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Should retailers be worried about hard surface surge?

January 16/23, 2017: Volume 31, Number 16

By K.J. Quinn

Screen Shot 2017-01-16 at 11.54.38 AMIt’s no secret residential hard surface sales are growing at record levels and gaining market share primarily at carpet’s expense. What is unknown is the toll this surge will have on dealer profitability down the road, as margins are thinner and product life spans are considerably longer for natural materials and certain resilient floors.

“This year, for us, was our lowest in carpet sales,” said Tom Urban, general manager, Great Lakes Carpet & Tile, which operates three locations in central Florida. “It’s about 23% of our overall business; we’ve never had it that low. It was much easier to make a profit selling carpet than hard surfaces.”

Most flooring retailers are no longer in the position where carpet is their bread-and-butter product, experts say. The amount of real estate devoted to carpet displays is steadily declining to accommodate pent-up demand for hard surfaces. “Just as Mohawk has diversified our business, retailers have to diversify their businesses,” said Seth Arnold, Mohawk’s senior director of brand, soft surface. “We are able to help navigate the changing consumer preferences. That being said, it is important to note carpet is still the largest single category.”

Indeed, rumors of carpet’s demise are greatly exaggerated, as the category represented approximately 43.4% of total flooring sales and 60% of volume in 2015, according to FCNews research. “Carpet is still king in rural markets,” noted Olga Robertson, president and CEO, FCA Network. “It’s the major metro markets that sell more hard surfaces. It may have more to do with the fact that it’s difficult to get good tile and hardwood installers in rural markets.”

What is getting increasingly difficult for retailers is maintaining the same level of profitability while selling less carpet. For the moment, dealers are making it up largely through volume. “We’ve kind of had to brace ourselves to do more volume to keep the same profit level and make the same profit dollars from a couple of years ago,” Urban reports. “Our average ticket is up over $1,000 a sale, so it has increased dramatically over the years.”

But, how much longer can dealers keep up this pace? Most hard surfaces maintain their appearance long after carpet “uglies” out, which could translate into less business over time. “I think it should be one of a retailer’s top concerns,” said David Snedeker, division merchandise manager, Nebraska Furniture Mart (NFM), Omaha, Neb. “Hard surfaces are growing, so you’re going to see less customers.”

Evolving product mix
As hard surface expands rapidly into traditional carpet strongholds in the home—such as dining, living and bed rooms—retailers are diversifying their product mix to keep up with demand. “We haven’t felt the effect of lost carpet sales because we have been able to pick up those sales by gaining other rooms of the home,” said Scott Junkins, owner, Harris Flooring America, Anderson, S.C. “The proper product assortment will increase the retailer’s average ticket and proper is based on what is selling, not what you try to sell.”

As dealers update showrooms to reflect what’s trending in their area, industry members say most of these products are supplanting carpet. “[We have] increased hard surface offerings and real estate in our showrooms, resulting in a smaller footprint in our soft surface departments,” added Kelby Frederick, co-CEO/owner, My Flooring America, Denton, Texas. “We have to reduce our ‘me, too’ offering of carpet products.”

Capitol Carpet & Tile, Boynton Beach, Fla., has seen a shift in soft surface sales. “We started out 30 years ago as a carpet store and we’re now about 50% carpet and 50% hard surfaces,” noted Lou Morano, president.

However, dealers have not given up on carpet altogether. “We still do sell a decent amount of carpet,” Morano said. “We want to sell the customer what [she] wants. It doesn’t make a difference to us if a customer wants to buy tile, laminate or carpet.”

The carpet lineup, however, is being streamlined dramaticallyas dealers seek to cover key price points, qualities and styles with fewer selections. Dealers such as My Flooring America are moving away from cut samples while others eliminated them entirely. “We aren’t showing eight different 35-ounce nylon textures that all look alike,” Frederick pointed out. “We have added a broader assortment of carpet products to feature better quality items that are much more fashionable, whether it be pattern, precision cut or print products.”

Less carpet, fewer customers
Screen Shot 2017-01-16 at 11.54.43 AMIf the hard surface boom continues, dealers may see fewer customers, especially as product warranties get more extensive.

But not all consumers use end-of-life as the basis for their purchasing decision. “I think the big difference is customers replace hard surface more due to change in fashion than performance,” Frederick said. “We have found the lifecycle to not be quite as dramatic as we feared due to changing trends in fashion.”

Indeed, consumer shopping habits change almost daily. “The younger generation of customers seems to be more focused on individuality, style and design, and easy maintenance vs. their parents wanting something that would ‘last forever,’” said Brad Christensen, vice president soft surface category management, Shaw Floors. “Even with the longer lifecycle with hard surface products, the fact that people are so much more mobile and spontaneous now, there will still be a market to make a space ‘mine,’ even if the current product is not necessarily worn out.”

Generating repeat business
As longer product lifecycles reduce the frequency of customer visits, dealers are exploring different avenues to bring people back sooner. NFM is considering entering other categories, such as cabinets. “You have to expand your horizons from the flooring [business], because you’re going to see fewer customers over time, with so much hard surfaces being sold and continuing to expand in the home,” Snedeker said.

Walgenmeyer’s Carpet & Tile, Madison, Wis., expanded its business to include post-sale services surrounding wood floors. “As we sell more hardwood, we can continue to service the customer that 10 years ago would have put in carpet but now wants hard surface/wood,” owner Erik Kadlec said. “Dealers that are not looking at offering services like buffing, sanding, sealing and finishing wood floors are missing out on profits still coming in.”

Industry members are optimistic the hard surface explosion will open opportunities for products which complement flooring. For example, Rug Gallery by Great Lakes Carpet & Tile recently opened as a one-stop rug store to accommodate growing demand. “We’re hearing numbers like seven out of 10 customers who buy hard surfaces wind up buying an area rug,” Urban said. “Rather than dangle a small area rug rack in the showroom, in September we opened a complete store.”

Ultimately, consumers need to be educated about the “latest and greatest” in carpet, experts say, which will encourage them to buy. “We as retailers need to do a better job, and the industry as a whole, to tout the benefits of carpet,” Robertson said. “It’s pretty, it’s warm, it has insulating qualities, it’s quiet, it’s made in the U.S. and it’s actually hypo-allergenic.”