Digital Disruption in Wood Flooring: Threats and Opportunities

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By Lindsay Konzak

When Amazon formally launched B2B marketplace AmazonSupply in 2012, most industrial and construction supplies distributors kept one eye on the giant but pushed forward doing what they’d always done.

Amazon rebranded and relaunched as Amazon Business in 2015, and later extended its Amazon Prime two-day free-shipping benefits to (business-to-business) B2B buyers. Suddenly Amazon was perceived as a real threat to the traditional B2B market. A much more aggressive Amazon Business had secured its place as the preferred procurement platform for the likes of Stanford University, the Mayo Clinic, and Siemens, and had quickly grown into one of the biggest diversified distributors. Amazon Business reported more than $1 billion in sales in 2016.

Amazon Business along with its B2C (business-to-consumer) platform was also capturing smaller customers, who are higher-margin and typically cross-subsidize larger-volume contracts. “The plumbing market experienced a similar profit squeeze when home centers came into play in the 1990s,” says Mike Marks, managing partner of Indian River Consulting Group (IRCG).

Concern over Amazon’s potential impact is highest among sellers of contractor and industrial MRO supplies that are easier to buy online and ship. Because of logistical challenges, the wood flooring industry has largely been immune to the Amazon effect. Wood flooring is bulky, heavy, and hard to install without proper training. Another challenge: difficulty in returning the product, and handling claims. But this could change in 2018.

Amazon has started approaching flooring retailers to be installers for its B2C-focused Amazon Home Services. For a few years now, it has been doing this in lighting, electrical, home automation, plumbing, and other home-improvement categories. Analysts name Angie’s List and big-box stores like Home Depot and Lowe’s as competitors to Amazon’s Home Services division.

IRCG’s Marks recently purchased a home-automation system on Amazon, and when asked if he wanted it installed through Amazon Home Services, he selected yes. The experience was educational: the local installer told him that he no longer needed to advertise elsewhere because the Amazon leads were enough. “The emergence of this in the wood-flooring space would have a ripple effect,”
says Marks. “Installers would build an Amazon-centric model, and it would be hard to blame them for that.”

Some retailers and independent installers already partner with online-only platforms or big-box retailers, bringing in thousands in sales each month to measure, estimate, and install product sold through those companies. Flooring distribution veteran John Simonson, the owner of Webstream Dynamics, says while there may be benefits to these partnerships, he questioned whether specialty retailers should go down this path. “Are you really gaining your own business, or are you shooting yourself in the foot, where the chains are going to dominate and you’ll end up being just an installer rather than a legitimate flooring store?”

There’s also the question of quality and consistency. “It’s a hornet’s nest (for Amazon) to get involved in managing local installers on a national basis,” says Jim Gould, founder of the Floor Covering Institute. One challenge: ensuring installers have the specific training required. Based on his experience in the flooring industry, he says claims go down dramatically when an installer has training unique to the product type being installed.

Gould urges the wood flooring industry to invest in educating the consumer on the importance of proper installation. “The idea of getting someone who’s bonded or has experience or even works for a legitimate retailer or contractor doesn’t mean they know what they’re doing (with every floor type),” says Gould. “That’s one of the problems that someone like Amazon has unless they make a requirement that all of their installers are NWFA-certified professionals.”

Are products next?
With its interest in installation services, Amazon’s next natural step may be to grow their wood flooring product selection, which is currently limited. Amazon didn’t comment by press time for this article, so it’s unknown if this is in their plans.

But Amazon continues to pursue new markets aggressively, and according to some analysts, its foray into more-complex products like flooring is inevitable. Because of the challenges inherent in selling flooring online, however, Amazon’s best bet may be to use existing distributors and retailers through its third-party seller network rather than try to do it all themselves. In other verticals, this has proven to be profitable for some sellers but has had its cons. Among them: limited access to customer data, which Amazon is notorious for holding tight.

It’s worth noting that Amazon has the capital to buy its own required infrastructure into the wood flooring space, as well, whether that’s a chain of smaller companies or one large one as they did when they bought Whole Foods in 2017.

Other online-only competitors, including Vancouver, British Columbia-based BuildDirect, have been selling wood flooring online for years.

