Perspectives

Editor’s note: After Stone Update Magazine published the “10 Questions With” feature with Rupesh Shah of MSI in the Summer 2020 issue, Gian Luca Fiori sent his own answers to the same questions from his viewpoint of a regional distributor. His responses, to me, reflected much of what I’ve heard from people in the hard-surfaces industry and provided a good snapshot of where we’ve been in 2020 and some notions on the road ahead. And, frankly, it’s really well-written. I threw in a comma here and there for clarity, but the rest is straight from the source. We are recuperating at around 80-90% from last year. All our workforce is back and actually, we were able to hire three more salespeople. We are still missing a driver. It has been a year that we have not been able to fill this position. In January, we were optimistic about the year. The economy was doing well. We had re-established three solid quartz vendors to replace our Chinese vendor from the tariffs shock. Our sintered ceramic, Neolith, was growing slowly but steady. As soon as our state governments started to shut down the economy, we went to a three-day work week to be able to lower our costs and be able to continue to unload all the incoming containers that were arriving to the port. All our investment on technology paid off since everyone was already able to work from home. Everyone had equipment and was comfortable to take calls from customers, place orders and schedule deliveries. In addition, we were users of Zoom since a couple of years ago, so we continued to coordinate our activities just like if we were at the office. The PPP was a big help. Since we had a great relationship with our bank and we have very good information systems, we got the funds within two weeks and everyone was employed full-time right away. The housing industry has fared pretty well in this crisis and we should be able to be back to pre-coronavirus level by the end of the year. The big question is the economy and how fast it is growing back. Initially, we had to fulfill the demand of all the projects that were abruptly stopped, then we had the demand for renovations since people was spending more time at home and they have disposable income because savings in vacations, outside entertainment, etc. However, we need confidence in the economy. The faster unemployment is reduced, the faster the economy recuperates and all of us will have the opportunity to take advantage. Not only the U.S economy; we need the whole world to re-start. Stone suppliers, quarry and fabricators have been also affected by the crisis and they need to recuperate production. In addition, there is a large constraint in transportation that is slowing the supply of products. As far as dealing with the China-quartz tariffs: It has been a difficult period. We were dependent on one Chinese supplier, so our supply of quartz stopped in September 2018. We had a good amount of inventory, so we were able to continue to sell material while we were replacing our providers of quartz products. We took our time to select three great suppliers so we can offer the whole range of products while diversifying the country risk. It was a difficult time but, we already had crash experience since we cut our relationship years ago with our original supplier, Caesarstone. We were doing well for them but slowly, it was turning not good for us. So we moved our quartz line to a then-unknown Chinese supplier, ColorQuartz. We did very well with them. Our objectives were aligned, and sales recuperated fast. They became a leading supplier in the U.S. and we had a good line of products. But then, the tariffs hit the market and you know the story after that. I just hope that U.S. Customs aggressively punish everyone that is transshipping materials so we have an even playing field. Overall, single-digit tariffs are manageable. The consumer can absorb the price increase since on a kitchen renovation, the countertop material is just one small fraction of the total cost of the project. There is going to be always a producer that could be few single-digits less expensive. On your Hard-Surface Report, you can see a variation of square-foot price that goes from middle $6 ft² to $11 ft², so, there is a price for everyone in the industry. My guess is that the developers of multi-unit projects are the most-affected since quartz went back to being more-expensive than budget granites and they must deal with the natural-stone complexities. U.S. quartz production has a cost challenge that’s difficult to overcome. High transportation cost, high labor cost, taxation and regulation cost are factors difficult to overcome while comparing with producers overseas. The laws of supply-and-demand on a very connected world will perdure over time and a lower-cost producer will be able to compete in any market. Quartz is a man-made product, so the supply is not limited; prices will continue to diminish as long as the demand continues to increase. We are a small regional distributor, so we need to continue to keep a level of service higher than our larger competitors. We need to continue to have the ability to adapt promptly to the demands from our customer base. We continue to fine tune our operations to minimize our cost. The fabricator is an important player in the business chain. Homeowners need kitchen countertops, and not slabs, in their homes. The fabricator segment is under competitive pressure and slowly they are realizing that they can’t double or triple the price of the slabs. They have been changing to price the job more accurately, separating the material from the labor. Our duty as distributor is to help them on the whole supply chain by promoting and servicing the homeowner and providing competitive quality products. Natural stone has always been a good solution but, over time, it will become more exclusive. Natural-stone supply is limited to the quarries and the environment. Perhaps, in the long run, the volumes will decrease drastically, and the prices will increase dramatically. On the other hand, man-made products can be produced extensively with economy of scale, so all great products are becoming high volume/low margin lines.