High inflation in an uncertain economy. Challenges in recruiting, hiring and retention. Ongoing shipping and sourcing issues. These were just some of the hot-button topics on the table at the 2023 North American Association of Floor Covering Distributors and North American Building Material Distribution Association (NAFCD + NBMDA) convention held here at the group’s fall conference.
During the convention, Floor Covering News caught up with several NAFCD executive board members (past and present) to get their take on some of these pressing issues as well as the overall state of the floor covering distribution industry. Participants in the roundtable discussion included: Dori Blitzstein, NAFCD president and vice president of Roesel-Heck Co.; AJ Warne, NAFCD immediate-past president and vice president of sales and marketing at Abraham Linc; Brian Green, NAFCD president-elect and chief sales marketing officer, Belknap-Haines; Austin Starnes, NAFCD vice president and VP of product strategy, BPI; and Kyle Gorny, outside sales, All Surfaces. Reginald Tucker, FCNews executive editor, served as moderator.
Following are excerpts of the discussion with the NAFCD board:
In their presentations at the NAFCD convention, Brian Beaulieu and Connor Lokar of ITR Economics offered a sobering take on the prospects of the U.S. economy in 2024. They surmised that most distribution companies in attendance are not expected to have a “great” year in 2023. Furthermore, Beaulieu and Lokar predicted a mild downturn in 2024. Looking at your respective businesses, are you in agreement with those projections for 2024?
Gorny: We were very lucky in Michigan. Things got off to a good start in 2023, then things started tapering down a little bit insofar as residential. Commercial stayed strong for us throughout the rest of the year. We were expecting a downward trend during the second half, but we’re doing all right.
Looking into the future to 2024, I believe [Beaulieu] is right in that interest rates will continue to drop—so that’s going to be good for new builds.
Starnes: BPI had a really good first quarter of 2023, so we were pumped at the first of the year. During the summer months, we started coming back to reality but we saw some positives in the fall. Last month was a good month for BPI and we are encouraged about how we will finish 2023. ITR projections going into 2024 are very much in line with what we are seeing.
Green: For us at Belknap-Haines/STC, we mirror those comments. The first half was solid. Second half we saw some softening, especially in the residential remodel replacement segment. Our business consists of builder, multi-family, commercial and retail. Retail was the hardest hit for us. Looking at the builder business, we know home sales have softened but we’re still seeing the backlog being worked through the year.
We saw a drop-off in the middle of 2023, but things have stabilized. We thought 2023 was going to be a reset year, believing there was going to be a lot more economic headwinds in 2023; we see that moving into 2024. [Last year turned out to be] a good year for us. I think 2024 is going to be a challenge, but it’ll just be a year where we just need to tighten our belts and go out there to find market share.
Warne: At Abraham Linc we described 2023 as our rocket ship coming down for a landing. Since 2019, every year has been exceeding our wildest expectations. We’ve never been anywhere close to our budget until 2023. We’re actually ahead of our budget for 2023, but we are right about flat in dollars. However, unit growth in 2023 was fantastic. Product to product growth is still very good. We’re seeing a lot better growth in units in the commercial space and in the multi-family arena. Multi-family replacement has been good, but not as good as new construction business. And then obviously residential replacement was kind of dragging everything down, with mixed results for our customer base.
However, we’re really optimistic about 2024. If you look at residential multi-family starts, and then we add the proper amount of time for them to get the sticks in the ground and the roofs on top and get ready for us to put some flooring in, I feel like that’s going to drive some strong growth throughout 2024.
Blitzstein: I pretty much echo what everybody else on the panel has said. We started off strong in 2023, and then we started seeing by mid-year it became a little bit stagnant. Our summer months weren’t as strong as we had expected them to be. Knowing that residential was falling off a little bit, we strongly pivoted toward our commercial side, which is typically our strength. Our executive leadership resumed meeting personally with accounts, selling them on our competitive advantages and how we’re different from everyone around us.
We try to entice customers to consider our products. We do that by not only grabbing the low-hanging fruit but also challenging our customers to value-engineer larger, more pricey jobs to our products.
We measure our growth by our profitability, and our profitability is up by one or two points right now although our sales are just about flat. We expect that we’re working off old inventory. Because of freight, pricing has gone up and down so much in the past year and a half. But I expected, like everybody else, that we would be flat by the end of 2023; we were hoping to be a couple points up.
Many of you on the NAFCD board noted shared challenges with respect to certain end-use segments, namely the housing market. What other challenges are you facing in 2024? During our roundtable discussion last year, some participants mentioned challenges on the labor front, particularly the availability of truck drivers. Is that still an issue you’re facing?
