Business Growth Strategy for Wood Flooring

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Dennis Ooi

Becoming the Growth Champion Dennis Ooi

ABC CO

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Dennis Ooi

Agenda:

1

2

3

Industry Trends

Analysis of ABC CO

Becoming the Growth Champion

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1 Industry Trends

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To

Growth

Narrow Product Lines

Full Product Lines

Key Success Factors

Quality, Style, Services

Co. Size, Technology, Efficiency => Quality, Style, Services

Social Responsibility

Helping People

Reclaiming and recycling used products

International Import

Filling scarcity

Chinese players becoming major competitors

Distribution

Independent Specialty Stores

Big Box

Customer Preference

Home decorating on purchase of new house

Redecorating, Remodeling, Home improvement

Flooring Fashion

Narrow Range

Wide Range + Exotic

Globalisation

Horizontal Integration

Backward and Forward Integration

Major Industry Trends

From

From

To

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Big Box is gaining control

Changing nature of the distribution channels

Flooring sales have shifted from specialty stores to large home center

The relationships between manufacturers and distributors/retailers have been strained by the emergence of home center

Some are challenged to fill up factories, must take on high volume/low margin business in the home center channel

The retailers are extracting more value from the value chain than manufacturers

Within 10 years, the number of independent floor covering stores in the US will decrease to 6,000 from current 12,000 (Source: Floor Covering Institute blog)

Laminate Flooring - Distribution Channel Trends by Retail Outlet

Source: Pfleiderer’s Corporate Presentation, Floor Covering Weekly Research, Uniboard Market Intelligence

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Changing Customer Preference

Home Decorating

• more interest due to popular redecorating, remodeling, and home improvement television programs

• partnerships for branding, labeling, and merchandising are important to the industry

• cooperative advertising programs often cross promote flooring products

Mass Customization

• floorcovering shopper is more informed and sophisticated and willing to pay for quality but have higher expectations with a fashions and design focus

• customers want a choice of color and design and many are demanding personalization in their flooring

• offer customers a unique product

Home Centers

• home centers now account for 35% of all retail flooring sales and many of their customers seek cash and carry solutions.

• In new home construction, carpet is losing the dining and living rooms to hardwood

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Flooring Fashion = + Exotic

Design Driven

Mannington’s Earth’s Elements

Sino-Maple’s tile design

Armstrong unique parquet

Tigerwood from Johnson

Raw Beauty

Welimade Bamboo

Home Legends

Pinnacle’s Country Classics

Anderson’s Tropical Reflections

Mannington’s Earth’s Elements

Simplicity

Mullican’s Castillian Collection

Colour Spectrum

Combine Shaw carpet with Anderson hardwood, creating a value proposition

Finish Line

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Globalization: large players cornering the market La

rge

Ma

nu

factu

rers

’

Mo

bil

ity A

dva

nta

ge

s

> Strong foreign presence (e.g Amstrong, Flooring plants: 15 in US and 7 outside US)

> Seek to gain competitive advantage by excelling in responsiveness through their distribution networks with strong transportation links

Mo

bil

ity a

nd

En

try B

arr

iers

to

Sm

all

Ma

nu

factu

rers

> Challenging to develop export markets

> Weak transportation links undermine distribution and frustrate efforts to provide consistent delivery and customer service

> Face huge investment costs for transportation, warehousing, and other related costs

> Advertising costs for building a brand related to new products are costly

> Obtaining new downstream accounts can be difficult due to existing relationships and exclusive licensing of some products

> Necessity to sell through third party distributors in order to reach the retail level (margin suffered)

Backward + Forward Integration

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Growth through Acquisition: expanding product lines and distribution channel

Prior to 2000

2001 - 2003 2004 - 2006 2007 - Present

Focus on soft surface acquisitions

Acquired Dal-tile – leading ceramic position

Acquired Unilin – leading laminate position

Acquired Columbia Wood Flooring – leading wood position

Focus on soft surface acquisitions

Opened state-of-the-art laminate manufacturing facility, first step into hard surface flooring

