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State of the industry: Carpet continues to bounce along at the bottom

As the third quarter of 2011 comes to a close, FCNews asked a few important questions of a few important players in the carpet industry: How has business been? Have this year’s challenges been different from those we saw in 2010? What are consumers buying? What is the deal with all this carpet-related legislation coming from California?

Overall, last year’s increase in spending from the first-time homeowners tax credit gave consumers a boost in confidence to remodel—though on a smaller scale than in years past—and has begun to wane. Commitment to new production technologies, new trends and a resilient frame of mind has kept residential carpet sales relatively flat over the last nine months and given a lift to the commercial market.

According to Ralph Boe, president of the country’s largest carpet-only manufacturer, 2011 has been a repeat of last year for Beaulieu of America.

“Issues in the housing market are likely to continue—foreclosures are almost a third of sales out there and continue to be a depressant on market pricing,” he told FCNews. “It’s hard for people to go out and speculate building new homes if they have to sell at a fraction of cost.”

The majority of tough times are in the building sector, Boe explained. With 1 million household formations each year, families have to go somewhere: The vacancy rates on apartments have come down in the last two years, so most of the building activity is in multi-family homes.

“Beaulieu has been participating in that more than in the past to offset some of the losses in single-family homes,” he continued. “Programs on the residential side like Bliss have been successful for us, particularly by adding Magic Fresh or Silver Release to our products, so it cleans the environment in the home or office. It helps draw consumers who may not be in the market for carpet.”

The problems of yesteryear continue to affect the industry. “The industry is faced with rising costs for transportation and raw materials, while Americans remain uncertain about the overall stability of the economy,” said David Duncan, vice president of marketing for Mohawk’s residential business. “High unemployment persists, consumer confidence continues to be weakened, and the U.S. housing market has not rebounded as much in 2011 as experts had previously anticipated.”

Other major carpet manufacturers, like Shaw Industries, have had a “stable” year. “It obviously depends on the market segment you are looking at, as we have growth in some areas and declines in others,” said Randy Merritt, president. “But on a macro level we are seeing nominal growth: The industry seems to be bouncing along the bottom trying to rebound.”

What are some opportunities for growth?

Many of the issues identified as challenges can also be considered opportunities. Merritt said improvements in the lack of new construction, consumer confidence levels, financing for consumers and small business, and rising raw material costs would “hopefully lead to more retail traffic and consumer willingness to invest in the home.”

Challenges in the marketplace have been used as an opportunity to make company improvements and streamline efficiency at Mohawk. “Mohawk continues to introduce innovative products and reengineer existing ones in an effort to give our retailers a competitive advantage in the local flooring market,” Duncan said. “We are seeing steady improvement in remodeling activity as people choose to stay in their homes longer.”

Many major suppliers see a dramatic shift toward softer fibers in the residential market, cementing carpet as a touchy-feely product.

“Since 2009, our Luxerell soft fiber offering has grown to be about a third of our residential business today,” said Dan Haycook, executive vice president, Surfaces, Invista. “We continue to focus on delivering soft products which provide outstanding durability and performance, and our new SolarMax fiber technology delivers a very soft hand along with excellent stain resistance, colorfastness and fade performance.”

Almost everyone has seen growth in multi-family housing that began dominating when the rental market overtook home sales. “There is lots of opportunity in multi-family business but lots of people are trying to get in so it is highly competitive,” Boe said. “Everyone sees that area; we’re all attracted like magnets to metal.”

Nylon vs. polyester

The carpet industry has long been dominated by nylon—80% in the ’80s, Boe said, while polyester was about 5% in 1985. “We have seen a continued conversion from nylon and polyprolylene, to polyester. Those raw materials are comparably less expensive and that is driving residential business. We’ve invested heavily in new extrusion processes, seen in our newest expansion last year, and we’ll continue to look at that as long as that ilk grows.”

