Adapting 2 Win-Two Leading Perspectives - Jan 2011

To gain insight into strategies for navigating the uncertain retail and builder markets, Floor Focus reached out to two leading Floor Expo members, Doug Chadderdon, president and CEO of Great Floors, and Nicholas L. Freadreacea, president of The Flooring Gallery, who offer commentary on how they keep their businesses right-sided through these recessionary times. While well-constructed marketing strategies and diversity (in both product lines and market segments) contribute to their achievement, both retailers credit their employees, first and foremost, as the most significant factors in their business’ success.

Q: How many locations do you have and how broad is your geographical coverage?
Chadderdon: Great Floors has 17 locations. Fifteen are retail stores; one store is commercial sales only, and the last location is slab granite sales. We operate in Washington state and Idaho.

Freadreacea: We have seven full retail stores and one design center that is by appointment only. We also operate three distribution centers to support the stores. We do business within a two hour radius of the corporate office in Louisville: Lexington; Independence, Kentucky; and southern Indiana from Madison to Columbus.

Q: How does your business break out into the different sectors?
Chadderdon: Most of our business is residential replacement (35%), followed by single-family builder at 20% and contract at 20%. Mainstreet makes up another 15%, and multi-family is 10%.

Freadreacea: The Flooring Gallery is 47% residential replacement/retail, 38% single-family builder, 8% multi-family, 4% contract and 3% mainstreet.

Q: What products do you sell besides flooring?
Chadderdon: We sell granite from our fabrication facility. That business is about 50% retail and 50% new home construction.

Freadreacea: We are also in the window treatment business. We have found it to be a nice complement and a way to offer a broader service to our customer base.

Q: Which of the sectors that you serve have the best margins?
Chadderdon: Retail sales have the best margins but also involve the most costs, so higher margins are necessary.

Freadreacea: The retail business has the highest margins, but, of course, this business also has the highest cost associated with it. To be in retail, you have to be in better locations, carry the cost of advertising, have better and broader sampling, and shoulder the high cost of advertising to drive traffic.

Q: How do you market yourself to each of the segments that you serve?
Chadderdon: We use the Great Floors brand in all segments. Our retail marketing is a combination of our website, TV, radio and print, although our print advertising is much less than it was just a few years ago. The builder and multi-family marketing is done primarily through direct contact with customers by our sales force and through select trade show participation. We market to the commercial customers with trade shows, our commercial website, and with direct contact by the sales force.

Freadreacea: We use The Flooring Gallery name for all segments of the business. We market differently by having a separate sales force that primarily calls on the builder and multi-family markets. We have found that there is a completely different skill and knowledge set for retail and outside sales. As far as advertising to the retail base, we use a combination of radio and television. We have virtually eliminated all print advertising and put those resources into keeping our website fresh and updated.

Q: Have you picked up business from weaker competitors who have folded?
Chadderdon: Not really. The smaller retailers seem to hang around even through tough economic conditions. There are not too many major retailers in our market (other than the big box stores), so we have not noticed much of a change there. We have been presented opportunities in the commercial market because some competitors are in a weaker financial position than they were previously.

Freadreacea: We have not lost any major players in the area at this point.

Q: What do you believe makes your business successful?
Chadderdon: It has been a combination of many things, starting with a dedicated and talented sales force. Consistent marketing of our brand has been most beneficial, and, of course, a very healthy relationship with our vendors has been important to our success.

Freadreacea: The biggest factor is always people. We have a group that has been working together for over 30 years, and the perspective that gives has proven invaluable during the downturn. We have also diversified our products and expanded our offerings to our customer base. We were early adopters when hard surface products started taking marketshare from carpeting. We have grown in ceramic and laminate each year even as other portions of the business have diminished.

Q: Are the home centers a threat to your business?
Chadderdon: The home centers are certainly the competitors that consume most of our time and energy. They are national and have credibility with consumers. They have convenient locations and powerful advertising so we focus a lot of thought on how to compete with them. We are confident that when we get the opportunity to compete we are successful most of the time because of the value and service we offer. They have changed the retail market with the focus on installation rather than product, so we have had to adapt to that. Once you accept that the landscape has changed, you can find a way to compete with them. So far we have not been affected in the commercial and new home construction markets by the home centers.

Freadreacea: The home centers are a major threat in the retail business, not so much in the builder side of the business. Builders need the expertise of our selection and scheduling process along with credit policies that the home centers do not offer. The home centers are major advertisers for retail flooring and have taken the expertise of professional installation away by deeply discounting or giving that value away. A retailer can still offer a better total value but only if a customer comes in to find that out.

Q: How do you think this year will be in comparison to last year?
Chadderdon: I think this year will be a lot like last year. There is still a significant housing problem in our country. Until we see home prices stabilizing and eventually rising, it will be a challenge because people don’t want to invest dollars into an asset that is declining in value. I do think the multi-family market will be better, and I am seeing signs of improvement in the commercial market in our area. Banks are more willing to lend today than the past couple of years, so we should see more projects coming out of the ground. If things go as we think, we should see a 5% increase in sales and hopefully some improvement on the margin side.

Freadreacea: I think we all hope that it will be better, and there seem to be reasons that it may improve. There is reduced inventory on both new and existing homes as well as multi-family. There is still the American dream of owning a home, and rates are still low and very attractive. Our retail traffic was good last fall, and there was a big year-end push to get projects done in the home. In November, new and existing home sales were up after a lackluster October. I think the public is ready to buy if we can only find a way to raise their confidence in the economy.

Q: How important are flooring brands in the eyes of the end user? Do they play a role in the selection process?
Chadderdon: They do and they don’t. In the past three years price has become so important that brands mean less to the buyers looking for a deal. We are still having success with brands like Karastan; and fiber co-branding is important for our retail advertising so we feature them in most of our ads. Consumers will come back to wanting quality, as well as a competitive price, and then brands will help support a buying decision.

Flooring has become more fragmented with laminate, wood and ceramic. Most buyers think wood is wood so they don’t shop for a brand, just a quality product with a good price. The same is true with ceramic products. I don’t think most consumers can name a brand of ceramic tile, so brand is really not important in that category.

Freadreacea: Brands are actually less important now than they were in the past. There was a time when a consumer could depend on a brand to differentiate it from a commodity product and ensure better quality. Now many of what were the best brands are in the home centers, and these brand names have been driven down into commodity items. We have seen this happen in laminate, wood, vinyl, and now carpet fiber. Any time that the pricing becomes the main issue, you lose the value of the brand.

Q: Do you allow your sales people to be motivated by SPIFFs offered by the manufacturers?
Chadderdon: Yes, we do, but we don’t want the manufacturer SPIFFs to get in the way of promoting items that are important to us. We stock a large amount of products and we need our people focused on those items first. Our best partnerships happen when a supplier is SPIFFing an item that we have made a commitment on or an investment in inventory. That is when both companies win.

Freadreacea: I do allow all SPIFFs to be passed to the sales force but frankly most of our people concentrate on our internal SPIFF program. Many times the manufacturers’ SPIFF programs are not that easy to participate in or the product offered is not what the consumer needs.

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