Our real estate consulting team leverages our consumer research trends and to help companies pivot strategies when business conditions change. This article features a non-client company we analyzed that has successfully navigated an evolving industry, experiencing explosive growth in market share, revenue, and profits: Floor & Decor, the $4.3 billion flooring retailer and distributor based in Atlanta. Our building products consulting team completed this analysis.
Over the last five years, Floor & Decor has grown from 83 stores at the end of 2017 to 191 stores by year-end 2022. Over the same period, its sales have grown at a CAGR of 25% vs. 7% for the floor-covering industry overall.
Floor & Decor took the following five measures to achieve massive growth based on trends they observed in floor coverings:
- Aligning with changing consumer preferences in materials: Over the last decade, the floor coverings category has shifted away from soft-surface (e.g., carpeting) and towards hard-surface flooring. Product innovation, better hygiene qualities, higher durability, and increasing ease of installation have driven this change in consumer preferences.Veering from the industry norm, Floor & Decor focused on hard-surface flooring. Competitors, such as independent retailers, large home improvement centers, and distributors, offer both hard- and soft-surface flooring. By specializing in materials with increasing popularity, Floor & Decor gained share at the expense of competitors offering both floor coverings.
Our partner on our Building Products Demand Meter, Home Innovation Research Labs, has been tracking building products trends for decades. We are now tracking them quarterly and also picking up consumer shifts with research completed by our New Home Trends Institute.
Marketing to homeowners: Homeowners are getting more involved in the purchase decision for flooring, unlike many other categories where they rely primarily on the contractor’s expertise. This is true whether the flooring is installed by homeowners (DIYers) or contractors (Pros).
Floor & Decor makes 60% of its sales to homeowners and 40% to Pros, whom homeowners heavily influence. Complementary products, like installation materials, must also be purchased, and DIYers often need to buy tools, which provides more cross-selling opportunities.
Educating in-store salespeople: Since homeowners account for a large share of flooring purchase decisions, there is a need for assistance at the point of sale regarding choosing the right material, texture, and color and comparing products. Many retail outlets sell floor coverings alongside other categories, and their sales associates are not knowledgeable enough to meet homeowners’ needs for product information.
Store associates at Floor & Decor and independent flooring retailers are flooring specialists with design expertise and, therefore, can provide shoppers with an elevated level of in-store service. This helps convert a higher percentage of in-store customers.
Focusing less on branded products: No single brand dominates the floor covering category in R&R, and brand logos are not prominently visible on products. Consumers rarely have an affinity for specific flooring brands, allowing retailers like Floor & Decor to promote their private-label products without being too reliant on large brands.
Direct sourcing of supplies: In addition to homeowners not having a preference for specific brands, the floor coverings category has a large supplier base. Floor & Decor has been able to source directly from about 240 suppliers across 24 countries, bypassing importers and distributors. The large supplier base and Floor & Decor’s purchasing power allow it to provide its consumers with everyday low prices, a significant value proposition for consumers.
How can you replicate Floor & Decor’s success?
- Identify and embrace the secular trends in your industry: This can be especially difficult when you have a historical cash cow, as carpeting was in the flooring industry. But industries evolve in response to changing consumer preferences. Building products manufacturers, distributors/retailers, and home builders can gain an advantage over their competition by positioning their businesses to take advantage of trends likely to shape their industry over the long term.
For building products manufacturers and distributors, this could mean a greater focus on materials or technologies likely to gain in popularity. For home builders, it could mean focusing on homes with features and designs that will provide a long-term competitive advantage over resales and less-innovative home builders.
- Set yourself apart with an elevated service model: As homeowners become increasingly involved in purchasing materials and developing designs for their homes, they will have a growing need for assistance at the point of sale. Meeting this need requires investment in a process to guide consumers toward products best suited to their situation. This could be in the form of online education, interactive tools, and sales associates with specialized product knowledge and the expertise to provide guidance on design options. Businesses providing elevated customer service can differentiate themselves, especially within a commoditized category or industry.
- Leverage a fragmented supplier base to manage costs: Businesses can minimize suppliers’ leverage by avoiding supplier concentration. Not only does it mitigate operational risk, but it also provides a degree of protection from margin erosion as input costs rise. For building product manufacturers, it could mean re-engineering products to use commodity inputs or inputs with an abundance of suppliers. For home builders, it could mean a greater focus on markets where material and labor are relatively easy to get.
To act upon the above, businesses should periodically refresh their understanding of the current state of their industry and keep tabs on evolving trends. Change could originate within their industry or adjacencies (raw material suppliers, trade partners, etc.). As long as corporations and their sponsors position their businesses to capitalize on forces shaping their industry, they should be able to achieve industry-leading growth.
