“Cost cutting is not a strategy,” stated Michael Rockstroh of the RB Strategy Group, speaking to more than 400 industry professionals attending the annual Decorative Plumbing & Hardware Association (DPHA) breakfast at last month’s K/BIS.

DPHA invited Rockstroh to provide an intelligence report on the decorative plumbing and hardware industry to help its members better understand competitive threats and actions that they can take to respond to them.

Rockstroh claimed that these are recessionary times for all segments of the kitchen and bath industry, ranging from commodity products to the very high end. “What is relevant,” he explained, “is how to manage your business in this challenging market.”

He noted that home industries in the last 20 years have seen unprecedented growth and record profits. From 1990 to 2007, the size of the average bath increased 180%. Products that were once the exclusive province of a small segment of the population became readily available to consumers of almost all income levels looking to “trade up.”

Handling Change

But while market conditions have changed, economic downturns do not necessarily spell disaster. To the contrary, Rockstroh stated that previous economic downturns were precursors to major change in all tiers of the value chain. “Pain is the best change agent,” Rockstroh said.

All links in the supply chain – dealers, manufacturers and rep agencies – will need to adopt a “change forward” attitude to maintain competitive advantages, he said.

Looking ahead, dealers, manufacturers and representative agencies need to establish new strategic directions. Rockstroh cited management guru Tom Peters’ claims that businesses must be “distinct or be extinct.” This is the mantra for competitive strategic thinking, he said.

During the boom years, there was little need to change. Business was good, profits were high, and shortcomings were tolerated. Manufacturers produced an increasingly larger number of products that showrooms willingly added without much regard to whether the products fit, produced results or contributed to the merchandising mix.

This is no longer the case in the decorative plumbing and hardware industry. According to David J. Collins, writing in the Harvard Business Review, “an astonishing number of organizations, executives, frontline employees and all those in between are frustrated because no clear strategy exists for the company or its lines of business.” I venture a guess that a number of dealers, manufacturers and representatives don’t have a strategy, and if they do, it’s not clearly articulated or easily understood by employees, suppliers or customers.

Rockstroh believes that setting and articulating strategy is the responsibility of the boss. Strategy involves defining your business and determining how you compete in a particular market. Strategy is your game plan. It must identify goals that the company is trying to achieve, processes used for achieving them and the metrics employed to measure progress. Developing a strategy requires dealers, manufacturers and representative agencies to determine markets that they want to operate in and the customer base and geographic territory they want to serve. Setting a clear strategic direction requires showrooms, manufacturers and rep agencies to possess competencies that distinguish their operations.

Independent businesses in the kitchen and bath industry that have a strategy establishing clear points of distinction consistently outperform big box and multi-branch retailers, according to Rockstroh. Speed and agility are keys to superior performance.
He explained, “Over the last six months, volumes have shifted from leading national retailers to independents because they have adapted more quickly to market conditions. Too much complexity in your business will slow you down and hamper the need for speed.”

Rockstroh emphasized that the new economy mandates being distinctive in ways that are truly relevant. Metrics must be employed to measure progress because, “if it is not measurable, it does not exist.”

He also suggested the need to look at outdoor rooms as a potential new growth opportunity.

Competitive advantages can be achieved by becoming lighter, tighter and brighter, he added. Becoming lighter requires evaluating lines and determining which ones are most important to your success. Rockstroh cited the 80-20 rule, which says 80 percent of business is generated from 20% of the lines in a showroom. There is not enough volume in the 80% of lines generating 20% of the business to sustain meaningful relationships, he added.

Rockstroh advised dealers to analyze their vendor portfolio to become more important to fewer suppliers and make speed a core competency. Similar principles can apply to a showroom’s marketing. Analyze business activity to help identify the 20% of the customer base that is generating 80% of volume and determine how to become more important to them.

Becoming tighter requires building a better team. It means partnering with vendors who are capable of supporting your strategic direction, and publicizing your competitive distinctions.

At our two showrooms, we’ve developed a strategy that emphasizes our value-added services. Our showroom does not materially differ from most other independent showrooms in that most customers arrive not knowing what they need. We strive to surprise them, allay their fears, provide a sense of accomplishment and give them the certainty that they chose the best products for their project.

Union Hardware trains its staff to identify customer needs and appease apprehension. Our system prompts salespeople to ask the right questions when entering data. Union Hardware also issues frequent e-mails advising customers of the status of their order, and when they can expect delivery.

The showroom’s labeling program is also a major asset. Every product is shipped with a label affixed to the box that indicates the purchase number, name of salesperson, phone number, item number and contents. If there’s a question or problem during installation, all of the information necessary to get an immediate response is right there.

Union Hardware also maintains a database of purchases that spans two decades. The majority of our sales are to repeat customers, and we can pull up products they purchased up to 20 years ago. Customers realize that we maintain records that help them service their products, and that they can count on us for replacement parts and guidance.

Jeff Burton of the San Francisco-based The Bath + Beyond once said, “You can compete on price, merchandise and service. Pick two.” That rings especially true today.

At Union Hardware, we made the strategic decision that we cannot compete on price. Competitors may offer the same item in the same box. However, we are not selling the same product. Service makes all the difference.