By Bruce Zwicker
Wood flooring is still king and that isn’t going away. But, it has to be acknowledged that change is inevitable. The wood flooring industry is accustomed to shifts and is amid another. Just a few of the significant shifts we’ve seen over the years include unfinished to prefinished wood flooring, engineered wood flooring coming into its own, value-constructed engineered wood flooring taking hold, and now non-wood products mimicking wood.
Shifts occur in any product category because consumer tastes evolve and the consumer accepts new things. Mega-retailers and online commerce give consumers more choices and lower-cost alternatives. Global trade encourages lower-cost imports, and lower U.S. economic growth makes low price more important. Not to mention that technology makes new things possible in products and the customer experience.
Technology and design
In the wood flooring industry, we have seen changes in technology making wood flooring easier to install and enhancing finishing processes, and species providing more style choices and better performance. We’ve also seen changes in design trends with open floor plans leading to all wood on the first floor of a home, and even replacing carpet in the bedroom.
Economic factors also have had an impact, such as the rising cost and lower availability of lumber after the Great Recession. Scarce skilled labor adds higher cost and creates more difficulty. There is still uncertainty surrounding flooring products imported from China. Imports also create pressure on the average selling price and margins.
Suppliers are promoting new products that mimic wood (tile, laminate, and LVT/MLF). And some wood-mimic products are promoting a “waterproof” benefit over real wood. Mega-retailers are driving lower price, and the internet is making alternatives to wood flooring and the mimics more visible. Online sale of flooring, while not a boom, cuts into share held previously by traditional retailers.
The good news
All of these changes aside, multiple research studies show that real wood remains the top aspirational flooring choice for homeowners and remains the most beautiful and natural flooring in most spaces. Recent research released by the National Association of Home Builders (NAHB) states that one of the top 10 features homebuyers want in a new home is hardwood flooring. In 2017, the NWFA partnered with Public Opinion Strategies on a survey of 1,000-plus homeowners across the United States that revealed that two-thirds of homeowners say they would have wood floors in their dream home.
Wood remains a lifetime product, a real natural product that gives feelings of warmth and comfort, which will always add value to a home or property. The question is, how should you position your business to address this new shift caused by
At the risk of telling you what you already know since you have addressed shifts before, here are some thoughts to consider.
First are strategy, mission, leadership, and culture. Know your market and buyers and aim directly at them. Know what is important to them and provide it better than anyone else. Adopt a strong drive to change and compete with a laser focus on what your business can do well. Make sure your people are on board; otherwise, it won’t happen. How a leader behaves is the key. The leader’s job is 24/7 with lots of energy needed.
Realism is essential, as are vision, confidence, and competence. Homework and an open mind are needed. Find out what’s out there. Challenge your own beliefs. Don’t be afraid to change some things or maybe almost everything. In particular, you may need more or different talent. Maybe family members in the business are not as capable as they need to be. Difficult people choices are pivotal and hold most companies back.
And those things described above are just the basics. Regarding strategy, determine which real wood offerings you can excel at if you adapt your business. Perhaps it will be one or more of these: custom finishing, solid wood in the right markets, middle- and high-end engineered wood, ultimate high-end service for high-income buyers, or design center services.
You may find yourself having to add new products or services to your business. You may need to rebrand your business to fit your new strategy. Plus, you will probably have to add new competencies through adding talent. Certainly, competence in technology is vital. How do you improve your technology for efficiency and customer experience? Easier project quoting. Better inventory management. Social media. A fully functional up-to-date website and great SEO.
Getting behind the NWFA’s “Real Wood. Real Life.” campaign should also be a priority. I urge you to visit nwfa.org to find out how to be a promoter of real wood.
Another important consideration is scaling your business to the true size of your market. This is critical; otherwise, you will miss opportunities either because you aim too low, or because you aim too high and risk cash problems. Acquiring businesses that help your growth strategy is fine but only when the price is right and there is value to your business. Overextending yourself is a huge risk, financially and operationally. If you are overextended, the customer experience will suffer and/or cash will become too tight.
It is essential to keep in mind that we have enjoyed an unusually long recovery since the 2008 bottom when flooring demand plummeted 40 percent in less than a year. The demand for flooring has grown on average about 3 percent since then, and for now, our fastest growth year is behind us. In 2017 growth was about 5 percent or more. Flooring typically grows about 100 to 200 points above gross domestic product. So, in an economy that will grow about 2 percent, we won’t see 5 percent again.
Will we see a recession, and if so, when? Who knows? We can’t control that. We can control
Lastly, and importantly, is for owners to know their exit strategy and/or succession plan. A USB study of 2,245 investors, 1,085 of which were business owners, reported that 58 percent of business owners wished to sell their business. Twenty percent wished to pass it on to a family member, and 28 percent wished to continue or close. Of those who wished to leave the business, 65 percent said it was a good time to sell, and 49 percent said they wanted a better work/life balance.
Family members said that 80 percent preferred taking the money, while 20 percent wanted to run the company. In response to the 80 percent who preferred to take the money, 90 percent of owners said family is not qualified to run the business, and 10 percent would rather have family choose another career path.
Maybe not a surprise, 48 percent of business owners didn’t have a formal exit strategy.
The majority of business owners don’t have a full understanding of what takes place in the selling of a business. Seventy-five percent of owners believe they can sell their business in a year or less. This is on top of the 58 percent who have never had their business formally appraised.
The succession to family members is usually not as successful as owners would like. The succession to a nonfamily member to run the business is not easy and is often also unsuccessful. Finding a seller who will pay what you need is not easy either.
You know what the point is. Knowing your future and detailed planning are not easy. It takes time away from running a successful, hands-on business. But owners owe it to themselves and their families to have a good strategy and know where they want the ownership to go.
The wood flooring industry and the businesses within it have lots of opportunities to make
money and grow. The trick is knowing where you want to go.
Bruce Zwicker is an advisor to flooring companies: manufacturers, distributors, dealers, and associations. He can be reached at 410.903.8357 or email@example.com.