Massimo Sedano has seen many things in the tile industry, and he seems to enjoy looking back at his experiences with a sardonic wit. His humour belies his determination to survive and thrive in the midst of some major market challenges.
At first contact, Massimo Sedano sounds like everything you expect a charming Italian business owner to be: a little slow at first to chat as he considers what to say. But once he gets warmed up and becomes more comfortable, he is full of funny anecdotes and offers sharp observations about the industry.
Massimo, along with his wife Sabrina, started out in the early 1990s as representatives for a number of Italian tile manufacturers before importing products directly. Today, Massimo is leveraging this experience and all his knowledge to develop the latest addition to the business, Elegance Tiles.
Expansion into retail
Finding that margins were being squeezed in the wholesale business, Massimo did what most savvy entrepreneurs do when they are being challenged: He transformed the business to meet market needs. So, after more than 20 years, in mid-2013, Massa Imports expanded into being a retail group named Elegance Tiles. As Massimo tells it: “The intention was always at some point to have our own retail system. I had been talking to my clients about it for a while [before it actually happened] … But it wasn’t until the industry was becoming difficult for small independent retailers that they suddenly started to listen. As soon as they did, we were able to quickly, over a period of six to nine months, set down some ground rules and get the ball rolling. It was actually easier than I expected because there was a willingness from everyone to do something.”
Currently there are 13 members of Elegance Tiles, all based in Victoria. Massimo and the group plan to increase that number to 20 in both metropolitan and regional areas. Interstate stores could also be an option in the future.
To become a member, expressions of interest are submitted for a license agreement. According to Massimo, the group assesses the application to see if the store location is appropriate and available. He explains, “If they are in an area that is free, we examine who they are, if we know them …. and what sort of reputation they have. Then the members vote if we want them in.”
As the chairman of the group, Massimo does not vote unless there is a tie, and he has the casting vote.
Before Elegance Tiles became over 50% of his company, the pre-digital tile industry was a very different place to do business. According to Massimo, that changed due to a couple of “seismic” events.
“It’s a very different industry now from what it was then. There have been two big changes since we started in 1991-92. One is related to supply chain. When I got involved, if you had the right supplier in Italy or wherever you bought from … it was much easier to have a successful enterprise. Simply because the world was not digital then. If you had the right factory, that factory could have tiles that were far superior to other manufacturers.
“If you had the best tiles, you won every time. Once the digital world came into the equation and almost any manufacturer could buy digital machines from Italy, then basically everyone had the ability to produce whatever they wanted, whenever they wanted. All they needed was a digital file. The rest of it was not that difficult,” he said.
When it became easier to produce tiles, Massimo said, “It became a world where virtually all the manufacturers could make the same products. [Almost] every supplier, every manufacturer makes the same marble, the same wood, the same slate and so on. It really becomes an economy of scale battle. It’s all about price and volume.”
Despite this, Massimo does not seem to yearn for the “romance” of the past. Instead he has adjusted to the dominance of Chinese imports in the Australian market. He said, “Their economy of scale is amazing compared to other countries … [It] changed the market forever.”
Builders and developers now go to China to buy directly from the factories which also took a large slice of the market. “People like us [smaller companies] used to also get some commercial work but that became a bit more difficult too,” he said.
Margins, he tells us, have decreased substantially. “For us [that is] because almost every single product has become a commodity. Eighty per cent of the products that we sell, you could call them commodities. You have to sell them at a certain price, otherwise you don’t sell them. It’s as simple as that,” he explains.
As tile products became more commodified, Massimo saw a market that was forming into three main groups: medium-sized tile shops, small boutiques and large corporate-owned or franchise groups. “There is a distinct difference between a sizeable shop with between five to 10 employees … that need to turn over $2 million or $3 million a year just to break even … Now they have to sell a lot of volume in order to be able to stay open. And the little boutiques that have one or two operators, they are selling more exclusive products, but obviously they don’t turn over as much. The other thing that has changed in a very big way, is that two players in the market became bigger and bigger,” he said.
Alongside digital processes, the internet was another contributing factor to these changes, according to Massimo. He looks at how the industry has developed as a result of the internet. “In the eighties and nineties as an independent retailer, all you had to do is spend your $15,000 a year in the Yellow Pages. [This] basically gave you some sort of marketing and following. As soon as the internet became the number one source of leads, and you didn’t need to spend $15,000 anymore, the small independent store could not afford to compete with the bigger players.
“Slowly but surely, the bigger players gained market share. So to give you an idea, in the 1990s and even in the early 2000s, as a wholesaler in Victoria alone, we had over a hundred accounts. Now we have 25, 30.”
Massimo said he could have more active accounts but chooses not to because economies of scale make it more viable for Massa Imports to deal with stores that are only going to buy a very small amount. “So you’re better off having better arrangements with a smaller amount of stores and getting more volume … which is basically what we’ve done with Elegance,” he explains.
Diversifying into retail was one way to compete in a commodified market. Massimo believes it was the only way the business could survive.
Many businesses do not have the flexibility to respond as deftly as Massa Imports did to the changing market around it. Massimo was quite quick to realise that the days of making large profits in the industry were gone. He is the first to admit that he did well in the 1990s and most of the 2000s but when it came to change, Massimo actually did it rather than waiting for the market to “rebound”.
“Even though Australia is a growing country and there’s usually plenty of building going on, the margins are not going to be what they used to be. The competition is getting stronger every day. If you don’t learn how to improve in the way you do business such as buying cheaper, better products, reducing your costs internally, or gaining more market share, then you’re not going to be in business for long,” he said.
Massa Imports is a leaner business today because Massimo managed to transform it. Elegance Tiles generates about 55% of revenues, approximately 10-15% comes from commercial work and the rest is wholesale to non-Elegance customers and interstate distribution.
Massimo sees digital platforms as having a starring role in the future of Massa Imports-Elegance Tiles. “We spent a lot of money on digital ourselves, and through COVID-19, we’ve been inundated. Our figures have gone up threefold in terms of internet inquiries,” he said.
The company differentiates itself by offering more tiles than many of its competitors. “Our website alone has 1200 products and our stores are able to buy from other wholesalers as well. They don’t have to buy from us,” he added.
To compete, Elegance stores offer over 2000 products so there is a strong chance that consumers can find something “interesting and new”, according to Massimo.
“What we’ve seen is that if people have got more time for research, more often it is the little shop, the boutique stores that has a greater appeal, a better chance of getting their attention.
“So my hope is that the world will change and we go from globalising and making the strong, stronger, that there is a chance for the smaller players to appeal to the market in their own way.
“What we’re providing with Elegance is the ability for the smaller players to jump in with us and be a presence on the internet … with a marketing presence out there so that the consumers can reach them and they know about it.”