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Susan Goldman

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"REDEFINING FLOORING"
REMARKS BY
LARS VAN KANTZOW
CEO, PERSTORP FLOORING
SURFACES ‘97 SEMINAR PROGRAM
Las Vegas, Nevada
February 22, 1997
The following remarks were delivered by Perstorp Flooring CEO Lars von Kantzow at a seminar for retailers at the World Floor Covering Association’s annual trade show, Surfaces

Ladies and gentlemen, good morning.

Have you ever looked up the word "flooring" in the dictionary? If you did, you would find the following definition: "1. a floor or floors" ... well that’s helpful, isn’t it? ... and "2. material for making a floor." How dull! No wonder some people say "flooring is boring!"

But if you ask anyone at Perstorp Flooring to define flooring, the answer you’re likely to get is "an exciting, dynamic industry, ripe for innovation and change."

This difference is what sets Perstorp Flooring apart, because we are quite literally redefining the industry we all know as flooring.

Since this is a retailing seminar, you may be asking yourselves what this has to do with retailing and how flooring will be sold in the future.

Well, I believe that the Perstorp Flooring definition of flooring has everything to do with the future of this great industry.

Because, ladies and gentlemen, just when you thought you had this industry all figured out ... just when you thought you knew the rules of the game ... we’re changing them. And that will dramatically affect the way you do business, as well.

The flooring industry today is in incredible turmoil. We’re seeing tremendous changes occur. Those who were once allies are now competitors ... manufacturers are also retailers ... suppliers are also customers ... and customers are also competitors.

Carpet is having a tough time in the U.S., and the carpet industry is in free fall in Europe. Twenty years ago in Sweden, for example, carpet accounted for 45 percent of the total flooring market. Today, it’s about 5 percent.

There is a clear trend toward hard flooring, and we’re seeing it all over the world.

Now I know that all this change is unsettling for some. After all, most people don’t like change. In fact, I’ve heard it said that the only people who do like change are wet babies.

But we at Perstorp Flooring thrive on change .. .and we are taking every opportunity to change the way flooring is sold ... not only in this country, but all over the world.

We are redefining every aspect of flooring: how to manufacture it ... how to distribute it ... how to advertise it ... how to support it ... and how to install it.

And as a result, nothing will ever be the same again.

[SLIGHT PAUSE]

Before I outline some of my thoughts for the future and explain how I believe we will continue redefining the flooring industry, let me take a few minutes to go back and tell you about some of the things we have done to this point.

I’m not really here to promote my company, but as the inventors of laminate flooring, with nearly 20 years of experience in this segment, we’ve gained valuable insights which we believe can be a springboard for the future.

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Perstorp Flooring, as you may know, is a subsidiary of Perstorp Corporation, based in Sweden. A $2 billion company with operations all over the world, Perstorp Corporation is truly a global company, with 85 percent of its revenues generated outside Sweden.

It was 20 years ago this year ... back in 1977 ... that one of my colleagues first got the idea that the decorative laminates that our parent company produced for a variety of uses ... from countertops to wall panels ... could be put on the floor.

At first, people laughed at the idea, but through persistence and perseverance, the early disciples of laminate flooring proved the value ... and the marketability ... of laminate flooring.

And thus was created the first new product in the industry since cushioned vinyl was introduced more than 25 years earlier.

[SLIGHT PAUSE]

Perstorp Flooring’s first laminate flooring product was launched in Sweden in 1984, and a new manufacturing plant built in Trelleborg, Sweden, in 1985.

The first laminate flooring was produced for the Swedish market only, and it had a variety of names, including Perstorp Ombyggnadsgolv, Perstorp Superlaminatgolv and Perstorp Golv. Catchy, eh?

As we expanded internationally, however, we realized we needed a name that would be easy to export as well, and so we created the Pergo Original brand in 1989.

The name “Pergo” originally came from a contraction of "Perstorp" and "Golv," which means “floor” in Swedish.

After we chose the name, we also found that, in Latin, the word "Pergo" means "to constantly advance ... continue in one direction ... pave the way."

Once again ... redefining flooring.

[PAUSE]

Perstorp Flooring took a giant leap forward in 1994, when we introduced Pergo to the U.S.

And just last fall, we opened our first flooring plant outside Sweden in Garner, North Carolina ... a state of the art facility that will allow us to speed distribution and provide even better service to our customers in North America.

[PAUSE]

What were the key reasons for our success in the U.S. market and what lessons do they provide for the retailer?

I do believe a key reason for our success was that we never took anything at face value in this market.

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We were newcomers to the U.S., and we weren’t bound by some notion of "the way things have always been done here."