Acquired the north Georgia operations of the Dixie Group

Acquired Anderson Hardwood Floors

- -

Acquired the engineered wood activities of Kunz- Group

Acquired Pergo- Group – becoming fully integrated manufacturer of laminated flooring

- - -

Acquired Elegant Living in China, added approx. 550 outlets

Acquired Brewster in Australia, added 6 warehouses and distribution outlets

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Key Success Factors (KSF) : Size

2009 Financial Performance

Sales Growth Profit / (Loss) GP Margin

Armstrong -18% $78 Million 22%

The Dixie Group -28% ($42 Million) 26%

Mohawk Industries -22% ($6 Million) 23%

Pfleiderer -22% ($86 Million) 24%

Tarkett -17% $86 Million 23%

Junckers Ltd -22% ($4.3 Million) 25%

Kingfisher plc 5% $577 Million 36%

Lowe’s Companies -2% $1.8 Billion 35%

Home Depot -7% $2.6 Billion 34%

Lumber Liquidators 13% $27 Million 36%

The Industry Giants are slightly affected by US Subprime mortgage crisis and have been holding on very well

Do

wn

str

ea

m

Up

str

ea

m

Combined Average

51%

Average 24%

Average 35% and the Sales CAGR (1997 – 2007) was 5.3%, the retailers are extracting more value from the value chain than manufacturers

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KSF : Technology and Efficiency

Increasing ability to compete

performance quality style service

Continuing investment

advanced manufacturing

data processing equipment

marketing strategy

distribution systems

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Technology and Efficiency = KSF Lumber Liquidators (LL)

Strategies applied by one of the most successful retailers

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Social Responsibility, Recycling and Reverse Supply Chain Logistics

Industry is focusing on recycling as well as reuse

Reclamation to reduce amount of waste entering landfills

Reducing the production impact on both air and water resources

Working with the “big box” retailers to recover post-consumer wastes

Substitutes for current products that offer sustainability include both bamboo

and cork flooring

Each market is different in their environmental concerns (e.g. in Europe, buyers

are concerned about whether products are made in an environmentally friendly

manner and want to know if products are made with recycled material or

through other sustainable processes)

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International Imports

Chinese manufacturers have become the number one importer and the main competitor of U.S.-based flooring manufacturers

The International Trade Commission has confirmed that flooring imports into the U.S. are growing more quickly than domestic production. This means that foreign suppliers are growing their market share at the expense of U.S. manufacturers.

The growth of imports has been driven by a shift in preferences toward finished flooring (which has a higher labor content), exotic species and engineered flooring

Illegal logging, which is more common in other countries, also enhances the price advantages of foreign suppliers

The growth in popularity and acceptance of laminate flooring benefits flooring importers

US Vinyl Flooring Imports

US Wood Flooring Imports

Source: Foreign Competition Report for the U.S. Building Products Industry, Jordan, Knauff & Company

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Summary

+

Continuously increased in Leading players are

• The size of large, “leading” intermediate customer (big box)

• Knowledge and expectation of end customers

• The breath of the product range available in the market for the end customers

• Aggressively integrating across businesses, activities, and geographies

• Continuously investing in advanced manufacturing, data processing equipment, marketing strategy and distribution systems

= Limiting the space for ABC CO growth based on current business model

• Entry of low cost producers from China

• Over supply in the market

+

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2 Analysis of ABC CO

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Overall Performance

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2004 2005 2006 2007 2008 2009

Ekowood’s Average Annual Sales Growth and GP Margin

US Subprime mortgage crisis

Post Crisis, ABC CO’s growth rate and GP Margin have been affected by both economy-driven and competition-driven issues

Sales Growth

GP Margin

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Bargaining Power

• Takenaka Corporation Japan, Construction Firm

• GP Embelton and Co Ltd Australia, Producer and Distributor

• True Grid Flooring Distributors Australia, Producer and Distributor

• Shaw Industries Inc USA, Producer and Wholesaler

• Long Floor Supply Inc USA, Distributor

• Lionvest Trading (UK) Pte Ltd UK, Wholesaler

• Vepal A/S, Italy (Now known as Berti Pavimenti Legno), Producer and Wholesaler

• RMK Limited Ireland, Wholesaler • Friedrich Klumpp GmbH, Coating

Producer • Maderpark 2000 SL Spain, Distributor

ABC CO is dealing with price sensitive expert buyers who have strong bargaining power, low brand loyalty, plenty of supply alternatives, and is relying on them to promote its brand