Some in the industry take BuildDirect’s recent bankruptcy filing as evidence the online model at scale doesn’t work, but the company claims its filing for reorganization was driven in large part by cash-flow challenges related to investments into the technology driving its platform. In its Nov. 3 filing for relief under Canada’s Companies Creditors Arrangement Act, BuildDirect said it hasn’t been profitable since its 1999 founding, but still believes in “heavy, hard-to-ship products” as an “underserved market offering tremendous opportunity for growth.” In October, BuildDirect tapped former Amazon Business executive Dan Park to lead the business, reaffirming its commitment.

Just as with Amazon, BuildDirect is built on a hybrid internal and third-party seller model. It’s the latter that BuildDirect has invested heavily in during the past year, creating a seller portal that allows its partners to not only manage their own product listings but take advantage of built-in analytics showing buyer preferences, locations, price tolerances, market trends, and competitive offerings. BuildDirect’s goal is to “fully connect homeowners and pro buyers with sellers from around the world,” according to an October 2017 press release.

When BuildDirect relaunched their seller portal in 2016, participation far surpassed
its expectations, with 100,000 new products as of October 2016 and 212 new suppliers, according to its bankruptcy filing. This added to 6,500 and 250, respectively, before the February 2016 launch.

More revealing, BuildDirect said in its filing that its primary assets are not the products sold through the platform, but the technology and data driving it.

Countering digital disruption
In mid-2017, we asked NWFA members what they were most concerned about going into 2018, and none mentioned Amazon. That said, many NWFA members are still concerned about trends that have been driven or exacerbated by online competition: product commoditization, manufacturers selling direct, and the changing shopping habits of consumers. Most respondents recognize they need a stronger online presence, but many aren’t sure where to start, let alone how important an online platform is to their business. In the same survey, 15 percent of manufacturers said they sell through online channels.

Even if Amazon doesn’t move quickly into flooring, it is putting its toes in the water with installation services. The question that remains is whether NWFA members will meet Amazon and other competitors with an improved digital game and whether they will differentiate themselves by translating their product knowledge and reliable installer connections online.

Independents in the wood flooring industry that already have succeeded online have done it despite the challenges. In 1998, Massachusetts-based Hosking Hardwood launched its first e-commerce website in response to the big-box threat. “I said in order to be competitive, we’re going to have to do something a little different,” says Owner Jeff Hosking.

Hosking Hardwood, with Simonson’s company’s support, grew to offer more than 58,000 styles of flooring, moldings, and installation accessories through their website. Hosking knows firsthand how difficult selling wood flooring online can be. “It can get daunting,” he says. “We went through the learning curve very early on as far as shipping.”

Simonson says any retailer that wants to sell online must view it as its own channel, and dedicate a separate team to it. Hosking gets 600-800 phone calls a day from its website, asking about whether a floor will work, how to buy trims and molding, how flooring is installed, how much it costs, how long it will take to get, and more. “The lines are busy here at all times,” Hosking says.

His success getting found by prospective customers online is due in part to content he has published on the website, including a comprehensive hardwood flooring shopping guide and general wood flooring advice.

Gould says educating the consumer is one of the best things that wood flooring businesses can do to protect their market – and their margin: “I’ve always said that in the absence of other information, price is the only thing that differentiates one product from another.” Today’s buyers, especially millennials, go online first and then visit a showroom. “Unfortunately, the internet has some retailers at an impasse, because the millennial buyer is going there first, and once they read 10 articles, they think they’re as knowledgeable as the floor salesman, who is really trying to sell them something they don’t want or need,” Gould says.

Gould says that whether you sell actual product online or not, companies do need an online presence – and they need to use that platform to educate. “Put more than store hours, your years in business, and a picture of your store on your website,” he says. And if you do sell online, invest in SEO and good product data, and make sure you have the logistics infrastructure to be able to deliver.

And just because it’s online doesn’t mean you have to sell for the lowest price, Hosking says. “Flooring is very competitive, and it always will be,” he says. “We’re competitive with everybody else, but we’re just not going to go down to selling it for nothing just to make the sale. There is just too much involved with it.”

Lindsay Konzak is President of 3 Aspens Media (3aspensmedia.com), which provides marketing- and research-driven content for businesses. She is also the former editor of Modern Distribution Management (mdm.com) and has written extensively about Amazon’s impact on B2B channels.

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