Even as gas prices hit the roof,
value still drives the flooring business
Still, whether you are rewriting the price tags in your showroom or a CEO trying to figure out how to take the sting out of the news, raising prices is awkward. The challenge is to look graceful, not greedy. You are only doing it out of necessity, not opportunism. If your costs go up, so too must your prices. To do otherwise is a serious lapse in business judgment. But still, no matter the rationale, it's awkward to ask for more.
Not surprisingly, over the past several months we have seen one floor covering manufacturer after another announce some type of price increase or surcharge. At the same time distributors-which may actually be the segment of the industry hit hardest by increased fuel costs-have been compelled to add surcharges to offset their rising costs. And let's not forget that retailers are also feeling the pinch every time they roll a delivery truck.
But the most visible increases have come from manufacturers that have upped their wholesale price by about 5 percent. Usually they announce it with a brief statement from the top executive that is equal measures pragmatic and apologetic.
"The increases are necessitated by the continued rise in costs of key raw materials in addition to the added costs of transportation," said one such recent announcement. "Our continuing productivity improvements cannot offset the full cost impact of these increases [in the price of fuel], making this price increase necessary," read another. Some that had held off on a price hike, including Mannington Mills and Armstrong, said their hand was forced by Hurricane Katrina.
"The impact of this devastating disaster is being felt immediately throughout our entire organization," said Mannington's president and CEO, Tom Davis in a statement explaining the 4 to 6 percent increase on his company's resilient lines. Likewise, Armstrong vp Allen Cubell said "Hurricane Katrina combined with escalating transportation costs and increasing global demand have resulted in unprecedented price escalation for key PVC based materials."
You can sense from these and other announcements that the price hikes were ushered in with a fair amount of hand wringing. That, most certainly, is a reflection of an intensely competitive industry and a persistent fear that whatever increased revenue comes in will be offset by a dip in volume. But it is also anxiety better suited to a commodity business where margins are always whisker thin and most products come from a cookie cutter.
That's not the flooring business. The heart and soul of this industry is design and innovation. Put a product in the consumer's hands. If they love it, money becomes a secondary concern (especially with the attractive financing terms widely available). In fact, some retailers say that consumers are increasingly agreeable to suggestions that they step up to a better quality product. "They figure for a few dollars more, they might as well," one retailer told me.
That may not be a mentality that drives every sale but it is worth remembering. The forces driving the price hikes may be beyond your control, but this is still a business that thrives on passion. And you can't put a price tag on passion.