Source: 2004 IPO Prospectus

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Product and Service Positioning

•Retail Price

•Log selection system

•Production process

•Texture

•Grain

•Colour

•Ease of Maintenance

•Hardness

•Natural Decay Resistance

•Durable covering

•Dimensional stability

•Surface durability

•Workability

•Ease in finishing

•Moisture content

•Lifetime

•UV-protection

Pro

duct

Featu

res

•Convenience of location

•Consistency of supply

•Responsiveness

•Species Education

•Floor Caring Education

•Installation Services

•Web Information

•Reputation

•Variety of options and upgrades offered

•Warranties Serv

ice F

eatu

res

Australia

Malaysia

US

Spain

UK

China

Italy

Germany

ABC

Need to determine the positioning of ABC CO as compared to the relevant players in various countries, my resources are insufficient to do so

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3 Becoming the Growth Champion

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Value Innovation 1. Industry Forget industry analysis; many constraints are imaginary 2. Competition Forget what competitors are doing, focus on adding value 3. Markets Go for big blocks of customers; let some customers go 4. Capabilities Forget current assets; ask “What if we were starting over?” 5. Products Forget conventional products; figure out what customers need

The Theme

Competing to be the Best

Competing to be Unique

The worst error in strategy is to compete with rivals on the same dimensions

Source: Blue Ocean Strategy, Kim and Mauborgne, Harvard Business Review (Jan/Feb, 1997)

Source: Professor Michael E. Porter Harvard Business School

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Proposed Transformation

Currently Outsourced

Competing to be the Best

+ Mobile Showroom and

Franchising

+ ABC CO Floorcovering

Institute

+ ABC CO Floor Surface

Treatment and Care Products

+ Creative

Communications

From To

Competing to be Unique

Pro

gre

ssively

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Dennis Ooi

+ Mobile Showroom and Franchising

+ ABC CO Floorcovering Institute

+ ABC CO Floor Surface Treatment and Care Products

+ Creative Communications

Competing to be Unique • Large, “leading” customers tend to attract the most competition and be the most demanding

Find the attractive customers

• Nurture and support alternative channels that bypass powerful intermediaries or cultivate new customer groups

Grow alternative channels

• Temper the power of the immediate customer by appealing directly to the end consumer

Create end user pull

• Strategic positioning to increase unique value to the customer

Be different, not better

Proposed Transformation

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Out target + M’sia


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Total 467,000

High net worth individuals, HNWI

(NW> USD 1 million)


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Population Malaysia China India Indonesia Total

Total 28,250,000 1,338,612,968 1,183,120,000 229,965,000

HNWI 15,364 364,000 84,000 19,000 482,364

% HNWI 0.0544% 0.0272% 0.0071% 0.0083%

GDP (nominal) per capita 6,897 3,678 1,031 2,329

Note

Total Population Targeted 1 482,364

% Potential Sales p.a 2 1.00%

No of Installation p.a. 1 X 2 = 3 4,824

Average sq ft 4 2,000

Total Installation (sq ft) 3 X 4 = 5 9,647,273

Industry Average Price

Hardwood (USD) per sq. ft. 6 4.83

Retail + Manufacturing GP% 7 50%

Gross Profit (USD) per sq. ft. 6 X 7 = 8 2.42

Installation Services (USD) per sq. ft. 9 2.50

GP% 10 70%

Gross Profit (USD) per sq. ft. 9 X 10 = 11 1.75

Total Sales (USD) per sq. ft. 6 + 9 = 12 7.33

Total Gross Profit (USD) per sq. ft. 8 + 11 = 13 4.17

Note

Forex Rate 14 3.2035

Total Sales (RM) per sq. ft. 12 X 14 = 15 23.48

Total Gross Profit (RM) per sq. ft. 13 X 14 = 16 13.34

Total Revenue (RM) 15 X 5 226,533,943

Total Gross Profit (RM) 16 X 5 128,719,491

Item 2, 4, 9, 10 : based on personal estimation Item 6 and 7: please refer to previous slide page 10 and 12 No of HNWI in Malaysia is not available and it is estimated based on 2 times the HNWI in China (0.0272% X 2 = 0.0544%)

