Thursday, May 5, 2011

Springtime in the Flooring Business

The National Wood Flooring Association (NWFA) convention was held last week in San Diego. The U.S. government made decisions about the imposition of anti-dumping duties on Chinese flooring. The business climate is... improving? I'll have more to say on all these subjects today.

The NWFA meeting was in one of America's most beautiful cities, San Diego. The weather was extraordinarily nice - warm sun in cool air, my favorite. I know this city well, since both my sons graduated from college here. We have visited many times, waving goodbye to all that tuition money. Plus, one of boys still works occasionally in San Diego, for the San Diego Padres baseball team.

So, I need very little encouragement to head off to San Diego! But, interestingly, judging from the apparent attendance, my enthusism was not shared by many others. The convention itself was held in the SD Convention Center, a huge complex; and being there was like being "a BB in a boxcar." The steady NWFA stalwarts had their exhibit booths, but there were precious few of them. The entire show floor could be easily traversed in a half day - no need for a three day hotel room unless you were tied to the organizer's schedule of events on various different days.

Even worse, the show attendee ranks were very thin! The numbers reported from the floor were all over the map. Officially, according to the NWFA, attendance was 1900. Boothed vendors I talked with had heard numbers from 700 to 7000, but many concluded that however many there were, they were all somewhere else!

But, wait, it's not all bad. As an attendee myself (one of the official 1900), I enjoyed the show a lot. There were so few attendees in the aisles, I got to chat with virtually everyone, for extended periods if I wanted. I ran across friends in the aisles that hailed me, or me them, for catchup conversations. This never happens at bigger shows, where the aisles are stuffed, and you never see anyone you know without an appointment.

I have learned in the past several years how to decode the official and unofficial commentary on tradeshows, depending on who's talking. My favorite is the comment that, "while attendance was low, enthusiastic vendors exclaimed that the attendees were serious about business!" I have learned this is code for "how do I explain to my boss that we spent all this money, only to generate this lousy number of business leads?"

I also heard the opinion that the sturdy exhibitors must be the long-suffering survivors of the last several years of lousy business, and therefore they must be the most important companies. There's probably truth there, but not necessarily the obvious truth. More than one long-term "survivor" vendor told me they were there as a last-ditch effort to wring some value from the trade show strategy; and if it didn't work again this time, they were signing off of trade shows forever.

That attitude doesn't sound much like the execution of a clever long-term marketing strategy, but rather marketing exhaustion at the end of the game. I have a hunch the trade show industry at large is in for tough times ahead.

Unlike at the Surfaces show in February, the Chinese contingent at NWFA was largely gone. They appear to have awakened to the fact that their business model of cheap imported flooring in massive volume is under severe attack, and the expense of the NFWA trade show was good money after bad. Several American friends exhibiting Chinese product allowed as how they were all set up now in other, non-Chinese production venues, and ready to fill the supply vacuum created by the U.S. government. Furthermore, many have now confirmed to me that the government action left the window of opportunity open for them and everyone like them (see my previous blog on this very subject) to "beat the tax," and that the stateside inventory of Chinese-produced flooring is now absolutely huge. I'm told literally thousands of containers of flooring have been imported in the past couple of months, and the coastal storage facilities are so full of Chinese flooring that stocks are being temporarily stored in the Midwest!

So, perhaps the backers of the duty action will have a new, different, and maybe worse problem - an anticipated disappearance of cheap Chinese flooring may become a deluge of even cheaper Chinese flooring, as massive inventories in all the wrong storage places get liquidated. The best laid plans...

Still, one has to shake his head at the unintended consequences of virtually any action with scale. The looming prohibition of Chinese flooring production for the U.S. begs the question of where to find equivalent production capability, both in required quantity, quality, and low cost? These are not easy tasks, or they would have already been accomplished. The leading candidates are Vietnam, Malaysia, Taiwan, and Indonesia. Each has its own problems, ranging from cultural mindsets that misunderstand quality issues, to lack of proper infrastructure, to "official" preferences for higher levels of product manufacturing like semi-conductors, to significantly higher costs of labor.

The odds-on favorite would appear to be Indonesia, where the drawbacks are fewer and less severe, and where a wood-based economy has thrived for years as the foremost world producer of  hardwood plywood. Ironically, the Japanese earthquake has pressured the world production capacity for plywood to the extent that excess capacity to make wood flooring may be unavailable for many months or perhaps years to come.

