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Eye on inflation: Flooring industry meets economic threats head on

June 11/18, 2018: Volume 33, Issue 26

By Ken Ryan

 

The flooring industry is operating amidst significant inflationary pressures, the likes of which haven’t been experienced since the end of the Great Recession. In fact, the U.S. Bureau of Labor Statistics reported in June that inflation climbed 2.8% in the last 12 months to its highest level in six years.

Inflation impacts all industries, including flooring, which is heavily dependent on raw materials and transportation—both of which have endured substantial cost increases.

“Inflation is a real business challenge that is facing Mohawk and many other industries today,” said Brian Carson, president, Mohawk Flooring N.A. “We hear about it in the newspapers, on TV, everywhere. We see it in our personal lives when we go to the store, the restaurant and even the gas station. The good news is our economy has strengthened over the past few years, but that strength has created constraints in many areas of our businesses—from lumber and petrochemical materials in our products, to transportation and labor to produce and deliver them.”

In response, suppliers across the board are announcing significant price increases in products. Others along the supply chain have acted in kind, passing along cost increases to their end users. At the same time, companies are working to maximize efficiencies to better withstand an inflationary period that some believe will be the new norm.

“If you have only been in business since 2006, you haven’t seen inflation—we have been in a deflationary period,” said Tim Baucom, executive vice president of the residential division of Shaw Floors. “Since the Great Recession we’re feeling legitimate inflationary pressures for the first time. Going forward, we have to manage and lead with an inflationary mindset rather than a deflationary mindset, because we are moving toward a period like in the early ’80s where even if you are making significant improvements in product, you will have to raise prices to maintain profitability, so you can reinvest in your business; otherwise, you will fall behind.”

Like other manufacturers, Armstrong Flooring has implemented price increases and surcharges in cases where it can no longer absorb the effects of inflation. According to Steve McLean, director, global procurement, the company is proactively working to manage the impact of inflation primarily in lumber, resilient raw materials and transportation costs. “We consistently monitor basic energy, petrochemical feedstocks, key raw material markets and macro-economic indicators globally to understand pricing trends. This enables us to identify risks and opportunities in the market. Our efforts include negotiating with suppliers, particularly where prices are not warranted by market dynamics. We also leverage the extensive global supply base we’ve built up over decades to give us flexibility in sourcing.”

Distributors in the middle

Flooring wholesalers feel the pain of inflation as acutely as any member of the supply chain, as they have faced steady margin erosion even while looking internally to control costs. The consensus among several of the top 20 flooring distributors is the consumer of any goods or services should bear the cost of inflation. Accordingly, wholesalers typically pass along a portion of their increased input costs to the channel, much as their various suppliers do as well.

Raising prices or kicking the inflationary can down the road is not enough, however. At the same time, both distributors and their channel partners are working together to drive efficiencies. That’s according to Scott Rozmus, CEO of FlorStar Sales, a top 20 wholesaler based in Romeoville, Ill. Whether it involves finding lighter-weight (but still protective) packaging, reviewing and optimizing delivery routes, introducing additional technology to improve the speed and accuracy of order entry, or otherwise simplifying the business process, he believes any activity that reduces cost provides an opportunity to pass less along. “While we certainly are committed to such efficiencies, at the end of the day much of inflationary supply chain pressure has to get passed along to that end consumer of the goods or services.”

As with others, Haines has certainly dealt with cost increases, particularly in the transportation arena where ELD (electronic logging devices) mandates have caused a significant contraction of capacity. The industry’s largest wholesaler has worked over the past three years to find ways around what was then a projected increase in costs.

“As this forecast has become reality, these plans are helping us,” said Michael Barrett, president and CEO, Haines, Glen Burnie, Md. “We have worked to engage companies such as JB Hunt and CH Robinson to assist us contractually to ensure our costs are kept under control. On the delivery side, we have a multi-year contract with moderate escalators that has aided us in managing through the cost component of transportation. Companies like Hunt also have much greater capability to ensure our driver pool is maintained through their capabilities in sourcing and hiring drivers. The one variable that does affect us and others is fuel. As fuel continues to rise, we will have to address the cost impact of this charge. On the inbound freight side, the positive impact that CH Robinson provides is the ability to find capacity needed to move freight. We are seeing costs escalate here as well and we continue to monitor to ensure we can achieve our goals.”

