Floor Covering Weekly February 10, 2014 : Page 1

Vol. 63 No. 3 1 A Hearst Business Publication January 13, February 10, 2014 2014 $4 SURFACES P OST 2014 Takes commanding share of eastern US, says no to national distribution despite size By Santiago Montero [Glen Burnie, Md.] Haines, the nation’s largest floor covering distributor, has just bought out one of its strongest competitors CMH Space Flooring, the No. 3 distributor on FCW ’s Top 25 list. Combined com-pany sales will exceed $500 million, giving it a commanding presence and influence throughout the flooring industry. Hoy Lan-ning, previously CEO of CMH Space and one of its owners, will join the Haines executive team for the longer term while remaining CMH partners, John and Kerry Capell, and Marsden Haigh will stay on during a transi-tion period. Bruce Zwicker, president and CEO of Haines, said the companies will run sepa-rately during this period in order to fully integrate the two organizations in everything from computer and warehouse inventory systems to sales territories and personnel. “We were able to do a lot of things at once,” explained Zwicker. “We are able to get scale; and that is an important reason for doing the acquisition. When I look at the business world, it’s getting smaller, distributors are going away and so are our dealers. We see the declining market share of independent dealers; flooring is not a high growth business; and, there is a lot of excess manufacturing capacity. In those environments — slow growth and margin pressure because of excess capacity plus the fact that imports are now 32 percent of all products sold in the U.S. — we’re going to be in a modest margin business. Which means we have to gain share which we just did with CMH, and we have to have scale to get our cost down.” The acquisition also gives it growth in the installation supplies business and an expanded presence in the state of Georgia, both important considerations for Haines. Diversified Beyond that, Zwicker envisions trans-forming the way Haines does business with the creation of new multidivisional company — one for its supplies business, one full line flooring distributor and one dedicated solely to Armstrong — each with its own executive at the helm. Haines Acquires CMH Continued on page 22 Hoy Lanning, CMH, and Bruce Zwicker, Haines A true turnaround Surfaces points to real growth in 2014 By Amy Joyce Rush [Las Vegas] Surfaces kicks off a year that will be filled with tradeshows and conventions, so the pulse here is a good marker for things to come, said exhibitors. For the first time in a number of years, the energy here was real — enthusiastic, aggressive, joyful even. Russell Grizzle, CEO Mannington Mills, told FCW on day two, “Everybody seems positive. There is a positive attitude coming into the year from retailers and distribu-tors.” He said that Mannington was show-ing almost 500 new SKUs here in Vegas. New Armstrong president Tom Mangas noted, “There is a sense of optimism. No one is talking about economics. 2014 is a good year; 2015 to 2016 will be great years. It’s nice to have tailwind.” Jamaan Stepp at Home Legend said, “These guys all survived the cut,” noting that show traffic was robust but more importantly, representing the strongest of flooring buyers. It wasn’t that traffic appeared to be all that better than in the past few years, but the hunger for new products on the part of dealers and distributors and the invest-ment in new products and initiatives by exhibitors here at Surfaces was stronger than it has been in a long time. “People are looking for immediate growth and are willing to invest in new technologies and innovation,” said Aaron Pirner, president and CEO of CAP Carpet and White Oak Carpet Mills. Exhibitors here focused on targeted initiatives, unique and different product offering, moving forward in integrating technology and working on social media platforms and websites. Mohawk, a company that has put its money into developing innovative product and processes, reported that its investments are now paying off. After two years in his current position, Brian Carson, president of Mohawk Flooring Business Unit, is more optimistic than ever about the company’s prospects in carpet. “Mohawk has achieved growth in soft carpet, in SmartStrand, Wear-Dated and is now launching Continuum polyester,” he said. “Mohawk invested $500 million in Periodical For breaking news updated each business day, visit us online at www.fcw1.com Continued on page 18

