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Al's column: Discounting can actually hurt sales

March 5/12, 2018: Volume 33, Issue 19

By Jerry Levinson

 

During a recent weekly meeting with my staff, we were discussing ways in which we could improve our closing rate. Normally, there is a sale, special, discount or promotion that we offer our customers. Furthermore, it is common for customers to ask for an additional discount.

We role play at our meetings and go through the process of measuring, product selection, establishing what a customer’s experience will be and quoting her project.

We have one salesperson who offers an additional discount to her clients when asked. She feels the need to offer an additional discount whenever the customer requests a lower price. She perhaps also believes this extra discount will help her beat the competition’s price and thus earn her more business. (Oddly enough, her closing rate is among the lowest.)

Her case is not unusual—I know many salespeople who do this as well. However, when you lower your prices, you also lower your chances to close the sale. By decreasing your prices, you have just validated your client’s belief that there is no difference between you and the competition down the street. You have just told your customer the overall experience will be exactly the same as what your competitors provide, so she might as well go with the company who has the best price.

Instead of falling into this trap, I recommend setting your client’s expectations up front. Explain to her that you are not going to be the low-price leader, but you want to earn her business by showing her that she’ll get better service from you. For instance, we give our clients the “top 10 reasons” why they should do business with us, which separates us from the competition.

If you offer your customer reasons why you are different from other companies, she will most likely hire you to install her carpet rather than the competitors who offer less. Basically, you want her to consider the disadvantages of not using your company.

Preparation is key
So you’ve explained to your customer that your company provides great customer service, and you’ve expressed how much you care about your client. However, that may not be enough. Maybe one of your competitors is $1,500 cheaper and also claims to offer exceptional customer service. To make your company stand out from the others, prepare your salespeople with a list of seven to 10 reasons why clients should choose your company to do business with. In other words, make your process go from ordinary to extraordinary.

For instance, our installers remove the customers’ old carpet, sweep the floors and then treat the floors to address any pet accidents, mold, mildew. etc. Next, we install a new pad and carpet on a fresh, clean surface. This is a unique service we provide in our market.

Another way to sway a potential client to use your company—without relying on lowering your price—is to provide a copy of your liability insurance with each estimate. It’s something we all have but only produce documentation when asked. If you give it to your client up front, she’s going to also ask your competitors for that same document and they will be unprepared. They’ll have to scramble to provide that information.

If you want to earn a customer’s respect and business, you have to first respect your own talent, experience and process for providing excellent service. You should command higher prices and attract customers who are more than willing to pay you for what you are worth.

 

Jerry Levinson owns and operates Carpets of Arizona along with Profit Now for Flooring Dealers, which teaches specialty flooring retailers how they can grow their business.

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Business is truly a family affair at Alliance Flooring

March 5/12, 2018: Volume 33, Issue 19

By Ken Ryan

 

Tucson, Ariz.—Not since the heady pre-recession days has Alliance Flooring and its dealers been in such a sweet spot: an improving economy; a growing, contented membership; exciting programs coming of age and a supplier network that treats the annual convention as if it were a family reunion.

The 2018 annual convention held here last month amplified those good vibes—from co-CEO Ron Dunn’s opening Power of 10 talk to the Oscars-like awards dinner to close the show.

Suppliers were uniform in their support and appreciation of Alliance Flooring—which comprises CarpetsPlus/Color Tile and Carpetland USA—and its membership. “Alliance Flooring is an extended family; they treat suppliers as partners and appreciate all of our efforts,” said Kelly Oberschlake, senior director, residential sales, for Mohawk, which won Supplier of the Year (see page 27).

Tim Hanno, vice president of retail sales, Karndean Designflooring, said Karndean has a great relationship with all the buying groups, but “this one just takes it to another level entirely. We love this group and the family atmosphere that exists here. It’s like you’re going to a family picnic. This business is about relationship sales, and this is a great relationship.”

Ann McDermott, vice president, national accounts, Shaw Industries, agreed. “It’s not like coming to a convention; it’s more like coming to a family reunion. This group is special.”

In the past year, Alliance Flooring has added 18 members, bringing to 370 the number of retailer members, which represents well over 400 storefronts. About one-third is part of the Destination program, which was launched in 2015 and is now in its fourth phase. What started as a carpet boutique within the showroom has expanded into hard surface and continues to evolve. “It is the most successful program ever for CarpetsPlus,” said Kevin Logue, co-COO and vice president of marketing. “We will continue to expand the program, especially in hard surfaces.”

In 2018, CarpetsPlus will add 12 new private-label programs to Destination, which is offered to members on an a la carte basis. Members don’t have to take on any elements but are encouraged to do so as research shows the average selling price of products within a Destination showroom goes up $1 to $2 per yard. “Destination has definitely created a buzz, and more suppliers want in on the program,” said Ryan Dunn, co-COO and vice president of sales.

Before convention there were 116 stores in the program. By the end of the second day, there were 121 members in the program—and that number is expected to rise.

“We have some progressive plans to grow this company,” Logue explained. “We’re adding new vendors; we have suppliers coming to us now. As for retailer members, we have to be very selective who we let in. We have spent a lot of time researching the industry and we are not just trying to sign up anyone. They have to be open and willing to share their best practices.”

