Matthew Saltzman, CEO of Louisville Tile, has big plans for the future of distribution. He began in an advisory role with the company in July of 2020 and became CEO in January of 2022. Learn how his 30 years of experience of working in the capital markets—and a keen focus on leadership development—is helping the Louisville Tile team disrupt distribution and prepare for exponential growth. This is an excerpt of our conversation. Hear the interview in its entirety below.
Floor Trends: You’re a Wall Street guy. Why did you take on the role of CEO?
Saltzman: This is an unbelievable opportunity. I’ve got a company here that is totally under-managed and has enormous potential in an industry that looks like it's very fragmented and is run, in many cases, by people who have muscled their way into the business and are doing it the same way it's always been done. They don't understand the industry at all, and they're trying to engineer their way to success; you can't do that. For an inside company owned by a family, you really had an opportunity to, if you knew how to do the other side of it, take that knowledge, plus the strength of the family company and the history of it in the industry, match the two together, and if you have a strong balance sheet, you could be a force for good.
Floor Trends: What does that look like?
Saltzman: You do the right things, create a great culture, and create an unbelievable machine that really can dominate.
Floor Trends: You said you can’t engineer your way to success. What do you mean?
Saltzman: PE companies have lots of money that's not their own. They have a short time frame because they have their rental portfolio that has to be matured. They only borrow the money from their investors. They have to give it back to them at some point, so they have to look at everything to maximize the yield. How did they get the highest earnings? How did they cut the most cost? How did they get the largest efficiencies? I would not call it a relationship model in the business. It’s a transactional model.
Floor Trends: What’s different about flooring than other industries?
Saltzman: You can't come in and just squeeze margins or squeeze people or beat up on the vendors or beat up on the manufacturers or push people around or treat them poorly. Because this industry is very small. I thought Wall Street was small. This is, like, a teeny-tiny, teeny industry where everybody knows who went out to dinner with somebody last night. You all know each other, everybody knows what's going on, and this is a relationship business; this is all about people who are doing something that they are passionate about. This is fashion. It’s product. It’s artistic. This business feeds all that.
PE firms tend to bring in financial engineers. They tend to bring in younger MBAs looking to cut their teeth on things, they tend to go into industries that they know nothing about and try and push through and take a couple of people that are subject-matter experts. But if you happen to pick the wrong subject-matter experts, who have a dichotomy and opinion different from the rest of the world, you can send yourself down a trajectory that it's very hard to recover from. There are a couple of them in the industry now that are creating reputational risk for themselves. I’m not going to tell you who they are, but they're beginning to aggravate their manufacturers and partners, the beginning to violate distribution agreements and cross lines. They’re beginning to ask forgiveness, not permission. They’re beginning to disturb the norms of the ecosystem.
Floor Trends: What’s special about Louisville Tile?
This is family businesses that have built up over years and they’ve had a nice business. I have a lot to learn here, but they wanted me because I came with an outside perspective and I had fresh eyes. I don't want to create such tremendous wealth for somebody else again without me participating, because I know what I can do here. So, I made a deal with the family. I’m here for a long term. They have no intention of selling.
Floor Trends: What have you been working on this year?
Saltzman: We put an organizational structure together, and then we created an entire middle management team. We have something called a senior management team now that didn't exist before; there's an executive-level leadership team and a senior management team. The senior management team now numbers 12 or 13, including the people we've brought in.
They are the operating managers of the company. The executive leadership team can focus on strategy.
Every month, I have a map mentor session with the senior management team, and I go in and talk to them about things that have absolutely nothing to do with the business. I give them a book to read. I let them to listen to a chapter of something called blink list, which is little 15-minute summaries. I have them read that and we have discussion groups. Through that, everybody participates, it's an open environment, they learn from each other, they share with each other, but most of all, they begin to trust each other emotionally. Because they're trusting, they will self-nominate for where they have shortcomings and admit it in front of the group. Do you know how powerful that is? We tell them, you can't know everything, it's okay to admit mistakes. We actually had a session where we asked, what are the five great traits of leadership, and one of them was being able to do that.
It’s an incredible culture. We just invested a six-figure number into a group to come in and do leadership development with them. They now know how they communicate with each other, they're seeing how they do that, they're thinking about that as they manage their teams. We have a strategic retreat that we're doing in the fall, where we're going away for three days and being facilitated by the same leadership teams, that will set with high priorities and high-payoff activities.
