Armstrong Flooring recently announced that it will realign its business by uniting commercial and residential business operations. This realignment integrates the company’s residential and commercial sales, marketing and product management teams, and it also unites the resilient and wood manufacturing operations. Floor Trends spoke with Don Maier, Armstrong Flooring president and CEO, to learn more about the changes.
FT: Why did you make the change, and what does the consolidated structure look like?
Maier: First of all, this is a change that we have been working with and discussing with our customers and distributors for about nine months. We were really looking to understand how we need to structure ourselves to better align ourselves and support both of those constituencies, our customers and distributors. As you are well aware, prior to this change, we had two kinds of independent business units in that they had dedicated manufacturing, dedicated engineering, dedicated marketing and product management teams, and as well, dedicated sales organizations out in the market. While this provides a level of focus, there are always advantages and pros and cons to any structure, it made a number of touchpoints unnecessary for our customers to deal with, and as you can imagine, we had motivated incentives for individuals to drive their segment of the business. Sometimes it created invisible walls that got in the way of us really giving the customer a channel they were looking for.
So, we are very excited about this change. As Thomas Armstrong over a century and a half ago focused on the customer and his credo [was] “let the buyer have faith,” we started with the customer and took this back through to determine what is the best structure for us to put out on the field to support them. Now there is a consolidated organization. All the elements that were previously in separate business units are now united together, working together to ultimately serve the customers.
FT: How will your customers feel these changes?
Maier: The distributor in the prior organization had at best case two individuals to work through and the reality was more like seven or eight individuals depending on the opportunity maybe. And that would sometimes be confusing as to who to talk to. We had people focused on driving our wood business, we had people focused on the builder and if you had a builder-wood business opportunity, who did you go to? So think of this as having a central quarterback—a dedicated resource to manage the Armstrong assets and resource—to eliminate having to figure out who to work through, how to coordinate those activities. Makes those opportunities into one-stop shopping. This focus as well has allowed us to align a regional director to each distributor, so they have a dedicated leader and they have all the Armstrong resources reporting to them, so that the leader has the ability to quickly move and mobilize to be able to take advantage of whatever opportunities or gaps may exist in the marketplace. And that is where it trickles down to the retailer ultimately, where, because of the streamlining, the quicker decision making and the ability to respond faster, they are going to be able to take advantage of market opportunities better and not only grow their business but our business.
FT: What benefit does it have to have marketing and sales under the same umbrella?
Maier: I can best answer that with an example. As we all know, LVT is where we see a lot of the market trending. If you think of all of our end markets, they don’t view LVT as a commercial-grade or a residential-grade product. They see a continuum of structures and performance characteristics that have multiple applications. Armstrong, frankly, because of our structure and historical approach to the market, we put them into those buckets. You would have instances where you are going to market with a product to go after main street commercial and then you’d have a different product going after the high-end performance area of residential, when in fact what both of those markets were looking for were the same characteristics. Of course, if you’re structured differently, you don’t cross those lines as easily. I wouldn’t say we didn’t take advantage of that to some degree, but this new structure makes it much cleaner. As a product manager for LVT you can focus on what the markets need and what the structures are and not be encumbered by determining whether it’s a commercial product or a residential product. It’s an LVT product that has these performance characteristics. Having everyone on the same team managing that, you can imply that it will make things run much smoother and also allow us to use multiple products to go after different markets. There should be benefits to retailers and distributors not having to stock multiple products.
FT: How many positions were affected by the consolidation?
Maier: It’s a little over 40. That’s largely in the areas of sales leadership, product management and marketing, but we did as well have the opportunity to have some consolidation with major manufacturing operations, and to a smaller degree, some of the back-office areas, such as finance, IT and HR. Again, having a simpler organization structure allowed us to consolidate some of those roles as well. It really covered the full gamut of the business. It was concentrated on the sales leadership and marketing areas.
FT: Describe your approach to sales promotion going forward.
Maier: We really leaned forward beginning in 2015, significantly increasing our investments in this area. We continue to be very pleased with the results that we are seeing there, so we have continued to spend at that elevated rate and in 2016 we had a modest increase in that spending and we anticipate to the same. We are budgeted to do the same in 2017. We are continuing to lean in heavily on that. It’s important to note that the changes that I referred to in the organizational restructuring are really focused on the management and leadership levels of the organization and as it relates to individual selling resources, where were have feet hit the street, we have not consolidated anything there. In fact, we have added resources in some places to have additional selling support out there for our distributors and retailers. So, largely it’s a management and leadership consolidation.
FT: What’s your outlook for the commercial business in 2017?
Maier: We were disappointed with the back half of 2016 with the commercial market after having a very robust first half. We believe that same sort of sales trend, not only for commercial but for the bulk of our business will probably continue into 2017. So, that is the assumption that we made and built into our guidance to the street. Obviously, you do hear some optimism as you speak to folks in the field but at this point in time that hasn’t really materialized in what I view to be any significant changes in the underlying growth rates yet. And I hope that the optimism turns into reality sooner than later.
FT: What is your outlook for the residential business for 2017?
Maier: Fairly similar view. We did not have as anemic end markets with residential as we did with commercial in 2016. Again, we can see that trend continuing in 2017 as well. I would say they are pretty level and consistent for now for the last probably three plus years and it’s in general slow improvements, and always in the right direction, but certainly not at the rate or pace we would like to see.
FT: Regarding facilities expansion, do you have any plans for the U.S. market?
Maier: We don’t have anything that we are announcing at this point, but I can tell you that for the targeted areas, such as LVT, as well as the wood business, we continue to look at ways of increasing our capacity and expanding our footprint there. So, no announcements from us. We are focused on making sure that we’ve got the right products for our consumers and, in fact, as we take stock on the progress we’ve made on the LVT line, we have got now one if not the broadest category of LVT products, and we attribute our better-than-market growth rate to the fact that we have those. As we build our volumes in those categories and subcategories within LVT, that then allows us to look at backward integrating that and putting in domestic capabilities in place for that.
FT: Anything else you’d like to add?
Maier: On the heels of our announcements, beginning with Sunday evening with distributors, the support, enthusiasm and their confirmation that these changes will be very helpful to them has been encouraging. We’ve also communicated with a larger tier of direct retailers and have had a similar response from them. And probably more importantly, the overall Armstrong organization has really embraced this and understands the opportunities that this is going to present for us. The organization is turbo charge around it as well. We are looking for this to really layer on the next tranch of support for our customers and for us to achieve the growth rates and business results that we are aspiring to achieve.