NFTPanel Takes Penetrating Look at Distribution Trends. Panel hones in on four key areas: Outlook for distributors’ importance! Product mix changes! Changes needed by retailers/contractors and distributors to make things better and more profitable for both! Changes needed by manufacturers and distributors to make things better and more profitable for both!

Editor's note:NFTSenior Editor Howard Olansky polled more than a dozen flooring distributors across the country to gauge how they view their ongoing role in the flooring value chain. Panel participants were: Bob Bevers, Cathey Wholesale, Lubbock, Texas; Charlie Brown, Victor Kemp Co., San Diego; Lucky Burke, Reader’s Wholesale Distributors, Houston; Wade Cassidy, Florstar Sales, Wood Dale, Ill.; Ray Colombo, L. Fishman & Son, Baltimore; Glenn Gardner, Gardner Industries, East Hanover, N.J.; Kent Goodman, Space Flooring and Supplies, Atlanta; Jim Gould, Misco-Shawnee, Earth City, Mo.; Jeff Hamar, Galleher, Inc., Santa Fe Springs, Calif.; Marshall Kahn, Irvin Kahn & Son, Louisville, Ky.; Hoy Lanning Jr., CMH Flooring Products, Wadesboro, N.C.; Pete Rincione, Professional Trade Supply, Denver ; and Tim Thompson, Cronin Co., Seattle. The following are just some of the insights Olansky gleaned from participants.

1. Will the distributor’s importance increase, decrease or stay the same during the next year?

Burke:I see the number of distributors decreasing. We’re entering a new phase of consolidation at the manufacturer level, which will cause a shakeout at the distributor level. Having said that, the importance of the remaining distributors will increase.

There are so many foreign producers of ceramic, wood and laminate who want to enter the U.S. market who must have effective distribution. Only those distributors with superior logistics and systems, and the financial depth to stock imported goods, will survive and their importance to the dealers will grow.

Gould: The percentage of product flowing through distribution could increase slightly. Many brand-name products -- due to consolidation, reorganization or restructuring market positions -- have changed in the last few years, opening a window of opportunity for new manufacturers, many of them foreign, to enter this market.

Without market knowledge or an established sales and logistics network, they have sought independent distribution. This will increase product flow through distribution.

Hamar: The industry is on the verge of a trend that has thrown many other industries into chaos -- the emergence of well-manufactured but significantly lower-cost products from Asian manufacturers.

Today, more than 50 percent of the furniture sold in the U.S. is manufactured offshore. This has decimated places like High Point, N.C. To believe that similar changes aren’t likely in the domestic flooring industry is naive. There are over 2,500 wood flooring manufacturers in China. When they think of long-term planning, all they do is look at a map of the United States.

Generally speaking, people predict greater changes short term than actually materialize, and they miss the dramatic changes that occur over the long term. Over the next 18 months, not much will change. The larger national manufacturers/distributors will impact the industry by marginalizing second-tier distributors who focus primarily on retail floor covering store channels.

I think that the stage is being set for some big changes long term. Those will be driven by the globalization of our industry -- particularly in wood, ceramic and some vinyl products -- and the trend toward fewer supply chain partners with which retail stores and groups will want to maintain relationships.

Colombo: This will be a tough year for two reasons: a sluggish economy and a cutback in consumer spending with two exceptions -- cars and homes. Low interest rates will ensure these two exceptions stay viable, which is good news for floor coverings.

As the cost of doing business rises -- due to fuel, health care insurance, worker’s comp insurance, and a host of other hidden increases -- few manufacturers will have an urge to perform the functions of distribution that require “local” presence and the personalized services necessary to capture market share. Floor covering distributors, and especially supplies distributors, are almost indispensable this year.

Cassidy: Things will stay about the same share wise and grow with the market. To accomplish this, distributors will have to continue pushing their value-added services, which includes sales training.

Rincione: In order to be sustainable, distributors must be adept at hedging. Without brand recognition, most manufacturers are relegated to third world status or worse. The reality is that such manufacturers create chaos in the channel as they look for a place to park finished goods. The irony is that it is precisely this landscape that continues to prop up the current distribution model. Because of it, distribution will continue to have relevance.

