They think, “If only I had someone to talk to who doesn’t have an axe to grind, or to get the help I need at an affordable price.” Such was the idea behind the development of cooperatives and business associations like Carpet One/CCA Global, StarNet Worldwide and other industry groups. Residential and commercial flooring dealers began banding together to discuss common problems. High on the list were better ideas for doing business; greater buying power; clout with suppliers; and increased profits.
The following is my take on these types of organizations. As a former employee and principal in Commercial Carpets of America, my first experiences were with Carpet One in 1993 and later StarNet, but these observations may full well apply to other such groups in the floor covering industry.
Buying groups, cooperatives and associations all have certain requirements for members. A general rule is that you have to have a sterling reputation among customers, competitors, and suppliers. Strong financial stability is a must; this aspect of the qualification process has caused many aspiring candidates to be rejected.
There is usually some type of entrance fee, payable either partially or fully in advance. There are stringent criteria for selection within a geographic area, and usually competitors located within that area are solicited for opinions, either formally or informally.
Decisions on membership are based on solid information according to the group’s legal membership guidelines. There were times when I could not fathom how a particular company would pass muster, but they did. It was rare, though, that a mistake was made.
If you are a force in your market area, or the “big dog” in the local geographic hunt for business, then look and see who else might be a member of the group you’re considering. Ask yourself, “Do I want to sit down across the table from them or would I cringe when I’m in the same room?”
Some groups have strict rules based upon population, so as to limit the numberof members and thereby potential competition among members. Counties, cities, or an overall metro market area may be considered in an evaluation, or some mixture. It is frustrating to know you meet the standards, but that there are already six members in your backyard.
Perhaps the best strategy is to have a conversation with the organization’s director of membership and discuss your possible interest.It might even make sense to make an unofficial application, providing enough basic information so as to gauge their interest in you and if you meet their standards. Nothing beats a quick conversation to find out if you’re wasting your time and theirs. They’ll know if they’re “full up or built out” in your market. If not, then get full membership information, an application form, current and annual fees, and ask if they will reserve a spot for you while you review the criteria.
Speak with as many current or former members as possible; get references. “What has the co-op done for you?” “Are you pleased with your decision?” “What value have you seen from membership?” “Have you seen a savings – or more profit – from suppliers?” “Do you feel there have been competitive advantages?” “Have you gotten work or recommendations because you were a member?” “Have you been able to generate rebates in excess of annual fees?” “Have there been specific programs that have brought you business?” and the biggie: “Would you join them again?”
Buying Power and Clout
Leverage and influence with suppliers is an important reason to join a co-op. By virtue of your membership, you will meet the basic qualification for buying at key dealer price levels so long as you have a credit line or an open account with the manufacturer.
It’s not just pricing either; you may be on a short list to compete for special projects with picky clientele or be added to a bid list. “Hey, Tom, we need a member in the metro area; who do you recommend?” On more than one occasion, the only reason we got a project was through our co-op connection; otherwise, we would have never gotten the call.
Often, it is not just a better price, but a new relationship born out of new membership in the club. As one regional vice president said, “We know something about their standards for membership, and while we haven’t had much experience with you, we trust them.”
It also makes a difference when there’s a problem or a service issue and you need some help. Once again, your reputation and association can help if you’re in a bind. I once tried for three days to get a call back on a certain project, without success. After explaining the dilemma to my contact, I had a call back in 30 minutes with an answer and an apology. It doesn’t always mean you get the job or special project pricing, though it’s unlikely you’ll be left to twist slowly in the wind with no answer.
There are also concerns with claims, manufacturer defects, red tape and settlement. If you are a member, then you may be given a certain “benefit of the doubt” unlessyour reputation trumps it. Perhaps a claims examiner is dispatched a little more quickly or there is less resistance to a prompt resolution. When a manufacturer is doing $10 million in volume with the group, they don’t want to rock the boat or damage their reputation by dragging their feet with your problem. Some groups have removed recalcitrant firms from their approved list after feedback from members.
Advertising Buys and Special Programs
Group affiliation can lead to quantity discounts. This is particularly effective in the retail residential end of the business where members tend to be somewhat smaller. Often, a new member will see dramaticincreases in business by following “fill-in-the-blanks” promotions and concentrating their advertising buys in conjunction with the group schedule.