If Indonesia is realistically out of the picture, then the second or third choices will either raise costs considerably, or lower quality considerably, or both. Yes, Anderson Flooring and the gang may get some more business, and I hope so, because that will favorably impact our company Plantation too. But I suspect the importers, overseas producers, and mostly consumers are unlikely to roll over quite so quickly. They will continue to buy low price - and be unaware of the tsunami of bad quality flooring likely to soon be coming ashore.

My final topic today is business conditions...improving? It seems so - the inquiry rate has been prodigious, and the closing rate is on a steep vertical climb. I assume others in our industry are like us - we've been working six days/week, and ten hours/day, just to get the orders out. We're the guys frustrating President Obama - we have the work, but we refuse to hire new people for fear we'll have to lay them off suddenly. We, like others, simply don't trust our eyes and ears. We can remember very well when we thought things were running along great, and then they weren't!

But we're getting close to hiring again. All I need is for the order book to lengthen a bit more, and we'll be forced to get more production capacity. Interestingly, the growth is not residential, where I thought it would be. It's commercial. Our line of boutique commercial wood flooring we introduced last year is getting legs. The product is unique in that we'll design and make it to the project spec, rather than throw out  numerous SKU's hoping to hit a market. Our biggest challenge is informing the A&D community that this customization can be reliably done at all, and at a cost their projects can afford!

So, as we sit today, business has been improving for several months. At least in our industry, we seem to be at the tipping point, where further improvement will create conditions that must be addressed for expanding through hiring and additional investment. Is it real? Will it hold up?

Sure hope so!

Wednesday, February 2, 2011

Post-"Surfaces" Commentary

The annual floor covering trade extravaganza, Surfaces, convened once again in Las Vegas last week. We at Plantation opted out of the opportunity to spend vast amounts of money reserving exhibit space, then building, shipping, assembling, staffing, tearing down, and shipping again the typical Surfaces exhibit booth, all for the purpose of visiting with uncertain foot traffic of existing and potential new customers for custom-made wood flooring. The return on investment in such an undertaking has proven over several shows to be miserable.

Instead, we visited all our friends who did have exhibit booths! And, plenty of others with whom we made appointments to meet for meals, get-togethers, visits to hospitality suites, and similar experiences. We even tried to make it to a seminar or two (but failed). To me, it felt like we were in much better control of our agenda at the show, because we were highly proactive with our activities, rather than passively waiting in our booth for our appointments to show up (or not), and being ready for random visitors to slow down to see our goods.

We probably missed seeing some people that we would like to have seen. But we were busy the entire show, and accomplished a great deal. Could this be the true answer to how to maximize the trade show experience as a manufacturer?

People have asked me in the aftermath, "How was the show?" My impression of the show is that it was smaller (less square footage of exhibits) than ever before, in spite of being combined with an entire separate industry of stone flooring. But, almost everyone I asked for an appointment was in fact planning to be at the show, so, although hard to really know, the attendance was probably pretty good.

I don't know if my reaction and thinking is typical of anyone else like us, but I observed the noticeable absence on the show floor of some major players. Probably most striking was the absence of the mega-booth annually constructed by Shaw's Anderson Floors. I shudder to imagine how much money those guys have spent on those bygone exhibits that look like an indoor city. I also wonder what thinking led them to change their strategy this year? Mannington had an entire presence outside the show itself, off the show lobby. It had high walls with an entrance, and to me, seemed like a daunting gauntlet to run through unless you had specific business with Mannington.

On the other hand, the Chinese presence was once again large, with larger booths, and more personnel. I was somewhat amazed by this fact, since the threat of anti-dumping action against their displayed products hung heavily in the air. It is almost like they didn't get the memo that the U.S. government was far advanced in putting them out of business!

To be fair, several people at the show do not believe that anything will actually happen. They believe that the threatened duties is a large head-fake, and that punitive duties will never be implemented. Some expressed the opinion that the U.S. is so heavily dependent on Chinese financing of U.S. government debt that it would never dare to follow through. People with these opinions seemingly were heavily invested in the China-made business model, as importers or distributors of cheap Chinese flooring. They were, as we used to say in the trading business, "talking their book." Oddly, there were even a few who seemed to be unaware that anything at all was happening!

I am glad not to be an investor today in a China-focused wood flooring enterprise, because those guys are betting the ranch against U.S. action, and the wind seems to be blowing the wrong way for them at the moment.

