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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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Mohawk names Karen Mendelsohn to executive marketing post

Karen_MendelsohnCalhoun, Ga.–Marketing strategist Karen Mendelsohn has been named senior vice president of marketing at Mohawk Industries. In this position, Mendelsohn will be responsible for the overall creation and implementation of marketing strategies to drive dynamic new growth across Mohawk’s North America Flooring businesses.

Mendelsohn steps into her role as chief marketing leader of Mohawk North America Flooring with a wealth of experience in corporate and operations planning, brand development and management and eBusiness strategy.

“We are pleased to have Karen Mendelsohn on our team,” said Brian Carson, president of Mohawk Flooring. “As a proven leader, Karen brings exceptional business experience and drive to take Mohawk even further on its journey as the pioneer in flooring, product innovation and digital marketing. She is a great fit for Mohawk and our culture of perpetual innovation.”

Mendelsohn, a 30-year veteran of the building products industry, earned an MBA from Columbia University and spent more than 15 years in strategic, sales and marketing leadership at Masco, a supplier of brand-name building products and services. Before that, she was vice president of marketing at Delta Faucet Co. for a period of 12 years.

Mohawk is already a leader in digital within the flooring industry. Under Mendelsohn’s leadership, the company will further innovate its digital strategy and social presence to resonate and build connections with consumers to drive increased traffic to Mohawk retailer locations.

“Today’s consumers are shifting the way they research and select products,” Mendelsohn said. “It is important for senior executives to fully embrace eBusiness as one of the most critical levers for strategy deployment. That is just a part of what I will be doing at Mohawk.

“On a larger scale, I will be helping to shape a vision and build a marketing plan to further position Mohawk as the supplier of choice with customers across complex and fragmented distribution channels,” Mendelsohn continued. “This will involve leveraging brand management, integrated marketing communications and digital and insights-led customer engagement tools to help Mohawk evolve and engage customers and end-users across new and traditional marketing channels. It is an exciting mission, and I thank Mohawk for giving me the opportunity to be a part of it.”

Mendelsohn is the 2014 City of Hope Spirit of Life Honoree, the hardware/homebuilding industry’s highest honor. She serves on the executive council of City of Hope and sits on the board of directors of HomeAid America. She is also a founding board member of the Homebuilding Community Foundation.

FCNews recently sat down with Mendelsohn for an exclusive interview in its Sept. 5 issue.

 

 

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Mohawk Flooring, Dal-Tile appoint new presidents

by Steven Feldman

When 2011 gives way to 2012, Mohawk Industries will have two new leaders in place. Brian Carson becomes president of the Mohawk Flooring Business Unit, while John Turner Jr. will carry out the same role for the Dal-Tile Business Unit. Both were promoted to COO of their respective divisions in early 2011.

Carson, who joined Mohawk in 2006 as president of Hard Surfaces after a 16-year career at Armstrong, succeeds Frank Peters, who has held the title of Mohawk Flooring president since 2008. Turner, meanwhile, takes over for Harold Turk, who has been with Dal-Tile since 1976, serving as its president for the past five years. Both Peters and Turk will continue with Mohawk by leading strategic development activities in their respective segments. Continue reading Mohawk Flooring, Dal-Tile appoint new presidents

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Carson named president of Mohawk Flooring; Turner to lead Dal-Tile

Calhoun, Ga. — Mohawk Industries announced today that effective January 2, 2012, Brian Carson will be appointed president of the Mohawk Flooring Business Unit and John “J.T.” Turner Jr. will be named president of the Dal-Tile Business Unit.

Carson joined Mohawk in 2006 after a 16-year career at Armstrong World Industries, where he held a number of senior leadership roles. Carson joined the Mohawk Flooring Business Unit as president of Hard Surfaces and was later promoted to vice president of operations for the division. In early 2011 he assumed his current role as the business unit’s COO.

Turner began his career with Dal-Tile in 1990, progressing through a series of leadership roles in sales, operations and general management throughout the business. In 2005, Turner was promoted to senior vice president of sales and served in that role until being appointed senior vice president of operations in 2008. Continue reading Carson named president of Mohawk Flooring; Turner to lead Dal-Tile