David Loves Goliath?

David Loves Goliath?

Upscale home centers have changed the kitchen and bath market, but not necessarily for the worse, independent dealers say.

By Daina Darzin Manning

The number of EXPO Design Centers has just about doubled since 2001, up to some 53 stores in major markets across the country; Lowe's now boasts some 875 home improvement stores in 45 states, and The Great Indoors added seven new stores in the fourth quarter of 2002. Yet independent kitchen and bath dealers surveyed by Kitchen & Bath Design News seem remarkably unphased by it all.

Two years ago, when K&BDN spoke with Ted Haftel, CKD, president of Fresh Impressions, Inc., in Green Brook, NJ, and Don Boico, CKD, CR, president of Classic Kitchen and Bath Center in Roslyn, N, about the home centers that had moved into their neighborhoods, both expected to see some changes yet they remained upbeat.

And today? Well, things have changed, all right for the better and both Haftel and Boico have expanded their businesses.
Both insist business is booming even though Haftel says, "Now we have an [EXPO] even closer! The original one was about 15 miles away; now I have one five miles away." He adds: "We get a very nice share of fallout from them, and we never lose any [clients] to them. It's a one-way deal." In the meantime, Haftel has increased his facility from 2,800 to 4,200 sq. ft. to accommodate new displays and additional office space.

"September 11 had more of an impact [on my firm] than EXPO did," adds Boico, who recently added a new location. "I thought I'd be losing business to [the EXPO center], they were handling these high-end products and giving them away. [But] EXPO gives nothing away. In some cases, they're even more costly than I am."

Raffael Brugnoni, CKD, Woodmaster Kitchens, in St. Clair Shores, MI, says that being part of a buying group helps keeps his prices competitive with the national chains. "We're buying right," he says. "We've gotten the pricing down." He believes he can compete with the upscale home centers on price if one takes into consideration the price of the product plus installation.

John Borcherding, president of Artisan Kitchen and Bath, in Manchester, MO, actually moved into an area that has an EXPO and a Lowe's, and doesn't regret his decision a bit. "I don't see home centers as a threat," he insists. "I aggressively pursue my clientele through marketing," which includes referrals, home shows, Web visibility and ads in high-end magazines. He believes "You just have to find a niche, something other companies aren't doing well."

Divvying up the pie
Part of the reason may be that home centers are targeting a market somewhat removed from the independent dealer's customer. As Kathleen Connolly, spokesperson for The Great Indoors, in Hoffman Estates, IL, explains it, her company did a lot of research to determine where its market would fall. "We found there were the home stores [aimed toward] the do-it-yourselfer, and [then,] the higher-end kitchen stores. The market opportunity [was in] the huge gap between those two."
Indeed, some of the upscale home centers' most fervent customers are the "buy-it-yourselfers," consumers who don't want to get out the drill and table saw, but don't want to leave too many decisions to a kitchen designer either. These new and well-informed consumers plow through decorating magazines, Internet sites and hours of HGTV, formulating their own opinions about products and styles and keeping a close eye on budgets.

"Our customers tell us that they can get their dream kitchen for a lot less money when they work through [us]," says Chris Ahearn, spokesperson for Lowe's, in Wilkesboro, NC. "Many of our customers like to take charge of a project and control [it] themselves. They work with one of our kitchen design specialists, but they want to be very hands-on in [choosing] products and materials."

The upscale home center provides consumers access to a designer who will create CAD drawings, as well as a project manager to shepherd the project through installation.

However, independent dealers counter that this level of service will never do for the more upscale client.

"A more sophisticated client will look for expertise in design," Haftel insists. He believes the atmosphere of an independent showroom attracts better quality designers, as it fosters an environment conducive to greater creativity, rather than focusing on designing a high volume of more "cookie-cutter" designs.

Additionally, he believes many high-end designers prefer to work for a smaller firm, rather than a large, corporate entity. "My employees can walk in the door to my office, which is always open, and talk to the owner of the company if they have problems," he says. "It's not some big corporate giant. We're just one family here, we work together, make the sale so at the end of the year, we can all share in the profits."

But Karen Haggerty, spokesperson for EXPO Design Center, in Atlanta, GA, insists good design is possible on every level, and every budget and that the idea that "good design" is the exclusive province of the independent designer is no longer valid. "When EXPO launched in 1991, it was a revolutionary concept in bringing products and design to consumers who had never before had access to these products," she notes.

Thus, middle-class consumers installed granite in their kitchens and, ironically, very high-end clients immediately began looking for a more unique product.

"Luxury clientele are very competitive about keeping up with the Joneses," says Borcherding. "They don't want what the Joneses have, they want something totally unique that's going to set them apart. What EXPO has done is to characterize [luxury products] as a common commodity, which [then] lose their appeal to higher-end clientele: They think, 'If it's on the floor, everybody has it, I don't want it.'"

The Great Indoors' Connolly agrees that upscale home centers don't try to target the ultra high end. "I think we offer great service, but there's always going to be the segment of the population that wants that experience [of being pampered], wants to work with a smaller store, wants the personal [attention]," she says.