We were clearly outsiders looking in, and we certainly weren’t afraid to break with tradition and do things differently from the way they’d been done in the past.

Our primary strategy for the U.S. launch was to create a success story with one retailer, demonstrating to potential distributors, retailers, and consumers alike, the viability of laminate flooring ... and, of course, the Pergo brand.

When other manufacturers came to this country, the first thing they did was open a sales office and begin selling as much product as they could, as fast as they could.

Instead, we spent most of 1993 conducting extensive market research that documented the size of the market and the receptivity to the product.

When I first came to the U.S. and began meeting with potential customers, I told them, "I’m not here to sell product. I’m not here to look for customers. I’m here to introduce a concept, and I’m looking for a partner."

It was a completely new way of looking at the market.

As many of you know, we chose Color Tile for our launch in January 1994, and in retrospect, we could not have picked a better partner, because it was the strong support from Color Tile’s management that really made the difference.

And when I stop to think about it, it has always been the commitment of the retailer that makes the difference between success and failure. And our success in the U.S. to date is really a reflection of our retailers’ success.

The success of the Color Tile launch spread like wildfire in the flooring community, and over the next 18 months, our national roll out accelerated with the addition of 17 distributors across the U.S. and Canada ... all four major buying groups ... and 7,000 specialty retail stores.

And it was only after we created our success story with Color Tile ... after we had $30 million in sales ... taking a very retail oriented approach ... that we opened our first office. Since the entire laminate flooring category was new to the U.S., we knew we had to make a significant investment in training.

We knew that consumers didn’t know enough about Pergo to walk in and just pick it up off the shelf. We knew it had to be sold ... and we knew we had to teach people how to sell it, and make the retail staff comfortable selling it.

So we spent a lot of time in the field ... and we hired 12 technical support people in the first year to cover every market in the country.

That’s still more than anyone else in the entire flooring industry employs today. And we did all of this, before we ever hired our first sales person.

Again, support for the retailer. Again, a very different approach.

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We also supported the U.S. launch with significant marketing firepower. We didn’t want to push product into retail stores, but rather pull it through consumer advertising, with our unique "Q&A" campaign, which has generated thousands of phone calls every week ... driving customers into the store.

Our efforts did not go unnoticed. In 1995, Pergo received the Good Housekeeping Seal ... the unquestioned rating of product quality in this country.

Another great selling tool for the retailer ... to help convince consumers of the quality of the product.

All of these things combined have helped make Perstorp Flooring the success it is today ... one of the largest hard flooring companies in the world ... generating worldwide sales of $400 million.

And then, in the spring of 1996, seeing the rapid success of Pergo throughout the U.S., The Home Depot entered the picture.

Home Depot, as you all know, has made a significant commitment to the flooring category, and has changed its strategy to fit our strategy. It now sells flooring in a “store within a store”... and today is committed to taking care of customers in the way we want them to.

With Home Depot now aligned with our strategy, we made the decision to sell Pergo in Home Depot stores, starting with the West Coast last June.

It clearly was a controversial decision, and we did get quite a bit of criticism. But I am absolutely convinced we made the right choice.

In Europe, we did not move early enough into home centers, and as a result, we lost control of that segment. We left the playing field wide open ... and we saw secondary brands of questionable quality, without strong marketing support, rush in to fill the void.

The result in Europe has been rock bottom retail prices ... with no margins for anybody, including the retailer.

We made that mistake once. We were not about to make it again ... for ourselves, or our retailers.

The move into Home Depot has significantly expanded the market for laminate flooring. It has allowed us to double our Pergo brand advertising ... building brand awareness and driving store traffic.

In addition, Home Depot is now spending substantial dollars on dedicated Pergo advertising on network television, which is also helping to increase brand awareness .. .and grow our business ... not only in Home Depot stores, but also in traditional retail outlets ... because not everyone wants to shop in Home Depot ... far from it.

I know many of you don’t believe that, and I fully understand the fear from some retailers.

I know many of you don’t believe there’s any way a traditional retailer can compete successfully against Home Depot.

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All I can say, is that our experience proves differently. Our business on the West Coast, where we began selling Pergo in Home Depot, is stronger than the rest of the country as a whole today.

You can’t escape Home Depot. They’re here. They’re growing. And they are going to be a fact of life in this industry. It doesn’t help to be afraid.

You can’t out run them. You can’t hide from them. You can move ... farther and farther away ... but if there’s no Home Depot there today, there will be one tomorrow.

And if you run so far away that there’s no Home Depot ... then there probably isn’t much business there, either!

I believe that Home Depot stores and traditional retailers can successfully co exist, especially in a growing category like laminate flooring. In fact, I see Home Depot as a tremendous opportunity for you as well.