Both of these approaches are within Haines’ business model. What is somewhat out of its control is manufacturer price increases. As Barrett explained, “[Manufacturers] are balancing all the transportation cost issues but are feeling pressure on energy costs to run factories as well as raw material cost increases. In these cases where price increases are happening, we are having to pass them through. We continue to look for ways to keep our costs under control, so we can minimize any internal need to raise fees or other costs. We will maintain that approach for the foreseeable future.”

To a large degree, increases in raw materials and transportation costs are part and parcel of doing business in any industry, flooring included. What’s different now as opposed to, say, six years ago is the pace of inflationary pressure, executives say.

Several distributors began working on inflationary strategies long before inflation began creeping into the picture. Madison, Wis.-based Jaeckle Distributing, for example, has had a fuel surcharge in place for many years to help cover the fluctuations in costs that can’t always be addressed through constant price revisions. That helps keep things more stable so the company doesn’t have to reissue standard pricing as frequently. “That said, price changes are happening more frequently these days, and it can be a challenge to stay on top of things and keep all pricing updated,” said Torrey Jaeckle, vice president. “We’ve had one vendor who has increased prices three times already this year. Given the fact that product might only be ordered by a customer once a month or so, it can be confusing for customers to be getting billed different prices on every subsequent order. It also creates issues for distribution and retailers who might bid a job several months in advance only to find costs have changed significantly once the order actually comes through.”

What’s more, he added, vendors seem to be giving less notice on price increases now, which gives distributors less time to implement the increases, which means they are absorbing some increases at least for a short period of time until they can work through the logistics of implementing it on their end. “In addition, pricing has become much more complex over the past several years, which increases the time to implementation,” Jaeckle said. “Many prices are now negotiated between the retailer, distributor and manufacturer, and when prices change trying to get all three of us on the same page with regards to new pricing going forward can be a challenge and time consuming.”

Adleta, a top 20 wholesaler in Carrollton, Texas, has absorbed as much as it could, according to John Sher, president. For the first time in years it has been forced to increase its delivery costs. “However, our one-charge drop fee is still a tremendous value,” Sher explained. “Our customers have told us the consistent Adleta delivery on our trucks with Adleta-employed drivers trained to handle flooring products is one of the value adds we bring.”

Exacerbating the inflationary pressures in 2018 are increases in labor—both in hiring and retaining—insurance premiums and fuel costs. “Workers costs have gone up; entry-level costs have gone up substantially in the last three to five years but really in the last year,” said Jeff Striegel, president of Elias Wilf, a top 20 distributor based in Owings Mills, Md. “The fact is labor, insurance and fuel all continue to rise. This time it’s for real.”

Given the tight labor market, several manufacturers say they have been forced to pay bonuses for new hires and to retain quality employees.

Retailers react

To no one’s surprise, flooring dealers say they are experiencing the same pressures as everyone else. Strategies to combat the inflation differ somewhat, however. Nick Freadreacea, president of The Flooring Gallery, Louisville, Ky., said some material costs can be caught upfront and passed on in some cases or not at all. “Retail prices are usually easily adjusted, but builder/multifamily can be hard to change more than once a year,” he said. “Freight and fuel surcharges are those hidden cost that are harder to recover, and those items really eat into the bottom line of a company.”

Adam Joss, co-owner of The Vertical Connection Carpet One, Columbia, Md., said inflationary pressures haven’t negatively impacted his business since the increases get passed on to the consumer anyway. “Personally, I think there’s more to it than just labor shortages and raw material costs—it’s also a result of years of consolidation.”

In talking to many of its dealer partners, Mohawk’s Carson said he knows they have seen inflation in their costs as well—things like installation labor and rents. “At Mohawk, we are constantly investing in our plants to innovate new products, but also to innovate our processes to drive efficiencies and lower our costs and to do our best to offset inflation. Despite these efforts, sometimes the input costs rise to a degree where we have no alternative but to pass them along. I know that’s difficult, but it’s a reality in today’s markets. I think these pressures of additional inflation will be with us for a while.”

Keeping its plants financially healthy is the fuel that allows for continued investment in new products, new capacities, new services and new efficiencies, Carson added. “These investments in innovation are vital to all our businesses whether the dealer, the distributor or the manufacturer. Mohawk will always be committed to continuous innovation.”

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Rising transport costs take their toll on distributors

March 19/26, 2018: Volume 33, Issue 20

By Ken Ryan

New government regulations have exacerbated the ongoing trucker shortage in the U.S., resulting in higher inbound freight costs for flooring distributors that could spread across the entire supply chain.

