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Mid-year report: After dull half, dealers, distributors hope for rally

July 3/10: Volume 32, Issue 2

By Ken Ryan

 

Screen Shot 2017-07-10 at 2.40.40 PMFollowing a first half that some flooring retailers and distributors described as “fair at best” and “lackluster,” industry executives are hoping the second half will yield more robust activity. At the same time, however, they expressed concern that pent-up demand remains bottled up and could dampen what many hoped would be a strong 2017.

To be sure, some dealers reported healthy increases in the first half but there was clear consensus that the business climate today is uneven and lacking any discernible momentum.

The macro view of the economy would seem to bear that out. The Federal Reserve Bank of Atlanta’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 was 2.7% on July 6, down from 3% on July 3. The expectations have dipped amid fears of lackluster consumer spending.

These days encouraging news seems to be tempered. The Labor Department on July 7 reported the U.S. economy added 222,000 jobs in June, more than economists were expecting. However, wages grew 2.5%, well below the goal of 3.5% set by the Federal Reserve. Wages are one of the last indicators to take off since the recession ended in 2009, and economists suggest the paltry increases could be one reason why consumers are still hesitant to splurge for high-ticket items like flooring.

Retailers don’t need to read government reports to know that business on the retail side continues to underwhelm. “Retail floor covering remains relatively weak, and absent income tax reform and/or reduction, I don’t see legitimate cause for confidence in near-term improvement,” said Sam Roberts, president/owner of Roberts Carpet & Fine Floors, with 12 locations in the Houston area, echoing a sentiment shared by others. “We all have to persistently adjust to new realities.”

Olga Robertson, president of the FCA Network in Shorewood, Ill., sounded another familiar theme when she said there was no “rhyme or reason” to what is happening in the market today. She noted that retail has been dull, commercial is flat, and the builder business is either booming or non-existent. “If you go to states like Tennessee, South Dakota, Kansas, Iowa—the Corn Belt, so to speak—they are building 800-home subdivisions. Even in Illinois, a home doesn’t stay on the market for more than two weeks so inventory is down but not a lot of new homes are being built.”

Some flooring observers suggested that 2017 was going be the year when pent-up demand would finally be unleashed after years of tepid activity. However, dealers and distributors told FCNews that consumers still seem unwilling or hesitant to spend on flooring. “There is a lot of desire to do projects out there; it is just a question as to whether people will go through with them or not,” said Mike Foulk, owner of Foulk’s Flooring America, Meadville, Pa., who called the 2017 first half “a roller coaster.” He noticed there is no set pattern for when consumers shop. “They purchase when the mood strikes them, and they are not going to purchase unless it is on sale or some type of discount or incentive is being offered. My concern is people are on edge and may hold off on purchasing.”

Robertson wonders why consumers aren’t making the investment considering there is very encouraging data out there. “The stock market is up and everyone’s 401(k) has increased over 13% this year; the banks are lending with low rates on [refinancing] with no fees. Everyone should be spending money on their home—as that is your best investment—but for some reason they are not willing to pull the trigger.”

Screen Shot 2017-07-10 at 2.40.51 PMCarlton Billingsley, owner of Floors and More, Benton Ark., noted that while the consumer is cautious as a whole on the retail side “many of our older clientele are spending bigger dollars to upgrade for more luxurious items with walk-in showers, under floor heating, etc., to help offset some of the cautious consumer spending.”

What’s frustrating to flooring retailers and distributors is there have been pockets of decent activity in 2017, albeit with no carryover quarter-to-quarter or sometimes even month-to-month. Bob Eady, president of T&L Distributing in Houston, said 2017 has been a “month-to-month battle for business due to the softness in the economy. I believe that until our political leaders (both parties) improve consumer confidence with lower taxes, both personal and corporate, the healthcare reform debate, deregulation, etc., we will continue to find business very sluggish. I believe the news media has done a tremendous job of ruining consumer confidence.”

