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Ceramic update: Consumer confidence affecting tile growth, prosperity

When it comes to business conditions, many are citing consumer confidence, or lack thereof, as a reason why things aren’t what they used to be. Along with the housing market, unemployment and energy costs—which all play a role in spending— there seems to be a waiting game on the part of consumers.

At least the commercial market is showing signs of life. Many point to the category’s inherent characteristics, green attributes and advancements in both fashion trends and state-of-the-art technology as reasons for optimism.

According to Eric Astrachan and Andrew Whitmire of the Tile Council of North America (TCNA), low housing prices and high unemployment have resulted in fewer consumers with the confidence to spend on new home purchases or remodeling. “New home sales in 2011 are on pace to finish at a historically low level. This really impacts our industry, which relies heavily on the health of the housing market.”

According to the U.S. Census Bureau, the pair noted, U.S. tile consumption was down .4% in units but was up 3.8% in dollar value during the first quarter of 2011. “However, there have been very few encouraging signs that point toward a significant recovery in the near future. With the recent disruptions in the market and a declining sales trend that appears to be taking place from the first to second quarter, we are not encouraged regarding an increase in consumption this year. At best, we feel 2011 will be the same as last year.”

Bart Bettiga, executive director of the National Tile Contractors Association (NTCA), mirrored that assessment and is concerned about how the category will finish the year. “We expect it to end about flat in comparison to 2010. We have concerns with the last quarter of the year, as indications show consumer confidence and spending will be shaken due to the uncertainty in the economy. We expect 2012 to remain in the same situation as the second half of 2011.”

There are several factors that have affected the ceramic category, he noted, both positively and negatively. “One advantage is that the price of tile and installation materials have remained steady, while in some instances competitive markets have experienced sharp decreases. But this is a double-edged sword. It seems like our product has now been grouped into the commodity category rather than a premium one, and this makes the clientele shop for tile on price rather than quality.”

According to Sean Cilona, marketing director for Florida Tile, another big issue currently facing the industry is the barriers to effective and profitable domestic production. “Energy and transportation are two of the biggest for us, but those also affect raw materials.”

Another major issue the company fights on a daily basis, he noted, is the erosion of price due to low-cost, low-quality imports. “I understand a free market, but if there is one thing I would change, that would be it. The entire country, specifically the tile industry, could do a lot more to promote domestic manufacturing, and that all starts with educating the public.”

Cilona added that the influx of inexpensive tile products continues to place a strain on price in the marketplace. “This ultimately affects the profit potential for retail owners and commercial contractors. People commonly try to lump ceramic, porcelain and stone into the same category, even though there are performance and aesthetic differences between each of them. Therefore, a constant stream of quality education and product differentiation is [very] critical.”

Lori Kirk-Rolley, senior marketing director, Dal-Tile, agreed the industry is flat versus prior years as the market continues to adjust inventories to the correct levels. “However, the industry was expected to be stronger than the current numbers show.”

Optimism still exists

Not every company with which FCNews spoke was singing the blues. Rob Tarver, vice president of sales and marketing for SnapStone/Avaire, said while he couldn’t speak for the entire tile industry because the nature of his company’s product is different than that of traditional tile, “the first half of the year was definitely stronger than the previous year. However, we feel the second half of the year will slow down due to the many economic factors affecting our markets. We anticipate the tile industry to grow in both dollars and footage in the low single digits year-over-year. The primary reason is a stronger commercial market.”

There are those who see reasons for optimism, however cautious it might be. Mario Buisan, trade commissioner, Trade Commission of Spain, said while not all data is available for 2011, he feels comfortable with the results received so far. “Of course, it’s been a tough few years, but little by little we’ve overcome the difficulties of the crisis. We’ve seen incremental growth in sales during the past two years. That supports our confidence in the U.S. market. Next year holds great promise. Our manufacturers are greatly committed to technology and innovation, and despite the recession that commitment has not wavered.”

Buisan believes the market has seen some of the “greatest innovations to ever reach the ceramics industry—slim tile, pollution-fighting tile, extra-large formats, advanced digital printing. If this is how our manufacturers innovate in hard times, it will certainly be interesting to see what new concepts emerge with a healthy market as the backdrop.”

Dal-Tile, whose net sales grew in the second quarter, is also optimistic. “We believe as the market stabilizes and consumers grow more confident about the future of the economy,” Kirk-Rolley said, “they will begin to invest in their homes more by making improvements, which will raise the demand for tile and other products. Furthermore, consumers will continue seeking products that offer long-term value.”

Cilona said Florida Tile is about 10% above where it was last year. “This puts us a little behind where we wanted to be at this time, but we are still on track to meet our budget for the year and give us a nice path for growth over 2010. However, the year isn’t over and things could very well change.” Heading into 2012,

Cilona believes the industry will be looking at the same type of tumultuous sales trends. “For us, I hope we can maintain the level we are at for a few more months; that should get us to our goals for the year. I believe the industry as a whole is going to see a big slowdown as the year winds down and the weather starts to turn.”

Florida Tile will not be slowing down on introductions next year. “We’re coming on strong with several new commercial and residential lines. We have a nice product mix from high-end to basic and a lot to offer in color and style. We’re gearing up the commercial side as we’ve been doing the last few years, and that is going to come with new products, merchandising and promotional programs.”

TCNA and its members continue to stress the value ceramic tile provides, its inherent green attributes, as well as the lower life cycle cost versus other flooring options, noted Whitmire and Astrachan. “Our industry has also made a strong commitment to educating and certifying installers, leading to higher-quality jobs and more satisfied customers.”

Kim Holm, president of Mannington’s residential business, said the past couple of years have been difficult and frustrating. “We approach each year with optimism only to suffer through another year of poor economic challenges. Hopefully, 2012 will deliver some true improvements.”

Bettiga concluded, “We do have hopes that consumers and building and design professionals will continue to become aware of the advantages of ceramic tile as it relates to sustainability. The life cycle of tile makes it extremely affordable as well.”

Tarver believes 2012 should continue to see strong commercial growth and opportunities, but if the market falls into a double dip recession, both new construction and residential replacement segments will continue to struggle.

“We also believe that 2012 will see consumers seeking better-valued products,” he explained. “By that, I don’t mean inexpensive but better-end goods that provide a distinctive and differentiated value to their design and performance needs.”

-Louis Iannaco