Haines Acquires CMH

Santiago Montero

<br /> [Glen Burnie, Md.] Haines, the nation’s largest floor covering distributor, has just bought out one of its strongest competitors CMH Space Flooring, the No. 3 distributor on FCW’s Top 25 list. Combined company sales will exceed $500 million, giving it a commanding presence and influence throughout the flooring industry. Hoy Lanning, previously CEO of CMH Space and one of its owners, will join the Haines executive team for the longer term while remaining CMH partners, John and Kerry Capell, and Marsden Haigh will stay on during a transition period.<br /> <br /> Bruce Zwicker, president and CEO of Haines, said the companies will run separately during this period in order to fully integrate the two organizations in everything from computer and warehouse inventory systems to sales territories and personnel.<br /> <br /> “We were able to do a lot of things at once,” explained Zwicker. “We are able to get scale; and that is an important reason for doing the acquisition. When I look at the business world, it’s getting smaller, distributors are going away and so are our dealers. We see the declining market share of independent dealers; flooring is not a high growth business; and, there is a lot of excess manufacturing capacity. In those environments — slow growth and margin pressure because of excess capacity plus the fact that imports are now 32 percent of all products sold in the U.S. — we’re going to be in a modest margin business. Which means we have to gain share which we just did with CMH, and we have to have scale to get our cost down.”<br /> <br /> The acquisition also gives it growth in the installation supplies business and an expanded presence in the state of Georgia, both important considerations for Haines.<br /> <br /> Diversified<br /> <br /> Beyond that, Zwicker envisions transforming the way Haines does business with the creation of new multidivisional company — one for its supplies business, one full line flooring distributor and one dedicated solely to Armstrong — each with its own executive at the helm.<br /> <br /> It is perhaps in the full line flooring distribution division — referred to internally as Diversified (for now) — where the impact of this growth will be most felt within the organization and by its specialty retail customers.<br /> <br /> The sheer breadth of its branded product offering will be one of the major factors to impact retailers early on. This line up of some of the industry’s most powerful brands may be the deepest among any distributor offering and uniquely positions the organization to service more and more of its customers product needs. But, not all products in the portfolio will be available in all areas Haines services due to distribution rights. Meanwhile, Zwicker promised, “While private label plays a small but important role for our customers, we believe in brand names and we will stick with brands. The last thing we want to do is upset our loyal suppliers or disrupt customers from buying the products they buy from either Haines or CMH.”<br /> <br /> But the driving force for the acquisition “is to have a customer proposition that is the best in the industry,” said Zwicker. “Now we have the best product portfolio and a logistics model that is as strong as there is in floor covering. Our dealers can place one order for a whole lot of products. They will be able to do one transaction, one order, one receipt, use web based technology for convenience, and bundle their deliveries to get economies in delivery fees.”<br /> <br /> Noting how important inventory is in today’s flooring business, Zwicker points out that with a logistical network of 10 warehouses and hundreds of trucks, Haines can literally “swing inventory all up and down the mid-Atlantic and southeast.”<br /> <br /> The acquisition also gives Haines a strong supplies division — small locations where installers come in early in the morning to pick up adhesives, kneepads, tack strip. Haines started selling installers last year through its acquisition of Allied Products. CMH Space is in that business too. Between them, they now have 26 counter locations and a mandate for further growth.<br /> <br /> “When we’re all done, we’d like to have a supplies business that stretches from Pennsylvania/ New Jersey all the way to Florida,” he said. “We want this to be a top of the line place for installers. We will retain the brands of Allied Products and Space and Ellis so that installers can identify with the place they have been going to for the past 15 or 20 years.”<br /> <br /> Finally, the Armstrong division will give both Haines and Armstrong a stronger position in the market and has the full support of Armstrong executive leadership.<br /> <br /> “Armstrong doesn’t have in its distribution network today anything that looks like what we’ll be developing which will be a dedicated division. There will be an executive and sales force doing nothing but selling Armstrong. That’s unique,” said Zwicker.<br /> <br /> Fully prepared<br /> <br /> Zwicker defines Haines as a very conservative company financially: strategic and conservative. Not only has it never lost money, not even during the recession, it has remained under leveraged, and will remain properly leveraged even after this acquisition. But it has also readied itself for the challenges growth will bring.<br /> <br /> In preparation, Zwicker said he’s added executives to his team, added IT and HR talent to strengthen its back office, and even augmented its Board of Directors. It has hired Price Waterhouse Coopers as advisors as well as a logistics provider to help build and expand its network.<br /> <br /> It also learned from the mistakes of the past. While other distributors this size have pursued national growth and distribution, Zwicker denies any such longings.<br /> <br /> “I studied Hoboken a lot, why they failed, and they failed on so many fronts,” he said. “We’re satisfied with southeast and mid-Atlantic. We don’t want (to go) national.<br /> <br /> We’re not looking to go west. We just want to be the best and make money — to get to a scale where we can survive and thrive for the long term.”<br /> <br /> Taking the lessons he learned from the recession about controlling costs, he’s confident he can profitably ride out even the next downturn when it inevitably comes.<br /> <br /> “Floor covering is not an easy industry,” he said. “Right now, we’re riding the wave of new construction and remodeling but in three years (we could see) another down cycle. What will we look like when that comes? If you have a plan for the down cycle and work on getting costs down, you can still make money. We are diversified. We don’t have to rely on one particular kind of product, one particular kind of geography, one particular kind of customer. We spread out the risk. Thinking of our ability to survive in the future, we’ll do OK.”<br /> <br /> Zwicker emphasized that, “We have no aspirations to go national. We don’t want to be public. We want to be really good at what we do and where we do it. We’re not going to be the next Hoboken.”

