August 19/26, 2019: Volume 35, Issue 5
By Ken Ryan
Tariffs? Inverted yield curve? Recession? Despite these real and potential impediments to business activity, flooring retailers are optimistic about the remaining four months of 2019, confident they have the resources and wherewithal to weather any would-be economic storms down the road.
Much of this confidence is rooted in what has been—for the most part—a strong summer push for dealers with a backlog of orders that will stretch well into the fourth quarter. And even in situations where transactions may be down a tad, the average ticket price has been larger than in previous years, retailers report.
Among the most confident is Bobby Merideth, president/owner of Flooring America OKC, Oklahoma City. “We are forecasting good numbers for commercial sales with luxury vinyl and carpet tiles carrying the load,” he told FCNews. “To be perfectly frank, we don’t see any real indicators that show a major slowdown in the economy. Rather, we think there are political forces at play that want to create a perceived slowdown as we approach an upcoming election year.”
Some dealers acknowledge they have already seen signs of a slowdown, and others believe one is inevitable. In mid-August, investors were rattled by a scenario known as the “inverted yield curve,” a phenomenon in the bond market in which longer-term interest rates fall below shorter-term interest rates. When a yield curve inverts it’s usually because investors have little confidence in the near-term economy. It’s an abnormal situation that often signals an impending recession 18 to 24 months out. A recent survey of economists found that three out of four predict a U.S. recession by 2021—forecasts that reflect their growing concern that the U.S. economy can withstand a protracted trade war without incurring serious harm.
Flooring dealers are not oblivious to the headlines. However, seasoned pros aren’t hunkering down just yet. “I don’t want to unintentionally compromise any competitive advantage by prematurely pulling anything back as I have already seen others do,” said Kevin Frazier, owner of Frazier Carpet One Floor & Home, Knoxville, Tenn. “So, I will not be doing anything to prepare. However, once I can tell a downturn is happening, I will pull back slightly on advertising, HR and showroom investments. But I am only planning on pulling a few things back slightly.”
Mike Foulk, owner of Meadville, Pa.-based Foulk’s Flooring America, said while he sees indicators of a retail slowdown, there are still a lot of mainstream and heavy commercial projects in process and in the early stages that should keep things strong well into 2020. “We are watching inventory levels and paying close attention to purchases to make sure we are as lean as possible if there is a maintained downturn,” he explained.
A retailer’s prognosis is often dependent on location as there are many micro economies that exist in the U.S. that do not define an industry. In Davenport, Iowa, and across the Midwest, record floods during 2019 wreaked havoc on many businesses and slowed activity. Eric Langan, president/owner of Carpetland USA/The Langan Group, which includes nine locations servicing eastern Iowa and western Illinois, said he is hoping the bad weather will unleash pent-up demand in the fall. “Traffic has been spotty, but the tickets have been large this year. I’m hoping to see increased traffic with the same larger tickets this fall.”
Going forward, Langan said his business is pretty diversified not only in the products they sell but also the installation and service they provide. “We’re poised to adjust to market conditions in the event they turn difficult.”
Kevin Rose, fellow Carpetland USA retailer with locations in Illinois, said flooring dealers must be vigilant in the event of a slowdown. His advice? Have cash in the bank to weather a downturn—and never, ever cut back on advertising. “We are fighting for disposable income, which means all flooring sectors and manufacturers, as much as the retailers, if not more, must always maintain a strong position in the market with advertising. We must maintain an awareness in an ever-changing fashion industry. No company or product is invincible against a downturn, and we must be aware that consumer habits change frequently, so we need to be in front of those changes and always looking for the next best strategy to succeed.”
Yates Flooring Center in Lubbock, Texas, which is enjoying a banner year, is buttressed by strong building in West Texas and favorable interest rates that have fueled new home sales and helped with refinancing and remodeling business. “We do so much order taking when things are good that when things get tighter, we have to switch into ‘taking market share’ mode—and not everyone can do that,” said Anthony Maye, vice president of sales. “We are planning a couple of large sales in the fall to help lessen the bell curve.”
Business continues to flourish in the Southeast, especially for those based in Tennessee and Georgia. “We currently have enough momentum in all sectors of our mix to guarantee a strong fall for both written orders and those we have delivered,” Carpet One’s Frazier said. “I’m most optimistic about the energy bound-up in the resale market for pre-existing homes. This energy creates a universal sense of increased home values that leads to more liberal home-improvement investment. I use this data point more than any other to predict short-term consumer confidence in both retail and Main Street business.”
Jason Everett, manager at Gainesville Flooring, Gainesville, Ga., echoed that sentiment, noting his business has been vibrant. That is, until and unless consumers start reacting to recent headlines. “As long as the news doesn’t scare consumers, I see business staying robust.”