Floor Covering Weekly May 20, 2013 : Page 1
Vol. 62 No. 10 A Hearst Business Publication May 20, 2013 $4 A Hearst Business C ommercial Publication Supplement to Floor Covering Weekly FCW May 2013 Amtico delivers custom capabilities Commercial.indd 11 Karndean Designflo oring installed Rustic Opus LVT in interchangeable Metallic 6” X 36” and formats at City of Westminster College 18” X 36” in London. Tandus, Centiva come together Pavilion takes on install challenges Barclays Center’ s new ﬂ oors to wow crowds 5/15/13 12:50 PM Price pressure forces new wood strategies By Mallory Cruise Just as the industry gained con dence in the economic recovery, the increase in demand for hardwood has put pressure on raw mate-rial inventories forcing ooring suppliers to post dramatic price increases — all told, some 20 percent over the last six months. “We’ve been waiting for the market to turn around and o er relief on the sales side, and we’ve been waiting for demand to improve. I think it caught many people o guard how fast it improved; we started to see things pick up in the 4th quarter of 2012 and it has continued to accelerate. at has been the biggest surprise — how quickly things have gotten better on the demand side,” noted Milton Goodwin, vice president of product management, hardwood, at Armstrong. Over the past couple of months, a number of the larger mills have announced price increases on both solid and engineered hardwood ooring products. Most recently, companies posted increases of up to 6 per-cent on engineered products and 10 percent on solid products. Factors other than the economy came into play as well. “We had a bad winter which doesn’t help with procurement. Log decks were basically empty because snowstorms in the Appalachian mountain region made it di cult to get into the forests to cut down trees. All together it was the perfect storm: high demand and low inventory means higher prices,” explained Goodwin at Armstrong. e situation has forced manufacturers to take a hard look at their own supply and FlorStar: True to its culture for 25 years Investments, logistics fuel distributor’s longevity By Mallory Cruise [R, I.] Despite the ailing economy, FlorStar, a wholesale distributor based here, kept true to its core culture, strat-egy and logistics enabling it to not just sur-vive the downturn but grow pro t and reach its milestone 25th Anniversary this year. FlorStar grew out of Carson Pirie & Scott Co., a department store founded back in the Scott Rozmus Wade Cassidy 1850s that operated a variety of other busi-nesses including a wholesale ooring division. Cassidy attributes much of the company’s In 1988, Carson’s sold its ooring division to success to the people involved in the business. a management group led by Wade Cassidy, “We’ve been very fortunate to rep some of the CEO and owner. He and his new management most noteworthy manufacturers who have team changed the name to FlorStar Sales, Inc. helped us along the way. It’s been a combina-tion of good service, good people and ven-dors who want to see us succeed,” he said. e culture built by Cassidy and the original management team is what keeps the distributor successful today, according to Scott Rozmus, president of FlorStar. “It is a conservative culture. In order to prosper in pro tability, it’s important to be conservative even when times are good; you need to consistently reinvest back in the business so that you are always a step ahead from a technological standpoint and an e ciency standpoint,” said Rozmus. It was this culture, said Cassidy, that helped to keep the company pro table during the Continued on page 19 Contract shines at NeoCon 2013 New products, spaces, initiatives drive market By Amy Joyce Rush registration of attendees at press time was running some 49 percent above last year. Permanent space is about 99 percent occu-pied and sales of temporary exhibit space are up over last year’s numbers, according to Merchandise Mart Properties Inc. (MMPI). “ e numbers are all looking really good. It speaks to the strength of the industry and the positive attitude, and that day to day busi-ness is up,” said Byron Morton, vice presi-dent, contract furnishings leasing, MMPI. Morton said that what has fueled the show these 45 years is, at the core, new product. “Year in and year out, suppliers bring new products in a mass introduction at NeoCon. at is why attendees say they come — to see new product. As a result, we’ve seen the new product cycle follow the show — it builds buzz and excitement. Some 95 percent of attendees say that is why they come to NeoCon,” he said. e other component, said Morton, is the concentration of product that is seen at the show. “Nowhere else in North America do [C] NeoCon has been a hallmark of commercial business for nearly half a century — this year marks its 45th year. What started as a furniture show has grown to be so much more for the commercial market, the sustain-ability movement and the ooring industry in particular. is year’s NeoCon, running June 10 through 12 here, promises to deliver a com-Continued on page 18 prehensive line-up of exhibitors — online Continued on page 21 P e r i o d i c a l For breaking news updated each business day, visit us online at www.fcw1.com Chicago’s Merchandise Mart has played host to NeoCon for 45 years.