That willingness to share best practices, to help each other in need, is one of the hallmarks of the Alliance Flooring group that stands out for retailers like Ben Case, owner of Carpet Collection, Lockport, N.Y. “We can have open-book discussions with almost any member we want. This allows growth for my business in avoiding the pitfalls others have experienced. Other members are just a phone call away, and most look forward to helping another member; I know I do.”

Bob Dauenhauer, owner, Carpet World, Bismarck, N.D., concurred. “If you have any questions you could go to any one of the dealers and they will help you out. It’s the friendliest group you could be with.”

It’s not just a cliché with Alliance Flooring—the group really does work with each other and can serve as a supplier/distributor when necessary. One example is the relationship between Montgomery’s CarpetsPlus Color Tile in Venice, Fla., and Gainesville CarpetsPlus Color Tile, located roughly 200 miles apart—not exactly around the corner. Still, when Montgomery’s was out of stock on a particular product that it needed, it turned not to a supplier but to Josh Elder, who runs the Gainesville store. He delivered the goods in a timely manner and sent them the invoice. Scores of these examples were retold at convention.

New offerings
Alliance Flooring has added 40 LVT-type products since September, and the combined LVT/WPC/SPC category now represents 20% of its mill shipments; resilient sheet makes up another 10%. Carpet is now at 39%, down from 80% in 2002. “I never thought in my days that I would see carpet at 39% for our group,” Logue said. “Meanwhile, LVT is going off. My phone is ringing once, maybe twice a week from people who say, ‘Hey, you want to see my rigid core line?’”

Rather than take them all in, Alliance chooses roughly five “winning” lines for its members, with WPC and SPC commanding equal time. As Logue explained, “We are never going to be the group that has 35 suppliers in one category. We pick the right ones. We boiled down our LVT business to five lines because we need to put our members in a position to be as competitive as they can be in their own markets.”

This year’s new offerings include denser, more rigid cores; wider and longer planks; and tile and stone visuals in larger formats. The lineup features Shaw’s new Floorte Pro products (48 SKUs) and COREtec Stone. “No other group is showing this right now—we think this product is going to be hot,” Logue said.

The carpet introductions “are pretty short and sweet this year,” Logue noted. Leading the way are Anso Foundations and Bellera from Shaw and Dixie’s PetProtect Destination.

For Color Tile dealers, ProGen from Tarkett and Korlok from Karndean are new offerings in rigid. “This is their foray into the floating arena,” Logue said of Karndean. “They really did their homework and took their time in bringing this to market.” Laminate represents 4% of the group’s sales but has stabilized, Logue said. “We feel the waterproof story is compelling.” To that end, Mohawk’s RevWood, a new waterproof collection, will fill that niche.

Alliance Flooring welcomed several new suppliers. Phenix Flooring is the replacement for Beaulieu, which was acquired by Engineered Floors in 2017. Phenix is expected to help Alliance dealers in the area of solution-dyed products.

Peerless (which is Beaulieu Canada; however, legally the name Beaulieu cannot be used in the U.S.) is a new member with a familiar name running the program—Greg Payne, formerly with Shaw. Also new is DuChateau. “We needed a higher-end line,” Logue noted. “I have been after them for two years. DuChateau is a good pickup for us.”

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Are dealers ready for an ICE raid or audit?

January 22/29, 2018: Volume 33, Issue 16

By K.J. Quinn

 

If U.S. Immigration & Customs Enforcement (ICE) agents come knocking on your door, don’t be caught with your pants down. Preparing for ICE raids or audits before the incidents occur is critical to keeping a business afloat. Thus, it is imperative for employers to maintain proper records and supporting documentation to ensure compliance, legal experts say.

“ICE has signaled that it means business,” said F. Keith Covington, a partner at Bradley Arant Boult Cummings LLP, a North Birmingham, Ala.-based law firm. “Employers would be wise to make sure their immigration compliance is in order.”

The warning shot was fired back in 2017, when ICE reportedly stepped up the number of audits and raids at various businesses across the country. “It is anticipated the Immigration and Customs Enforcement will increase audits of employers’ I-9 compliance and workplace raids,” said Jeff King, World Floor Covering Association legal counsel and a partner at JWKing & Associates, Delray Beach, Fla. “It is key employers understand their rights and obligations to protect themselves from improper audits or raids and ensure they do not violate their obligations.”

The key to surviving an ICE raid and ICE audit is to be prepared before either event happens. This requires, among other things, I-9 forms that are complete and in compliance with the law. “Employers need to understand the integrity of their employment records is just as important to the Federal government as the integrity of their tax files or banking records,” said Danielle Bennett, an ICE spokesperson. “All industries, regardless of size, location and type, are expected to comply with the law.”

It can be relatively easy for undocumented workers to provide acceptable looking I-9 documentation and pass the employment verification process. “Moreover, once an individual has made it into a company in this manner, he or she may advertise the company to other undocumented workers,” said David Jones, an attorney at Fisher & Phillips, Memphis, Tenn., a national labor and employment law firm. “In the event of an audit or raid, a company that believed all of its workers were lawful can suddenly be without a workforce.”