Scott Roy, president and CEO of Gilford-Johnson Flooring, Jeffersonville, Ind., observed that while the spring was slower than what had been forecast, he remains optimistic the market has or will turn. “June was better than May, and I’m seeing and hearing retailers are getting busier and commercial business for us is looking more optimistic. A lot of my optimism is based on what we are doing to generate more business.”

Allen Gage, president of Tri-West in Santa Fe Springs, Calif., said business has been “good but not great,” and that demand has been inconsistent in the West. He noted sales have not matched the enthusiasm shown in the stock market, especially in the commercial sector. As for the second half, “If people believe something is getting done on healthcare and taxes then things will take off nicely.” However, he is concerned that issues such as failure to pass legislation could put a damper on the second half.

The Vertical Connection Carpet One in Columbia, Md., enjoyed a stellar first half with double-digit sales increases driven primarily by the investment in new hires during the second half of 2016. For Adam Joss, co-owner, the concern isn’t so much today but the future. He is worried that the retail shopping environment is changing faster than ever and that the flooring industry is not insulated.

“E-commerce will become a more common way for consumers to purchase flooring online,” he said. “We all know, at this point, that homeowners begin their research online. That’s not good enough, though. More consumers want to complete the entire buying process online. I’m a firm believer that store traffic will never return to what it once was.”

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Retailer roundup: First-quarter sales a mixed bag for dealers

May 22/29, 2017: Volume 31, Issue 25

By Ken Ryan

 

Screen Shot 2017-05-30 at 11.36.06 AMWith the 2016 Presidential election in the rear-view mirror, and with the U.S. economy experiencing a bump in consumer and investor confidence, flooring retailers are turning their attention to the business at hand—building traffic and growing sales. While most dealers FCNews spoke to reported a general uptick in business during the period, they experienced varying degrees of success.

“We were up 8.5% for this first quarter,” said Cathy Buchanan, Independent Carpet One Floor & Home, Westland, Mich. “We were very positive with a promising April, but May has slowed down over the past few weeks. And with Memorial Day upon us I am afraid May will see flat numbers.”

Like many dealers, Buchanan has seen a boost from hard goods. “Our hard surface sales have just been off the charts. Three days this week alone we have only hard surface installs going in—not a single carpet job.”

Dillabaugh’s Flooring America in Boise, Idaho, also put up strong numbers. “We were up a little over 10% through the first quarter, despite a slow start to new construction growth due to a winter unlike Boise has seen in a long time,” Casey Dillabaugh, owner, explained. “It delayed builders substantially and they quickly made up for that in March.”

Now, new construction on both the residential and commercial fronts is driving growth, Dillabaugh said. “Retail has been flat, if not a little soft. We had a fantastic private sale at the end of March, which helped boost those Q1 numbers.”

At Ted’s Abbey Carpet & Floor, with multiple locations in Alabama, the ratio was just the opposite from Dillabaugh’s. “While new home construction is still almost nonexistent in our market compared to where it was in 2007, retail traffic is better than it has ever been for us—and the commercial segment is strong as well here,” said Ted Gregerson, president and owner. “Our margins are up as well.”

Gregerson, who described business in the first quarter as “outstanding,” actually had some reservations coming into the year. “We had such a great 2016 that I was worried about trying to maintain the pace this year. But we got out of the gate really fast and were actually 15% up through the first quarter. We maintained that lead over last year through April and the first half of May as well.”

For Ted’s Abbey Carpet & Floor, maintaining a strong presence in the market is the key to success. “I believe the reason our retail traffic is so good is because we have never stopped advertising through the years. We have been consistent every month of every year in putting our message before the consumers in our market. Not only have we continued with traditional type advertising such as radio, direct mail marketing, etc., but we have hit all avenues of social media really hard. In March 2016 we hired someone full time to be our director of online marketing.”

