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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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Al's column: Lessons learned from baseball

May 28/June 4, 2018: Volume 33, Issue 25

By Torrey Jaeckle

 

I love watching baseball. Unfortunately, I rarely watch it the “right” way. What do I mean by that? Well, let me start by describing how I usually watch a game.

First, I record the game. Then I sit down, after the kids are in bed—usually around nine or 10 o’clock—and begin watching. To save time, I fast forward between pitches. Once you get the hang of it, you can do this almost flawlessly (until you come across the odd pitcher who has non-standard cadence to his timing). But in general, I do see the entire game—all three hours—in about a 50-minute span.

So if I’m seeing all the action, one might reasonably ask what I’m really missing due to my viewing habit. Nothing—and yet everything. Let me explain: The other night I faced a rare occasion in that, after a late evening trip to the grocery store, I came home to a quiet house—everyone was asleep early. As much as I love my family dearly, I cannot describe the giddiness such a situation arises inside of me. A whole night ahead of me, to do whatever I want, uninterrupted. So I chose to watch the game.

With no time constraints, I took advantage and decided to watch the ballgame in its entirety, including the announcers’ discussion and banter between pitches. It’s incredible how the fabric of the game changes when you actually sit down and pay attention. My usual viewing behavior typically gives me nothing more than a sped-up box score. You see what happens, but you don’t truly experience the game on a deeper level. You find out, for example, why your first baseman is playing third that night. You hear of the opposing pitcher’s past struggles and what your team needs to do to capitalize on it. In short, you actually see the game for what it is—an array of strategy, decisions, athleticism and execution, rather than as a series of pitches to get through. Your enjoyment comes from the experience of watching, rather than from the end result. And you learn a lot in the process.

So what does all this have to do with the flooring business? Well, the day after that game, I was thinking about the past 10 months at work. I’ve been very busy—overwhelmed, actually—due to a variety of factors. And this has caused me to effectively “fast forward” through my days. Just as the fast-view method of watching a baseball game makes you treat it like a series of pitches to get through, I’ve been viewing my work days as a series of tasks to accomplish. I don’t have much time to devote to the period between those tasks, so I effectively eliminate them.

The downside is I’ve lost that “big-picture feel” for what is going on in my business and in my industry. A strict focus on activities and tasks robs one of the critical experiences of learning and growing. Sure, tasks have to get done, but when your sole focus is on the “pitches” of your daily routine, you miss the valuable commentary. And it’s only in the commentary where you get the details that really give you the story that allows you to view your business at a higher level.

I vowed to make some changes that day, and I’m in the process of implementing them. I know I need to stop viewing my day as a checklist of things to cross off and more as an opportunity to build knowledge, develop strategy and grow relationships. And you simply can’t do that when you insist on fast forwarding between the pitches.

Torrey Jaeckle is vice president of Jaeckle Distributors, a Madison, Wis.-based wholesaler specializing in flooring and countertop surfacing products. In his current capacity, Jaeckle oversees pricing and e-commerce initiatives, and he also manages the data portions and business reporting aspects of the company’s ERP system.

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Distributors' perspective: Turning threats into opportunities

November 6/13, 2017: Volume 32, Issue 11

By Torrey Jaeckle

 

Screen Shot 2017-11-13 at 10.00.53 AMA recent article in the Wall Street Journal highlighted the tenuous plight of American retailers this year. Major retailers are closing stores at a record pace, as announced store closings this year are double what they were over the same period in 2016. It is estimated that retailers will close almost 9,000 locations this year, surpassing the number of closings during the 2008 recession.

The flooring industry is not immune to the shakeout. According to the most recent Census Bureau data, the period of 2007 to 2014 saw a 26% drop in the number of flooring retail establishments across the nation, resulting in a 34% decrease in employment at those businesses.

While the cause of all this turmoil is multifaceted, two factors are oft mentioned as the culprits: Overbuilding and the rise of online shopping. Overbuilding of retail storefronts has made the retail landscape intensely competitive, leading to a surge of downward pricing pressure. Likewise, online shopping has had its own effect on pricing, due to the ease with which it facilitates price shopping.

The article goes on to state, “Many retailers were slow to seize on the significance of these changes.” And therein lies the problem for retailers in the industry. What can we learn from this? Furthermore, how can we use it to not only avoid a similar fate, but also ensure ongoing profitable growth instead?

