What percentage of floor coverings are being sold online? I’ve heard estimates as high a 20%, I’ve also heard ones as low as 3%. I’m not sure whether the 20% estimate is believable and I’m not sure if goods ordered online and picked up by the customer, such as the option offered by the big boxes, are included in that 20%—I really can’t say. But whatever the percentage is, it will be bigger next year and even bigger in five years, and 10 years down the road.
I suspect that just about every independent retailer who expects to be around in five to 10 years would very much like to get his or her share of this digital growth, but that’s a lot easier said than done. There are many independents that have been doing business online for years. They are in the minority and have made the investment, paid their dues and got their education the hard way. Doing that in today’s environment, however, is difficult, costly and for the most part reserved for bigger independents with deeper pockets.
After talking with a reasonable number of online players over the years, they have approached the marketplace in different ways. I have, however, yet to find one that has elected to approach the market using a buy online, pick up in the store model with the pickup store being that of independent retailers. That is, until we talked recently with Justin Atcheson, a former retailer, who sold his chain of stores to be in a position to launch an idea that does exactly that: sell online and through independent retailers. This idea he has named Just-In-Floors. Oh, did I mention that Justin is a millennial?
We gathered the whole story from Justin in a recent conversation, which you can watch on TalkFloor.com. Here are some excerpts from that conversation.
TF: About two years ago, you appeared on TalkFloor discussing your retail operation, which you have since sold, and at that time you talked about a project you were working on involving the building of a network made up of independent retailers that would provide them with greater access to online sales. You have since formed this company. It’s called Just-In-Floors. Tell us about the concept and how it works.
Atcheson: Let me start by talking about why the program was created. I was an independent retailer with stores in Atlanta. We saw good growth and good opportunities but, at the same time, we continued to see pressure from the online markets and the shop-at-home programs. I also sat on the dealer council at Mohawk and was exposed to some of the struggles other retailers were having. Big box players also continue to pressure business and I just kept hearing struggle after struggle. It really began to bug me to a point where I started to evaluate it. Even though I was enjoying success, it didn’t seem that a great many retailers were enjoying this same kind of success. As I dug into it, I realized that the biggest challenge that retailers were going to face is ecommerce. Ninety-nine percent of us are not in ecommerce, we’re not doing it, we don’t understand it and we’re not good at it.
As a retailer, I began to look for ways I could get engaged with it and began looking for people who could help me with it. The really funny part of it is, I found no one. That spawned within me an entrepreneur opportunity. I really didn’t think I could be the only one looking for an answer. Combining that with a chance to sell my business, I saw a great opportunity. So, I began building an ecommerce platform—a fully functioning program for the independent retailer—and in my heart, I want to help independent retailers. This is a program that goes after a segment of the market that we as independents have been unable to go after.
TF: Outline for us how Just-In-Floors.com works. As I understand it, a consumer goes on your site, makes a selection, makes the purchase, and that order is fulfilled through an independent retail member in the vicinity of that consumer.
Atcheson: If a consumer is shopping for flooring today, there are traditional marketing methods. The consumer goes online to gather information about the store. The consumer must act on that information. I call that informational marketing, meaning that, to have a sale, the customer has to drive to your store. The retailer has a variety of products and the customer is looking for information about your products. There are many retailers who do just that, informational marketing. The problem is that most millennial consumers are not looking for information. They’re looking for solutions. I call this transactional marketing.
When we with Just-In-Floors.com go to market, we do it from a transactional standpoint. We’re sending consumers a product with a price and the information they’re looking for at the time so they can make a purchase. That’s the way companies like Wayfair, Amazon and the other big online players have taken so much business away from independents. They don’t go to market with just information; they go to market with transactions. And that changes a consumer’s mentality from just shopping to buying. That’s what our program does.
As to how it works, a consumer goes on the Just-In-Floors site, they search through our myriad of products and make a purchase. The customer has the option for their purchase to be picked up at the local retailer, delivered to their home by that retailer, or installed by that retailer. We do not become involved in the installation process. We simply refer the customer to the retailer. We bridge the gap so that the consumer can buy over the internet. We fulfill the transaction with samples; our call center is there to answer questions. It really shouldn’t be called a call center. It more accurately should be called a chat center because we expect most of our engagements will be done via chat. And we are going to be there at the peak time consumers are in the market, which is after most retailer stores have closed. Most online consumer purchases are done between 6 p.m. and 11 p.m. In essence, we will be there closing deals for the retailer after their stores have closed.
TF: Talk about the types of retailers are you looking for.
Atcheson: Our goal is to combine our network with the best and the brightest retailers in the country. It is geographically specific, meaning that each retailer owns their market segment, their specific collection of zip codes. We will, however, be selective because our goal is to build a network of quality retailers.
TF: You obviously see the future being very bright because more millennials are entering the marketplace every day and already outnumber baby boomers.