Price pressure forces new wood strategies
Just as the industry gained confidence in the economic recovery, the increase in demand for hardwood has put pressure on raw material inventories forcing flooring suppliers to post dramatic price increases — all told, some 20 percent over the last six months.
“We’ve been waiting for the market to turn around and offer relief on the sales side, and we’ve been waiting for demand to improve. I think it caught many people off guard how fast it improved; we started to see things pick up in the 4th quarter of 2012 and it has continued to accelerate. That has been the biggest surprise — how quickly things have gotten better on the demand side,” noted Milton Goodwin, vice president of product management, hardwood, at Armstrong.
Over the past couple of months, a number of the larger mills have announced price increases on both solid and engineered hardwood flooring products. Most recently, companies posted increases of up to 6 percent on engineered products and 10 percent on solid products.
Factors other than the economy came into play as well. “We had a bad winter which doesn’t help with procurement. Log decks were basically empty because snowstorms in the Appalachian mountain region made it difficult to get into the forests to cut down trees. All together it was the perfect storm: high demand and low inventory means higher prices,” explained Goodwin at Armstrong.
The situation has forced manufacturers to take a hard look at their own supply and make the necessary adjustments needed to ensure that they will continue to be able to adequately supply the industry with flooring.
Some suppliers said they are looking to new sources to fulfill their raw material needs. Mannington Mills, for example, is extending beyond its traditional supply zone, according to Dan Natkin, director of wood and laminate business.
“We’re going further out to source raw material; we’re beefing up our raw material supply as fast as we can. We’re facing some challenges as raw material demand is outpacing supply so we’re working to keep pace with it — it’s an interesting challenge,” explained Natkin.
Kevin Thompson, hardwood category manager at Shaw, noted that the company is meeting the supply shortage head on. “We have been working months in advance to build up strategic raw material reserves to insure we are able to supply during the upturn,” said Thompson.
Another challenge Thompson said the company is facing head on is the ability to keep product moving through the supply chain.
“We are leveraging our strategic partnerships, and our financial strength is a consistent focus for us as we work to maintain the supply chain,” said Thompson.
Goodwin at Armstrong said the company is going to work hard to fulfill consumer demand. “Unfortunately that may mean we have to go and procure a higher priced lumber which translates to higher prices. Lumber prices are up 40 percent from last year and there is no relief in sight that we see. We see prices continuing to rise as demand increases in all of our channels,” he said.
A variety of industries, including the fracking, builder and furniture businesses, are all vying for the same raw material, and the increased demand for the tree is posing a challenge. Exports are also rising, according to Goodwin at Armstrong, as Chinese suppliers are buying raw material from the U.S.
After several years of reduced demand for hardwood flooring, the recent growth in demand has for sure put a strain on the supply chain, said Dick Quinlan, senior director of hardwood products Unilin (a Mohawk Industries company) — all the way from the forest to the mills producing the raw materials for hardwood flooring manufacturers.
“Constrained supply has forced us to travel further to acquire materials from new suppliers and has pushed up prices from current suppliers. Acquiring materials in the quantities needed to service our customers has required that we pay more for transportation costs, production materials and lumber,” Quinlan said.
