Hardware stores tackle tough topic: Healthcare reform
Orlando, Fla. — A funny thing happened on the day of a healthcare reform seminar.
A Florida judge ruled that the reform itself is unconstitutional. There you have it: another wrinkle in the already extremely complicated healthcare debate.
The seminar at the True Value Co. Spring Market was designed to help hardware store owners better understand the impact of a massive reengineering of the nation’s healthcare system. The breaking news didn’t stop the presenters from high-powered consulting firm Towers Watson from breaking down the building blocks of healthcare reform in its presentation, “How Health Care Reform Will Affect Your Business.” And they didn’t seem too worried about the judge’s ruling.
Regina Ihrke, consultant with Towers Watson, requested that the audience of about 30 True Value members here at the co-op’s Spring Market feel free to participate and ask questions. There was no need for the encouragement. The questions began to fly at the PowerPoint’s innocuous first slide.
Some of the specific queries from the audience simply didn’t have an easy answer. For instance:
• In order to figure out a company’s number of employees, how does one count part-timers? This is an important point for companies at or near the 50-employee level.
• How does an employer determine family income? This is another crucial consideration because employees must be offered “affordable” insurance, defined as 9.5% of family income.
On both counts, more guidance is expected, Ihrke said.
Health Care Reform is the all-encompassing phrase for the combination of the Patient Protection and Affordable Care Act (PPACA), enacted March 23, 2010; and the Health Care and Education Reconciliation Act (HCERA), enacted a few days later.
“Health Care Reform is the most significant change in employee benefits, access to health care and affordability, since Medicare began in the 1960s,” said Ihrke, of Towers Watson, the firm whose clients include McDonalds as well as True Value.
One of the critical new phrases introduced by the legislation is “pay or play.” Ihrke explained that companies with 50 or more employees will have a choice: offer affordable healthcare coverage (play), or face a $2,000 per employee fine (pay) and turn employees over to yet-to-be-created Health Benefit Exchanges for coverage.
The Health Benefit Exchanges become operational in 2014.
The short-term challenges, according to Ihrke, are understanding the new law and its implications and implementing immediate provisions. In the long term, the challenge is to manage compensation and benefit programs in the new environment.
For Phil Jarriel of Handy Andy with five locations in Georgia and about 85 employees, planning for the impact is exasperating.
“The rules haven’t been set, we don’t know what the guidelines are; we don’t know what the parameters are,” he said. “You try to follow the guidelines they have set and navigate as best you can.”
From a pure, expense-control perspective, there seems to be incentive to push employees over to the Health Benefit Exchanges, Jarriel said. “But, hey, guess what? The insurance pools aren’t mandated and aren’t in place. So that may not be an option.”
Indeed, the question of whether to pay or play will loom large for businesses, according to Ihrke. One factor is the age of the work force. “Every employer is different,” she said. “And at the age of 50 and the age of 40, the cost levels for an employee are very different.”
A key feature of the reform — and the feature that bothered the judge in Florida — is the individual health coverage mandate. This means all individuals are required to enroll in basic health coverage or pay a penalty of $700 a year. This mandate also begins in 2014, but just how this will be tracked and enforced is unclear, Ihrke said. The idea is that massive participation in insurance pools will lower costs.
But many remain skeptical. “We would definitely call this ‘healthcare insurance reform,’ not healthcare cost reform,” Ihrke said. e
The toughness meter
“There are no sissies left in this business.”
That’s the official Home Channel News quote of the month, from Rick Frost, the CEO of Nashville, Tenn.-based Louisiana-Pacific.
Frost’s statement, delivered during the Q&A segment of his company’s fourth-quarter earnings call, was one of several executive comments in recent weeks with a true-grit flavor. Something about managing through the tail end of a stubborn downturn has generated a tough-get-going attitude in public and other utterances of our industry executives. In other words, it was a strong month for straight talk.
When Builders FirstSource CFO Chad Crow described something of a return to normalcy in margins in certain markets, he packaged his point in the rhetoric of dog-eat-dog Darwinism. “You don’t have as many starving people out there fighting over what small amount of business is available.”
Anyone who buys stock knows that past performance is not an indication of future performance. Ace Hardware executive VP and CFO Dorvin Lively said that theory applies to retail. “You have got to get better, get smarter, every year. What worked last year doesn’t necessarily mean it’s going to work this year. Whether it’s big-box competition, the Internet, social media — I mean these are things that we didn’t even have to think about 20 years ago.”
Times are changing. And the burning desire for constant improvement is also found in Orgill CEO Ron Beal’s sound bite. “It’s hard to hit home runs,” he said. “But if we can be 1% or 2% or 5% or 10% better, the cumulative impact of that is very significant.”
Even Berkshire Hathaway CEO Warren Buffett is fired up. In his annual letter to shareholders, Buffett wrote: “Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born.”
I wouldn’t want to mess with him in a boardroom. (For more on Berkshire Hathaway and its home-related business, see page 6.)