Floor Trends: Tell me more about your leadership development initiatives.
Saltzman: You know, the biggest one was an innovation contest where anyone company in the company were eligible. You submit an idea. It goes in to the senior management team. The idea has to be able to save the company money, be something that we're doing that we shouldn't be doing or an improvement. The senior management team looks at it, and they filter it to vote on the three finalists. The managers of those people help them prepare presentations. They have to come in and present to the executive leadership team their idea. Think about this guy from a warehouse getting an opportunity to not only go through this process but being mentored on how to make a presentation, has to get up and do public speaking to the CEO, the CFO. The winner gets $2,500, but more than that, they are put in charge of the project and mentored on how to lead, execute and fulfill the project that they've done.
Floor Trends: Tell me about your sales strategy.
Saltzman: We've hired great talent. We let the people that wanted to leave, leave. We had a lot of turnover—there's no question about it—we've turned over 70% of the sales team.
We now have a sales culture that's bubbling up with activity, and we have the showroom people come in and they actually have a different mentality, now they have an activity-based mentality of thinking about sales, so thinking about the job differently.
We're going to change the way distribution is done and what we are as a distribution company.
We face a lot of challenges in this industry, and if you're not paying attention, you're going to wake up one day and find out that you used to be a dinosaur.
Floor Trends: Big picture, what are most distributors not doing today that they should be doing?
Saltzman: I think distributors are not completely understanding the dynamic of where the business comes from—and I don't mean the big ones—I mean the ones that are our size and down.
I think they're not understanding the dynamic of where their business really comes from and how it's constructed. I think they're missing the fact that vertical integration is going on in many of the manufacturers, and you're going to have competitors that emerge from the people you think are feeding you. I think that they're missing exactly how to manage and work with the dealers. I think the whole model of sending people out to go fill racks, have a cup of coffee, talk about the ball game, checkbox, move down the road to the next one is a dead model.
If you are a distributor in a commodity business with no brand value for yourself, you have just begun the greatest race to the bottom in the history of the planet—not a good business model for the future.
Floor Trends: What’s changed in your partnerships with manufacturers?
Saltzman: We now have every manufacturer that works with us fill out a [request for proposal] RFP. We have a curated portfolio. We are a portfolio manager—think of the difference between doing a trade and going to Morgan Stanley and having a wealth manager.
Floor Trends: How will this affect product selection?
Saltzsman: We’re moving everything back to ground zero, all of our samples. Our samples are going to be barcoded and labeled just like the portfolio will be managed. We're limiting the number of SKUs because people don't need to have 7,000 choices. You walk into a showroom these days and you get a headache in five minutes.
We source with great due diligence from all over the world. We look at builder grades, medium grades and high grades—we have offerings in all of those tiers. We can help you find what you need on a custom basis, so even if it doesn't fit in our core, we can serve your needs.
The distributors in this world have to really figure out what they're going to do. That means product diversification. It means high scrutiny on product selection.
I want to manage my inventory. I want to know how many turns I get. I want to work with my dealer and manufacturer partners. We get to sit down and have a very realistic conversation about what we can deliver to them in terms of volume. Because we now have a harnessed sales team with a portfolio, I now can represent to a manufacturer, with a much greater degree of certainty, what kind of revenues I’m going to deliver to them this year, how much product I’m going to buy from them.
Floor Trends: What’s your outlook for 2023?
Saltzman: I think that the industry as a whole and the economy as a whole are going to face some serious pauses. You can't print this kind of money without having inflation at a government level.
I believe that you will start to see the overseas imports begin to unclog a little bit, but you're still going to have long delays in getting product here, you're still going to have inventory management problems.
There’s also a very big fake-out going on in the industry: This industry is predominantly focused on revenues, and they're all talking about how much more they're doing in revenue, what a better year they're having. What they cease to understand is that the revenues are only up because any price increases that they've passed through have inflated the revenues. In many cases, their margins are down.
You’re going to see consolidation in this industry as people get to the demographic age of retiring and realized they don't want to fight that last fight or they can't, they don't have a succession plan. I see a continued pressure from our manufacturing partners, and I see a continued disintegration of what they used to have, nice exclusive borders and territories. I believe that that's going to go away.
I see us completing one, possibly two, acquisitions, between now and next year. I see us going from this year we'll do $97 to $98 million dollars in revenue.
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