Legal experts advise employers to conduct an internal audit so they can review data, check compliance and take any corrective measures before ICE comes calling. “ICE tends to be very gentle on employers who take corrective action before they audit a worksite,” said Davis Bae, regional managing partner at Fisher & Phillips’ Seattle office. “By going through and auditing the I-9s, you can frequently make ICE’s job easier, which could result in them lessening or even waiving fines.” Internal audits can be conducted by an HR consultant, attorney or other third party who is not involved with the employer’s day-to-day I-9 process.

For technical or procedural violations, such as minor errors on forms, an employer is given 10 business days to make corrections. “The idea is to make any necessary corrections in a transparent manner,” Covington said, “not in a way that might look like the employer is trying to hide the fact the errors existed originally.” The Department of Justice and ICE have published a joint guidance for employers conducting internal Form I-9 audits.

Employers should also ensure the people responsible for I-9 compliance are properly trained, legal experts say, so mistakes can be avoided upfront and they are capable of spotting issues and fraudulent documents. Law firms are among the sources that can provide guidance on I-9 form preparation and completion as well as reviews of I-9 records. “Employers may also want to consider utilizing E-Verify if they are not already required to do so by state or local law,” Covington said, referring to the Internet-based system that allows businesses to determine the eligibility of their employees to work in the U.S. While E-Verify is not foolproof, it is much harder and less common for someone to make it through with a stolen identity.

 

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How the category leaders help retailers make money

January 22/29, 2018: Volume 33, Issue 16

By Lindsay Baillie

 

The flooring industry’s largest manufacturers are making significant efforts to provide multi-channel solutions for their respective aligned retailers. Both Mohawk and Shaw Floors are listening to retailers and consumers to uncover the best ways to support the independent flooring retailer via product innovation, merchandising, digital marketing and lead generation.

FCNews spoke with Seth Arnold, vice president of residential marketing, Mohawk, and Dan Crutchfield, director, Shaw Flooring Network, Shaw Floors, to uncover what both manufacturers are doing to help their aligned retailers succeed.

 

Product. “In particular with independent retailers, there has been a trend away from soft surface flooring. When we look at developing products in order to stop that trend we have to develop extraordinary features. Take products such as SmartStrand Silk Reserve, for example. If we take the main feature of the category—soft—and maximize it to astonishing levels while providing durability, we’re helping retailers command the highest possible margins even if they are not getting the same square footage.

“We also recently launched Air.o, a hypoallergenic alternative to carpet, which doubles the number of people who would consider soft flooring. This is a gold mine for retailers because when a consumer walks into a showroom she might have her heart set on soft flooring but then feel her only option is hard surface due to respiratory issues. When the retailer can turn that around it increases her likelihood of purchase and allows the retailer to command a trade-up margin.”

Merchandising. “We spent six months talking to consumers about how they shop for wood. We found consumers have very high standards for wood but get completely overwhelmed. Also, the consumer actually simplifies things by thinking of laminate and hardwood as one category. Our new laminate strategy is to merchandise it with a branded collection called RevWood and put it together with our hardwood products. What we’ve seen from consumers is you can provide greater choice with a simpler value proposition that speeds up the decision and allows retailers to make more money on every sale.”

Digital marketing and lead generation. “We’re currently developing digital merchandising lead-generation packages for all of our hero products.  Every retailer that has utilized these tools is coming back asking for more because they’re seeing higher traffic. They’re seeing better qualified leads and they’re driving sales. When you’re visible online and have good content, that is how you get good leads.”

Overall. “The No. 1 thing we’re doing to help ensure the success of all retailers is Omnify. There’s this growing younger demographic that has a bias toward digital. If an average retailer has 25 people walking through their physical front door, there are 1,000 people walking through their digital front door. It seems to me the most important thing Mohawk can do is help improve the close rate on the 1,000 who are looking digitally without giving up the 25 people who are walking through the physical door. I truly believe Mohawk is three to five years ahead of any other flooring brand when it comes to connecting the digital and physical strategy.”

 

Product and merchandising. “Private labels and exclusive product programs—including our most successful collection and display system—have been hallmarks of the Shaw Flooring Network since its inception. Even more important, we are committed to the future of our members with styles, trends and innovations that meet today’s consumer demands. We want to make sure we are designing products, collections and merchandising units that complement

the way consumers want to shop vs. the way our industry has traditionally wanted to sell. We are committed to researching consumer behaviors so we can help our members be successful in today’s marketplace.”

Digital marketing and lead generation. “The world of digital marketing changes rapidly. And, because it is an increasingly important part of the consumer’s purchase process, digital marketing can be a particular source of anxiety for a lot of retailers. The Shaw Flooring Network is committed to helping members, and we offer a complete suite of services. For social media support, we offer a world of content for Facebook, Twitter and Instagram through Promoboxx. We provide easy-to-build, professional flooring websites—complete with product catalogs—and support through Shaw Web Studio. In addition, we help retailers garner positive reviews and maintain their digital reputations through Share It Forward. As digital marketing trends evolve—and they will—we will continue to work with great service providers and internal professionals to offer new and enhanced digital marketing tools and expertise.”