But it was Louisiana-Pacific’s Frost’s comment that takes the cake. The editors suspected it would generate some website hits, and sure enough, “LP CEO: No sissies left in business” was one of the most viewed stories of the month.
Frost was responding to a question from an analyst about why there was so little consolidation in the industry, given the conditions. Here’s his elaboration. “It’s over-simplistic and you’ve heard me say it and everybody laughs at me when I do, but there aren’t any sissies left in this business. Nobody wants to give up their shop and let somebody else own them. It’s my opinion.”
You might choose your words differently, but it’s hard to disagree.
— Ken Clark
Correction: An article in the February “Made in the USA” issue of Home Channel News incorrectly described Bemis Manufacturing CEO Peter Bemis. He is the grandson of the founder Albert Bemis.
11 for 2011
With the Kitchen and Bath Industry Show only weeks away — it runs from April 26 to 28 in Las Vegas — the National Kitchen and Bath Association (NKBA) just released the results of its annual members’ poll about upcoming design trends. The Hackettstown, N.J.-based trade group asked 100 of its designers what they’ve been installing in their clients’ kitchens and bathrooms, and then distilled the results into 11 trends.
Home Channel News asked some LBM showrooms dealers and manufacturers to add their observations to the survey. While some results are predictable — those vessel sinks are everywhere you look — who would have guessed green bathrooms?
One overall trend to keep in mind, according to one designer, is frugality. “It’s all about the budget,” said Joan Crall, a designer with Boyce Lumber in Missoula, Mont. “Even people who have the money don’t want to spend it.” According to Crall, customers might splurge on one item — say, a six-burner Wolf range — but they’ll go for the lower price points on countertops and fixtures. “The bottom line is, they want to stay within their budget,” she said.
Shaker style cabinets
The Shaker style caught on big last year, and by the end of 2010, had eclipsed contemporary as the second most popular style used by NKBA members. (Traditional is their first choice.) At Parr Cabinet Outlet, a sister company to Parr Lumber with locations in Oregon, Washington, California, Arizona and Utah, Shaker outsells other styles five to one, said division manager Jeff Cox.
“Maple, cherry, hickory, white — it doesn’t matter what kind of [wood],” Cox said. “About 60% to 70% of our sales are some kind of Shaker door style.” The company sells approximately 15,000 cabinets a year.
While Shaker’s star is rising — 55% of the respondents said they had designed Shaker-style kitchens — contemporary kitchens fell to 48%, according to the survey.
Dark finishes on cabinets
Distressed finishes are out — only 5% of the designers surveyed used it last year, compared with 16% the year before. But dark, natural finishes overtook medium natural, glazed and painted white as the most specified type of finish toward the end of 2010. Homeowners are not necessarily returning to an all-dark look, however. Some are mixing it up.
“We’re seeing dark on the perimeter and a dark [center] island that looks like a piece of furniture, something very decorative,” said Jeff Topolinski, who works in cabinet sales and design at Ed Hines Lumber. “The rest [of the cabinetry] is a painted product, white or antique white.”
Many homeowners still opt for light natural or colored painted finishes, however: 25% for light natural and 29% for colored paints, according to the survey. While “medium natural” is losing popularity — it fell five percentage points — 48% of the designers polled still used it last year.
In the Chicago market, where Ed Hines operates four design centers and showrooms, production builders are installing medium to dark cabinets in cherry, birch and maple, according to Topolinski. And no one is choosing oak anymore. “Oak is non-existent,” he said.
When you think about it, it makes perfect sense: Wine refrigerators are mostly designed for white wine, yet plenty of people prefer red. So it’s no wonder that the incorporation of wine refrigerators in the kitchen seems to be on the decline. Unchilled wine storage is growing in popularity, however. While only 39% of surveyed designers incorporated wine storage areas into their kitchens at the end of 2009, just over half — 51% — did so as 2010 came to a close. Most other types of cabinetry are on the decline, including tall pantries (89% to 84%), lazy susans (90% to 78%), and pull-out racks (81% to 71%). Appliance garages also seem to be falling out of favor, as their use declined from 36% at the end of 2009 to 29% a year later.
French door refrigerators
The French door refrigerator has strengthened its position as the type specified most often by NKBA member designers, jumping from 67% to 78% between 2009 and 2010. The NPD Group, which also tracks appliance sales, found that French door refrigerators accounted for 26% of total full-size refrigerator unit sales, and 41% of dollars, in 2010. Sales of this style showed double-digit increases in 2010, the only refrigerator type to do so. French door refrigerators are also the only type to exceed 2007 pre-recession sales levels.
General Electric also noticed a bump in sales, according to spokeswoman Allison Gatta. “French door refrigerators are [our] fastest-growing segment,” she said.
Why does everyone love them so much? Ever try to fit a frozen pizza or a sheet cake in a side-by-side refrigerator?
