Perhaps the most significant of all “floor trends” and one which will bear the most impact on our industry, is the size and direction of the U.S. housing market. We’ve been looking forward to the housing recovery for nearly five years. It’s been a slow recovery at best, but the market in most regions of the country is now clearly on a more brisk upswing, and the near-term forecast for 2013-2014 is looking even better. So what does this trend mean for you?
Bear with me on some boring statistics as we first take a look at the numbers. According to the NAHB Housing Economics Data, in 2012 total starts increased by 26.5% to 774,000. They are forecasted to grow 20.4% this year, and 22.5% in 2014. That will yield 1.14 million total U.S. housing starts in 2014. This will be a gain of 106% from the low point of 554,000 total housing starts in 2009.
To break this down for 2014, single family starts are forecasted to be 836,000, or 73.2% of the total, and multifamily units will be 306,000 starts, or 26.5% of the total.
While this is certainly a solid improvement from 2009, by the end of 2014 total housing starts will still be 24% below the 1.5 million average annual target market figure that denotes a sound housing market. It’s a positive trend, but still a less-than-stellar housing market, and one which will continue to create a very tight and competitive market situation.
During the prolonged housing market slump, there has been a considerable shakeout in the supply side of the industry. Many manufacturers, distributors and retailers were unable to survive. A good number were acquired by stronger competitors, and even more simply went out of business. Even some of the old and familiar names at all levels in the industry are now just a part of history.
What remains is a bruised hardwood flooring industry that continues to aggressively move forward to obtain a bigger share of a confined market. Hardwood flooring prices remained stagnant for most of the depressed market and are just now increasing, in double digits; and taking hold. Hardwood lumber prices are increasing more than that which manufacturers can absorb. They are passing it on to their customers, and the distributors are passing it on to their dealers. The consumer ultimately has to foot the bill.
The hope is that hardwood flooring will not lose the share it has gained over the years. But the trend now appears to be that increases in hardwood prices are outpacing other flooring alternatives.
A little over a year ago, in one of my “Savvy Hardwood Business” columns, I wrote about the importance of getting prepared for the next housing boom. I raised 10 tough questions to consider, and they are worth revisiting:
1 Do you have the necessary working capital to grow your business?
2. Do you have the right people in place to get the job done?
3. Are you doing enough sales and field training?
4. Are you selling the right products for your market?
5. Does your storefront and merchandising area make the right impression to attract new customers?
6. Is your equipment up to date and in good mechanical condition?
7. How has your market changed since the last business boom?
8. What are you doing to keep your labor costs competitive?
9. Is your retail and warehousing space sufficient to display and carry additional inventory to service your customers? Or do you have more space than you need?
10. How have your personal goals changed over the past four years?
If you addressed the questions that you needed to address, you are most likely sitting in the cat bird seat, and are gaining sales and much needed market share. If you simply pulled in your horns and hunkered-down to weather the storm, you’re probably wondering now how you can pass along price increases and still get a bigger piece of what remains a relatively smaller pie.
It’s still not too late to right the ship, as the market is forecasted to grow this year and next. Where it goes from there depends on what happens in Washington and around the world. While we can’t control those influences, we can control what we do in our own businesses.
Builder confidence is growing, eight months in a row now. Interest rates remain very low, with the prime still around 3.25%. Treasury yields are rising as are 90-day T-Bill Rates. Fixed-rate mortgage rates have bottomed out and are beginning to rise ever so slightly. The market senses that it’s time to buy and time to build.
While the window for preparedness has closed somewhat, it’s never too late to take a more aggressive approach. So don’t dilly around with passing on the price increases. Remember, “a rising tide raises all ships.” In fact, it’s an opportunity to increase your gross margin contribution even if your market share remains the same. But the key strategic approach in a growing, but smaller, market is to grow your share.
A “Build-Share” approach to business is always the most exciting, daunting, and exhilarating way to do business. It sure beats cutting people, inventory, and all the other distasteful moves necessary at the onset of a downturn. Those days are behind you. Now it’s time to put the pedal to the metal and “make hay while the sun shines”!
Go ahead and hire that extra salesman you’ve been thinking about. Update your website, buy that new display system, get some new faster computers, and spruce up your showroom. Put in some more inventory of the best sellers so you can ship today instead of having to wait for the next truck to come in. Trade in that old beater of a truck. Get out and shake the bushes, spend some travel money to make those face-to-face calls that are so sorely needed.
Do the things you used to do when business was really good. It’s okay…times are getting better!