Atcheson: There was a recent study conducted by Mintel that says the largest consumer demographic purchasing flooring in the next three to five years is 25- to 34-year-olds, the millennial buyer. When you look closer as to how will they be buying, the answer is largely online. Forty-four percent of those consumers plan to buy online. A very interesting point also is that 20% of that age demographic today goes into a store, looks over their products and then goes back home to purchase it online. I see retailing in general changing in a major way. We’ve read about Macy’s, Sears and other major corporations and the major changes they are making in their businesses. As these retailers begin to close more stores, consumers will begin to look to shopping online more and more. At one point, malls were the predominant way consumers identified as a prime means of shopping. Consumer mentality, however, is changing. They are not going to malls to shop as they did before and are identifying different means of shopping. Look at a major corporation like Walmart and their recent acquisition of Jet.com. The conclusion one can draw from this acquisition, an acquisition by the largest retailer in the U.S. to, in essence, go head-to-head with Amazon, is that they don’t see the future as being in their stores. They see the future online.
TF: So can we draw from that that just about any retailer out there is going to have a different type of business in five to eight years than they have today? That consumers will not be going to stores as much as they once did?
Atcheson: I would argue that we have about five years before we see it totally transformed. But I believe that within the next 12 to 24 months, we will see a percentage change that the industry is not prepared for. Without our program, I believe the large beneficiaries will be the big box players. But I also believe we can take market share back for the independent and retain those sales, largely the result of our service opportunity. We really have three distinct pluses: our ecommerce positioning, our distribution model and our service opportunity for the consumer.
TF: The products offered through this new website—how many companies will be involved?
Atcheson: We have engaged slightly with manufacturers. We are really in the dealer acquisition phase. We are looking to get our dealer base together in a big way. Once we have that in position, negotiation becomes a great deal more favorable on our side from a manufacturer's standpoint. Today, we are focused predominately on our dealer base and acquiring dealers. We have talked with the biggest manufacturers in the business, and they indicate that they will support us in every way possible. This is the future. We don’t expect that anyone who takes the time to listen to this is going to disagree with it. They may disagree on how exactly we see it playing out in the time frame, but I don’t think any of us will deny that this is going to happen.
TF: So, then, the way that this works is that when an order is placed it will be shipped from the closest supplier’s warehouse to the customer?
Atcheson: Yes, our model basically leverages manufacturer’s inventory. It is all automated through EDI models and it is a fully automated system. A purchase order is sent to the manufacturer with the order directed to our local dealer. That local dealer receives the order, logs into our software, which also sends a communication to the customer to pick it up. The system has been built to be as smooth and efficient as possible in an effort to keep our cost down. Most retailers are doing well, perhaps not tremendously well, however, which is why I feel now is the time for them to invest in a new opportunity. But at the same time, they can’t afford a substantial investment. Our program costs the retailer $599 per month, and with it they get support for us. There is a minimum marketing contribution per market and we retain a portion of the transaction. This does not represent a large investment on the part of a retailer to get involved.
TF: I think you said that the price of the products will be displayed on the Just-In-Floors website along with an image of the product and a description.
Atcheson: That is right. We are engaged to sell the customer. We will promote products at an aggressive price online to go after that consumer in an effort to pull them from other avenues.
TF: Shipping, I suspect, will present a number of problems. How will that work?
Atcheson: Shipping will not really present a problem for us because of the way we have approached the situation. The benefit we have is that our competitors have to ship to the customer’s home; we do not. We ship directly to our retailer or our distribution partner, which allows us to ship through LTL carriers at a much lower cost and that makes us more competitive.
TF: This is a model very similar to the one being used very successfully by the big box players.
Atcheson: We will be going head-to-head with them. Hopefully, our product mix will be better, with products that are not quite so vanilla. The big box players’ greatest disadvantage is their size. They have to stock products in their stores, we do not. Therefore, we can be cutting edge with the latest and the greatest products. We want to be the best and first products in the market.
TF: Will the products in the system be branded or private label?
Atcheson: All of the products in the system will be private labeled. The reason being that we don’t want to hinder the current business of retailers. We are competing in the same market for customers, so we don’t want to confuse the customer with the same brands that our dealers have in their stores versus what we offer online.
TF: You have talked with retailers. What kind of response have you gotten so far?
Atcheson: We have received phenomenal responses. Most retailers realize that they need help in this model and they realize that the cost structure of dealing with this by themselves is just not reasonable. We are specifically targeting retailers, so if we contact you, it is because we see you as a good dealer.
TF: I feel that most retailers see online sales as a very favorable model but have no guidance as to how to how to approach it and possibly feel guilty that they have not approached this sector of the market in some way.