The problem is twofold: More than 70% of the goods Americans consume are carried on the nation’s highways, but a new report says the industry needs to hire roughly 90,000 new truckers each year to keep up with demand. At the same time, new government regulations—including implementation of the electronic logging device (ELD) mandate—are forcing some smaller trucking firms and individuals out of business, thereby worsening the shortage and creating problems like product shortages and delivery delays.

Observers say there is no reason to think the labor situation in the trucking industry should get better any time soon. In the short term, truckers must switch from logging their hours on paper to doing it electronically by April 1or face penalties; drivers will no longer be able to fudge their hours on paper to stay on the road longer.

“There has been a shortage of truckers for quite a while,” said Bob Weiss, CEO of All-Tile/Carpets Cushions & Supplies, a top five flooring distributor based in Elk Grove Village, Ill. “What is compounding the problem are new regulations that are tighter.”

Scott Rozmus, president and CEO of FlorStar Sales, a top 20 wholesaler based in Romeoville, Ill., said the biggest issues they are facing are delays and the difficulty of finding available, reliable carriers. “Obviously, costs are going up, too, but ultimately the consumer will need to bear those costs.”

Other distributors are feeling the impact as well. Carrollton, Texas-based Adleta, another top 20 flooring distributor, had to go out and hire additional drivers because of the shortage. “It’s no easy feat to find a driver with a clean and safe driving record,” said John Sher, president. “[As a result], all inbound freight has gone up dramatically. While we have been absorbing this, we will have no choice but to pass this on.”

The improving economy is adding to the problem. The reason: as more goods are shipped, more drivers are needed. It’s classic supply and demand economics. “There will be increased costs moving forward as the new cost structure realities begin to show themselves,” Weiss explained.

At issue is the ELD mandate, a federal rule that took effect Dec. 18, 2017 which requires trucking companies to record their hours of service on ELDs (devices that synchronize with a vehicle engine to automatically record driving time for more accurate hours of service recording). With ELD implementation, any delays at docks or warehouses will result in higher transportation costs for the shipper, according to transportation officials.

Jaeckle Distributors, Madison, Wis., has been operating with electronic logs since 2008, so the new ELD mandate hasn’t impacted the way it operates. However, it has impacted other carriers it works with and has added another layer of complexity for carriers who are new to it.

“We have not seen a significant rise in LTL [less than truck load] costs; however, I am seeing a decline in the overall service quality we’re experiencing with other carriers,” said Bill Simonson, vice president of operations. “We are finding increased damage and more occurrences of freight not being picked up. That is either due to lack of experience, shortness of drivers, or lack of hours available to drive.

“And, of course, you are dealing with a good economy, rising volumes and fewer drivers to move the freight. We’ve been adding drivers to our staff and we’re more confident with our ability to control quality in this environment than we are with some of the third-party carriers out there.”

Jeff Striegel, president of Elias Wilf, a top 20 distributor from Owings Mills, Md., said the implementation of electronic logs has prompted a tangible percentage of the smaller independent trucking companies to exit the business. “Losing 10%-12% is a dent in the overall capacity, which was strained to begin with,” he explained. “A lot of the drivers I am around have gotten older and they are not willing to spend the money [required of the electronic logs] into one truck; it has really shut down a portion of the trucking capacity, and there wasn’t an abundance to begin with.”

The American Trucking Association reports the industry has struggled with a driver shortage for the past 15 years. During the Great Recession, freight volumes dropped, allowing the industry to meet demand with fewer drivers. But when volumes recovered in 2011, the driver shortage became a problem again, the ATA found.

According to a study conducted by DAT Solutions, just one truck was available for every 12 loads needing to be shipped at the start of 2018—that’s the lowest ratio since 2005.

Striegel, as well as others, predicts the situation could get worse. “Hiring a driver is the hardest position to fill. Between [the government] closing loopholes and the new restrictions in place, it has put constraints on my existing fleet.”

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Metroflor honors top distributors

Volume 27/Number 21; March 3/10, 2014Screen Shot 2014-03-10 at 11.47.38 AMLas Vegas—Metroflor Corp. acknowledged the dedication and hard work of its distributors across the entire brand portfolio by bestowing its performance awards for 2013 at a reception during Surfaces.