Induction cooktops haven’t overtaken gas and electric models, but they’re closing the gap. Entering 2010, gas cooktops were specified by 76% of NKBA designers, compared with 38% for electric and 26% for induction. Now induction cooktops have gained eight points, up to 34% in the latest survey. However, the incorporation of gas cooktops has fallen to 70%, while electric cooktops have risen slightly to 41%.
Meanwhile, single-wall ovens are down from 46% to 42%, although double-wall ovens are up from 68% to 74%. In addition, warming drawers are down from 49% to 42%, and ranges are down sharply from 81% to 68% .
Designers are turning away from incandescents, given their planned obsolescence, which leaves them the options of halogens, CFLs and LEDs. Of the three choices, only LEDs showed gains, with 54% of the respondents choosing the energy-efficient (but expensive) light-emitting diode fixtures, as opposed to 47% last year.
At Sims-Lohman Fine Kitchens, a division of Forge Lumber that serves the Cincinnati market, customers are asking for LED lighting in strategic places. “We see it under cabinets or countertops,” said general manager Jim Roberts. “Also, in spotlights.”
At Builders Warehouse in Kearney, Neb., corporate sales manager Chris Borrego has also noticed more LED lighting being installed under the counter during kitchen remodels. “It’s a little more flexible, and it’s something new,” Borrego explained. But homeowners have yet to make the leap to LEDs in the ceiling, he said.
Consumers are looking for a neat solution to trash disposal, one that incorporates all the sorting and recycling required by either their local municipality or their conscience. Some 89% of kitchens designed by NKBA members in the final quarter of 2010 include a trash or recycling pull-outs “Every kitchen that I do now has a waste and recycling cabinet,” said Topolinski of Edward Hines Lumber. “It’s grown to the point where everyone expects it. Typically, it’s the first things they ask about when they come in.”
Consumers also want to reduce their overall kitchen waste using installed appliances. The use of trash compactors grew from 11% to 18% year over year in the annual survey, while garbage disposals were incorporated by 86% of designers, up from 75% the previous year.
Quartz continues to take away market share from granite in the market for bathroom vanity tops, according to the NKBA survey. A year ago, 85% of the bathroom designers incorporated granite into a recent design, compared with just 48% for quartz, but now, that gap has narrowed to 83% for granite and 54% for quartz.
“We’re definitely seeing growth in quartz,” said Borrego of Builders Warehouse, which operates its own fabrication plant. “More people are looking at it as an alternative to granite.”
Borrego noted that other quartz fabricators seem to be popping up everywhere. “We’re seeing more competitive pressure from other suppliers,” he said.
Unlike in the kitchen, solid surfaces haven’t gained much popularity in the bathroom, increasing only from 23% to 25% over the past year. Meanwhile, solid marble has declined from 46% to 37%, while cultured marble and onyx have increased from 12% to 19%. No other material has even 10% of the market.
White, off-white and shades of beige will always dominate bathroom walls, but green started showing up in 2010, and 24% of the NKBA designers polled said they had used it last year, compared with 14% the year before.
“The greens that I’m seeing are the gray-greens,” said Roberts, of Sims-Lohman Fine Kitchens. “This works with the contemporary styles.”
Leatrice Eiseman, executive director of the Pantone Color Institute, said that consumers “can get pretty bored with the usual browns and tans and whites.” She sees green as a “neutral” color. A gray/green combination can create a natural-look background that makes other colors pop. Think raspberry towels.
One thing is for certain: The popularity of beige and brown is definitely slipping. Beige lost nine percentage points in the NKBA survey, and brown dropped by 10 points, from one year to the next.
Undermount sinks continue to dominate newly remodeled bathrooms, with 97% of NKBA bathroom designers having specified them over the last three months of 2010, up from 95% a year earlier. Typically, undermount sinks are used with Corian or Silestone or some kind of solid surface that can provide a lipless drop-in space for a sink.
“It’s very popular in the kitchen on high-end projects,” said Judy Riley, VP global design at Moen. Typically they have angular corner and are very deep.”
Vessel sinks, which are often made of art glass or other exotic material, have become the clear second choice among designers, as 51% of NKBA member designers have specified them in the final quarter of 2010, up from 39% a year ago. Pedestal sinks are also on the rise, up from 21% to 29%. Of course these fancy sinks also need special faucets to go with them, but the NKBA survey focused more on metal finish than style when surveying the troops about these fixtures.
Satin nickel faucets
For both bathrooms and kitchens, consumers showed a strong preference for polished nickel. From the end of 2009 to the end of 2010, the percent of NKBA designers who specified a satin nickel faucet rose from 41% to 63% in the kitchen and from 45% to 57% in the bathroom. For brushed nickel, the numbers tumbled from 61% to 48% in the kitchen and 66% to 38% in the bathroom.
“Most of my clients are using satin nickel in my remodels,” said Crall, of Boyce Lumber. “People had been using more expensive finishes, like oil-rubbed bronze, but they’re not spending as much on specialty products.”
Stainless steel is still popular in the kitchen, according to the NKBA survey, as it was specified by 44% of designers. But that figure dropped to just 16% in the bathroom.