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Distribution: Hardwood squeezed by pricing, channels


Originally posted on 10/31/2011



Consumers have spoken loud and clear during this prolonged economic slump that flooring is a postponable purchase, and if they are going to use their disposable income on it, they want the best-looking product with the latest features at the lowest price.

This hard-bargain approach has affected the market for all principals. “There is tremendous downward pressure on pricing, more so than even last year,” said Rick Holden, executive vice president of Derr Flooring in Willow Grove, Pa. “It’s not just wood; it’s in VCT, adhesives, everything. It’s across the board, and driven by consumers. They want the best (lowest) pricing, and we’re all feeling it.”

In 2010, distributors and retailers benefited from sales of commodity hardwood thanks to the government’s home tax credit allowance, according to Bruce Zwicker, CEO, J.J. Haines, Glen Burnie, Md. “That credit does not apply this year. Commodity wood has been soft as a result.”

As the industry’s largest distributor, Haines continues to grow by leveraging the success of its Wheeler division in Florida and by grabbing market share— not because the road is paved with gold. “The overall state of the economy and housing market will not get better anytime soon,” Zwicker said. “There is no wind in the sails for new construction. Things have been worse overall in the second half than anyone predicted.”

Others agree. “The single-family builder market is very, very depressed, and we don’t see much help in the foreseeable future,” said John Sher, president, Adleta Corp., Carrollton, Texas.

This is the tough reality that all flooring distributors—big and small—are encountering. The biggest growth in wood has been in residential replacement rather than new home construction. And that trend is expected to continue indefinitely.

The builder market in Cain & Bultman’s territory of northern Florida and Georgia continues to be depressed, according to Buddy Faircloth, president of the Jacksonville, Fla.-based distributor. “The builder business won’t come back for awhile, probably several years. There are still too many homes in foreclosure. It’s a mess right now.”

CMH Space Flooring Products in Wadesboro, N.C., saw its wood sales fall 3% from 2009 to 2010 because of the decline in builder business and the overall lackluster economy, said Hoy Lanning, president. But the company is faring better in 2011. “We have added required product diversity in wood as well as new displays, which have grown business.”

Holden said in 2010 Derr’s wood sales declined 10%. “New home construction is not great and commercial does not look good as far as we can see. Even if a builder started a new construction project today we would not see it for one to two years; if you broke ground today on a new home, you might see flooring go in at around 100 to 120 days, and that would be pushing it. It’s those kinds of things that keep us a little slower to recover.”

At Memphis, Tenn.-based BPI, the industry’s second largest distributor, hardwood accounts for nearly one-third of the company’s product portfolio. To compensate for the softness, vice president John Anderson said BPI is focused on maintaining the right inventory and offering great value, including special buys. “We are expecting very little improvement in 2012 but we will continue to invest in the future. For the most part, our customer base remains positive and we are doing all we can to help them with every sale.” Jeff Hamar, president of Galleher, Sante Fe Springs, Calif., is heavily dependent on hardwood flooring and wood-related accessories, with about 90% of sales coming from those areas. Sales are up about 10% over last year despite a very difficult market, he said, as the company has been able to carefully pick winning products and take share from competitors in its California- Nevada-Arizona regions.

Channel challenges

In 1985, 11% of wood flooring went through home centers; today 50% is controlled by non-specialty dealers—i.e., big boxes, Lumber Liquidators and other retail outlets, and the Internet. That’s according to Jeff Striegel, president of Elias Wilf, Owings Mills, Md., who claims the boxes have had a deleterious effect on the traditional hardwood flooring market. “Not a single manufacturer can win today selling through home centers because they do not allow you to make money. To them and Lumber Liquidators, it’s wood in a box that they’re selling.”

However, Striegel said there are a growing number of smart and savvy specialty flooring dealers who are fighting back with great product and innovative displays and, at the same time, are raising their customer service profile. “Dealers today have good looking stuff; they’ve become merchants, and they are better prepared from a marketing and merchandising standpoint to compete against these other guys. For them, it’s game-on.”

CMH’s Lanning said there are some differentiated hardwood products coming out, specifically citing Anderson and some of its private label pieces. “They are new, different and exciting, and they are at favorable price points retailers can sell and make a good margin.”