The new site of the Mandalay Bay Convention Center seemed fine for the purpose, although the location is at the far south end of the strip, and thus not so well located for other visitor activities. I spoke with several folks who claimed they hadn't even left the hotel property at all! That's probably music to the ears of the Mandalay Bay! The restaurants on site were fine, if a little crowded. Over the space of a few days, the variety of on-site eating opportunities became a bit thin, but not a big deal.

All-in-all, we had a good, and informative experience, but only because we did it differently than in past years. We met with, and strategized with, a lot of people important to our business. And, let's be honest, business is so much better this year than the previous few years, it's not so surprising that we feel better about it all.

Now, what to do about all the other upcoming 2011 shows?

Friday, December 31, 2010

Happy New Year?

Here's a wish to you for a Happy New Year!

Wait, you say... what makes anybody think it'll be happy, at least for those of us in the wood flooring business? The pundits and corporate leaders in the trade have declared uniformly that 2011 will be a sluggish year for flooring of all kinds (see Floor Covering News dated December 6/13 - ). No particular joy there.

But did you see the copper close today? Copper prices are up 33% for 2010. Other metals prices have been strong too. But copper takes the cake.

So what?, you say. Floors aren't made of copper...

As a former professional trader, I know a few things about copper, and copper trading. Did you know that copper has always been referred to as "the metal with a PhD?" Yes, historically, copper is considered to be the vehicle for the "smart money" forecasts about industrial activity in the coming months. And copper closed the year up 33%!

This is meaningful. Oil closed up as well, gold and silver, other commodities too. But those contracts only have undergraduate degrees. Not copper. Copper has a PhD. Copper knows something.

Maybe copper simply knows that the Chinese are going bonkers industrially. But, everyone knows that! Maybe copper knows that the Chinese industrial juggernaut is going to rub off on the entire world in 2011?

I have another indicator too, a personal one. From many years of supplying and servicing the industrial wood flooring markets (trucks, trains), I have observed that the industrial flooring market turns, up or down, about six months before the general US economy. It's been like clockwork for twenty-five years, through five economic expansions and contractions. And guess what...

That market turned up last August, 2010.

Our commercial and residential wood flooring business turned upward in late November and December, 2010. That other market, the industrial market, is still screaming hot in December, 2010.

Copper, and industrial flooring, and Plantation Hardwood Floors are all shouting, "Happy New Year!"


Thursday, December 23, 2010

The Christmas Miracle

Much has been written about the Christmas Miracle, that being the birth of the baby Jesus, and related subjects. This is not about THAT Christmas Miracle.

This is about the fact that most of my friends and acquaintances in the wood flooring business are BUSY! The orders are flowing, the factory is humming! Christmas vacations here have been cancelled, or postponed, so we can get the orders out!

We're calling it the Christmas Miracle.

We at Plantation Hardwood Floors hope you're enjoying your own Christmas Miracle, whatever and wherever that may be.

Monday, December 13, 2010

Import Duties - Who Forgot to Close the Back Door?

The Federal Trade Commission, or whatever alphabet soup agency is driving this bus, proceeded to authorize the formal investigation and imposition of two kinds of import duties on Chinese engineered wood flooring. If the intent was to stop the importation of subsidized flooring, it looks to be a failure already.

If I understand this situation properly - and who knows if anyone understands this situation properly? - imports from China after February or March, the date being not specific, will carry the import duties. Imports prior to that date come in at current rates (that is, duty-free).

So, importers and Chinese manufacturers defending their massive market share in the U.S. have until February or March to do whatever they're going to do. And what would that be? BUILD INVENTORY, of course! This office hears talk of hundreds, if not thousands, of containers of Chinese engineered flooring being prepared for shipment to North America, immediately. The thinking goes, so I'm told, that one year's worth of inventory stashed in the U.S. will protect the business while alternate factories are being set up in Vietnam, Malaysia, and/or Indonesia. These alternate countries already have flooring production infrastructure, and are not threatened with U.S. import duties.

So what's been accomplished? Besides severely annoying the Chinese govenment and some large American enterprises, it's probably not hard to conclude that cheap flooring not only has not been eliminated, but is probably here to stay, from many now-diversified Asian sources. Good news for many, including for Indochina and Southeast Asia producers, and for low-priced, deal-seeking American property owners; not so good news for the coalition of companies that brought the action to begin with, and all other domestic parties facing international competition for the scarce wood flooring buyer.