The strategy seems to be paying off. To encourage retail traffic and awareness, Gregerson offers giveaways every month in order to build its followers on Facebook, Twitter, Pinterest, Instagram and LinkedIn. The company also increased the amount of money it spends on pay-per-clicks every month. “I truly believe it has had a major impact on our retail traffic, and it will only continue to get better as we go. Just [this month], I was in our Floors To Go store, and our store manager was telling me he has never seen it this busy as far as walk-in traffic is concerned.”

For other dealers, active remodeling work is driving business. “The renovation market and new home construction business is booming in Utah right now,” said Suzy Namba, co-owner of Salt Lake City-based Namba Services. “We’re seeing a lot of jobs from homeowners on the higher end of the market.”

Dealers elsewhere are seeing more moderate growth. “Our first quarter started a little slow but picked up and we ended up with about 5% growth over the first quarter of 2016,” said Josh Elder, Gainesville CarpetsPlus Color Tile in Gainesville, Fla. “The biggest increase in sales first quarter 2017 over 2016 was in resilient, particularly in the WPC and rigid core products.”

At Crest Flooring in Allentown, Pa., business during the first quarter was a bit soft. “We have been slightly off compared to last year’s period,” said Steve Weisberg, owner. The good news is the company is doing better on the residential front, especially in hard surface cash and carry. “We’re slowly showing signs of activity. We completed a great Shaw program with coupons and financing that was extremely well received. In fact, we are booked with installation for the next month.”

For other dealers, sales during the first quarter were flat. Kevin Rose, owner of Carpetland Color Tile in Rockford, Ill., reports business during the first three months of 2017 were level with last year’s sales. “Ecommerce is still gaining market share of the resilient and hard surface sales, and the excessive competition and lower margins in the marketplace lower the average ticket. I also believe politics played a role in the non-growth rate thus far in 2107.”

At Davenport, Iowa-based Carpetland USA, another Alliance Flooring retailer, sales grew incrementally. All in all, though, activity was sluggish.

“It has been a very muddied and competitive marketplace thus far in 2017,” said Eric Langan, president and owner. “While we’re up, it hasn’t been easy. We’ve had to be very aggressive with our marketing. The overall market competitors appear to be stressed, and it shows in what kind of pricing is being quoted within the marketplace.”

Short-term outlook
Retailers are hopeful that the momentum generated at the start of the year will carry over into the second and third quarters. At the same time, those who experienced lackluster sales don’t all of a sudden expect a dramatic turnaround. Most, though, are cautiously optimistic.

“I do believe things will level out,” Dillabaugh said. “We’ve already seen a decrease in retail traffic due to warmer weather and clients spending on the outside of their home rather than the inside. Construction will continue to be strong but retail, or lack thereof, will stifle full potential.”

Carpetland/Color Tile’s Rose expects to be up by 3-5% for the second quarter. “I am hopeful that politics will take a backseat with the media as time progresses, and our clients will be more at ease with their economic situation and spend more in our category.”

Elder expects to cruise along. “Our second quarter has started off strong. If this continues, I expect between 8-10% increase over the first two quarters compared to our 2016 sales.”

Others, like Carpet One’s Buchanan, are more skeptical. “Overall, business is wishy-washy. Right when you think everything is on an uptick the clock stops and traffic dies. Our advertising efforts never change; we are constantly out there on radio and TV and even billboards. So it’s not from a lack of advertising. It’s quite unexplainable. Due to this drop we will be flat to +2% from last year.”

 

(Lindsay Baillie and Reginald Tucker contributed to the story.)

 

 

 

 

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Zepol reports March vessel imports increase 11.9%

Minneapolis — Zepol Corporation reports that U.S. import shipment volume for March, measured in TEUs, increased 11.9% from February; this is not a surprise due to February’s low numbers. More significant is the total 2.6% rise in TEUs for Q1 of 2012, compared to Q1 of 2011, as well as the 6.2% rise this March from March of 2011. In addition, Q1 of 2012 outpaced the first-quarter numbers for the past three years. Continue reading Zepol reports March vessel imports increase 11.9%