*

*

Source: Capgemini and Merrill Lynch Wealth Management, 2009 Asia Pacific Wealth Report, IMF, Wiki

Expected additional potential revenue p.a. of RM226 million in the 5th year


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www.ABC CO.com

(+) 3 layers of GP Margin (Manufacturing 24%, Retailing 35%, Installation 50%)

(+) If successful, it will be another major channel of distribution.

(-) Payback period for the investment in trucks (e.g. RM1mill for 4 units) maybe stretched (>3 yrs)

Consumers like the idea of shopping for floor covering when it’s convenient to them, in their own home, with their own lighting and décor.

Shop at home, bringing personal service closer to customer.

Alternative Channel : Mobile Showroom + Franchising

Value Proposition

• Numerous station near various luxury residential areas

• Hardware & software program for in home measurement and quotes

• Perform demo to customers (hardness and moisture test)

• Provide education on wood species, floor caring, and installation method

• Capture information about prospective customers preferences, lifestyles, flooring interests, etc. useful for further dialogue

Distinctive Activities Customer Needs

Risk / benefits to ABC CO

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Create End User Pulls: ABC CO Floorcovering Institute CPD Seminars

(+) Establish a network of architects who will recommend our products

(+) Can be used as referral system where architects are allowed to collect CPD points for free if they use our products

(-) Unable to recoup the cost of conducting the seminar

Architects need to collect CPD points annually

Seminars (Accredited Core Curriculum)

Value Proposition

• Installation of Hardwood Flooring (Seminar)

• Maintenance and Finishes for Hardwood Flooring (Seminar)

• Selecting and Specifying the Correct Hardwood Floor (Seminar)


Risk / benefits to ABC CO Architects

End Users

Free CPD Seminar

Recommendation

Buy

Same concept can be applied to real estate agents and interior designers

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Create End User Pulls: ABC CO Floorcovering Institute Certified Floorcovering Installers (CFI)

• Short supply of quality wood flooring

contractors • Existing wood flooring contractors often

have their own way of doing things • Installers seldom use knee pads, respirators,

ear muffs and glasses • The many challenges to a high-quality job-

site-finished floor have translated into good business for factory-finished products (e.g. laminate, rug and carpet)

• Low quality installation and sanding spoil the image of the products and manufacturers

• ABC CO is the sole certification provider in

the Asia Pacific region • Further increasing the professionalism of

the wood flooring industry • As a education hub to the Asia Pacific

region for training certified floorcovering installers

Value Proposition

• Be the major source of new trainees for the

trade • Ultimately development of post high school

training program(s) in the Asia Pacific region • Facilitate Teacher Training • Provide Work Experience • Part Time Job Options • Post High School Job Options • Referral to Formal Training Programs • Subsidize Materials and Training

Distinctive Activities

Issues

• Consumers have a high expectations for the

finished product and they want a furniture- grade finish on a wood floor

• As floors are becoming more of a design point, specifiers are looking for that edge that will make their floor a little different

Customer Needs

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(+) Control the downstream and increase end users willingness to pay

(+) This business model can work effectively in many countries where installers are not professionally train. (e.g. In China, massive amounts of wood flooring being produced, but not being installed)

(-) Grooming a CFI, take about 3 years, the payback period maybe stretched

Risk / Rewards to ABC CO

Create End User Pulls: ABC CO Floorcovering Institute Certified Floor Covering Installers

Provide job opportunity

Groom CFI to be the manager of

mobile showroom or franchise

holders

Customer get used to the high quality finishing and professional

work

work with the local government

to make CFI a compulsory to

protect consumer

ABC CO monopolizes the

market

www.ABC CO.com

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Create End User Pulls: ABC CO Floor Surface Treatment and Care Products