Private label programs and sole source product lines are quite important; this, coupled with quantity buying power maylift a residential profit margin by 15-20% during the first couple of years. As one matures in the TC relationship, opportunities abound for new product offerings, installation expertise, or a completely new business segment. Some have added cleaning and maintenance or a new commercial division.
Co-ops are a solid resource for education, information research, and training within your own specialty. Of special interest to most is an in-depth survey of business practices and business statistics by size of company. This allowed you to compare your own results with companies of a similar size.
While some survey results were suspect, you were still able to look at the average and median numbers as a guide. For instance, if the average salesperson compensation cost to produce a dollar of sales was 25%, and you know yours is running over 30%, then a red flag should appear. Likewise, paying too little may be one reason you’re experiencing a high turnover in sales personnel.
You will have access to specialized consultants, especially management gurus. How do you find someone qualified to help you uncover those faults that may be holding you back? If you are a member of a co-op, then chances are they have one or more qualified recommendations that are familiar with the flooring industry.
A feature of annual meetings are management seminars with a variety of topics led by outstanding, well-known speakers. In fact, you usually have a menu from which to choose, and can select those topics of special interest. Collecting money, new business software, hiring and firing, management development, selling your business, tax tips, or passing along your business to your heirs are just a few of the topics to expect. There’s always something new and worthwhile.
Most groups have a rebate structure based upon purchases with suppliers. Manufacturers vary rebates according to type of products, volume, and co-op member participation. Membership fees and rebates pay the salaries of co-op personnel; after expenses are deducted, then rebates are paid according to reportedmember purchases and vary greatly.
Participation in a special sales event or sponsored product promo may earn additional rebates or trip award points. One group and their suppliers are known for sponsoring world-class trips and cruises for their qualifying members. In addition, it is not uncommon for individual annual rebates to be in the tens of thousands of dollars. It’s always nice to open up the envelope and see a $25,000 check!
Discussing specific situations with your direct competitors can be awkward; however, a Virginia dealer asking the opinion of an Alabama flooring contractor is entirely different and promotes a candid conversation. I have always found group meetings to be a convivial, cooperative atmosphere. “They wouldn’t spend the money to be here if they weren’t interested in success. Maybe they’ll give me some new ideas.”
Besides, as a member, you’ll be surrounded by some of the stars in the flooring industry. People like Howard Brodsky, Harold Chapman and Randy Weis always bring excitement and loads of valuable experience to any meeting. They’ve proven executives who have an outstanding record of success. In short, you’re hearing about the best in the business from the best in the business.
Being a Member
There is always reporting or tracking of your sales activity among specific, favored suppliers. In fact, that is what accounts for those exciting rebates. This is pretty intrusive, and when you are not doing enough business with featured mills, you are in danger of missing your purchase quotapercentage.
Most groups set attainable purchase goals that increase with years of membership; the idea is to buy from those suppliers that support the group and offer rebates that steadily increase as the volume goes up. We had cases where we paid slightly more on an interim basis than what we would have paid for a similar product on a spot purchase; however, because of rebates and supplier support, it still made good sense.
On the other hand, you do have to have the right price to sell a job and make a profit, and there were times when a firm, fixed price could not compete with special project pricing. It is all relative to the total of your purchases, but why join a buying group if you’re not going to buy from those featured suppliers?
You will be accountable for your actions. In more than one case, members were “counseled” at length for certain dubious actions that reflected badly on the group. And that cuts both ways; I once complained about procedural ethics of a commercial mill rep to the office. They had a candid conversation with the mill’s regional manager, and remedial action was taken.
Make the Decision
If you are at a plateau for growth and looking for some new ideas, consider a cooperative. After finishing up yet another year, have you thought, we need to do better, but where should to start?The answer may lie with a buying group. If you take this step, you’ll never be the same. If you choose wisely and it’s a good fit, it may result in millions in extra sales, profits, and a valuable legacy.
Dave Stafford is a flooring industry veteran who retired as executive vice president of Commercial Carpets of America (“CCA”), a major independent flooring dealer in northern Virginia. Dave has served as vice chairman of Floor Covering Installation Contractor’s Association (FCICA), and is currently a member of their Industry Relations Committee. He was honored in 2007 with Honorary Lifetime Membership for his contributions to the flooring industry. Dave provides consulting services in government contracts and business operations.