Competing Online with the Big Guys
With the advent of the Internet, U.S. consumers have seen more change in the past 15 years than any equivalent time period in our history and the changes that are yet to come are not only mind boggling they are potentially life threatening for some floor covering retailers.
Consider the fact over 80% of consumers start their shopping mission, just about any shopping mission—including floor coverings—on the Internet. With laptops, smartphones, tablets and wearable technology some people literally live on the Internet. Just look around at all the people with their faces staring at their iPhones.
And if you think its rampant now, you haven’t seen anything yet. You remember the dot.com boom, when a little guy on a shoestring budget could launch a website and rule his category, looking like one of the big guys? Those days, I’m sorry to say are history. The big guys, with the big deep pockets have placed their bet on the Internet and are doing everything they can do to beef up their numbers with everything online.
Home Depot for one has announced plans to crank up the volume on its online efforts with something called “Innovation Lab,” and it has purchased BlackLocus, a start-up that produces algorithms to keep up with ever-changing online pricing. It also acquired the online handyman service RedBeacon, which connects homeowners with installers and home-improvement professionals.
I haven’t checked into Lowe’s, Menards, Lumber Liquidators, Floor & Décor and some of the others but I can’t imagine that they’ll be sitting on their hands and not aggressively seizing their piece of the burgeoning Internet.
Certainly the days of the little guy looking like a big guy are over and the days of the little guy needing to change his online focus in a serious way and grow his web budget as well are upon us.
We recently invited two guests on TalkFloorto talk about this phenomenon and offer some advice to floor covering retailers to make sure they can live to fight another day in this battle—a battle that’s pinching market share bit-by-bit from independent floor covering dealers day-in and-day out.
Joining us in two separate interviews was Jim Gould, president of The Floor Covering Institute, and John Simonson, president of Flooring Web Solutions.
The following are some excerpts from these interviews to give dealers an idea of what’s facing them. You can listen to each interview in its entirety by visiting the archives section of the TalkFloor.com website, which is also accessible via Floor Trends’website, floortrendsmag.com.
TF: Retailers today really need to consider the changing points of sale, the changing retail environment and most of all the changing consumer in order be relevant in tomorrow’s world, especially when we’re seeing the big box players investing substantial amounts in technology rather than more locations. What do today’s retailers need to be concentrating on to be relevant?
Gould: Baby boomers have been our focus for a long time; they have been the mainstay of our business. They are not going away, they will still be important but they are not the retailers and they’re not the consumers of tomorrow. If anyone has a business plan that goes more than five years they have to really look at what has already happened.
In reality the recession has masked what has indeed happened. As an industry we had had a 35% drop in sales during the recession. And, as hard as it is to believe, while we were losing about a third of our retail stores we actually saw an increase in the number of locations that sell floor coverings. We went from around 14,000 retail stores to [between] 10,000 and 11,000 where you can buy floor coverings. But there were around 50,000 points of sale where some kind of floor covering can be purchased at the beginning of the recession and at the end of the recession there were 51,000.
Twenty years ago Walmart was the biggest retailer in the country with sales of $32 billion. Today at $32 billion it wouldn’t even be on the Top 10 list. But it is now doing $320 billion and has become 10 times larger to retain its leadership position.
If you look at the Top 10 retailers of 20 years ago, May Co. was the only one that sold floor coverings and it sold only a small amount. Today in the Top 10 there are Home Depot, Lowe’s, which average about 7% of their total sales in floor coverings. Also on the list is Costco, which no one thinks about, and it is doing about $200 million in floor covering and on the list for the first time is Amazon, the first online supplier of floor coverings on the list.
The Internet is not what we envisioned 20 years ago—something that would wipe out brick-and-mortar stores, but it is a serious challenger. Fifteen percent of all commerce is done online. And that’s growing.