Bevers: There are more changes taking place at the distribution level than ever before. The large distributors are still hanging in fairly well but the small ones are really beginning to feel the pinch.

Kahn: In my opinion, there is a direct correlation between profit and products, and the importance of distributors to their customers. If a dealer and/or contractor can make money with a certain distributor’s product, then that distributor becomes more important to that dealer. At the same time, it is important for the distributor to continue to find either new marketing tools or new products to maintain the dealer’s profitability.

Lanning: The importance of the distributor will increase. At the same time, we all need to stay updated on technology as well as logistics. Too, we must understand that, in the end, we need satisfied and delighted customers, happy employees and the ability to make a profit.

Gardner: Distributors will remain an integral part of the supply chain if they continue to adapt to the market and effectively service their customers.

2. Are there product mix changes on the horizon for distributors and, if so, what are they?

Thompson:The face of distribution will show dramatic change over the short term, just as it has over the past few years. These are brought about by the rapid change in product preference in the marketplace.

Depending on the mix, distributors should become more important in the future. They are in position to bring a variety of products to the retailer and provide a level of service that might not be available from other sources -- namely manufacturers. Distributors must focus on providing the highest level of service possible in order to be important to their customers

Product mix will change for many distributors as they seek market share and volume. They will continue to add products. The important issue here is not to add products that require large changes in the way you do business and, more importantly, to whom you sell. A distributor must increase its market share with its existing account base, not by expanding its base.

Gould: I see big opportunities in wood. As a category, it is growing. But more importantly, the consumers’ preferences and selection choices are changing. No longer is 80 percent of it oak. Instead, it’s a wide range of species, finishes and looks. The offerings have exploded. With the “back to nature” movement, bamboo and cork are being added.

Is carpet a new idea, old idea or visa versa? Some distributors never dropped it. Others now look at it as a new opportunity as manufacturers seek more channels to reach missed customers.

Colombo: Full-line distributors will continue to add to their product mix. Ceramic is a good example, as was laminate floors during the past decade. Now we see an explosion of luxury vinyl flooring. Even some carpet lines are once again seeing the value of local distribution.

Supplies distributors have been also experimenting with their mix, which I’m not certain is a good idea. Just as full-line distribution generally fares poorly with supplies, so do supplies distributors perform poorly with main street flooring. It is two distinct types of selling and neither distributor is willing to have two sales forces. I’m talking about the difference between being good and being outstanding.

Cassidy: Distributors are adding stone, marble, slate, and cork. Wood and laminate continue to gain market share. Most of the changes in product mix are at the expense of carpet.

Gardner: Absolutely! Adaptation is once again the key. A distributor must take the necessary steps to secure its future by seeking out value- and profit-oriented product lines. A distributor must control its future as much as possible and avoid being forced into programs and inventory from vendors that don’t make sense in its market.

Rincione: Product mix should change from domestic to offshore, not from segment to segment. How many different variations of wood, laminate, resilient, and soft surface can there be? Whoever brings the best value -- including presentation, delivery and price -- will sustain.

Burke: The distributors’ product mix has historically been ever changing. From the early 1980s changes in carpet to the late ’90s in laminate, we’ve always had to adapt. This is nothing new! The mix will continue to change with more growth in wood and ceramic and obviously less in carpet. Vinyl will continue its steady growth as well. Also, I see an increasing distributor role in contract.

3. Are there needed changes on the part of retailers to make the relationship between them and distributors better for both? What changes should the distributor put into effect?

Cassidy:There is a need to improve business communication between distributors and retailers. More effort should be made to provide quarterly business assessments and reviews to determine what sells, what doesn’t sell -- and WHY.

All of us need to improve our approach to the business, to become more professional and better partners by creating trust and taking the hassle out of doing business with each other. We need to also focus on the process, not just the product. Distributors should strive to help their customers grow their business by identifying what they can do that they aren’t doing.

Gardner: Retailers need to better understand what distributors do and respect the services we offer. Just because we are a distributor does not mean we are overcharging as a “middleman.” Increasingly, dealers realize that when all freight charges are taken into consideration, along with the extra services we provide over and above the manufacturers, distributors are really competitive.