Gorny: It’s definitely still an issue at all the satellite locations, trying to find drivers and counter help. In meeting with my customers, though, the biggest thing they’re facing right now is the shortage of installers. If we’re going to have a future in flooring, we need to train the young people today and let them know the flooring business is an option for them.
Anyone else struggling with the truck driver issue?
Starnes: At BPI, we put a big focus on the truck driver and labor issue over the past two years. We experienced some labor challenges in ’22, and heading into ’23 things really stabilized for BPI. Obviously, we still have labor issues, but not to the extend we had the year before last.
Green: Once we saw less government subsidies things have somewhat normalized. We try to measure everything back to 2019, and it’s still much more challenging than it was then. Obviously, rates are much higher today, and there’s a lot of competition for folks, but it’s not like it was back in 2021-22.
Warne: I consider us a leader in most of our markets in terms of wages for our frontline folks, whether it’s truck drivers, warehouse or customer service. We’ve had an extremely stable labor force through most of ‘22 and ‘23.
Blitzstein: As far as the truck drivers, I think that problem has subsided a little bit. We’ve been having more success with recruiting truck drivers, and they’re walking through the doors all the time. But I agree with Kyle that the lack of installers is still an issue for our customers—which is definitely being reflected in our business as well.
Where we are seeing labor issues is in the recruitment of salespeople in specific areas. I think that it’s becoming challenging to find youthful talent, just trying to get young blood into the industry. But that requires a lot of training and an in-depth analysis of their talents from the beginning. Getting them even to consider the flooring industry is a challenge.
I wanted to pick up on something that Dori mentioned about adjusting current pricing for older inventories. Looking back at the situation we faced early on during the pandemic and the immediate aftermath in terms of getting products shipped, to getting it from the ports onto trucks and finally to customers. Has that issue been largely resolved for you? And how has that impacted your strategy in terms of sourcing product?
Blitzstein: It depends on the company you’re working with; some are able to move containers faster than others. I’m still waiting for containers from December 2022. However, we’re still able to service our customers. We partner with companies that also have local inventory, and that’s a big thing for us. We purchase by container as well as from local stock. While we’re waiting for containers, we’re able to pull out locally. We’ve never had to tell customers that we’re not able to service them or provide them with anything, and that’s because of our business model.
So you’re able to make adjustments in 2024 based on your strong inventory position?
Blitzstein: Yes. That’s never been a problem for us.
How has that impacted pricing?
Blitzstein: Regarding freight and pricing in general—I had heard at one point in time, maybe three or four months ago, that freight was coming down and everybody was decreasing their pricing. But now I’m getting notices that everyone’s increasing their pricing. I don’t know which way to turn and how to make projections. I don’t know what my competitors are doing. I can’t imagine coming out with price increases after we just decreased them. Internally, we’re cost-averaging a lot of our inventory, but it’s all over the place.
Warne: We felt like our supply chain has been more resilient in the last year than it had been prior to that. We focus really hard on having a deep bench in terms of the folks that we work with in order to have our products produced. Obviously, we have a little bit of a different business model than most distributors—OEM manufacturing more than 90% of our own goods. Our focus is on making sure that we have consistent quality across our products through various levels of the bench in our supply chain.
We really are focused hard on being deep on inventory, so if we are facing 30- or 45-day delays on material related to port challenges, or issues that are going on with customs and border patrol in the world today with the UFLPA, or anything along those lines, that is something that doesn’t ever rise to the level of something that we even need to notify our customers of. We’re probably in a better position to do that by being narrower and deeper, but we’ve spent a lot of time focusing on having that bench strength in our supply chain so it’s something that our customers just don’t have to think about.
Gorny: A lot of our products that we buy are made in the United States, so we don’t really have too many problems at the port—which is a good thing. We bring it in as we need it. We don’t have to overstock inventory because we’re getting trucks from manufacturers within the United States on a weekly basis.
Generally speaking, in the last year and a half, two years, has your product mix changed dramatically from what you’ve stocked and inventoried, either on a branded or a private-label basis?
Gorny: Not really, no.
Green: Moving from 2021 into ‘22, there was a lot of availability challenges, and then there was a tremendous amount of flow of inventory that came in. I think what it probably made all of us as distributors think about is if there was ever that type of challenge again, how would we work through it differently? But the reality is, once the pricing reset on freight, some of the products that were very challenged in the market are much more advantageous in terms of costing. So, if you take the freight factor out of the equation, now they’re much more competitive, unfortunately, than some of the domestic products that replaced them during that time. So I think it’s continually changing, but I think for us it’s just understanding how do you position yourself when the market changes to make sure you can service your customers?
(Look for more perspectives from NAFCD roundtable panelists in FCNews’ upcoming Surfaces 2024 edition.)
