The consensus on 2007 is clear: The favorables will outweigh the unfavorables.
Retailers and contractors asked to reflect on 2006 and assess the business conditions in the flooring industry for the coming year agree that the terrain will be rocky at times. Unstable energy costs, a surge in low-priced, off-shore competition and a cooling real estate market are only a few of the market factors that have people on edge. The influence of big box stores and growth of discount flooring sold via the Internet are still inspiring apprehension among traditional brick and mortar specialty stores.
Clearly many consumers are now looking at their home in a new light. They are eager to increase the value of their investment with remodeling projects and they are gradually gaining awareness of the numerous new flooring options open to them. Almost every flooring category has seen major advances in design and performance in recent years. When other external conditions are factored in-a strong economy, availability of consumer credit, rapid advancements in communication technology-there seems ample reason for retailers in the flooring business to see 2007 as a growth opportunity.
The survey makes clear that there are many more optimists than pessimists in the flooring business. Retailers also seem confident that success is not simply the byproduct of favorable market conditions. Whether it is confidence, cockiness or a sober assessment of the competition, many retailers believe they will out perform the industry norm.
While a majority said they had a good year in 2006, nearly two-thirds said market conditions were no better last year than in 2005. There are indications that things will be looking up this year. About 42% expect market conditions to improve this year while about 40% said they will stay the same. The remainder-just under 20%-said the conditions will worsen during the course of the year.
Retailers said the gains last year were paced by consumers ripping up old floors and replacing them with something new. They noted that the fastest growing area of their business last year was the residential replacement sector (44%) followed by builder/new construction (26%) contract commercial (22%) and main street commercial (8%).
Although there is wide agreement among manufacturers and many others in the industry that environmental concerns have become a far bigger priority, a sizeable portion of retailers don’t see that as the case. Asked “Do you see a trend toward the use of green, environmentally-friendly flooring products and materials?” nearly 40% of those polled said “no.”
The expectation among flooring retailers that their businesses will see an uptick in the coming year is reflected in their strategy for growth. The areas most frequently identified for investment are those likely to help expand the business and accommodate growth. Most frequently mentioned (by nearly 50% of the respondents) was marketing and advertising followed closely by computer equipment and/or software, showroom design, and training and education.
The interest in advanced information technology may be welcome news to those trying to modernize the industry. Still, the flooring industry tends to favor the old school way of doing business. When asked “How do you prefer to interact with manufacturers when specifying/purchasing floor covering?” about 62% said they would like to work directly with the local manufacturer’s rep and/or distributor. Just over 28% said they seek direct contact with manufacturers. The next most popular answer, “through a manufacturer’s website” garnered only 3.6% as the responses, while fewer than 3% selected business-to-business computer-based direct links as their preferred means of contact with a supplier.
Assessing the performance of individual product areas over the last year and the expectation for 2007, the big winners were hardwood followed by ceramic tile. A solid majority of retailers said each of the two areas posted a gain last year. The lone product area that saw more retailers report a dip in sales than an increase was vinyl/resilient: More than 40% of respondents said sales were down last year while about 20% said sales were up (40% said sales were flat).
Not surprisingly, expectations for the performance of individual product areas in the coming year were mostly reflective of their 2006 track records. Well over 60% of those polled said hardwood and ceramic will post increases (the highest of any two categories) while nearly one-fourth of the respondents said vinyl/resilient was due for another year of softening sales.
Also just over 37% of respondents said they added at least one new category last year. Most frequently it was hardwood, which was overwhelmingly the most popular response. Two other two categories most frequently named were ceramic and carpet. All told, the request to identify a new product category drew more than 70 unique responses including “stove accents,” “shower doors,” and “toilets.”
A question about the attributes retailers seek when working with a manufacturer also highlights the importance of issues that go beyond dollars and cents. Although “competitive pricing” was listed as a high priority, three other areas were deemed even more significant: Consumer advertising, on time delivery and customer service (including claims). And while retailers indicated a strong preference for consumer ad efforts, they have little enthusiasm for co-op advertising, which was labeled “not important” by more retailers than any other one area.
A separate question that asked retailers to list the one “factor/characteristic that most affects their decision to promote or sell a brand” yielded dozens of different responds including many one-word answers like “ethics,” “dependability,” and “longevity.” By far, the characteristic mentioned most frequently was “quality” followed by “style/design.” In a nod to more everyday concerns, the third most frequently mentioned attribute by retailers was “availability.”
Similarly, there was wide agreement on the industry’s biggest challenge: Installation. The persistent shortage of qualified installers, coupled with a lack of consumer awareness about the importance of a top-notch installation, remains a major concern for retailers. While “installation” was overwhelmingly the most frequent response to a question asking for “the single most important issue (challenge) facing floor covering dealers/contractors today,” it was not the only concern. Other factors frequently mentioned were “price increase,” “big box stores,” and “economy.” All told, well over 50 unique “challenges” were listed by respondents to the survey.
Sidebar: Challenges are many, but installation is No. 1We asked retailers and contractors what they saw as the biggest challenge facing the flooring industry and the top answer was clear: “Installation.” Overwhelmingly, it was the No. 1 concern voiced by respondents and was mentioned with far more frequency than other pressing concerns, including competition, pricing and supply chain issues. The poll results underscore an industry-wide lament about a lack of qualified installers and its effect on the industry overall.
Still, installation woes were not the only thing on the minds of those participating in the poll. The other two top answers were “price increase” and “big box stores.” Though neither was listed with the frequency of “installation” both were mentioned numerous times. Overall the question-“What is the single most important issue (challenge) facing floor covering dealers/contractors today?”-drew more than 75 unique answers from the 494 respondents who participated. The responses reflect a wide range of concerns including dozens that were identified by a lone respondent such as: “”industry regulations,” “hurricane scares,” “taxes for small business owners,” “price gouging by wholesalers” and “staying focus[ed].”
Sidebar: Retailers divided on role of creditIn theory, consumers shopping for floor covering are like perspective car buyers kicking tires in a showroom. Once they fall in love with the product-whether it is a car or a carpet-easy financing with attractive terms can often seal the deal.
The thinking may work fine for the auto business but flooring retailers are sharply divided on the role of consumer credit. Responses to the survey question “How has the increased availability of consumer credit affected your floor covering sales?” reflected the differences. Some respondents in the poll indicated that it was of little or no use while others said it was a big plus.
The most frequent answer was a simple “no affect” Other offered comments like “negligible,” “marginal” and “Not as much as I thought.” Still there were those who told us consumer credit increased sales by as much as 40%. Other comments included: “Helps a great deal,” “Great benefit to the consumer,” “Helps with customers on the edge.”
Interestingly, there are indications that the wide availability of credit cards has dulled the luster of financing arranged by the retailers. “Consumers are immune to this,” said one response. “Consumers prefer to use their credit cards.” said another.