Ready Yet for the New Millennium?

by WOHe

Only time will tell how today’s dealers and distributors
will fare against the giant home center chains.

So much is being made of the Y2K computer issue by the press
that one might think it’s the only problem businesses face as the
new millennium gets under way. However, for those of us associated
with the kitchen and bath industry, there are other considerations
that are not being as readily addressed.

Without question, the most important consideration for
kitchen/bath retailers, distributors and manufacturers is how to
meet the challenge of the upscale home centers that will
unquestionably continue to impact the kitchen and bath industry in
the years to come.

During the past 20 years, our industry has undergone many
dramatic changes. I recall the years when home centers weren’t even
a competitive consideration for kitchen specialists, both wholesale
and retail. In contrast, home centers are very much a competitive
factor now in cabinet distribution, and the kitchen/bath industry
in general.

Until recently, home center cabinet merchandising efforts were
concentrated on the promotion of kitchens and baths that utilized
stock and semi-custom cabinets as the foundation of the sale. Tops,
appliances and accessories were built into and onto the selected
cabinet layout.

Two months ago, I wrote about EXPO Design Centers’ ambitious
plans for expansion. Unlike The Home Depot’s hardware-oriented
outlets, EXPO’s emphasis is on design-oriented products for the
home. The store’s many cabinet displays are unabashedly custom
oriented, with pricing a secondary consideration. Gone are the
apron-clad sales clerks, replaced by professional salespeople and
designers eager to establish a relationship with affluent
consumers.

The Home Depot now reportedly operates fewer than 20 EXPO Design
Centers. The chain, however, has plans that call for 200 EXPO
showrooms across the country.

While many retail kitchen and bath specialists pooh pooh the
EXPO Design Centers as Johnny-come-latelies, unequipped to deal
with the high-end prospect, my opinion is that The Home Depot is
not so naive as to expend millions of dollars on this upscale
venture without some realistic assurance that they can play a major
role in kitchen and bath remodeling. The presence of so many
well-regarded products in the EXPO displays indicates that many
manufacturers also believe in the viability of this channel of
kitchen/bath distribution.

Big impact
The future of these EXPOs will
have a major impact on the kitchen and bath industry. When EXPO has
convinced its competitor home chains that such organizations can
function effectively in serving the affluent homeowner, as I think
it will, I expect to see Lowes and other large chains following in
The Home Depot’s footsteps.

Dealer response to this, in many respects, is predictable.

While many successful single-location dealers have already given
consideration to opening satellite showrooms, most have been
deterred by capital constraints, as well as by a shortage of
experienced personnel.

In my opinion, the most likely scenario we’ll see once the
high-end home center concept takes hold is for the voluntary
merging of compatible dealerships in a common metropolitan area.
With this approach, capital is not as great a problem, since all
owners would probably share proportionately in a partnership or
stock corporation based on their balance sheets.

This type of endeavor would provide the volume and income needed
to support central management and an advertising budget to build
name acceptance for the group entity in its market area. Who knows?
The group may even add a “dot-com” to its new name, and double its
capital overnight by attracting zealous investors on the
NASDAQ!

A media report recently stated that The Home Depot’s annual goal
for major appliance sales is in excess of $1 billion. That isn’t
exactly chicken feed, especially to someone, like myself, who has
visited the chain’s latest EXPO showrooms, where high-end
appliances are being displayed as part of the kitchen packages
being sold.

There is little about the EXPO’s display kitchens to suggest
that the company’s management is price-conscious. If and when they
are able to acquire enough trained sales and design personnel,
they’ll pose a challenge to traditional kitchen/ bath dealers and
distributors.

I urge both dealers and cabinet distributors to visit the
nearest EXPO with an open mind before minimizing the chain’s
potential as a high-end competitor.

Taking action
Until recently,
multiple-location dealer showrooms were the exception rather than
the rule. Cabinet “whotailers,” however, have recognized both the
challenge of the home centers and the opportunity, and have been
quick to react.

There are several examples of large wholesale-retail cabinet
distributors who have expanded their business by opening satellite
showrooms throughout their franchised market area. One is Kitchen
Distributors of America (KDA), which now operates about 20
showrooms in the populous Chicago market. Other prominent
distributors who’ve adjusted to the changing times include Reico
Distributors, serving Washington, DC, Maryland and northern
Virginia; Kitchen Suppliers, Inc. (KSI), serving the Detroit
market; and Williams Distributing of Grand Rapids, selling
throughout Michigan.

Where do cabinet manufacturers stand on all this?

Having seen so many recognized cabinet suppliers represented in
home center displays, it’s my opinion that they find it difficult
to reject as a customer any company that can contribute to their
market penetration. As dealers merge to fight for their share of
market, their leverage with cabinet suppliers will surely increase,
giving them more support in advertising and promotion. This may
also work to the advantage of the less dominant cabinet
manufacturers, since the dealer combines may not choose to promote
the same lines as the home centers. If merger is good for
Exxon/Mobil, perhaps there’s merit in this approach for independent
kitchen and bath retailers.

We can all cite examples of merchants, large and small, who
passed from the scene because of complacency or a lack of courage
over trying new approaches to a changing market. Only time will
tell how the current crop of kitchen/bath dealers and distributors
will fare against the giant retailers bent on rapid expansion.

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