First, stay on your toes. The changes happening now in our industry are tremendous. It is critical industry participants, including flooring retailers, stay on top of these changes and develop solid plans for their businesses. The good news: If you’re reading this article you’re already ahead of the curve. Keeping up with the flooring trade journals is one method of staying tuned to what’s going on. Relationship building along with active participation in groups such as NAFCD are also critical. Reach out to your local distributor. As the “middleman” in the industry, we are the only entities with long-term relationships with both retailers and manufacturers.

Second, avoid overbuilding. LVT may be the hottest product right now, but that doesn’t mean you should convert half your showroom to LVT displays. Don’t overreact to any one product or market development. Make the necessary changes in your business, but be flexible so you are quick to react to changes in the industry. Things are moving at a faster pace than ever before, and you don’t want to be caught flat-footed with a showroom that reflects what was popular last year.

Third, take the right approach to online shopping. While there will always be a certain amount of flooring sold over the Internet, I’ve always felt the threat to our industry is much lower than the risk to most other consumer sectors.

However, it’s important to realize more consumers are educating themselves via the Internet, and they are qualifying retailers based on their website experience before choosing which ones to visit. If you want to win at the brick-and-mortar game, it is imperative you crush the online arena first.

Finally, there are a lot of retail sales associates looking for work. Find the best, recruit them and invest in training them on your products and services. It’s much easier to train a quality salesperson on product knowledge than it is to teach selling skills.

 

Torrey Jaeckle is vice president of Jaeckle Distributors, a Madison, Wis.- based wholesaler specializing in flooring and countertop surfacing products. In his current capacity, Jaeckle oversees pricing and ecommerce initiatives, and he also manages the data portions and business reporting aspects of the company’s ERP system.

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Distributors’ perspective: Helping retailers embrace technology

October 24/31, 2016: Volume 31, Number 10
By Torrey Jaeckle

screen-shot-2016-10-31-at-4-03-14-pmOne look at the displays in any retail flooring store these days and it’s easy to see that our industry is rife with innovation. The explosion of product innovation we’ve seen over the past decade is astounding, and something to be proud of. Unfortunately, when it comes to implementing technology on the operational sides of our businesses, our industry is often behind the curve.

The fcB2B standard has been in existence for over 10 years now, but is still a widely underutilized technology throughout our supply chain. Many organizations, including some NAFCD distributor members, have invested significantly in the ability to bring operational efficiencies to their customers. Yet so few retail customers take advantage of leveraging this investment. Why is that?

To be sure, many retailers are currently taking in fcB2B product catalogs from their distributor and manufacturer partners. But there is a hesitancy to taking the next step toward submitting purchase orders and receiving invoices and other documents in the fcB2B world. It is unclear why that is. Fear, trust and lack of resources could all be possibilities. Whatever the reason, I can assure retailers that their NAFCD distributor partners are ready, willing and able to help walk them through those next steps.

The specialty retail floor covering dealer has so much more to offer the consumer than the generic big-box stores. But the big boxes continue to make strides against the specialty dealer. If the specialty retail floor covering dealer is to compete effectively against these larger companies, they need to not only offer higher levels of service and assistance, but also exhibit operational efficiency as well. Consumers understand that you get what you pay for. They will, therefore, pay for higher levels of service, design help, quality products and professional installation. However, they will not pay for non-value-added activities. Are you still paying someone to call or fax in your purchase orders? Do you still have someone manually enter every invoice you receive? Do you still maintain your own product database of the many products you sell? If so, linking up electronically with your NAFCD distributor partners could bring great benefits.

So what can we all do to help move our industry forward? For retailers currently not engaged in fcB2B, contact your fcB2B-enabled suppliers to get started. If you are a retailer currently taking in fcB2B product catalogs but nothing else, contact your suppliers to start the process.

For fcB2B-enabled distributors and manufacturers, begin supplying data to the fcB2B association on a monthly basis. fcB2B is currently collecting data as to the extent of fcB2B usage in our industry. The only way to propel our industry forward is to collectively measure our progress. That is only possible if fcB2B suppliers anonymously share their data.

We’ve come a long way as an industry over the past 10 years, but there is still so much more we can do. In today’s environment, using technology to increase operational efficiency is not a luxury–it’s a must. I can assure every flooring retailer that their NAFCD distributor partners are here to help, wherever they are on the fcB2B continuum. We’ve already made the investments, and we invite retailers to reap the rewards.

 

Torrey Jaeckle is vice president of Jaeckle Distributors, a Madison, Wis.-based distributors of flooring and countertop surfacing products. He also serves on the executive committee of the North American Association of Floor Covering Distributors. Outside of business, Torrey has written several op-ed pieces for the Wisconsin State Journal on educational issues.