According to Goodwin at Armstrong, higher prices have the potential to alter the wood industry long term. “What I think we will see is the low end of the wood market will somewhat go away, and the quality of wood will improve and will steer the industry away from commoditized wood. There is a shift from five years ago when there was more wood available than demand which drove pricing down,” he said.
Consumer preferences may also be impacted, noted Quinlan at Unilin.
“As prices move up on hardwood flooring, this may impact some customers selection choices of hardwood flooring. While hardwood flooring remains a higher ticket flooring item, it also remains at the top of the consumers list for the flooring type they desire to have in their home,” Quinlan added.
Goodwin at Armstrong agreed, saying, “You will begin to see builders and consumers opting away from value propositions to the mentality of ‘If I can pay for a wood floor, give me the best I can get instead of offering me a lesser quality wood floor to save price.’ These value propositions were not really available five years ago and they became part of the industry as the market gravitated towards value oriented price points. Builders and customers have always wanted wood floors but opted to put lower quality wood floors in so the industry saw quality decrease and price decrease; now we see the opposite happening.”
And executives said that they expect this trend to continue. “The builder business will continue to be good for the next few years. We think the demand will continue to improve and price will continue to rise. Will capacity meet demand and bring back a more normal situation? I don’t see that happening for the next few years,” explained Goodwin at Armstrong.
Understanding needs and managing expectations is important to the process, said Quilan. “We are working aggressively with our suppliers to insure they understand our current and future raw materials needs so they can plan to meet our supply needs,” he said.
According to Natkin at Mannington, despite the challenges facing the industry, outlook as a whole still looks good.
“I think the outlook is good for the remainder of the year. The challenge is will raw material keep pace with demand or will there continue to be some pull back? This is an industry that has been distressed pricing wise for the last couple of years, so it is interesting to see what will happen over the next six to eight months but outlook is still good,” said Natkin.
FlorStar: True to its culture for 25 years
Despite the flailing economy, FlorStar, a wholesale distributor based here, kept true to its core culture, strategy and logistics enabling it to not just survive the downturn but grow profit and reach its milestone 25th Anniversary this year.
FlorStar grew out of Carson Pirie & Scott Co., a department store founded back in the 1850s that operated a variety of other businesses including a wholesale flooring division. In 1988, Carson’s sold its flooring division to a management group led by Wade Cassidy, CEO and owner. He and his new management team changed the name to FlorStar Sales, Inc.
Cassidy attributes much of the company’s success to the people involved in the business. “We’ve been very fortunate to rep some of the most noteworthy manufacturers who have helped us along the way. It’s been a combination of good service, good people and vendors who want to see us succeed,” he said.
The culture built by Cassidy and the original management team is what keeps the distributor successful today, according to Scott Rozmus, president of FlorStar. “It is a conservative culture. In order to prosper in profitability, it’s important to be conservative even when times are good; you need to consistently reinvest back in the business so that you are always a step ahead from a technological standpoint and an efficiency standpoint,” said Rozmus. It was this culture, said Cassidy, that helped to keep the company profitable during the recent and long-lasting downturn. It continued to invest in merchandising units, product lines and samples. “We streamlined product lines and continued to look for new product that would enhance our business. We placed more displays, and spent more money on displays and samples in the downturn than we did when things were going well. We want to continue investing in business so our vendors are more positive, as well as our employees,” Cassidy offered.
He added that FlorStar makes a point to look downstream at what is to come and be prepared. “We listen to economists and try to understand what is ahead of us. Cash is king and we have to be able to finance business. When we were looking downstream, we said, ‘OK, we’re not going to be the same size we were two years ago.’ Instead of layoffs, we did our best to manage the business and hire back as many people as possible, and gain profit, in spite of obstacles,” he said.
Keeping true to its culture was also important to survival, according to Rozmus. “You can’t change your corporate culture at the drop of a hat,” he said, adding that consistency is paramount to success. “We try to emphasize that when you face an economic downturn, you want to have good people on your team. When you change your vendor like you change your pants everyday, at some point that’s a problem. It becomes a problem when you need people to be supporting you but haven’t supported them,” he said.