Atcheson: Most retailers feel inadequate in regard to online sales. Since I am a retailer coming at it from a retailer’s prospective, I understand that many retailers are not familiar with the technology. They are not sure what to do and what not to do. Also, we can approach them from a retailer’s point of view and with an understanding of the elements of running a retail operation. Also, the average age of a floor covering store owner in the U.S. is in the 60s, so the technology is often foreign to them and they are not entirely familiar with this method of shopping.
TF: How many retailers do you see being involved in Just-In-Floors?
Atcheson: To scale, we see about 700 involved throughout the country. Our model, however, won’t be established as much on the number of retailers in the program as on the number of transactions. In essence, we want as few dealers with as much money rolling through the system as we can.
Also, there are a number of retailers that are in good markets today, which will not be good markets tomorrow. I’m talking about small town buyer’s markets, which operate a good business today. But the challenge is that these retailers will be faced with consumers in the future that will prefer buying online even more than consumers in major cities. That is because it’s convenient, they will not have to drive 10, 15 or 20 miles to get to a store. The model doesn’t fit only major metro areas; it fits rural areas as well. The realistic viewpoint is that as consumer sentiment changes, for retailers in markets that do not feel the pressure today, there may be a time in the future where that will change. So if any given retailer is vulnerable now and not in a good position, this conversion will hurt their business. Assume tomorrow that 40% of your customer base could go away. If you thought you would do something about it, you would probably do it. I’m proposing that that is the future. I’m sure that there are many that may think I’m crazy, but if I am only half right, there is still a very big market opportunity out there for us retailers to take back market share. If we don’t, we’re just going to lose it.
TF: Let me ask you again about the transaction. A consumer goes on your website, they find a product they are interested in, you send them samples, they place an order. How does the retailer receive this order?
Atcheson: Retailers are signed up as an affiliated member. The back-end software management system handles all of this. The retailer logs in, receives a notification of the order shipped from the supplier, which will have our P.O. on it, so it’s easily identified as our order as sold to Just-In-Floors. As soon as they log in, they will be aware of what they will be receiving. They then accept that they did receive it. The system is automated to send correspondence back and forth to the end user, which makes them aware that the product is at the retailer’s store and available for pickup. It asks for the day and time they would like to make the pickup.
TF: Does this sync with the various industry-specific software system that retailers use?
Atcheson: We are currently engaged with one of the providers to link our platform with their software. I don’t know that we will be able to satisfy the components of everyone’s technology. Ultimately, we will have links with providers that will be compatible with our backend system that will allow retailer access via the web, with the entire system being in the cloud.
TF: You had mentioned that the cost to the retailer to become a part of the network is $599 per month. How is the revenue from the transactions divided?
Atcheson: The retailer earns the profit, we receive a 3.99% transaction fee. The remaining attribution of the profit stays with the retailer. We, in essence, take a percentage of the transaction to cover our cost of service. One must keep in mind, however, that we are doing the heavy lifting. We are delivering the customer to the retailer, allowing them to take the larger portion of the profit. We are going after the bigger volume end.
TF: How about measuring the job? I suspect that often the information received from a consumer is unreliable?
Atcheson: We find that millennial buyers are very savvy buyers. They are not just going to get a quote from us. They are going to get a second quote, which will give them the exact information they need. When we surveyed our consumer base and asked if they were going to buy flooring, we found that most consumers are able to calculate square footage. Roll goods, however, can be a problem. They told us that they would get a second quote, which would tell them how much they need. Then they will make the decision to go with the second quote or go with us. We also see an opportunity here because we find that many millennial buyers have connected with organizations like Task Rabbit, Angie’s List and Craigslist, and they will find an installation partner around our retail partner. We believe that about only 30% of the products we sell will have the option to install. So, an important option for retailers is that they will be selling products that they will not have to service. All retailers want that type of business model. Many consumers will decide to go in a variety of directions to find installers. There is a big change in the ranks of independent contractors, with many going in a direction similar to that of Uber.
TF: Something goes wrong, the wrong product is shipped, a product is not satisfactory, or the installation had a problem, how are these problems handled?
Atcheson: Our call center will also be handling claims. If it’s related to the product, we will service the claim. If it deals with an installation problem, that will be done directly with the provider, our SBA agreements will allow our partner retailers to have the attribution of our agreement passed on to them. In essence, if they installed and there is a defect in it, they have the opportunity to file the claim on our behalf.
TF: When will the Just-In-Floors site go live?
Atcheson: Our goal is June 1.
TF: You are looking for volume and driving a high volume of consumers to the website. That means you have to appear above the fold on the search engines. What are your plans there?
Atcheson: We are not planning to cast a big net. We will be marketing only in the areas where we have retailers. That allows us to spend wisely. We are also able to track consumers based on the time of day they shop. We have spent the last seven months evaluating our marketing strategy. Another element is that we really don’t have a competitor. Our only real competitors, in essence, are the boxes, and I think we will win because we can get the product in the consumer’s hands easier and we also find that most consumers want to shop and support local business, so we leverage that very heavily in our program.