By Steven Feldman
CHICAGO—“You have the power to influence your business. You’re not a helpless victim of the marketplace. In fact, I’ve never been more optimistic about the opportunities that exist for current FCA Network members.”
So said Bob Hill, chairman of FCA Network, in his opening remarks to the 50-plus retailers who were attending the group’s ninth convention here. It wasn’t intended to be a motivational speech. Rather, he was alluding to how Olga Robertson, president and COO, and Barth Getto, CEO, and are giving members the requisite competitive advantages to succeed in this tough economy. “My only jobs are to keep the dealer ahead of the trends and keep them competitive in the marketplace,” Robertson said.
It appears to be working. Few members reported profitability being off significantly in 2007, a testament to FCA’s private-label products, programs and buying power. “As a group, we were about even versus 2006,” she said. “So in a down economy, when you are flat you are actually up.”
Driving this performance is a move toward higher-end goods. In fact, Robertson said members increased by 37% their sales of better goods last year, specifically the proprietary Taylor Wirth brand.
Building on that momentum, FCA Network rolled out the Ralph Lauren collection from Karastan. “Members have proven they know how to sell better goods,” Robertson said. “Some dynamics in the marketplace are changing. The middle market is being abandoned. And retailers in the middle are being attacked from both sides. So those dealers who are purveyors of luxury brands will do well in any economy.”
Robertson said Ralph Lauren appeals to the female consumer aged 35 to 55. Products will retail from $2.99 to $7.99 and include wool and multicolor freizes that will translate as real value. “It’s a collection of designer-oriented products with a brand that offers value. The timing is right because Karastan just revamped the entire program, adding some opening price points. So now we can offer the consumer the quality assurances, the brand and the unique styling.”
Products, programs and buying power took center stage as part of this year’s theme: Back to Basics. For FCA Network, there are a few tenets of the “basics:”
1. Private branding: “This gives the retailer a little bit of an edge if the customer is going to shop a product around,” Robertson said. “Our brands mean something.”
Don Hoffman, owner of Jakor of Colorado in Denver, was a 26-year carpet mill sales rep until crossing over to the retail side of the street. Two years into buying the business he was almost out of business. “Then we joined FCA and got into private labeling,” he said. “Our business immediately improved. What it did was take away the fear of having to be the cheapest on the street every day.” It wasn’t just the private labeling; it was the private labeling of better goods, such as the group’s proprietary Taylor Wirth brand. “By selling better goods you raise your ticket prices. And it’s easier to sell a better product than a cheap product.”
Chris Talbot, owner of Carpet Direct, Lincoln, Neb., had a different experience. The most affluent custom homebuilder in the area had a problem with a particular hardwood installation. He was so dissatisfied with the lack of resolution on the part of both the manufacturer and installer that he vowed to never again use that manufacturer’s products in any way shape or form. “But through Taylor Wirth private labeling, I have done his last eight or nine homes in engineered hardwood and carpet, completely using that manufacturer’s products. He gets billed and invoiced under my private labeling name and has been perfectly happy, never knowing he has been getting that same supplier’s products all the while.” Talbot attributes an 11% increase in business last year to FCA.
Then there’s Tom Dockery, Crimson Carpet & Flooring, Tuscaloosa, Ala., who sold a private-label carpet to a contractor working on a new home. Three years later, the owners of the home came back with a different contractor seeking the same product for their bedroom. “I gave them the retail price, which was 20% greater than what I would have sold it to the contractor for. That new contractor looked everywhere for it and, of course, couldn’t find it. Bottom line: I made a sale I wouldn’t have had I not had the private brand.” Dockery’s business was off 30% last year, “but thanks to FCA’s programs my profitability was up.”
2. Not taking no for an answer from a supplier: “We have something we have coined ‘third party intervention,’” Robertson said. “If a member has a situation where he can’t have something or a mill won’t take care of a claim, we will intervene on his behalf. Sometimes smaller dealers are neglected. It’s using the strength of Network to improve the bottom line.”
Not too long ago Craig Hadley, Hadley’s Carpet Sales, Elsmere, Ky., found himself in a situation where he sold a $5,000 carpet job, only to find a hole in the middle of roll. Four weeks after taking pictures and filing a claim, the mill turned it down. “Not only did I lose the job because the customer did not want to wait to reorder the carpet, she was dissatisfied with my company. On top of that, we were out about $2,000 for the roll. I called Olga and she got the situation resolved. I at least got my money back for the carpet.”
3. Pricing: A presentation by Profit Planning guru Al Bates revealed that a 1% increase in selling price yields a 37% profit increase. And members can easily bump up prices because “the products we’ve programmed are at the street price. When you are buying better you can sell it at the market price and all that profit filters into the bottom line,” Robertson said. “I establish the products’ retail selling prices based on what the market will bear.”
Barry Hurlburt, United Carpet Outlet, Amelia, Ohio, is a case in point. “Last year we sold more core products,” he said. “Sales were down $150,000, but we didn’t lose money. Volume can go down, but profits go up.”
4. Buying: Bates revealed that a 1% savings in purchases translates into a 24.8% increase in profit. FCA Network members benefit from Robertson, inarguably one of the industry’s best negotiators. “One retailer was selling a product from Horizon quite successfully but it wasn’t in the core program,” she said. “We called the mill, got the product in the program and now the retailer is buying it for less and getting rebates.” She constantly looks at what each member is selling that is non-core. “If someone is doing well with a particular product, I have to consider putting it in the system so everyone can benefit. And once it’s in the system they will be able to earn rebates, buy better, etc.”
Hadley Carpet Sales’ Hadley said FCA Network has given his company a competitive advantage with pricing, especially given that he estimates he competes with at least 25 dealers in a 20-mile radius of his store, including the big boxes. “Since joining FCA my prices have gone down, yet my margins have stayed the same, in the neighborhood of 40%.”
Bob Gaither, Quality Carpet, Akron, Ohio, has witnessed a turnaround in his business over the last three or four years. “We’ve learned it’s a game of margins. There is a collection from one carpet mill that I have been buying below the street—and I mark it up 10% beyond normal margins. So if I have to come down 10% I am still making a 45% margin. Last year I had my highest gross margin ever.”
5. Knowledgable sales staff: Not only does the sales staff have to know the floor, but they have to be trained to get higher prices for Network proprietary brands. Robertson noted that management must drive that point home to salespeople that they don’t have to cut prices to get the sale.
Tom and Daryl Ciokiewicz, Check’s Floorcrafters, Onalaska, Wis., decided to change their business model as things began to slow. First they started cutting back on expenses. Then they began to bring in better quality products that offer better profit margins. “We took in Ralph Lauren from Karastan; we can name our price,” Daryl said. “We are swimming upstream—everyone is looking to sell lower-cost goods at a lower margin just to get the job. We are going in the other direction. We are upgrading our store. And as the demand starts to increase, we are not going to grow our company. What we will do is increase our margins even more. It’s basic economics. When demand is high, prices should go up. We will do less volume but have a much higher profit.”