Overall. “Shaw has conducted an extensive amount of proprietary consumer research over the last 12 months. Plus, the company is investing time with key retailers to better understand their challenges, needs and opportunities—and how Shaw can formulate a stronger partnership in helping them achieve success as they define it. Using what we are learning from both the consumer research and our customers, we’re continuing to evaluate our findings to offer meaningful solutions that benefit our valued retail partners. Shaw Flooring Network aligned retailers have already been exposed to some of this data, but that’s only the tip of the iceberg. We’re listening to consumers and learning their motivators and drivers more than we ever have so we can develop strategies around eliminating their headaches. By acknowledging any potential issues head on, we hope to assist our valued retail partners with combatting abandonment and other common concerns that could lead to the loss of a sale, making them savvier to consumer needs and expectations.”

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Economics: 2018 looks strong; possible bend in the road for 2019

January 22/29, 2018: Volume 33, Issue 16

 

 

One of the highlights of the annual North American Floor Covering Distributors convention is the economic overview from ITR Economics, one of the most accurate forecasters in the country. This time around it was Brian Beaulieu, one of the company’s two principals along with his twin brother, Alan, who gave an upbeat forecast for the next 10 years.

What follows is a synopsis of the 90-minute presentation in Beaulieu’s words…

The future looks good as the economy continues to grow. We still see softness in 2019 that you can manage through. We see the first three quarters of 2019 being flat and then the economy begins to rise in earnest in the fourth quarter and into 2020 and 2021. We are not anticipating any significant recession in the next four or five years.

Given that we see a lot of growth in our future, given that interest rates are still so cheap, given that we have a labor shortage to contend with, you should take advantage and invest in your businesses today. The No. 1 problem we will face for the next 13 years is a labor shortage. Attracting and keeping talented people will be the bane of our existence. Invest in technology and equipment that will alleviate your need for labor. This is a global phenomenon.

Politics
Republicans believe the economy does better when a Republican is in the Oval Office. Democrats want to believe the economy does better when a Democrat is in the Oval Office. Warren Buffet said, “Red or blue, I can still make green.” Stop worrying about who is in the Oval Office. What you do every day in your office matters far more than what they are doing in Washington.

Tax cuts
If you think the tax changes is something that will knock the socks off the economy, we don’t see it that way. Go about your business with the hand you’ve been dealt. Stop relying on a tax break to make things better. If you think deregulation has helped you, more power to you but that can be changed with the next president. Stay focused on the business of your business.

Stock market
The stock market is going up because corporate profitability is on the rise. However, it is relatively expensive. If you put fresh money into this stock market now your average rate of return for the next five years will be between 1% and 2%. The best thing to happen would be to see the market pull back. A 10%-15% correction would be beautiful. You can’t time this market in terms of the lows and the highs, but you can decide when to put in fresh money. Be patient. Now is not the time.

Trade
Contrary to popular belief, trade is important to the U.S. And if you throw trade barriers to stop imports you will also end up hurting exports. Sixty percent of our exports are manufactured items. Manufacturers will feel this pain more deeply. We are still one of the world’s pre-eminent manufacturers, but we also are in need of being able to sell our wares abroad.

Global picture
The world’s total GDP is $65.278 trillion; the U.S. comprises 24.7% of world’s economy. China is 14.9%. How long will the U.S. remain No. 1? When will China overtake us? The reality from an economic perspective is the U.S. will be No. 1 for the next 100 years. Why? Three factors:

  1. Demographics. A growing population ensures organic economic growth. We have a growing population in the U.S.; China does not. Every 13 seconds the U.S. net population (birth + immigration – death) increases by 1. India is another country that has a positive demographic trend.
  2. Natural resources. You have to own your natural resources if you will thrive during a period of inflation like we are moving into. The U.S. is blessed with natural resources; China has a relative paucity of natural resources. You have to get to India before you find another country strong in natural resources. Brazil, Canada and Mexico are strong but have negative demographics.
  3. Rule of law. History shows private property rights is essential to long-term growth. Also, intellectual property; if you are going to be an innovative, creative society and economy, you have to have the intellectual property. And bankruptcy law; you have to be able to fail forward. You have to be able to come out from underneath, make mistakes and try again.

The only country that wins on all three of those scores is the USA.

Housing
This is a tale of two stories—single unit and multi-family. Single unit starts is a rising trend that will generally last until 2029-2030. It is not a continuous rise and will stall from time to time, but it won’t be like the Great Recession.

Buy urban because people are going urban. That’s where baby boomers want to live. And at least 40% of millennials now say they want to go there. It’s the one place where the supply will be less than the demand going forward. People also want to live near water. So buy in an urban area, high up where you can see water or be on the water. That’s the trifecta. There are 100 million more Americans coming at us between now and 2050. They all are going to want someplace to live. You may as well own that place.

You want to sell most of your real estate off in 2029-2030. We think that next decade will be one of deflation, and you don’t want to be stuck holding that property.

Multi-unit starts is a different story. Don’t expect anything good during the first half of 2018. Be careful about this segment of the market. Rent growth is 2%, barely keeping up with inflation.

