spate of challenges, today’s distribution model appears to be as sound and relevant as ever.
“The future has never been brighter for a flooring distributor,” said Bob Eady, senior vice president of sales and marketing at T&L Distributing, Houston. “Yes, we have to compete with literally billion dollar companies like Shaw and Mohawk, not to mention Lumber Liquidators and the Internet, but in the end no other model can deliver the value, at the cost, of a good distributor.”
Despite the government shutdown and any number of other obstacles in the path of the flooring market, 2013 has been a good year, with most of the leading companies reporting gains of anywhere from 5% to 15%.
New construction has been a driving force, according to Bruce Zwicker, CEO of J.J. Haines, Glen Burnie, Md., and the remodeling sector has been solid as well. “If you look at the statistics from Home Depot, it reports its flooring category is up small double digits. If you look at Lumber Liquidators, its same-store sales are up 15%.”
While remodeling has slowed since the “bottom” in 2009, Zwicker said, “Our market—the entire flooring market—dropped 40% from its peak. It has bounced along the bottom since then; 2012 was the first good year, and 2013 is going to be a very good year in comparison, up 7% and 8%. The retail, or remodeling, sector is coming back.”
Zwicker added the commercial sector is showing signs of life as well. “The public projects have not come back because of budget cutbacks, but the private commercial sector is doing much better. The commercial private sector is driven by the leisure, hotel, restaurants and small offices. Healthcare is pretty good, and a lot more retirement homes and medical facilities are expanding.”
Being diversified is key in today’s marketplace. “If you are 100% retail, you are probably still struggling,” said Jeff Striegel, president of Elias-Wilf, Owings Mill, Md. “If you are spread out across commercial and residential segments, you are much better off. Thirty-four percent of flooring dealers sell to commercial, so the right mix is more critical than ever.”
The past decade has forced businesses of all stripes to take a serious look at what they are doing, how they are doing it, and if practices can be improved or made more efficient. Today’s distributors, for example, carry many more products than they did a decade ago. To manage this growth, they must ensure their people are well trained on product knowledge and technologically equipped to organize information and communicate it to customers.
“Quick action and response to consumers is a regular demand,” said Hoy Lanning, CEO of CMH Space Flooring, Wadesboro, N.C. “We equip our sales reps with iPads and they have cell phones to give customers timely responses and answers to questions, orders and problems.”
The most successful distributors have managed to grow and prosper; the less fortunate were flushed out of the market or taken over by larger, better-leveraged distributors. “Flooring distribution has undergone a fairly radical period of adjustment during the past decade,” Striegel noted. “Specifically as it relates to distribution, we will continue to see the group diversify to new channels or segments, expand geographically as size in this environment does matter, and embrace new technologies or efficiencies to become more cost effective.”
According to John Sher, president of Adleta, Dallas, retailers understand that by buying direct they can source product, balance inventories, carry credit—in essence, complete the same tasks as distributors. “They also realize it is easier and more efficient for distributors to do these things for them.”
“In addition, they are not paying a major premium in price for us to absorb these activities. The regional distributor understands the needs of the local marketplace better than national manufacturers. A large manufacturer like Armstrong understands this and can leverage its strengths by going through local distribution and letting the local team tailor programs to the marketplace.”
While some domestic manufacturers are trying to do more direct type business that bypasses distribution, overseas manufacturers, without exception, must have distribution to sell in the U.S., Eady explained. “That effectively does make distribution more important to the dealers.”
Today’s marketplace does not function in the same way as those of yesteryear, which means businesses must operate differently. “It’s not like the old days when a manufacturer could eliminate the distributor and be able to cut 10% out of the price,” Striegel said. “With overall cost improvements by distributors in today’s marketplace, the manufacturer can, in fact, eliminate a distributor; however, they can’t eliminate the cost of distribution. In the end, the cost will pretty much be the same.”
FlorStar Sales president Scott Rozmus contends that distributors have value and add value in the current marketplace. To illustrate, he said distributors provide not only warehousing and delivery services, but an entire realm of sales, marketing, technical and other support. “The distributor may be involved in helping develop specific products that meet local or regional needs—products that may not play everywhere but will do quite well in a particular area,” he explained.
While Rozmus believes the flooring industry is not necessarily complex, he noted that products sold must reach certain expectations and “address both fashion and function” in order to meet the needs of consumers. Distributors help satisfy these requirements, especially because they “continue to add value for our domestic manufacturing partners. The credit options our distributors provide are an often overlooked, yet significant, value-added service. Likewise, local inventories and service remain important and are valued.”
Additionally, the product performance in today’s market means the expectation is much higher. Therefore, when problems arise, all individuals involved in the process, from development to installation, require solutions from trusted business partners. “In short, [flooring] is a people business,” Rozmus said. “As such, the presence of trusted, local professionals is valued, if not critical. People want to know their service providers, because a lot is at stake when there are problems with a flooring job. For this reason, well-managed distributors will continue to be viable and add value.”
Challenges and opportunities
As distributors adapt to an ever-changing landscape, they continue to face margin pressure. This challenge has many sources, including manufacturers that sell direct, Lumber Liquidators playing all roles, from manufacturer to installer, commercial builders directly sourcing products from oversees and the Internet.
Therefore, distributors are searching for ways to improve efficiencies, productivity and increase sales without adding cost from operational or logistical aspects. “This is no small feat,” Striegel said, “but it is obtainable when working with a team and vendors to pursue solutions.”
Per Jonathan Train, vice president at Swiff-Train, Houston, the state of distribution is strong “because products are developing at a fast rate, and as more suppliers try to enter the market, they need distribution and they provide more opportunities for distribution. The challenges are partnering with the right suppliers. So many suppliers are offering new products and it is important to pick the ones that are in it for the long haul.”
Despite efforts to overcome obstacles, distributors point to factors outside of their control—government shutdowns, sequestration, Congressional infighting, healthcare issues and DOT regulations—as concerns that could curtail what has been a slow progression out of the 2009 trough.
“Cautiously optimistic” is a term used to describe the current state of distribution. “The market has improved tremendously in 2013, but it has the feel to us as still being very fragile,” Eady said. “I feel we are one bad news story away from another downturn, and that is a difficult place to plan from for the future. But in the end, we feel there will always be a need for a good flooring distributor and we look forward with confidence to the future.”
Like Eady, Rozmus expressed concern about the future but remains positive about the role distributors play today. “As a generation that is more used to impersonal contact via texting, Facebook and Twitter becomes more en-trenched in ownership and management, things will change. But for now, the value of local distributors continues to be recognized and appreciated, and we are all thankful for that.”