A New Look at Consolidation and How You Fit In
Consolidation: it’s bad. At least that’s what most people seem to think. And sometimes it is, but not always. Has it been good for flooring? That depends.
There are really two sides of this equation—manufacturing (including distribution) and retail, and the effects of consolidation are different for each.
The pool of brand name manufacturers is shrinking as they buy each other up (this one buys that one who bought those guys), sell off divisions (Armstrong sells off wood) or simply close up shop (remember Beaulieu?). That’s only going to continue. Same on the distribution side. In fact, same on the retail side. Simply put, there will be fewer suppliers and fewer distributors serving fewer and fewer specialty retailers. It’s happened in virtually every business sector in America and I don’t see that changing anytime soon. Flooring is no exception.
Supply Side Pros and Cons
The problem with consolidation in sourcing is that it leaves you with fewer options for where you can get product. Yes, there are still plenty of suppliers, manufacturers and distributors that bring product from factories here at home and from around the world, but one of the most profound effects of consolidation is limited choices. It also puts you somewhat at the mercy of these large suppliers.
But that is not necessarily such a bad thing because it comes with some significant benefits.
Yes, you can still source directly, but managing supply lines from factories around the world is very costly, difficult and quite risky. Large suppliers, whether they be manufacturers or distributors, manage that for you and at a level that is suitable for your changing business needs. And they do a great job of it. They scour the globe to find the best products and they bring them right to your doorstep.
The benefits of consolidation are that as these companies become more invested in the overall flooring space, they have the resources and wherewithal to transform the category for the better—and they’ve already done that.
Case in point: I think we can all agree that the move by major players to expand beyond carpet operations led to the unleashing of powerful forces in flooring that have resulted in a better selection of available product, better product itself, and a slew of innovations and technological developments. Not only have we all benefitted from that, I’m not sure that would have ever happened in the fractured space that was flooring before this consolidation began taking shape.
Most manufacturers are terrified of consolidation at retail. For many, it means that a few very large retailers–think Home Depot, Lowe’s, even Lumber Liquidators–will dominate and control the market. These large customers keep the plants running but the profit margins are often very low. Plus, as a manufacturer, you could be voted out of the mix at any minute and it could be for things as simple as a lower priced manufacturer comes on board, shifting tariffs that overnight make your product more expensive, a change in strategy (more private label, less private label), or the ever rising costs for manufacturers to continue doing business and putting up with sometimes unreasonable demands from these powerhouse retailers.
Specialty retail, on the other hand, represents the highest margin business for most of these suppliers. It’s no surprise, then, that manufacturers spend so much time and money courting, servicing, even building their businesses around specialty retailers. They love you. You’re important to them. They want you to succeed. And perhaps most importantly, they invest in your success.
But at the same time, they realize that your influence in the market continues to decline as the sheer number of specialty flooring retailers continues its inevitable decline.
Some blame “lazy” millennials (most of whom are neither lazy and are certainly not to blame), others say the current generation of retailers did not inherit the same drive and determination of the folks who founded the business (also mostly not true). Some blame the Internet. We could blame suppliers–“they did this”, “they didn’t do that”– but it’s not their fault either.
The simple, unalterable fact is that retail is on the decline and has been on the decline for some period. There was a time when pharmacies were local and often family run. Those now account for a very tiny and shrinking share of the business. Used to be that every neighborhood had a toy shop, then Toys “R” Us came along, and now they too are gone. Seen any new local hardware stores lately? Neither have I. I live in New York City and now I have a hard time finding a real New York bagel or pretzel (don’t get me started).
Here’s a list of small, independent businesses that still thrive on Main Streets across the U.S.: Barbers, beauty parlors and nail salons; Chinese restaurants, pizza joints, food trucks, dry cleaners, greengrocers (fruits and veggies), delis, bodegas and bakeries, convenience stores (although mostly at gas stations nowadays), local fish markets and let’s not forget liquor stores.
Flooring stores are not on that list. But there is a way for you to beat the odds and stay meaningful within your community.
So many of the successful retailers I know “own” their local markets. Some do it by opening multiple sores under the same brand. Others by opening multiple stores under brands that seem to compete with one another. Some do it by offering exemplary services, which is especially useful for the luxury goods market, for Main Street and for the commercial contract market. And some even do it through an unrelenting focus on social media.
There are other ways to succeed and they’re as unique as your business is. Find yours. Stake your claim. Dig in.
So while you can’t hold back the tide of consolidation, you can build yourself a little island where your business can succeed and thrive. Consolidation itself is not necessarily a bad thing. It mostly comes down to what you do about it and how you position your business.