A true turnaround

Amy Joyce Rush

<br /> [Las Vegas] Surfaces kicks off a year that will be filled with tradeshows and conventions, so the pulse here is a good marker for things to come, said exhibitors. For the first time in a number of years, the energy here was real — enthusiastic, aggressive, joyful even.<br /> <br /> Russell Grizzle, CEO Mannington Mills, told FCW on day two, “Everybody seems positive. There is a positive attitude coming into the year from retailers and distributors.” He said that Mannington was showing almost 500 new SKUs here in Vegas.<br /> <br /> New Armstrong president Tom Mangas noted, “There is a sense of optimism. No one is talking about economics. 2014 is a good year; 2015 to 2016 will be great years. It’s nice to have tailwind.”<br /> <br /> Jamaan Stepp at Home Legend said, “These guys all survived the cut,” noting that show traffic was robust but more importantly, representing the strongest of flooring buyers.<br /> <br /> It wasn’t that traffic appeared to be all that better than in the past few years, but the hunger for new products on the part of dealers and distributors and the investment in new products and initiatives by exhibitors here at Surfaces was stronger than it has been in a long time.<br /> <br /> “People are looking for immediate growth and are willing to invest in new technologies and innovation,” said Aaron Pirner, president and CEO of CAP Carpet and White Oak Carpet Mills.<br /> <br /> Exhibitors here focused on targeted initiatives, unique and different product offering, moving forward in integrating technology and working on social media platforms and websites.<br /> <br /> Mohawk, a company that has put its money into developing innovative product and processes, reported that its investments are now paying off. After two years in his current position, Brian Carson, president of Mohawk Flooring Business Unit, is more optimistic than ever about the company’s prospects in carpet. “Mohawk has achieved growth in soft carpet, in SmartStrand, Wear-Dated and is now launching Continuum polyester,” he said. “Mohawk invested $500 million in 2013 in existing plants and will do that again in 2014. About $200 million went into carpet operations. We have been successful and will continue to turn investments into enhanced return. Mohawk is fortunate to have the financial strength to be able to invest in good ideas.”<br /> <br /> Leading with looks<br /> <br /> Exhibitors took measures to boldly change the conversation away from price — the subject of choice during the recession — to visuals.<br /> <br /> “The questions have changed on the show floor. The price of the product is no longer the first question customers ask about. Now, customers ask about product colors and visuals,” explained Richard Quinlan, senior director of hardwood products, Mohawk Industries.<br /> <br /> Forcing the issue — visual first, installation needs and then price — exhibitors drove that message home visually and through product offerings on the showroom floor. One showroom wall at Mannington, for example, showed wood looks across all platforms. “It’s up to the customer what they are trying to accomplish. They all look amazing,” said Grizzle, noting that the first quarter this year got off to a slow start because of weather across the country but that “people are taking a big deep breath and come springtime, things will be pretty good.”