Floor Decor pushes big-box concept, looks to expand - plans 2nd location - Brief Article

Home Channel News, Oct 22, 2001 by Terry C. Evans

Industry veteran seizes second chance, while critics see deja vu

FORT LAUDERDALE, FLA.--Antique rugs dating to the 1920s, New Zealand wool carpets, Brazilian cherry wood -- all are high-end products that you don't expect to find at a typical big-box store. But Floor Decor stocks it all. The flooring superstore based here opened nearly a year ago with a 45,500-square-foot prototype that sells a broad selection of floor coverings -- from carpets and rugs to wood and laminates -- to home builders and consumers in a warehouse-like environment.

"The idea is to blend every high-end product customers would need for the surfaces of their homes," said A.J. Nassar, Floor Decor's chairman and CEO. "And nobody's doing it."

Of course there are big boxes, like Home Depot and Lowe's, that sell a lot of different products at discount prices. And many flooring stores have a wide selection of the same product category. But no one stocks mass amounts of high-end floor coverings in a big-box setting like Floor Decor does, Nassar asserted.

"You have 40,000 independent [floor covering and natural stone dealers] with average sales under $1 million," said an animated Nassar, who wears jeans and a cotton company shirt to work. "We say if you can bring all that together, the customer can come in and select everything - and you've got the expertise and prices."

Sales for the new retailer hit $1.35 million through the six months ended June 30, according to company financial filings. In the second quarter of this year, the company lost $380,550, but Nassar expects Floor Decor to generate positive cash flow by the time its third-quarter results are posted later this fall.

Meanwhile, Floor Decor is in negotiations to secure a second location -- this one in Palm Beach County in an existing retail building, according to Nassar. The aim is to operate five superstores in Florida within the next two years, with long-term plans of expanding the concept nationwide.

SECOND TIME AROUND

Not everyone is buying into Nassar's vision, though. This isn't the first time the aggressive entrepreneur has tried to dominate a fragmented flooring industry. For nine years, he was CEO of now-defunct Flooring America, which once operated hundreds of franchised flooring stores across the country. Nassar was ousted from that position last year amid controversy. The company drowned in losses, faced several shareholder lawsuits and had to answer questions from the Security and Exchange Commission about the way it stated its 1998 earnings.

Critics who worked in the same industry circles as Nassar during that period say, when they learned of his new venture, it was like "deja vu."

"He could sell ice to an Eskimo," said one longtime competitor who did not want to be identified. "He is a touter of stock. I think A.J. [Nassar] is probably the best salesman I have met in my life. He can get people to rally around him like nothing I've ever seen. As a CEO, though, I don't see it. Many people lost a tremendous amount of money [at Flooring America]."

Others, however, defend Nassar as a forward thinker who was undone by a combination of factors.

"I don't think anybody got hurt more than A.J.," said Richard A. Kaplan, who founded Maxim Group (which later changed its name to Flooring America) and hired, then promoted, Nassar to run it. "He did a lot of things right for Maxim. I think he made a couple of big mistakes, but everyone does at some point in their lives. I don't blame him entirely."

For his part Nassar said that he has learned from that experience, and he's counting on the outcome to be much different the second time around.

"The industry is fragmented, and someone's going to be the big player. So I had that part right," said the 45-year-old Nassar. "The challenge is that if you consolidate crap, you still have crap. Out of 500 [Flooring America stores] we only opened 50 new ones and the rest were a menagerie of consolidation. [With Floor Decor,] we're not looking to buy independent retailers. We're looking to open up and invent a new way of shopping with this big box."

HIGH-END FOCUS

Another difference between Flooring America and Nassar's latest venture is Floor Decor's focus on high-end products. But the store itself doesn't look expensive, Nassar said, as he pointed out that his employees are encouraged to wear jeans to fit in with the warehouse-like store.

"It's rugged enough to where [the customer] doesn't think she's in some high-end showroom," said Nassar, who said that he believes the market is driven by women. "But it's clean enough so she enjoys it."

Floor Decor stocks up to 6,500 area rugs, 100,000 square feet of wood flooring (and just as much laminate, in 19 colors), not to mention up to 700,000 square yards of every type of carpeting, from shag to saxony to wool.

"Nobody stocks this stuff," Nassar said, while walking the store and pointing out rolls of expensive carpet. "If you special order [New Zealand Wools] from some of the high-end wool companies, you'd be paying $6 dollars to $7 dollars a foot. [But] we are bringing in one container load at a time, and we're not trying to gouge a customer. These are things customers can get excited about like, 'God, I can buy wool carpet from New Zealand for $3.29 [a square yard].'"