(+) Consistently remind customer of ABC CO brand

(+) Can be used as free gifts for first time customer or as part the referral system

(-) Minimal

Consumers want the floor to look good all the time

Provide convenience to the customer in caring and maintaining the wooden floor

Value Proposition

• Direct customer interaction through direct mail, telephone, and the Internet

• Delivers the products to customers’ homes

• Send as free gifts to previous customers and ask for referral


Risk / benefits to ABC CO

Floor Care Manual

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The Creative Brief

Get Targeted segment, staff, community

Who visit, buy, own, enjoy, think about ABC CO

To have a better perception about the company

By delivering a consistent Brand communication

Thru testimonials, PR activities, events sponsorship,

positioning statement, employer branding, seminars

While retaining a message of Diverse, History and

Excellence

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Create End User Pulls: Creative Communications

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• Clear and consistent brand image

• Uniform styles

• In all forms of written and visual communication

Colours used with online publications

Logo appearing in most documents

The Creative Brief

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Should black be used?

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Testimonials PR Activities Employer Branding

Seminars Events

Sponsorships / CSR

Obtain satisfaction endorsement from previous customers (written and video)

Creates corporate video, showcase all the previous floor installed

Create past success stories in the form of articles / case studies

Contribute newspaper articles discussing about

1) The latest installation method used by ABC CO

2) The house price appreciation enjoyed by the previous ABC CO customers

3) How the design of floor covering could affect your emotion, hence your life

Becoming the authorized employer for Chartered Accountancy Training

Work with accredited schools to train floor covering experts

“Techniques for wood flooring condition assessments”

“Formulating an appropriate corporate real estate strategy”

“Planning your future by choosing the right flooring”

“How the design of floor covering could affect your emotion, hence your life”

Give out bags and T-shirts with ABC CO logo to orphanage homes

Organise and sponsor major sport events like marathon to be held in major private colleges

Sponsor major transplant surgery performed by IJN.

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Targeting people looking for new property, and for us to collect name card and build the marketing database

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Private Hospitals

Targeting: High Net Worth Medical Patients

ABC CO newsletter as a reading material for patient

Infomercials for inpatient entertainment

5Star Hotels

Targeting: : High Net Worth Individual

ABC CO newsletter as a reading material for hotel guest

Infomercials for entertaining staying in guests

Charter Flight Companies

Targeting: High Net Worth Individual

ABC CO newsletter as a reading material at the waiting lounge

Infomercials for In-Flight entertainment

Banks

Targeting: Credit Card members and Private Banking clients

ABC CO newsletter as a reading material at the waiting area

Infomercials entertainment at the waiting area

Golf / Japanese Club

Targeting: Expatriate

Special ABC CO Magazine in foreign

language

Infomercials entertainment at the waiting area

Joint funding of campaigns; training and support

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The Client’s Brief

Get potential, new and old customers

Who visit, ask, own, enjoy, think about ABC CO

To realise the brand promise

By delivering service, recognising, creating convenience, providing information, being helpful

Thru Welcome Kit, Loyalty Communications, Prospect Prioritization/Extending the Dialogue, ABC CO Magazine, ABC CO Owner’s Circle, Cross Sell and Up Sell Marketing, Opportunistic “Quick Win” Programs

While retaining a message of Diverse, History and Excellence

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Marketing Database

Data Access & Analysis Software

Customer Transactions

Marketing Staff

Inputs from Frontline, Phone, Web

Appended Data &

Modeling

Customer Service

Web Site

Create a central system of measurement to

record a broad range of information on ABC CO customer

Campaign, response, and lifestyle data

>100 appended individual and household data points

monitors communications and response from prospects and customers

Measurement includes cost per response and cost per sale

view the full shopper-owner cycle from first point of contact, through sale and cross sale

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Central system of measurement

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Core Communications Program

General Goals:

• Immersion in the ABC CO Experience

• Promotion of Owner’s Circle

• Refer new customers to ABC CO

> 5 years products owners. Goals:

• Increase the repurchase rate

• Multiple installation in each household

• Refer new customers to ABC CO

To new product owners, Goals:

• Purchase other ABC CO products

• Capture information about their preferences, lifestyles, change in flooring interests, etc. useful for further dialogue

Welcome Kit

Loyalty Communic

ations

Extending the Dialogue

Newsletter

ABC CO Owner’s Circle

Multiple Installation Programs

Opportunistic “Quick Win” Programs

ABC CO Loyalty initiatives cover the entire ownership experience

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The way people see

• Visual

• Caption

• Headline

• Copy

• Signature (Advertisers logo, name, contact information)

Appeal to the need

• Comfort to walk upon

• Need for aesthetic sensation

• Hassle free (minimal maintenance required)

• Adds to the future value of home

• Need for prominence

• Need to feel safe

• Physiological need

Example

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Emphasize on Appealing Design for All Marketing Material

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First glance focus point in the order numbered

1st

2nd

3rd

Need effort to focus on the flooring

1st

2nd

3rd

1st

2nd

3rd

It should in this order!

Logo colour not consistent

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Communicating the Green Advantages of Wood to Our Customers

• It is important to know that cutting one tree provides the opportunity for another to grow and

that harvesting trees as a part of forestry is not the same as deforestation.

• Money generated from wood products can help to ensure the continued existence of the forest by

providing the private landowner an incentive not to convert forestland to another use.


• salespeople need to believe in the green story and be well-versed in the environmental aspects of our product as well as environmental issues in general, including any differing requirements of certification agencies.

Personal selling

• ABC CO advertising should emphasize the core competencies, including those that are focused on green, such as environmental certification.

Advertising

• because green is a hot topic in society, free exposure in the media is easy to obtain. A change in product composition and an accompanying press release can result in news coverage and potentially free stories in key trade journals.

Public relations

• mailers and brochures, as well as e-mails, Web pages and other e-based forms of communication should help to carry the green theme.

Direct marketing

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Be Different, Not Better: Creating unique value to the customer

High quality finishing

Delighted Customer Service

Green effort

Mobile sales

Highly adaptable

store model

Certified Installer

Flexible remunera

tion

CSR

Clear career path

PR activities

Creative communicat

ions

Low start-

up costs

Flexible timetable

Strong brand recognition

Present in new and existing residential

areas

Free Gifts

Increase in Sales

Lean and highly

productive Crews

Care and Maintena

nce Products

Academy

CPD

Specifiers

Architects

Interior Designers

Premium Prices

Modern flooring tools /

sanding machines

Mutually Reinforcing Activities

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Growing Strategically

1. Make the tested strategy even more distinctive

- Introduce new technologies, features, products or services that are tailored to the chosen strategy and which leverage other distinctive activities within the value chain of ABC CO

2. Deepen the selected strategic position rather than broaden it

- Raise the penetration of chosen customers / needs

3. Expand geographically to tap new regions or countries using the same

positioning

- Aggressively reposition foreign acquisitions around ABC CO’s strategy

4. Expand the market for what ABC CO can uniquely deliver

- Find other customers and segments that would most value the chosen strategy

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Disclaimer

The list of suggestions presented in this presentation were developed based on the desk research I have performed and the judgement call I have made. As you may know, appropriate strategies could only be derived after going through a complete strategic planning process and desk research has a lot limitations, the data could be outdated, inaccurate and incomplete. My main objective is to convince you that I can contribute significantly to the sales growth of ABC CO by bringing in creative ways of business development not currently applied by the competition and are built on the current practises without over elaborating on the background information to justify the options selected. It is my intention to keep the information presented in this presentation short and concise as not to bore you. The suggestion that I have made are designed to exploit the weaknesses in the competition in developing countries, creating new competitive advantages for ABC CO, and hence, achieving the objective of maximising ABC CO growth.

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Dennis Ooi

Thank You very much

for your attention

Dennis Ooi +6012 2082 789

[email protected]

Business Growth Strategy for Wood Flooring

Business

Transcript of Business Growth Strategy for Wood Flooring