Well then, how about some more positive, and somewhat related news? We closed a deal to provide U.S.-produced custom wood flooring to a project in China... too bad it's not thousands of containers, or else we could claim to have single-handedly offset the apparent bungling of this trade action.

At least, we've deposited some yuan in our account at Bank of America...and we appreciate the business!

Monday, November 15, 2010


Here's an update on the anti-dumping action against Chinese engineered flooring, posted today, November 15, 2010.

Follow this link:

Saturday, November 13, 2010

Still Mired in the Sludge of the 2010 Economy

Time is getting away from me again! But maybe it's because my life is full. Full of mostly great things. The family is doing well. One son about to graduate from film school with his Masters degree, another recently engaged to be married to a great young woman whom his mother and I really like. How good is that!

The high-end wood flooring business remains mired in the sludge of the 2010 economy. Meanwhile, I've been thinking about and looking around, sort of, for a fresh banking relationship. The prospective new bankers ask me the oddest questions now (not like the old days, when a decent credit score and a signature delivered the keys to the kingdom!). These bankers want to know what industry we're in! When they discover we're in the building industry, the light goes out of their eyes. I never thought I would encounter a banker with an "industry filter" in place.

But, it's okay. We don't really need a banker anyway. And I'll confess I'm bemused by the situation in banking nowadays. The Obama administration's Treasury department is shoveling liquidity into the economy, with plaintive statements about funding small businesses to get some job growth. But who do they shovel the funding to? They shovel it to the collection of entities that expressly will not fund small businesses...the banks!

If you ask a banker about this, he will protest loudly that his bank wants to lend. Just not to you.

Is anyone following the current sleeper activity in Washington, DC about indicting Chinese engineered wood flooring manufacturers and importers with dumping product into the U.S. at below cost, or with Chinese government subsidies? Yes, this is happening right now. And while Plantation has no Chinese products, it potentially affects us, and everybody in our business, one way or another.

Most people I speak with in this business are simply unaware of this potentially major disruptive influence on our business. The bigger boys in the wood flooring business (Armstrong, Anderson, Nydree, etc.) have filed an anti-dumping complaint with the FTC. My understanding is that the complaint has been accepted, is being validated, and a decision as to whether to investigate formally is due very soon, as in early December.

The potential here is that Chinese wood flooring imports may soon be dutied at levels that bring their costing way, way up! This of course, would be bad news for the general American consumer, who has been trained to believe that wood flooring is always cheap, really cheap. But it would be absolutely devastating news for importers and companies who are completely dependent on imported Chinese flooring at rock bottom pricing (can you say, Lumber Liquidators?).

The additional interesting news is that, if I have this right, any duties eventually levied will be retroactive to the formal investigation date. Think about that. The Feds may eventually decide on a duty rate, say, eighteen months from now, and announce it at that time. All imports since December, 2010 would be levied at that rate! That means all importers would owe the government massive amounts of money, covering their imports from the retroactive date.

Another complication: if the Feds decide to formalize this action, importers will be required to post a bond that guarantees they will pay whatever duties they owe, in whatever amount they owe, which they don't know and cannot know. Try writing and pricing that bond.

For a businessman, all this presents a big-time problem. What to do? Nothing? Everything?

I may be overthinking this subject, but I see this as a potential sea change in the wood flooring business. The NWFA has all the info. Plus, if you care to pursue it, there is a website link:   Stay tuned.

Oh, by the way. We have an FSC-certified manufacturing facility with a California, USA address. Anybody need some local manufacturing to defend your brand while the Feds take their sweet time ruining your business, and while you're busy visiting new flooring mills in Vietnam? We'll be happy to take your call.

While we're waiting for the flood of calls from importers needing contract manufacturing, we'll be pursuing our newest initiative: custom finishing. The idea itself isn't new... but it is new to us. We have exceptional finishing capability and know-how, and have been using those assets in our own branded products. Now, we're willing to spread the wealth, and the orders are starting to flow in. We have perhaps the only flat line UV roll coat finishing machine "for hire" on the U.S. West Coast. Our finishing machine is set up in such a way that we can and will do short-runs, meaning low or no-minimum lots. This is important, since it means we will take your 2000sf order at a reasonable price, rather than insisting on a minimum 20,000sf order just to flip the switch.

At Plantation, there are several other initiatives too - ranging from a new specialty product utilizing some amazing technology, to new pathways to reaching and informing customers about the joys of customized wood flooring. More, later.