“Our stellar 2013 results couldn’t have been achieved without our distributor partners, whose outstanding efforts made this sales achievement happen, along with our wonderful sales team,” said Russ Rogg, president and CEO of Metroflor.

Tri-West was honored with the 2013 President’s Award, given to the distributor that “most embodies the comprehensive and unparalleled support of Metroflor,” Rogg explained. Continue reading Metroflor honors top distributors

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Metroflor honors its top distributors

Tri-West Ltd. won the President’s Award as the distributor who demonstrated the most comprehensive and unparalleled support of Metroflor brands and products. Pictured from left are: Paul Eanes and Jamie Topete of Metroflor; Larry Johnson of Triwest, and Russ Rogg of Metroflor.
Triwest Ltd. won the President’s Award as the distributor who demonstrated the most comprehensive and unparalleled support of Metroflor brands and products. Pictured from left are: Paul Eanes and Jamie Topete of Metroflor; Larry Johnson of Triwest, and Russ Rogg of Metroflor.

Norwalk, Conn. – Metroflor Corp. acknowledged the dedication and hard work of its distributors across the entire brand portfolio by bestowing its performance awards for 2013 during a reception at The Palms during Surfaces.

“Our stellar 2013 results couldn’t have been achieved without our distributor partners, whose outstanding efforts made this sales achievement happen, along with our wonderful sales team. Together they keep Metroflor a vital force in the LVT industry,” said Russ Rogg, president and CEO of Metroflor.

Tri-West was honored with the 2013 President’s Award, given to the distributor that “most embodies the comprehensive and unparalleled support of Metroflor,” Rogg said.

Herregan took home the Paramount award, given to the distributor with the most outstanding sales achievement across a diversified portfolio.

Metroflor named Don Hill of the Cronin Company as the 2013 Distributor Sales Champion. Hill was recognized as the distributor rep with the “most outstanding” sales achievement “who has mastered the nuances of the flooring process and provided tenacious follow up,” Rogg said.

Larry Johnson of Tri-West won the Visionary Award, which goes to the individual whose vision, passion, conviction and pioneering attitude best served the Metroflor brand. “He managed more Metroflor brands than anyone,” Rogg said.

Metroflor also awarded top sales achievements in a product category or brands to the following distributors: 

All-Tile (Starloc); Ohio Valley Flooring (Konecto); Adleta (Artistek Floors); Tri-West (DryBack); Herregan (Engage Clic); and Wm. Bird & Co. (Prevail).

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FCNews’ annual top 20 flooring distributors

 Distributors emerging from economic stronger, more relevant than ever

By Ken Ryan

Oct. 21/28 2013; Volume 27/number 13

Screen Shot 2013-10-25 at 4.47.45 PMDistributors. 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. Continue reading FCNews’ annual top 20 flooring distributors

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Metroflor presents performance awards at Surfaces

Russ Rogg, president and CEO of Metroflor, and Keith Kannapel, Metroflor’s Midwest sales manager (far left), presented two awards to Craig Folven (second from left), Bob Link (center) and Tom Splinter (far right) of Herregan.

LAS VEGAS – Metroflor celebrated its return to Surfaces 2013 after a nine-year hiatus and a strong 2012 by acknowledging the dedication and hard work of its partners across the entire brand portfolio. The presentation was held in the LVT leader’s new 2,000-square-foot booth.

Herregan Distributors won big with the President’s Award, given to the distributor that demonstrates the most comprehensive and unparalleled support of Metroflor, its brands and its products. In awarding the company with the first-ever Engage Distributor of the Year, Metroflor recognized Herregan for its outstanding sales achievement for the 2012 debut of Engage LVT flooring. Continue reading Metroflor presents performance awards at Surfaces

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No stopping resilient's momentum

In a black universe, vinyl is the shining star. That was the assessment of Elias Wilf president Jeff Striegel, who like many of his brethren sees resilient products as the beacon of light amid the darkness. In recent years, many of the leading flooring distributors have increased their percentage of resilient offerings, from the high single digits to low double-digits. Continue reading No stopping resilient's momentum

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Roundup in ‘Big D’: Optimism reigns as carpet mills, distributors, host product showcases

DALLAS—It may not be as large as Surfaces, but Dallas has become a very important locale for manufacturers and distributors to not only show their wares to floor covering dealers, but also place displays and plan programs for the year. And like Surfaces, an array of show specials can be had. Continue reading Roundup in ‘Big D’: Optimism reigns as carpet mills, distributors, host product showcases