More than 650 commercial flooring professionals and manufacturers played to win at the 2023 Starnet Annual Meeting in Scottsdale, Arizona, May 18-20, 2023 where they focused on areas of recruitment, technology and productivity. While the group of full-service commercial flooring contractors has developed a basic playlist of standard operating procedures, members continue to share and fine-tune best practices that are helping their profitability while also protecting themselves from risk—in a competitive and chaotic market.
Floor Trends Associate Publisher and Editorial Director Tanja Kern spoke with Starnet President and CEO Mark Bischoff about key issues of concern among Starnet members. Here's are highlights of the conversation.
Floor Trends: Mark, tell us about the meeting.
Mark Bischoff: Every year, Starnet has annual meetings. There's a spring and a fall. The spring annual meeting is more of a celebration of the prior year, and the members had a great year in 2022. Part of the excitement around this event is the dividend that we pay out to the members for the growth that they've had with the preferred manufacturers. We call them the Starnet Preferred Vendor Partners for the prior year.
In addition, we do some training. They'll be workshops around technology and attracting and retaining talent, as well as productivity. We’re working to have all of the members focus on repeatable processes that help them in their business when they get back home. We have two featured speakers. One is returning: ITR economics. Alan Beaulieu will present his forecast and the economic climate and the impact on the construction industry. We’re very pleased, for the first time, to have Kay Sargent who heads up workplace for HOK, which is the largest firm architectural firm in the world by billings. She's going to talk to us about how they're managing the communication with major clients globally and dealing with the back-to-office uncertainty.
Floor Trends: You've spoken in the past interviews that we've had about the growth of Starnet. Where are you at now in terms of membership?
Bischoff: The latest number is 170 members with 398 service locations. We have many more members now that have multiple locations. That was not common 10 or 15 years ago, and it's very common now. Even members having two or three branches is common. It obviously stretches their capability because running service across multiple cities and remaining profitable is difficult. But the members are growing into that, and we hope that the Starnet organization and their affiliation with this is helping them with that.
Obviously, technology helps and there's lots of other trends in the industry. The other thing they're responding to is both their general contractors and end-users are traveling now. They're covering much larger footprints. Part of the benefit of being in Starnet is they can work with their friendly members across the United States and Canada to service accounts and make sure their needs are taken care of, without a falloff and service, being outside of their footprint geographically.
Floor Trends: Speaking to members, many company owners said they are having trouble finding installers in their market.
Bischoff: The problem used to be a headline on field labor. As you know, society has been training people to go to college and that's the path to success. We don't have the trades people that we need as a society, and it's not just commercial floor covering—it's everywhere. In the last few years, the members are competing in this marketplace for professionals—project managers, estimators, salespeople—with the rest of the industry as well as non-flooring industries.
We used to have our own bubble where we recruited inside a smaller universe that was not working, especially during the pandemic. Today, I think the members are much more open-minded on how they recruit, where they recruit from—they're not necessarily just flooring people. We also have members that say we'd like a professional to come in with construction experience—we don't really care if they have floor covering experience—and that's a recent phenomenon. They want people to understand the construction industry, but they want to train them from scratch on their own culture and how they manage the commercial floor covering business. Where Starnet fits in is we like sharing those success stories and that approach.
The other part of it is we do have pretty active committee system that works on these big-picture topics. The committees have put together best practices including how to interview, what questions to ask. And obviously you could search the internet for common themes, but in order to give them the nuance or the industry detail that they need, the members trade that information—even interviewing techniques. Traditional interviewing techniques aren't working very well cause you basically end up with high turnover, so members are sharing best practices.
Floor Trends: You've been a big advocate for technology. What are some of the focuses for Starnet and technology in 2023?
Bischoff: Technology helps us a few ways. Most people think of it as computers, but there are advances in equipment and including pre-construction measurement. For example, the FloorCloud application. There are a lot of requests for information and other tasks that must be accomplished based on the way the construction industry works, but the member doesn't get paid to do so. Technology helps them capture what's needed to be done, communicate it more quickly, document all of those exchanges, and it does reduce their risk significantly.
The last part of it are tools in the field. In order to attract new generations of field labor, we cannot expect them to do everything by hand on their hands and knees. Using tools and equipment to increase the capacity in the field is a big focus for us. And we have quite a few companies helping us with that, including Wolf Tools. They have done a great job with the membership helping to quantify and justify the investment in new technologies for tools and equipment in the field.
Floor Trends: What other projects are your members working on?
Bischoff: The committees have been hyper-focused recently on the impact of interest rates and how that cascades through commercial real estate and the impact even on our own members financing. We have members that are paying significantly higher interest rates on loans. It's a difficult problem for them because they bid projects years ahead and they have to operate in today and often that reduces their end profitability significantly with all of the changes in interest rates going up, rapid price increases from the manufacturers, which is out of everyone's control. But it is happening. You have relatively low inflation for a long time and the industry really didn't know how to respond to it. Today, it still continues to be difficult because the bids and proposals were done in the past. You have new costs, you have higher interest rates, and that is one of the main focuses of the entire, all of the committees in different ways to help the members profitability and respond to the what's happening today in the business.
Floor Trends: Many members are expressing concern over warehousing. What are you seeing?
Bischoff: Practically, the problem is in order to beat price increases and make sure they can take care of their customers, the members have convinced them to order early. So it does help a little bit with cash flow cause they're getting in the habit of receiving the material, providing the documentation, and then immediately sending an invoice. And this is often on products that might not be installed for three, six or nine months. Warehouse space is at a premium.
We had a few conversations this week with members where they're filling their aisles, which is not good. We have some conversations with members that have gone vertical because there's far less roll goods being installed, so they've kind of delayed their warehouse reset. But we had some good success stories from members that went vertical for cubed warehousing and the interest rates are driving up warehouse pricing. We have members that had warehouses all over to take care of their customers the last few years to store material. They're now realizing that they need to get out of all of those spaces and centralize. It’s becoming a difficult problem because some projects aren't ready and they have the material way ahead of time. There has to be a condition space to put a lot of this material. It’s a big problem.
Floor Trends: We’re hearing “cautious optimism” for the commercial market among Starnet members. What’s your outlook?
Bischoff: The members are happy with the outlook for '23. They're watching the rest of the world, what's going to happen with the Fed and interest rates. In addition, the debt ceiling conversations are making everyone nervous because that would just be another chaotic add to our already difficult headwinds. I think the members have reset. Corporate was so strong up into 2019 that many of them had pivoted and there was really no end in sight on corporate at that point through the pandemic. They've reset on other segments such as senior living and hospitality. And the K through 12 school business is very strong this year. They have reset their companies to focus on those venue segments. We see more and more confidence from the members about the outlook. And we have heard a few projects going into ’24. So members are happy with ’23, cautious optimism about ’24, but they want the debt ceiling in the Fed's direction to be settled. That would help them quite a bit.
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