According to Invista’s Haycook, five years ago nylon represented over 60% of the market and PET was less than 20%, while olefin was close to 20%. Two years later there was a 10% shift—nylon at about 50% and PET had grown to 30% or higher. “By 2009, the polyester family, including triexta, had grown to nearly 40% of the market with nylon falling just below 50% and olefin holding the balance,” Haycook told FCNews. “While nylon continues to be the best performing fiber, the shift to polyester is being driven by the market moving to lower price points.” Today, Invista ranks PET at 43%; nylon at 38%; olefin at 11% and triexta at 8%.

Visual and tactile trends

Patterns and textures are the resounding trends across the board, while use and decorative palettes remain flexible. “Consumers are trending away from Berbers to cut piles, and moving away from casual looks to more textured styling,” Beaulieu’s Boe said. In addition is a move to softer yarns that he found applicable in places like the bedroom, where consumers want a floor that is both comfortable and healthy. “That’s why we introduced Healthy Touch; with Magic Fresh and Silver Release it is the whole package the consumer was looking for.”

While consumers continue to spend cautiously, residential remodel projects are of a smaller but higher-end scope, as noted at Mohawk. “Many homeowners are choosing to redesign one room at a time, and they are taking advantage of this opportunity to choose car- pet that is of a higher styling and aesthetic appeal,” Duncan said. “Patterned and textured carpets are trending, as well as friezes with tone-on-tone coloration.”

In addition to textures, friezes and shags, Shaw found LCL/patterned products to be popular, as well as tailored, cut pile Berber flecks. “Carpet tile in the specified and Main Street segment continue to be strong as well, and have been a growth category for us in 2011,” Merritt said.

Commercial vs. residential

Another continued shift has been from broadloom to modular carpet tiles, which have grown considerably both in popularity and market presence. Bentley Prince Street modestly reported a 10% increase in business over 2010. “I believe this is nothing more than the fact that modular is growing universally, therefore the residential growth is coming naturally,” said Anthony Minite, president.

While residential business is directly related to the financial stability of consumers, commercial has remained more stable.

“The segment continues to improve as budgets that were once tied up and projects that were deferred come back online,” Duncan said. “Hospitality is doing well, both domestically and globally. Additionally, we’re seeing improvement in the education and healthcare sectors in the U.S., leaving us very optimistic about the commercial flooring market.”

At Shaw, 2010 and 2011 have been good years for the commercial market with almost all growth coming in carpet tiles. “The healthcare and institutional markets have been strong for the last 18 months,” Merritt said. “The hospitality market is starting to show some signs of life as properties must remodel to stay competitive, but this market has a long way to go to recovery. That said, the commercial market in general is beginning to show some signs of slowing as government and local budgets are being cut, which will make flooring expenditures a challenge.”

Legal issues not affecting business

The carpet industry has seen its fair share of challenges along the legislation front when it comes to product stewardship, though it has been favorable for business thus far. AB 2398, also known as the California Carpet Stewardship Law, was enacted July 1 and posed no challenge to California-based manufacturers. “AB 2398 has not affected us at all,” Minite said. “It is our hope that it is seen as a positive, which would further support our Mission Zero objectives to have no negative impact on the environment by 2020.”

The carpet-only manufacturer also saw little to no problems arise from implementation. “We’re finding from a positive standpoint, more companies are set up to collect more post-consumer carpet and other companies have been established to process and recycle the old carpet into another material,” Boe said. “We think it’s having the desired affect with no negatives as to selecting carpet as a floor covering.”

However, there is a new issue on the horizon in California, this time with the state’s Office of Environmental Health Hazard Assessment (OEHHA) recommending reducing the emission levels for caprolactam, a key ingredient in the make-up of nylon 6 carpet, (FCNews, Aug. 29/Sept. 5). While OEHHA has rejected the Carpet & Rug Institute’s offer to fund additional research with regard to exposure levels, the industry is still following developments closely.

“It is disappointing there is truly no real data that points to caprolactam having a negative affect in how we utilize it in our production,” Minite said. “For Bentley Prince Street, it is not a huge issue—as we are predominately a 6,6 manufacturer—as it is for those who produce nylon 6.”

-Emily Hooper