Home prices are going up. That trend will largely continue until 2029-2030. The only thing that can upset this trend is if they repeal Dodd-Frank. That would stop home prices from growing. This would be good for the economy and a blessing for the financial industry but disruptive to this trend.

Bond market
The bond market is bigger than the stock market. This market looks forward 18-24 months. Much more dollars are involved globally. The bond market looked at the election, looked at Trump’s promises and decided interest rates needed to go higher. If you are going to exacerbate the labor shortage by restricting immigration, then labor cost will go even higher. If you are going to cut taxes without cutting spending, the national debt will go up. International debt, inflation and the bond yield goes up. It was the same thing when Ronald Reagan was elected president in 1980.

Certain forces back then gave us a declining trend. Globalization gave us deflation and declining interest rates. What’s the worldwide trend today? Protectionism. Trump is anti-globalization. That coupled with the propensity for inflation means interest rates are likely to go up. So the only rational thing to do is to borrow as much money as you possibly can to invest in your businesses, or buy wealth-creating assets. How much should you borrow? If you are sleeping through the night you have not borrowed enough money. Unless you are three to seven years away from retirement.

Credit
We are on a long, rising trend. Seventy years of history says debt does not take down the economy. The economy actually grows with consumer credit. It’s not about what the debt is, it’s how we are handling that debt. Don’t be afraid to extend credit terms to other businesses. Do your normal due diligence, but one of the ways you can increase market share and attract more business is through your credit offerings. This is a safe environment to do that.

Retail business
Sales are growing at a good, 3.8% clip. That is strong enough to ensure the economy will continue to grow through 2018. When retail sales drop below a 2%-2.5% growth rate, that’s when you start worrying about the economy. There is no need to worry.

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New multi-family housing rides rollercoaster in 2017

January 8/15, 2018: Volume 33, Issue 15

By K.J. Quinn

 

Builders and residential contractors experienced a rollercoaster ride serving the multi-family housing market in 2017, observers reported, as this volatile business saw demand fluctuate by quarter and macro issues impede growth.

“When the final data come in, we expect multi-family starts to be down almost 10% over the course of 2017,” said Robert Dietz, senior vice president and chief economist, National Association of Home Builders (NAHB). “We expect multi-family development to record additional, slight declines [in 2018].” Multi-family housing includes low-rent units and market-rate rental units in addition to condominiums.

Multi-family housing starts and permits (five or more units) declined 12% in October 2017 compared to the same month in 2016, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD). Additional construction data from Dodge Data & Analytics—which includes some units the Census Bureau and HUD consider single family—provide further evidence the market is in decline. “The [numbers are still being crunched for 2017] but we’re on track for multi-family housing starts as they are measured by Dodge to decline 7% to 475,000 units,” Kim Kennedy, manager of forecasting, said at the end of 2017.

Like peeling an onion, additional layers must be uncovered to view construction data in its entirety. The latest Census Bureau and HUD housing data reveals multi-family housing starts consisting of five or more units jumped 37% from September to October to a seasonally adjusted annual rate of 393,000 units. Authorization of building permits in housing with five units or more rose 13% to 416,000.

New multi-family construction saw fluctuations in market conditions influenced by such factors as Mother Nature, the economy and changing homebuyer demographics. For example, the supply of apartments and condominiums surged in recent years as builders responded to rising demand fueled in part by young Americans who preferred to rent rather than purchase a home in the aftermath of the recession, according to published reports. “Rental housing demand should remain solid, but it is no longer growing as it did in the year immediately after the Great Recession,” NAHB’s Dietz said. “Thus, the multi-family sector is currently seeking a balance between supply and demand.”

The market recovered approximately 96% of the previous, bubble-induced peak of 508,000 housing starts set in 2005, Dodge’s Kennedy observed. “Because multi-family recovered quickly beginning in 2010, it is also peaking earlier than single-family housing for this construction cycle. The 2016 level is very likely the peak for this cycle.”

Macro issues such as escalating building materials and labor costs are contributing to rising home prices while leaving less discretionary money for buyers to spend on flooring upgrades. Finding enough buildable lots to keep up with demand remains a major hurdle for the construction industry. And perhaps the biggest issue of all is a tightness in labor nationwide, which is reportedly contributing to keeping single- and multi-family housing markets from being overbuilt.

“Multi-family is solid, but there is some slowdown in new construction in certain markets,” noted Jay Smith, president, FEI Group, a nationwide network of interior finish contractors and showrooms that includes MultiFamily Solutions by FloorExpo.

One trend expected to continue is the movement toward smaller home designs, which traces its roots to around the time when the housing bubble burst. The average multi-family property is reportedly getting smaller, following years in which builders disproportionately constructed high-end homes. This situation may be short-lived, however, as multi-family developers build more for-sale housing units in the years ahead and older millennials settle down and start raising families.

“There is a trend toward smaller units but this only means more units and not less square footage as overall building sizes aren’t decreasing,” explained Randy Rubenstein, owner, Rubenstein’s Contract Carpet/North American Terrazzo, a Seattle-based flooring contractor. “But one trend we’re noticing is the increase in amenity floors trending with higher-end finishes.”