That may sound hard to believe. But just as we refused to be bound by a traditional view when we entered this market, retailers have to look at things differently now, too. You must take a step back ... as an outsider looking in ... and consider different perspectives.

And so I’d ask you to consider this perspective: it may sound like a contradiction in terms to you, but I’m beginning to think that the best location for a traditional flooring retailer, may well be, right next door to a Home Depot.

Think about it: Home Depot draws up to 50,000 customers a week. If you only get 1 percent of that, that’s upwards of 500 people a week ... or three times the traffic the average retail store gets today.

And if you capitalize on the kind of personal, friendly service ... in a clean, comfortable, attractive retail environment ... that only a traditional retail store can offer ... you will be successful.

We are convinced there is room for everybody. With the kind of brand building we are doing, I believe that traditional retailers and home centers can quite literally operate side by side, with strong volume and margin opportunities for all.

And that would truly be a redefinition of the flooring industry.

[PAUSE]

So what is the next frontier?

As a Swedish company, we are very concerned about the environment, and believe that concerns will only increase over the next decade.

This will be an issue for manufacturers, certainly, but equally a concern for retailers, because they will get a lot of questions from concerned consumers in the years to come.

How does the flooring industry stack up?

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Laminate flooring in general, and Pergo in particular, is well positioned as an environmentally friendly product, and I’ll talk more about that in a minute.

Carpet, as I mentioned, is losing share worldwide, in large part due to environmental concerns ... whether it be an allergy scare in Sweden a few years back ... maintenance issues ... or just an increasing sensitivity to indoor air quality in general.

In addition, the only way to dispose of carpet today is to add it to landfills ... which, as we all know, will be less and less of an option in the future.

PVC, or poly vinyl chloride ... the main raw material in vinyl flooring ... is under considerable attack in several European countries, including Sweden, Germany, Holland and Switzerland.

The environmental debate is going to heat up here, too. I’m not saying it will happen tomorrow ... and I can’t tell you if it will be in 6 months or three or four years ... but it will happen. And so we must all be prepared.

I’m proud to say that we at Perstorp Flooring have turned environmental and resource issues into a natural part of our daily work.

We have analyzed all stages of the product’s life cycle ... from raw materials ... through production ... through installation and usage ... right through to disposal and recycling.

Our factories and manufacturing processes have been recognized and certified by the European environmental standard, and we are planning to bring that same effort to our plant in North Carolina.

Already here in the U.S., Pergo has been chosen by the American Lung Association for its Health House ... which is built entirely of environmentally friendly products.

As a result, we are well positioned for the coming debate.

All this is very nice, of course, but once again I ask, "What does this mean for retailers?"

It means that consumers will be asking more and more questions ... looking at labeling ... and demanding more information.

This, in turn, means that retailers will need more information ... new kinds of information ... to feel comfortable with whatever flooring products they choose to sell.

The selling arguments will become different as well. Today, you sell laminate flooring on the basis of beauty ... durability ... wear resistance ... and ease of care.

In the future, you will also want to point out that, because laminate flooring does not collect dust, and is extremely easy to clean, it is a logical choice for people who suffer from allergies or sensitivities to indoor air quality.

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And because it has extremely low emissions of volatile organic compounds, or VOCs, it is ideal for families concerned about a healthy home environment.

Soon, you will need to be able to answer questions on the content of the product, whether it uses renewable raw materials, how it is made, and whether it can be recycled.

I’m not saying that we have all the answers, but to help you feel comfortable with us and our products, we have produced this booklet on environmental quality, with more details about our commitment.

As I talk about the environment, I realize that many of you may be thinking, "Yeah, right, Lars, but I’ve got a business to run, and this sounds like a lot of puffery to me."

To you I say, this will be an important part of your business in the not too distant future.

[SLIGHT PAUSE]

The environment is one clear area where we must all be prepared. How else can we prepare for the changes that will inevitably occur?

I’m reminded of something Bill Gates once said about success.

He said, "Believe me, staring out the window and saying, ‘isn’t this great?’ is not the solution to pushing things forward. You’ve got to keep driving hard."

That advice holds equally true for retailers as for manufacturers. How are we at Perstorp Flooring continuing to redefine the industry to benefit the retailer? In several ways:

First and foremost, we are making a great product even better.

Just this week at Surfaces, we announced several major improvements to Pergo Original. Pergo is already well known for its durability, ease of cleaning, resistance to wear, fading and staining, and easy installation.

Well, we’re making Pergo even thicker, more dent-resistant, more resistant to warping and bowing ... even easier to install ... and we’re introducing seven new designs, as well.