Gould: Retailers should keep an open mind and constantly be on the lookout for new profit opportunities. Distributors, likewise, need to search out new profit opportunities for their retailers/contractors. If both follow this plan, distributors and retailers will find numerous opportunities to work together that will benefit both. Good businesses find opportunities; they’re not forced, they’re created.

Goodman: Retailers should pick a few suppliers for each product category and really partner with those who make sense in the long term. The decision should be based upon broadness of line, ability to service, credit terms, inventory commitment, management commitment, effectiveness of salespeople, and most of all trust. The questions retailers must ask are: “Is this partner going to be my competitor in the future? Is he going to go after my builders, contractors and/or even my consumer customers?”

Retailers must understand the costs borne by distribution and, by not playing one against the other, allow the margins necessary for the distributor to even better serve his retailers through training, planning and logistical improvement.

Colombo: Retailers must view installation as an integral part of every sale. The installers/subcontractors must be treated as professional craftsmen and paid accordingly. If the job goes in incorrectly or there is a flaw in the goods, it reflects on the retailer -- not the installer. Retailers should demand the best and be willing to pay for it.

Rincione: The current retail landscape encourages downward pressure on upstream channel partner margins while creating little or no interest at the consumer level. We are not telling consumers about the sense of warmth and fashion that new floor coverings can create.

For distributors who want to survive, it is incumbent upon them to eliminate the noise of the accounts that cost them 50 percent of their margins, and identify and support the dealers who reinforce the value of the distributor.

Burke: The retailer is as vulnerable to the changes in the marketplace as the distributor. He has had to face the growth of the big boxes, the changing product mix, imported products, and evolving consumer demands.

I truly believe that the future of the independent retailer rests with the continued health of the independent distributor for many reasons. Local credit, delivery, representation, and training are just the tip of the iceberg. There is the matter of gleaning through the imports and new technology to bring the dealer the good new products and keep him aware of the new trends. Add to these the lending of stability to the ever-changing landscape.

But you know what, it’s up to us -- the distributors -- to make the dealer aware of all of these points and to sell their value.

Brown: Retailers should recognize the importance of distributors and not be penny wise and pound foolish. They also need to realize the importance of the installers, who are the last ones the customer sees and who often judges the installation not on the installer but on salesman who sold the job.

4. Are changes needed by manufacturers to make the relationship between them and distributors better for both? And what changes should the distributor consider making?

Gould:If manufacturers want to build relationships with distributors, they must support them. That means not offering the same product in different channels at different prices and expecting loyalty from both channels. Equally important is loyalty and support on the part of distributors. Fierce competition and uncertainty have strained many long-term partnerships. Manufacturers and distributors should make decisions that they feel are best for their businesses. However, decisions need to be viewed from long-term perspectives -- not knee-jerk reactions to the latest change.

Goodman: Some manufacturers don’t understand distribution. Some operate on the 1960s mentality of “get a P.O. and fill the warehouses.” They must strategize with distributors on how “our team” can sell more, create more demand, increase market share, solve customer issues, and make more money for our customers so the partnership becomes vertical. Manufacturers with many lines with multiple colors hitting several price points is folly. Having one to three lines is sufficient for any buyer. Having a more limited choice will solve the 80/20 rule and increase everyone’s earnings and turns.

Distributors should partner with one or two suppliers and ask, “How can we work together to grow market share, operate the plant at optimum speed, who do we want to serve at what cost, and how do we plan for the future so we both win as well as the customer base?”

Colombo: Some manufacturers, for their part, do a lousy job of working with their distributor partners to bring about what each desires -- more sales and market share. They simply want to fill distributor warehouses with product -- any product -- and then moan when those products won’t or don’t sell. Again, too much product chasing too little consumption.

We do have a couple of manufacturer partners who do believe in working with us toward the same ends. And the results are outstanding. Inventories are lean, sales rise because we have the right things and market share rises because we have what the customer wants or needs. There is little redundancy of product or purpose.

Cassidy: Improved communication is an absolute must. Periodically provide business reviews. Increase marketplace knowledge through better listening. And the bottom line: understand that we both need to make money and keep this industry viable.

Brown: There should be written agreements between the two parties to protect territories from over-saturation. Also, the manufacturer should have the right to tell its distributors where they can sell their products. This protects both parties and makes the products more valuable. Distributors should choose the manufacturers who believe in teamwork and work together to reach their goals.