Another lesson — be prepared for when things get better. “You have to keep investing in product lines, merchandise, training people and updating your software so that when things do get better, you’re prepared. If companies fail to make investments, as soon as the economy experiences an uptick, you may not be able to capitalize on the recovery,” Rozmus said.
Look back, look ahead
“When I came to the company we were already a primarily hard surface company, and it was around the time when laminate didn’t even exist. Soon after, laminate came to the U.S. and our laminate business was one of the largest. Now, hardwood and LVT are the hot ticket items because the market and consumer tastes and trends have changed. Today’s consumer has a plethora of choices relative to the consumer of 25 years ago,” Rozmus said.
Electronics and increased mobility has also changed the market, Rozmus added. “Today, everything is done electronically. You have more mobility in the marketplace, with smartphones, laptops, tablets and increased access to the Internet. Information is more readily available, and people’s expectations have changed in terms of timing,” he said.
Rozmus also noted that the company has always invested in both software and computer technology as well. “All investments were made to be more accurate and more efficient. The equipment in the warehouse is computer guided; it has been one major area for investments and logistics. FlorStar was also one of the first adopters of the narrow aisle system in the warehouse and the employee voicemail system,” he explained.
The significance of this anniversary is huge, said Wade. The industry has experienced a number of changes, but FlorStar kept to its roots and prospered.
“The industry has changed considerably over the past 25 years. Wilsonart went away, carpet went away; you add that revenue up and it’s almost 100 million dollars that went away, and to be able to replace that over the same period of time is very significant. Throughout the years at FlorStar, we saw the mills going direct more and more, and we were fighting a losing battle so we said, ‘Let’s bring in more hard surface.’ That’s probably the most significant event in our history. We also have a great succession plan and players to fill the holes leftby those who retire. I feel good about the team we have to drive business in the future,” he said.
FlorStar will celebrate its 25th Anniversary in a number of ways throughout the year. Cassidy will once again set out on an RV tour and the company will host an employee appreciation day. It also modified its corporate logo to include the 25th Anniversary.
Contract shines at NeoCon 2013
Amy Joyce Rush
NeoCon has been a hallmark of commercial business for nearly half a century — this year marks its 45th year. What started as a furniture show has grown to be so much more for the commercial market, the sustainability movement and the flooring industry in particular.
This year’s NeoCon, running June 10 through 12 here, promises to deliver a comprehensive line-up of exhibitors — online registration of attendees at press time was running some 49 percent above last year. Permanent space is about 99 percent occupied and sales of temporary exhibit space are up over last year’s numbers, according to Merchandise Mart Properties Inc. (MMPI).
“The numbers are all looking really good. It speaks to the strength of the industry and the positive attitude, and that day to day business is up,” said Byron Morton, vice president, contract furnishings leasing, MMPI.
Morton said that what has fueled the show these 45 years is, at the core, new product. “Year in and year out, suppliers bring new products in a mass introduction at NeoCon. That is why attendees say they come — to see new product. As a result, we’ve seen the new product cycle follow the show — it builds buzz and excitement. Some 95 percent of attendees say that is why they come to NeoCon,” he said.
The other component, said Morton, is the concentration of product that is seen at the show. “Nowhere else in North America do you have the opportunity to see more than 700 manufacturers in one place. NeoCon started as a furniture show and over the years introduced all of the other components that go into a commercial environment. So it’s not just furniture and seating and casegoods, but files and storage and textiles and leather and carpeting and moveable wall systems and lighting and technology,” he said.
One focus this year is the Outdoor Office with a major exhibit on the seventh floor reflecting changing working habits that include mobile devices and allow the freedom to work outside a traditional office space. “It’s not just about putting benches on a deck within an office building; it’s about creating spaces where people can truly work outside,” noted Morton.
