Jim Gould is the founder and CEO of the Floor Covering Institute. He is an international consultant who has served as chief product officer at CCA Global partners and was also the owner of Misco Shawnee, one of the 10 largest distributors in North America. Jim joined us recently at TalkFloor for a conversation about the changing floor covering industry. Following are excerpts of this conversation.
TF: Do you see the number of independent retailers growing, shrinking, aging or getting younger?
Gould: There’s a major shift from independent local stores such as Joe’s Carpet to national players, whether it’s Home Depot, Lowe’s, Floor & Décor or Lumber Liquidators. To be an independent and not affiliated with anyone else is really tough. And it all goes back to the consumer and the shift in the way they buy. The path to market, where is the consumer going to buy, has been totally upended with the millennial changing the way they buy compared to the baby boomer. The retail community is changing with more national focus, and I think that’s a good thing. So, the number of retailers is shrinking, but the size of these retailers is growing, and that’s being caused mainly by the cost of software, technology, advertising.
The whole shift in the way we advertise is an example. It’s not the local newspaper anymore, it’s got to be social media and the internet to educate the consumer because today the consumer is educated. Before they walked into the store, they’ve already done their research. It used to be they would walk into the store and have a salesperson explain the differences of the various products. Millennials don’t like to talk to salespeople. They go on the internet, they make up their mind as to what they want and what they need, and then they walk into the store to buy, not to shop and not to learn.
TF: I understand that once Home Depot and Lowe’s stopped building stores, the market share they had been building started being consumed by the likes of Floor & Décor, Lumber Liquidators and other big specialty players. Do you see that as something that’s happening?
Gould: Oh, absolutely. You must remember the way Home Depot and Lowe’s got into the business. It was when Color Tile went out of business. At one time, Color Tile had over 800 stores, and when they went into bankruptcy and withdrew all the corporate stores, it created a vacuum that the home centers moved into. That has continued until today. Now with the home centers not building more locations, there is this void, and that’s where Floor & Décor, Tile Shop, and Lumber Liquidators have moved in and they’re starting to take super-store image focusing on floor covering, which I think is a very positive thing. Floor & Décor just keeps growing. It’s a great operation, a great concept.
TF: Looking at these major players, Floor & Décor, Tile Shop and Lumber Liquidators, the amount of share they will amass ultimately depends on the number of stores that they build?
Gould: I think it’s more of the markets they serve. It makes sense for them to locate in major markets and not in small towns. Their growth is really going to be limited by the size of their stores. They need to have enough population to support that size of a given store. So, you’re not going to find a Floor & Décor in Columbia, Mo., but you might find a regional player, or the buying groups come in and take care of that customer.
TF: You mentioned buying online. I’ve had some retailers discuss a fear they have about the major suppliers selling direct and I guess this means online. Do you see that ultimately happening? And also, others have told me that they’d see visualization software as being a pivotal element driving more online sales by increasing the comfort level of consumers toward buying floor covering online. What are your thoughts?
Gould: The second one first. There’s no question that if the number-one driver for the purchase of floor covering is color and texture design, I don’t think a person’s going to feel comfortable spending the kind of money for a new floor based on what they see on a computer screen. The colors aren’t that true. They’re going to have to see something. If it’s design, they will want to see the whole thing. If it’s a solid color carpet, they would want to see a swatch, I’m sure.
The other question you had is how big can it become? There you must divide it into product category. Something like area rugs. Absolutely. It’s something they can pick out online, have it shipped to them like the shoe companies; if you don’t like it, you send it back and they’re of high enough value. They can afford to do that. If you’re talking about wall-to-wall carpet, maybe you can pick it out from a swatch, but you still need to have someone locally install it. There, we’re our own worst enemies in some regards. When we started needing installation, that’s something not anybody can do. You can ship the product in a box it’s that much easier. So, the product category is going to determine how much business is going to be lost or controlled by the internet buyer.
TF: Looking at the distribution sector, we’ve seen lots of changes; we’ve seen a lot of players coming together. What do you see developing here going forward?
Gould: That’s a good question. I think the overall answer is about shifts in margins. Take companies like Armstrong, Mohawk and Shaw, where they used to call it a distributor, that worthless parasitic middleman of the marketing chain. They now are sourcing as much product as they’re making themselves, so they have in fact become virtually their own distributor. The thing is they have much higher overhead than say an independent regional or national distributor who can go out and source products pretty much at the same price and put the product together for their customers. So, the distributor today has to look around and ask why they are not competitive with a Mohawk and Shaw and Armstrong, because those are the organizations that are really going out and sourcing on behalf of the distributors and retailers. So, the distributor can do that for themselves if they really get involved in the international market.
The real problem is that the customer is changing. We just talked about all the big box stores and national chains. Builders are now buying direct on a national basis, some of the buying groups are buying direct, Armstrong has agreed to sell the NFA direct. So, you have to ask how does a regional distributor compete if their customers be evolving into a national customer? I’ve been involved where distributors have put together alliances and they really have not been the most efficient group to put together something to cover the entire country and offer products to these big boxes. If someone put together a national distributor, I’m not talking about a conglomerate, I’m talking about someone who acquires enough distributors which would come under one management team that covers the nation. I think that would be a very effective tool for some of these national manufacturers that sourcing some of their products and in some cases the majority of their products rather than manufacturing them themselves. That’s a dynamic that I think is very interesting and needs a lot of study, talk and thought, especially on the part of the distributors because the distributors are seeing their customer base shrink, business that is being taken by all the people we’ve already talked about. They must be able to compete on a national basis as opposed to the regional basis.