We have blamed the recession for all of our decreased sales when in reality over the last 10 years we have seen a dramatic change in consumer behavior. The consumer is the one who decides what she wants to buy and where she wants to buy it. What has happened is that consumers have found alternative points of sale, places that are non-floor covering stores and I’ll include Lumber Liquidators in that group. When we saw our sales decrease we blamed it on the recession, I’m blaming part of it at least on changes with consumers and where they want to buy.
TF: if I were to ask a consumer who is under 35, if she had to buy floor coverings tomorrow where would you go? What do you expect her answer would be?
Gould: To a person younger consumers are saying, and it almost sounds like they are reading from a script, that they would first go to the Internet and do their research and then would probably end up at Home Depot or Lowe’s. They never say Bob’s Floor Covering or some other independent floor covering retailer.
Forty-nine percent of consumers in this age group want to buy everything they can via the Internet. When they visit a store 40% will have a smartphone in hand so they can check products, prices and reviews and they are 10 times more likely to believe a peer review they find on the Internet than they are to believe a salesperson on the sales floor.
We have to step away from your experience to understand who the customer really is and what she is really thinking. We need to stop the thinking about how we can jerry rig the way we have always done business to satisfy the baby boomers and look at who tomorrow’s customers really are.
Editor’s note: We also had the opportunity to talk with Internet expert John Simonson, president of Flooring Web Solutions, about this consumer future and what this means for the future of the independent retailer.
TF: With more and more emphasis being placed on the Internet and on many of the bigger players devoting appreciable assets to improving their online presentation it would appear one of the most important factors independent retailers should be concerned about is how they fare on the various search engines—and Google in particular.
Simonson: Over the years Google has continually updated search algorithms—its latest update was last fall with Hummingbird. It is constantly evolving and making the Internet more sophisticated to help consumers find what they are looking for.
Local search has grown dramatically in recent years and Google has focused a great deal of effort on the local search. Home Depot, Lowe’s and the other big players have local stores and, as a result, show up on a local search just about everywhere.
For a local floor covering retailer it’s strictly an out of sight out of mind situation. If they don’t show up on that local search, just how then are these new consumers ever going to find them? Say you’re a consumer and you start your search for some type of floor covering. You type in carpet. Home Depot, Lowe’s and the rest of them are there at the top of the list. Type in hardwood flooring, and the same thing happens; LVT, the same thing.
Maybe the consumer tries kitchen flooring or something like ideas for flooring. In those situations the big box players are doing pay-per-click, and the category in many of these is dominated by HGTV.
There is no doubt about it, the Internet is growing and will continue to grow and it’s the way profitable independent retailers will engage their customers in the future. To keep growing retailers really need to address this inevitability. Many dealers have a business as usual mindset, the way they have always done business it’s the way they intend to continue doing business. They acknowledge the Internet and have invested in a website and feel that’s all they have to do. Well it’s not true anymore.
The flooring manufacturers, the buying groups and the independent associations really have to start to realize that they need to do more to educate the independents as to what they need to compete effectively on the Internet in today’s environment.
Editor’s note: These are two interviews that really paint a vivid picture of how the industry is changing and what independent retailers need to do to carve out their share of the pie next year, the year after and the year after that. The big box players have been inch-by-inch capturing market share from the independents over the years and are currently investing heavily to continue that mission.
As we said the days of the little guy being able to look like a big guy are over. But the days of the little guy playing it smarter on the Internet are really just beginning. If your business plan does not include getting a good sound education on the ways of the Internet and expenditures for expanding your presence on the Internet as well as retaining someone who can provide expert guidance on the subject, you may be in for some tough sledding going forward.
To hear both of these conversations in their entirety visit TalkFloor.com, click on the link “More Floor Radio” and scroll down to the parts titled, “Jim Gould, Floor Covering Institute Gearing-Up for the New Online Consumer” and “John Simonson, Threats to the Independent on the Internet.”
We’d also love to hear your feedback of this and other conversations you’ve watched or listened to on the site, as well as any ideas of people or companies you’d like to see interviewed. You can contact either Dave Foster at firstname.lastname@example.org, or Matthew Spieler at email@example.com.