Hardwood Flooring February March 2018

INDUSTRY INSIGHTS MARKET MATTERS

Digital Disruption in Wood Flooring: Threats and Opportunities

it has been doing this in lighting, electrical, home automation, plumbing, and other home-improvement categories. Analysts name Angie’s List and big-box stores like Home Depot and Lowe’s as competitors to Amazon’s Home Services division. IRCG’s Marks recently purchased a home- automation system on Amazon, and when asked if he wanted it installed through Amazon Home Services, he selected yes. The experience was educational: the local installer told him that he no longer needed to advertise elsewhere because the Amazon leads were enough. “The emergence of this in the wood- flooring space would have a ripple effect,” says Marks. “Installers would build an Amazon- centric model, and it would be hard to blame them for that.” Some retailers and independent installers already partner with online-only platforms or big-box retailers, bringing in thousands in sales each month to measure, estimate, and install product sold through those companies. Flooring distribution veteran John Simonson, the owner of WebstreamDynamics, says while there may be benefits to these partnerships, he questioned whether specialty retailers should go down this path. “Are you really gaining your own business, or are you shooting yourself in the foot, where the chains are going to dominate and you’ll end up being just an installer rather than a legitimate flooring store?” There’s also the question of quality and consistency. “It’s a hornet’s nest (for Amazon) to get involved in managing local installers on a national basis,” says JimGould, founder of the Floor Covering Institute. One challenge: ensuring installers have the specific training required. Based on his experience in the

When Amazon formally launched B2B marketplace AmazonSupply in 2012, most industrial and construction supplies distributors kept one eye on the giant but pushed forward doing what they’d always done. Amazon rebranded and relaunched as Amazon Business in 2015, and later extended its Amazon Prime two-day free-shipping benefits to (business-to-business) B2B buyers. Suddenly Amazon was perceived as a real threat to the traditional B2B market. Amuch more aggressive Amazon Business had secured its place as the preferred procurement platform for the likes of Stanford University, the Mayo Clinic, and Siemens, and had quickly grown into one of the biggest diversified distributors. Amazon Business reported more than $1 billion in sales in 2016. Amazon Business along with its B2C (business- to-consumer) platformwas also capturing smaller customers, who are higher-margin and typically cross-subsidize larger-volume contracts. “The plumbing market experienced a similar profit squeeze when home centers came into play in the 1990s,” says Mike Marks, managing partner of Indian River Consulting Group (IRCG). Concern over Amazon’s potential impact is highest among sellers of contractor and industrial MRO supplies that are easier to buy online and ship. Because of logistical challenges, the wood flooring industry has largely been immune to the Amazon effect. Wood flooring is bulky, heavy, and hard to install without proper training. Another challenge: difficulty in returning the product, and handling claims. But this could change in 2018. Amazon has started approaching flooring retailers to be installers for its B2C-focused Amazon Home Services. For a few years now,

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