"None of my clients will shop at an EXPO," says Kris Atwood, president/owner of Atwood: Fine Architectural Cabinetry, in Birmingham, MI, who gets nearly all of his clients through referrals or via architects or builders. "Without a doubt, people look at the EXPO and get some great ideas. But the caliber of clients I deal with, very high end they don't get [enough] service [there]."

For instance, says Atwood, upscale clients want to be helped instantly instead of coming back for a scheduled appointment. In fact, they may not want to deal much with the design process at all. Atwood notes that sometimes, he never meets the actual client, working instead with the architect, interior designer and builder. Sometimes the difference is all in the details. For example, he notes, "The kind of clientele we deal with doesn't want to park in a huge parking lot and walk a long way to get inside. They want to be pampered."

Emphasis on Service
Personal service remains the independent dealer's biggest selling point. "We have the service and [staff] to be very focused on our customers," says Brugnoni. "[In] the time we put into the initial meetings, we give them a lot of information up front so they can make informed decisions." He also insists that the more relaxed pace of a smaller dealership makes a customer feel special. "Are you one of the three people I saw today, or one of the 50 people [a designer at a home center] saw?" he says.

"There are people who want to be catered to in a way that they can't be in a [home center]," echoes Borcherding.
But Haggerty insists that for most consumers, the home center's service features fit the bill just fine. "We like to say we take a project from inspiration to installation," she says, adding that EXPO's multiple departments make the store a great choice for people doing whole-house remodels and need lighting, drapery design, etc. as well as kitchen and bath products including installation. "If customers see something [they like], they can buy it off the floor and that's the last we see of them or they can come in and say, 'We want this whole kitchen,' and we take it from there."

Ahearn points out that CAD design capability allows clients to tweak and change their kitchen designs throughout the decision-making process. "The individual will work with one designer who will escort him or her through the process," she says. "So the customer will have a point person for the project. Our kitchen design specialists will spend as much time as necessary with a customer."

Typically, customers pay a $750 design fee ($500 for The Great Indoors) which is fully refunded if they buy more than $5,000 in products ($4,000 for The Great Indoors). After the design phase, an in-house team of expediters shepherds the project to completion.

Borcherding considers the home centers' design fees a plus. "They're setting the expectations of the client that design costs," he says. "It's [also] good PR that we [as independent dealers] don't have to create to enlighten the marketplace about the high-end products that are available for their homes. That's never been visible to the public before, so that builds an awareness of the advantage of using luxury products."

Borcherding also sees a benefit in that the home centers "weed out the do-it-yourselfers [who] would waste our time."

For independent dealers the trend is to focus exclusively on the high end. Some of those surveyed are changing their strategy to leave the mid-level kitchen and bath market in favor of the more upscale. Borcherding recently created a new division marketed toward the luxury market. "In the middle-class marketplace there's a lot of competition," he says. For the high end "there are three to five [dealers] in town [to compete with] versus 30 to 50."

The mid-level market is also susceptible to any recession, or other economic problems, he believes, "But, if I invest in a marketplace that doesn't really feel the pinch when the market drops, I'll always have a steady stream of large-ticket [sales]."
Borcherding has established a relationship with a high-end custom cabinet company, and has dedicated time to finding upscale and unusual products in other categories. "We redid our showroom," he notes, adding that he has taken pains to avoid what he calls the "supermarket" atmosphere of the home centers. "Our showroom is homier," he says.

Showroom style
While a warmer, homier showroom may be a point of strength for some independent dealers, most of those surveyed say home centers tend to have terrific showrooms, providing a wide array of products and vignettes hard to match in a smaller space. In fact, many independent dealers note their clients have often visited EXPO showrooms to take a look at available products.

"They have exquisite displays, but they don't have the manpower to do the displays justice but we do," says Haftel.

"Our showroom sometimes can't fulfill their needs, so they go see what's there," says Brugnoni. "We'd never have the money to put in a showroom as extensive as theirs."

In fact, the advent of the upscale home centers is also an advantage to another quickly growing segment of the design market: the independent designer who doesn't want to take on the increased overhead of maintaining a showroom.

EXPOs, particularly, are taking pains to become those designers' guest showroom of choice. "We want to be there for the interior design community," says Haggerty. Many EXPOs feature a trade service office, which is open earlier (8:00 a.m.) to accommodate designers, contractors and remodelers, as well as a separate entrance and a one-on-one relationship with a sales rep. "We can serve as your arms and legs," says Haggerty. "If you don't have time to walk a customer through, you can work in tandem with our salespeople and they can help you with your customers." The trade services system also offers free CAD drawings with an order of $5,000 or above (echoing the design fee rebate offered to consumers).

In short, it seems like independent dealers and upscale home centers have learned to co-exist, each carving out their own areas of strength. Are there any disadvantages? Well, a few. For instance, Brugnoni says that the wealth of products available at his neighborhood EXPO sometimes make his clients indecisive. He says with a smile: "They'll go up there, and come back, so the process takes a little bit longer..." KBDN