Demanding but lucrative
The overwhelming majority of residential flooring contractors are large, highly sophisticated and well-financed specialists. While multi-family housing can be a lucrative business given the amount of volume and growth prospects, it requires the necessary resources and financial wherewithal to keep up with daily service demands. “The overhead costs often exceed the margins,” noted Ron Dunn, co-founder and co-CEO of Alliance Flooring, the parent company of brands CarpetsPlus/Color Tile, Carpetland USA Color Tile, Floorco and Clean Touch Pro. “Most flooring dealers that are doing property management work typically specialize in it, and it is their main business model.”

Production building is a highly transactional business that requires builders’ dealers to pay close attention to managing their daily operations and overhead. If they cannot provide timely, cost-effective, turnkey service, builders have more options at their fingertips. “Dealers [serving] these markets will need to bring speed of service, high levels of productivity, modern systems, deep capital position, the appropriate facilities and readiness to satisfy very demanding customers,” FEI Group’s Smith said.

While the segment is highly specialized, there are similarities with the commercial flooring business. “It’s really no different than any other major commercial construction project, with all of the same challenges since the major high-rise multi-family projects are being built by the same large general contractors who are also doing non-residential work,” Rubenstein said.

Finding and maintaining installation crews who can quickly install flooring in large projects is a major challenge given the restricted labor market and higher wages paid to skilled workers. “Dealers need a lot of installation crews and operational assets to service multi-family builders,” said David Holt, Mohawk Industries’ senior vice president of sales. “If they screw up with those builders, they’re going to go out of business.”

Similar to a doctor, dealers are always on call as notifications for next-day installations can be received in less than 24 hours. “This requires manufacturers and flooring dealers to be in sync with product and inventory needs like never before,” said Brad Christensen, vice president, business strategy, builder, Shaw Floors. “Flooring dealers, in an attempt to become more efficient, have inventories as lean as possible and, as a result, they have been very savvy with the management of their SKUs and do their best to avoid duplication.”

Working with flooring suppliers who provide high-quality products and, when necessary, are there to help minimize the impact of installation callbacks is imperative. “That way, the builder can continue to look forward to knowing you are there to take care of any problems,” said Rob Brockman, channel marketing manager for contractor, builder, developer and property manager at Armstrong Flooring. “Building a strategic partnership focused on the builder’s needs is the challenge that is built over time on a foundation of trust.”

Flooring choices evolve
Whether it’s inside a dealer or builder showroom, multi-family homebuyers are given opportunities to upgrade to better quality flooring. The incentive for builders and dealers to encourage upgrade purchases is two-fold: It ensures customers receive a good-looking, high-performing product that meets their expectations and profit margins are considerably higher than base-grade products. “Consumer knowledge and education result in higher sales dollars for the same amount of work,” Alliance Flooring’s Dunn pointed out. “It’s a win-win-win for the builder, the homeowner and the flooring dealer.”

Most flooring upgrades are allocated for kitchens and baths, experts noted, because both areas offer the greatest return on investment and time spent in the home. “Large kitchens and open-concept design are still things that homebuyers seem to want,” Armstrong’s Brockman said. “This creates an opportunity to sell upgrade flooring as there is no real separation of spaces in these open plans.”

While flooring choices vary by region, carpet is the leading surface for multi-family spaces, though hard surfaces and higher-end goods are trending up, suppliers reported. “In multi-family homes, many people have pets,” Mohawk’s Holt noted. “So carpet is being replaced more frequently, usually within four to five years.”

New hard surfaces such as LVT and WPC are reportedly gaining coverage in multi-family environments. “Buyer preferences are leaning toward hard surfaces—mainly LVT—because of their great looks, durability and water resistance,” Brockman added.

Homebuyers still desire natural products such as ceramic tile and hardwood, which studies indicate add value to the home. Upgrades to these higher-priced products are becoming more prevalent given looser loan standards that help customers secure additional financing. “We’ve seen strong growth in town homes and patio homes in which higher quality floor coverings and better finishes are being selected,” Alliance Flooring’s Dunn said.

Looking ahead, the multi-family housing channel represents a lucrative opportunity for dealers who are well positioned to service the many needs of builders and homebuyers. “FloorExpo [believes] the multi-family and builder segments to be the most challenging in flooring,” FEI Group’s Smith said. “If done right, dealers can be very successful.”

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Flooring dealers weigh pros, cons of pending tax reform

November 27-December 11, 2017: Volume 32, Issue 13

By Ken Ryan

 

Flooring retailers are cautiously optimistic that a tax reform bill currently working its way through Congress will ultimately benefit their businesses by providing much-welcomed tax relief. Of course, the devil is in the details, and there are many issues still unresolved as House and Senate members hammer out a final measure that could be signed into law by year’s end. (See Editorial on page 4 of this issue for more analysis.)

Some flooring dealers appear well versed on the potential tax implications. Among them is Nick Freadreacea, owner of The Flooring Gallery in Louisville, Ky. “While this is a moving target and certainly has a lot to be resolved before it passes, anything that can help small-to-medium-size businesses is a big help for the flooring industry. If this actually puts money back into consumers’ pockets—and stimulates the economy—then we will all benefit from that. From a business owners’ standpoint, if this can reduce taxes and add to a businesses’ cash flow, then that will help strengthen the business itself and allow business to grow again.”

