The 43 members of the National Floorcovering Alliance, an elite group of flooring retailers with individual sales of more than $10 million each, met in Napa, Calif., for their fall conference to strategize growth in today’s new norm of political challenges, price pressures, and a lack of qualified installers.
“Sometime in August, or the first part of September, business really slowed down,” said Dave Snedeker, executive vice president, Bob’s Carpet Mart, with 16 stores in Tampa Bay, Fla., and the surrounding area. “Part of it is the elections—just the sheer negativity. I don't remember how many thousands of dollars we've had bumped from advertising on the television or radio because they're just getting paid double and triple [from political advertisers].”
“In my market [political] television advertisers are coming in and spending 10 times a spot that I'm buying in local news; it's dumb, stupid money,” said Jim Walters, president, Macco’s Floor Covering Center, with six stores in Wisconsin and a store in Fort Myers, Fla. “It does affect consumer sentiment to a degree. No matter what happens in the election, consumers are being told it’s the end of the world, so it’s reining in their spending.”
While retail is flat or up just a few percent for many dealers, the commercial and builder businesses are doing better for some.
“Our business is good—our commercial business has has picked up,” said Deb DeGraaf, co-owner, DeGraaf Interiors, with two stores in Michigan. She attributes the rise in business to more assertive outreach to local builders. “One of them was a builder group, and when you get in with the gatekeeper, you start getting introductions to different builders.”
“Our commercial is a little down, our retail is up, so our total sales were about flat, but that’s okay because last year we had some commercial contracts that were massive and stressed our organization,” Walters said. “The good news is addition by subtraction—our margins are up because we don’t have those stressors.”
Millennial buyers are playing another role in the lack of retail growth.
“Millennials aren’t getting into the home buying cycle, they are renting,” Walters said. “That cycle has changed. The first home price point is challenging for those in the market. For the most part, people who are building are in the upper echelon.”
Another limit to growth is installation. “I can see that hitting now,” Walters said. “There are certain retail contracts we can’t sign because we can’t install.”
Price increases due to tariffs on flooring products imported from China have been another drain on business efficiencies and profits. Some retailers have moved to direct imports to maintain competitiveness.
“I actually just started importing before the tariffs started,” said Darren Hearns, president, Great Lakes Carpet & Tile, with four stores in central Florida. “I got lucky in that regard. But right now, the way it's going, there is going to be three-way split: the broker's to absorb three percent, I'm absorbing three percent, and the manufacturers are doing three percent. So that first shipment that's on the water right now is not going to cost more than three percent because it hasn't actually made it to port yet. While everyone else is paying 10 percent, I have an advantage now—and maybe that’s short term—but it allows us to advertise at a much more competitive price.”
Many retailers said, in their opinion, manufacturers haven’t managed the communications surrounding the tariffs well, and the continual price changes are affecting store efficiencies.
“The price changes are expensive—every time we change tags it’s $3,000,” Snedeker said. “It disrupts the salesperson from their normal routine because they used to know what that price was off right off top their head. Now, they have to look because what it was last week it might not be this week”
DeGraaf and Walters said they have had to address the issue through training, telling their sales teams that tariffs and price issues aren’t customer issues, so don’t bring them up to the customer.
“We’ve spent so much time and energy managing all of that when we could be focused how can we better? How can we give a better experience for the customer?” Walters said.
“We as the NFA, as a group, we have to manage expectations,” Snedeker concurred. “We have to focus as a group on how do we manage expectations in the stores at the retail level to make sure that, regardless of what the price is, the experience for the customer is the one that they should be getting.”
Overall, the tariff issue is concerning because luxury vinyl tile has been a major growth category.
Snedeker said: “Take a category that's 15 percent—give or take—of a store’s total business this year, but if you look at it another way, it's 70 to 100 percent of the total growth. So, if 70 to 100 percent of your total growth is all in one category, and now you've taken this category by taxation, basically, and you've increased it by 10 percent, and potentially 15 percent more in the next two months, you disrupted our growth—you've disrupted the growth part of our business.”
The answer to that, he said, is product diversification.
“Regular floor covering dealers that aren't diversified and don't have a lot of stuff going on, they're putting themselves out of business—and that's what they should be worrying about,” Snedeker said. “We've taken the life cycle of the products that we sell and we've essentially doubled it. When you start talking about doing these things, you have to find some sort of backfill for profit, and if you don't do that, you're going to put yourself out of business at some point.”
Many NFA members have already entered the cabinetry, countertop and paint categories, while others are exploring window treatments and other side businesses. “Our whole group is ferociously independent and willing to share,” Walters said.
Carpet is one category that has been immune to the tariffs.
“Carpet generally has been the most profitable, the least headache part of the business,” Hearns said. “We'd all like to be selling more carpet.”
“For most of us, people in this industry are carpet people,” said Ian Newton, general manager, Flooring 101, with five stores in central California. “Fifteen years ago, the industry was dominated by soft surface. We’ve all gone through this challenge of changing product categories and the challenge it has presented to our sales teams in terms of how to sell it. It’s a lot more complicated.”
At the meeting, the group elected new leadership for the next two-year term, which starts in January: Jason McSwain of Cincinnati, Ohio-based McSwain Carpets and Floors (president); Ian Newton of Oxnard, Calif.-based Flooring 101 (vice president); Raffi Sarmazian of Sarmazian Brothers Flooring in Ontario, Canada (secretary); and Eric Mondragan of RC Willey in Salt Lake City, Utah (treasurer).
For more information, visit www.nationalflooringalliance.com.