We re engineered the tongue and groove system for a faster, easier installation, a more exact fit, and stronger joints. This in turn gives the floor superior moisture resistance and an even longer lifespan.

We’ve developed a new core material, which we’re branding PerCore ... and only Pergo will have it ... to improve stability and resist dents even better.

To help generate incremental sales, we have revamped and updated our merchandise displays to incorporate all of Pergo’s new features, products and designs into to an easy to use modular system.

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I must say, we are very proud of this display, and we are very grateful for the counsel of our retailers and distributors in helping to design it. We sought their input, and they gave us feedback at every step along the way ... and we are confident it will work well for you ... and work well for us.

We are introducing a new range of accessories like patented snap in moldings, and moving to American-sized wall bases.

We’re also introducing a Main Street commercial line, Pergo Professional, to open a whole new category to retailers, so you can go after businesses like offices ... stores ... restaurants ... and shops ... well, in fact, all of your neighbors! ... because this is now the most durable laminate floor on the market today.

[SLIGHT PAUSE]

Next, marketing.

From the very beginning, we have understood the importance of building the Pergo brand, and with no false modesty, I would argue that what has been good for Pergo has been good for the entire industry as well.

But don’t take my word for it. Listen to what Carl Bouckaert, president and CEO of Beaulieu said in last week’s issue of Floor Covering Weekly.

Referring to the Carpet and Rug Institute’s new advertising campaign, he praised what we at Perstorp Flooring have done in this country.

[SLIDE COPY READS:
"They came over from Sweden and in a short amount of time, created a certain image for their product. If we don’t do the same, we have only ourselves to blame."]

Well thank you, Carl. We did come in and create an image. We did come in and create a brand. And you ain’t seen nothing yet.

The whole point of our advertising campaign ... and all of our marketing efforts ... is to drive traffic to your stores. Every time we run an ad, we generate thousands of calls to our 800 number.

We expect that in 1997, we will generate some 500,000 calls ... half a million calls ... to our 800 number. That’s about 10,000 calls a week.

And do you know what we do with these calls? We refer them to you. To the retailers who are committed partners to Pergo.

We are also seeing more and more traffic on our home page on the Internet, and referring those customers to local retailers as well.

And in the future, you can expect to see more technology initiatives that will help drive even more customers to your stores.

As I travel around the country, I’m often asked questions about our advertising plans, and specifically, how long we’re going to keep up this introductory advertising.

Well, let me tell you: This is not an introductory campaign. Our spending will only increase as we continue to grow.

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We have already added television advertising to our print schedule ... and we’ll keep adding media dollars to increase brand awareness and drive even more customers to your stores ... which will actually benefit the entire industry.

[SLIGHT PAUSE]

Third, our technical support ... already the most extensive in the industry ... gets even better. We have already more than doubled the number of our technical advisors ... from 12 to 25 ... all Perstorp Flooring employees that we train and we oversee ... all to support local retail stores.

We are also introducing a new Endorsed Installer Program, to take training to the next level and increase the craftsmanship of an installed laminate floor.

We will now offer more professional, hands-on education and give installers the chance to learn as much as possible about installing Pergo.

Once certified, installations done by Endorsed Installers will be guaranteed by Perstorp Flooring ... which means that if there is a call back, we will supply all the materials needed for the new installation ... at our cost.

We want installers to know they are backed by the number one name in laminate flooring ... and we want you to be able to sell installation with confidence.

[SLIGHT PAUSE]

And finally, with our new factory up and running here in the U.S., our ability to supply product ... and serve our distributors and retailers ... will only get better.

What do all these things add up to?

Helping retailers to make money.

Going forward, we intend to help you make more ... and more ... money.

[SLIGHT PAUSE]

No look to the future is complete without a few predictions ... so here are mine:

I see a huge flooring market, getting even bigger, with enormous potential for manufacturers and retailers with the financial, technical and human resources to take advantage of it.

I see a definite trend away from carpet and towards styled flooring and wood designs ... in part for the environmental reasons I mentioned ... in part because of ease of care ... and in part because of shifting consumer tastes.

I see environmental concerns continuing to grow in the U.S., and I predict that those manufacturers ... and those retailers ... who demonstrate a concern for the planet ... and communicate that concern ... will have the definite advantage.

I also see a shakeout in the laminate flooring industry in the next two years.

And when the dust settles, the only companies left standing will be those that have extensive distribution ... provide the right marketing and technical support ... and offer a superior quality product.

And, ladies and gentlemen, this I can promise you: Perstorp Flooring will not only be left standing ... but will remain as the undisputed leader in laminate flooring ... worldwide.

And we will continue to redefine the flooring industry. It is our heritage. It is our future. And the future looks very bright indeed ... for all of us.

Thank you very much.

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