Reaction to the bill among small business advocates has been mixed. Some groups praised the measure, arguing that it’s the first meaningful tax reform in more than 30 years. Others feel the bill doesn’t go far enough to help small businesses, with the more meaningful reform efforts focused on large corporations.

For their part, most flooring dealers put a positive spin on the tax plan. “My thought is if the Senate version passes, then the small business S corporations and LLCs will get to deduct 23% of the income before tax,” noted Bill Zeigler, co-owner of Charles F. Zeigler & Sons, Hanover, Pa. “Since this income typically went straight to their personal income and taxed as much as 39.6% I see a large benefit for owners. The results of these tax cuts are hard to predict, but I hope in the end the working middle class benefits.”

A lower corporate rate was also top of mind for Bobby Merideth, owner of Flooring America OKC, Oklahoma City. “A reduction in the corporate rate could add as much as 15% of taxable income to the bottom line. The additional money can be used to remodel stores, add employees or simply be placed in an interest-bearing account [if the interest rates increase].”

As presently crafted, people in high-tax, high-income states would pay more. That concerns retailers like Adam Joss, co-owner of the Vertical Connection Carpet One, Columbia, Md. “Based on headlines, I have mixed emotions and some of that stems from living in a high state tax state. Obviously, it’s tough to say because nothing has been finalized yet.”

Nonetheless, Joss said he is excited about the potential for a lower S-Corp rate. “That would put meaningful dollars back in our hands to invest in our staff/business or take home. My concerns center on two things: 1) the elimination of the state deduction; and 2) the elimination of the mortgage deduction. Both could negatively impact our customers, and that could impact our business. Only time will tell.”

Most dealers hesitated to give a full-throated endorsement of the plan because they don’t have all the details yet. As Flooring America OKC’s Meredith noted: “I would love to see simplification in the tax code. Unfortunately, it may never happen because ignorance of the tax code adds revenue to the treasury.”

Freadreacea of The Flooring Gallery sees the upside. “We have seen very little growth since the last [downturn] and this could really help the industry.”

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NeoCon East: Vendors showcase broad range of products, designs

November 20/27, 2017: Volume 32, Issue 12

By Lindsay Baillie

 

Screen Shot 2017-11-27 at 10.33.49 AMPhiladelphia—With roughly 5,000 attendees and more than 150 exhibitors, NeoCon East provided the commercial interiors community another opportunity to engage on the East Coast during the fall season. The two-day show, which took place here at the Pennsylvania Convention Center, Nov. 15–16, featured four keynote speeches, more than 25 CEUs and countless opportunities for attendees to network and learn about the latest commercial products.

“Exhibiting companies gained valuable direct contact with key architects, designers and major corporate and government end users, while attending professionals gained insight and access to the latest ideas and innovations in the industry,” said Julie Kohl, vice president, exhibitor sales, NeoCon Shows. “Many exhibitors have already reported strong project leads and business opportunities as a result of the 2017 edition.”

Of the 150 exhibitors, a handful were flooring manufacturers touting their latest and greatest products of 2017. Among them: Altro, Atlas Carpet Mills, Ava by Novalis, Mannington, Patcraft, Shaw Contract and Tarkett. Product introductions ran the gamut from hard to soft surfaces.

For Richard Burn, floors product manager, Altro, NeoCon East provides an important opportunity to show product. “It’s good to be at this show because we get to see customers we do business with and show them the new products.”

Altro highlighted some of its more vibrant products with new concrete, linen, salt and pepper designs. “The market has been very receptive to them,” Burn said. “We’ve had quite a busy year with our LVT and sheet products. We’ve also launched new wood products and expanded our ranges to offer acoustic variances.”

NeoCon East provided Atlas Carpet Mills the opportunity to show off new products and tease new collections currently under development. “We have the Epic collection coming out at the end of this month,” said Sheila Berg, marketing manager. “And our latest collection, Connections, is on the floor today. Our product line now includes broadloom, carpet tile squares, carpet tile planks and area rugs.”

But product is not the only new “news” at Atlas. “We freshened up our logo with a new color and our website has a new look,” Berg added.

Ava by Novalis highlighted its latest introductions, SMPL and SPRK, which are phthalate free and 100% recyclable. SMPL is a high-performance core (HPC) floating floor that has a cork underlayment for improved acoustic performance. SPRK is offered in 38 colorways, has a 20 mil wear layer, 2.5mm overall thickness in an 18 x 18 format. SPRK boasts an antimicrobial coating, increased scratch and scuff resistance and excellent stain and fade resistance. In addition, it is easy to maintain and has a 10-year commercial and lifetime residential warranty.

Screen Shot 2017-11-27 at 10.33.55 AMMannington focused on commercial intros reflecting soft, sophisticated color palettes with products that are useable in multiple applications. Highlights included: the Portland collection—a 12 x 48 carpet plank product—and its Origami collection as well as new visuals from its Amtico line. “All of the products we’re here today are those we showed at NeoCon in June,” said Heather Kane, commercial product design supervisor. “The focus here was toward a corporate marketplace, more broad-based.”