As the show has expanded, so too has the flooring sector. “When you look at some of the major manufacturers, they are expanding into resilient or hard surface flooring either organically or by acquisition. For example, Tandus was acquired by Tarkett, Patcraft has a new resilient product, Shaw has a resilient product. It’s not just carpet anymore,” said Morton.
Flooring exhibitors in the temporary space take up about 10,000 square feet of space — some 7,000 square feet of which is somewhat clustered together. “Flooring exhibitors on the eighth floor are naturally grouped together and leverage each other’s traffic and enjoying that benefit. It’s an exciting thing,” Morton said.
Flooring suppliers in permanent showrooms have remained stable, according to Morton. “From a pure appeal standpoint what I get out of flooring manufacturers being at the show is this great sense of texture and color and new insights into the subjects that designers love.”
While the number of flooring suppliers at NeoCon has grown over the years, in recent history, it has been a result of a crushing residential market. Commercial business was at times the only bright spot and growth opportunity for some flooring suppliers. “Through the downturn, so many flooring manufacturers were frankly in pain as residential was the vast majority of many of their businesses. They looked to us to build and produce a great show and help maintain momentum in the contract market which typically can be higher margins and the ups and downs not as severe as in the housing market,” Morton said.
Now, he said, as residential markets start getting stronger, he expects it to translate into commercial as well. “We absolutely feel a recovery. We follow a number of indexes for productivity in the contract world and those numbers are up for 2013. The other thing we have seen at architecture and design conferences this year — the majority of projects being worked on are commercial office, which hasn’t been the case. That is a huge bright spot for the flooring industry and commercial overall. Companies are moving again and expanding again. Then you have this whole social design vernacular that is contributing to more interactive and collaborative spaces in the work place and that’s causing a lot of renovation. You are seeing that where the major design firms are billing their time,” explained Morton.
Hospitality will become a major force in the next couple of years as well, he said. “Many of the hotel chains have not done a lot of renovation over the last couple of years because business travel has declined. We are now seeing projects by major hotels where hotels are being built or renovated.”
Morton said that several major end-users such as Walt Disney World, Marriott and Hyatt are all pre-registered to be at this year’s show. “That could turn into another real force. Designers are saying that’s the second largest concentration of projects being worked on this year,” he noted.
Culture of leadership
NeoCon has been at the forefront of sustainability but Morton said it is simply due to economics.
The Mart building was certified in 2007 as LEED EB Silver and is currently in the finalizing recertification process which should be completed by NeoCon. Morton said he expects at least Silver certification but hopes to outperform that level.
“When we got certified originally, it was in some of the softer issues around that. We’ve done a lot of things at the Mart that were sustainable before sustainable was cool and it was driven by the size of the facility because it was more efficient. We always had a fresh air cooling system and we have a 200 square yard ice farm in the building used to provide chilled water. It’s not just because of our client base that we serve but because of the way the building is designed and we operate to be profitable,” he said.
This year, the show is producing, along with the USGBC, a LEED exam prep. MMPI is also refreshing the green spot on the first floor of the building that is a permanent exhibit including a sustainability timeline, including efforts within the building, and featuring sustainable products from the tenants.
Last year, NeoCon did a back of the house composting program for food vendors at the Mart and this year the effort will be building wide so attendees will see that in the front of the house as well, Morton said.
Technology also plays a key role at the show. “One thing I’d love for attendees to know about is myneocon.com. This is the third year with this as a component of the show. It is the online component of the show and allows attendees to see products being show, plan their experience. They can tag products that they must see on the visit and set up appointments with manufacturers. That is a real big push for us — to continuously improve the online experience,” said Morton.
Morton is also particularly proud of this year’s keynote speaker line-up which includes architect Bjarke Ingels, founder of BIG (Bjarke Ingels Group)Michael Vanderbyl of Vanderbyl Design; Holly Hunt, president and CEO of Holly Hunt; and, Lauren Rottet, founder of Rottet Studio.
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