<br /> <br /> Quick-Step used the strength of its brand and messaging to layer on a hardwood pro- gram called Q-Wood. Like Quick-Step laminate, Q-Wood is based on supplying a unique product through a trusted supply chain of top distributors. The OpuLux finish keeps the flooring from holding scratches and typical wear and tear — special spray “cleans” away scratches and scuffs.<br /> <br /> “It’s the audience that Quick-Step knows,” said Harry Bogner, senior vice president of hardwood at Unilin. Rather than being part of the wood line-up offered by the various Mohawk brands, (Columbia, Mohawk) this line is more of a complement to the laminate line — featuring Uniclic locking system and unique design.<br /> <br /> In addition to brand expansions, companies looked to partner or leverage sister company capabilities to offer something new and different to the market. Versatrim, for example, addressed the growing LVT market by partnering with IVC to produce custom matching trim and molding for the company’s product line. “There is so much going on in LVT, we are being called for different coordinating product,” said Versatrim’s Tina Keeton Emery. The company partners with other makers as well to feed this growing segment.<br /> <br /> Daltile had a lot to offer including the first fruits of the Marazzi acquisition by parent company Mohawk. Several collections are being made in either Marazzi’s Italian facility or the one in Florence Ala. “We wanted to leverage the technology and techniques they offer,” noted Kirk-Rolley. Part of what Marazzi brings is the ability to make sizes like 6 X 36 and 9 X 36.<br /> <br /> At USFloors, the concentration was on styling. That’s what carried the company through the recession and, according to Gary Keeble, product and marketing manager, will remain its focus this year. “We always have a good Surfaces, even when the economy has been bad because we’ve been on the interesting end of things,” said Keeble, pointing to a number of the company’s offerings including Core- Tec, its engineered luxury vinyl plank and tile line, and show-stopper Castle Combe Grande that featured 9-foot 2-inch long planks.<br /> <br /> In the tile category, bigger, longer tiles were the focus. Manny Llerena and Alberto Pacheco of MSI noted that 12 X 24 and larger are growing in sales. They also said that people are becoming more comfortable with the installation on walls and they are seeing more of an expansion of the category at retail.<br /> <br /> Congoleum used the show to promote its recommitment to the brand and, according to Kurt Denman, vice president of marketing, “The things that brought us to the dance and what will keep us going. The brand is strong and our design is a differentiator. Also, there is something to be said for not dealing with a small vendor.” Denman added that designer Doty Horn has had a great impact on the strong visuals coming from the company today.<br /> <br /> Technology<br /> <br /> Technology has become a very important part of the story. It’s no longer simply about product but rather how to communicate the product to the retailer customer and ultimately the consumer.<br /> <br /> Quick-Step brought a prototype visualizer to the show that allows consumer to place any Quick-Step product in a photo of their home, take a picture and then share it.<br /> <br /> MSI highlighted its Visualizer Tool as well. “We are spending resources, energy and time on showing them what the kitchen looks like,” said Pacheco. MSI supplies tile and stone for countertops, walls and floors so showing the full visual helps show the real possibilities.

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