Patcraft’s booth showcased both hard and soft surface products. Its carpet offerings included collections such as Nocturnal, Backlit and Color Filter, which can be used together or separate to create depth, while included Subtractive Layers, a vinyl flooring line, highlighted the hard surface offerings.

“Subtractive Layers is made from our designer Kelly Stewart, who actually took a painting, blended the colors and used a comb to create texture,” Jeff West, vice president of marketing and product development, explained. “Most people want to feel it because it has all of this texture. It is a 5mm thickness—the same as carpet tile—so you can install it right next to carpet tile without having to use a transition strip.”

Shaw Contract took the wraps off Emergence and Off the Grid. The former—which was illustrated using pixelated rose patterns accompanied by larger rose-patterned images—represents a play on traditional patterns, while Off the Grid was inspired by nature and relaxation. To highlight the product, Shaw Contract’s booth included photographs of mountains, caves and rock formations.

On the soft surface side, Tarkett showcased Color Knit, a new multi-color soft surface, as well as its Powerbond line. “Powerbond performs and lasts,” said Noelle Omer, public relations and social media manager, Tarkett North America. “It is part of our sustainability story in that it helps with indoor air quality and is recyclable.”

For hard surfaces, Tarkett put the spotlight on Transcend, its new loose lay product, as well as its digital print LVT. “Our digital print LVT is what everyone is coming in to touch,” Omer explained. “We introduced digital print last year at NeoCon. With More than Wood we’re showing all that you can do with wood looks. It’s all made in the States and made to order.”

No NeoCon East for 2018
Show officials announced the cancellation of NeoCon East 2018. Instead, the event will resume in 2019. “The team is currently working with key stakeholders and partners to assess and design a post-NeoCon/fall season show that continues to provide a platform to connect the industry while addressing its most current and relevant topics and opportunities,” Kohl said. “New event details including dates and location will be available in the coming months.”

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Boa-Franc receives highest honor at the Grand Prix Québécois de la qualité Awards

Screen Shot 2017-11-22 at 4.02.56 PMSaint-Georges, Quebec, Canada–For the second time in a row, Boa-Franc has received the highest award bestowed by the Quebec government on businesses and organizations that successfully apply best business practices.

A Grand Prix in the small to medium-size independent manufacturing company category was presented to Boa-Franc in a ceremony at the Palais des congrès de Montréal, Nov. 16. This award is on par with the Malcom Baldridge National Quality Award in the United States.

The award recognizes organizational excellence and outstanding results, but Boa-Franc was further singled out by the jury for the quality of its strategic planning process and its attentiveness to both customers and markets.

“I’m accepting this award on behalf of all our employees, clients and suppliers, who share the same dedication to quality that’s been driving our organization since it was founded 35 years ago,” said Jacques Beaudoin, Boa-Franc executive vice president and CEO, who accepted the award for Pierre Thabet, Boa-Franc president, and the company’s 475 employees. “It’s proof positive teamwork, continuous improvement and making everyone accountable for quality really do pay off.”

The company has been accruing distinctions for quality in recent years. Retailers and other flooring professionals have voted it No. 1 for quality over 27 times in surveys conducted by trade magazines; Boa-Franc was named Best Employer in Canada in 2016 and 2017, took gold at the 2013 Canada Awards for Excellence and got top honors at the 2012 Grands Prix Québécois de la qualité Awards.

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QFloors highlights new partnerships, products and features during conference

CHR_6308Cozumel, Mexico—QFloors explored new partnerships, products and features during its 2017 “Dive Deeper” Users Conference, held on the Norwegian Escape, Nov 4-11. The 61 attendees participated in business and software training, collaboration and roundtable discussions during the days at sea.

At the conference Chad Ogden, QFloors president, announced a new partnership with Measure Square. “Partnering together, we’re able to create the strongest combination of estimation and business management software in the flooring industry.”

A great deal of buzz revolved around the new browser-based cloud software product, QPro POS+. Attendees were given a log in and invited to familiarize themselves with it. Ogden explained they would be able to see updates in real time as programmers continue to add to the browser-based cloud software product. The introduction of the new QFloors Mobile Suite was also met with enthusiasm by attendees. With new and better mobile technology, flooring dealers can now take care of everything from A to Z on an iPad or tablet computer, all before stepping away from the customer’s living room.

Trent Ogden, QFloors CFO, provided in-depth business training for attendees. “‘Dive Deeper’ is the perfect theme for this conference,” he explained, “because this is not just a high level “click here to do this” type of software training. We’re not just showing how to access important numbers and reports through QFloors, we’re teaching them how to evaluate and use those numbers to make the very best decisions for their business.”

In forum discussions, QFloors customers Jennifer Schmidt, Greg Besteman and Rex Fabrizio shared their experiences with topics such as utilizing B2B, wisely taking advantage of opportunities to distinguish your company and how using credit card tokenization can be a game changer when it comes to receivables.

The conference concluded with Chad Ogden leading a roundtable discussion on features attendees would most like to see added to the legacy QFloors software.