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Executive forecast: Carpet mills continue to invest in technology, hope for a turnaround

Carpet mills continue to invest in technology, hope for a turnaround

 

By Louis Iannaco

 

In broadloom, it continues to be about the housing market and, according to mill execs, jobs. 2011 can best be described as flat, and as for what executives see for 2012, all indicators continue to point to housing/the economy and unemployment as key indicators for the category’s health.

This is not to say mills have not invested in themselves, and plan to do so in the coming year with technology and social media playing major roles. A light at the end of the proverbial tunnel continues to be commercial, which once again fared better than residential.

 

Ralph Boe

President & CEO, Beaulieu of America

As an industry, and as a company it seems like we’ve been kind of flat for the last three years. The volume came down and somewhat bottomed out in 2009, and on average it’s been at that kind of level for three years now. The mix has changes a bit in terms of some things have gone up, some things have come down. Retail and property management have been better than the builder side. Building just hasn’t recovered, housing starts are way down and look like they are going to continue to be relatively slow until all these potential foreclosures get out of the market and that inventory gets cleaned up.

The place where business has been better has been in commercial; both in hospitality, which tends to be broadloom, and in the specified commercial area with carpet tile. Those have been the two areas of growth. From an overall standpoint, residential has been down.

Typically, in an election year you expect that business is going to get better. There is going to be some stimulus to try and get the economy rolling along so that people feel good about the current administration, but they are going to have to get after it pretty quickly if that is going to happen in 2012. We had a report the other day on unemployment being down from 9.1% to 8.6% but unfortunately that number was distorted a bit by some 300,000 having taken themselves out of the marketplace. So, it really wasn’t that big of an improvement in employment as it was fewer people looking for jobs.

And with all these reductions in force that have occurred in different industries across the country—and we’re seeing it in our own industry—these people who are out of work aren’t exactly all that enamored about going back to work. Because they have had all these extended benefits of unemployment and they tend to want to run the whole gamut out until it’s totally exhausted before they go out and actually look for a job. And we, in a few cases, have tried to get people back and that’s basically their response, “Hey, it’s not worth coming back, I’m doing fine the way I am.”

So they’ll be on unemployment, get a reasonable check and do probably do some little sideline jobs for cash and make as much as they were making when they were fully employed with the only disadvantage probably being that they don’t have the medical benefits that they had with a company. I believe that’s kind of masking things a bit right now and unemployment is still high and as long as that remains high I believe overall consumer confidence is not going to be where it needs to be to see a lot of growth in business overall.

With that said, I saw not too long ago that home improvement is up, but it tends to be kitchens and bathrooms, garages, decks and patios, and so on, you have to go pretty far down the list before you find anything related to carpet. In fact, basements come in at about number 8 and that’s the first area where carpet is considered.

I believe the property management/apartment multi family business is still going to be relatively strong going into 2012 because there are still a lot of household formations going on, people have to live somewhere, and the vacancy rates are down significantly in multi family housing, so I think we’ll continue to see construction there and good demand so that will also help the flooring used in multi family.

Regarding single-family homes, I believe that’s going to be relatively slow, and retail will probably depend on how long people want to go with the old carpet that is in their homes. If they feel confident they’ve got their jobs and that the economy overall is getting better then maybe they’ll go ahead and loosen the purse strings and spend some money on carpet as well.

From our own planning standpoint, we think 2012 is going to be another relatively flat year. Commercial could continue to grow and we think the hospitality business is going to be fairly good as many of the hotels and motels continued to be refurbished and that the corporate office market could stay up where it is right now as long as the corporate profits are there and these corporations see growth in the future. If they don’t, if those corporate profits start to drop, then I think that could slow down the specified commercial market as well.

I believe we are going to see movement towards polyester filament. That will be the biggest growth area and I think we’ll see some different construction so that we get more than just typical cut pile products out there. I believe there will be more oriented towards looks that resonate with the commercial market, that we’ll have carpets with a profile that is more in tune with hard surface that it might be put in next to so you don’t have a big high pile carpet next to a low profile wood floor. I believe we’ll have a more refined styling that could appeal to a more sophisticated buyer.

From an investment standpoint in capacity as an industry we are continuing to invest in new extrusion and new yarn processing as BCF products continue to take share from spun products. In terms of carpet production, these more sophisticated machines can make different patterns. We’re going to see some modest tufting equipment changes. I believe social media is playing a bigger role and will continue to play a more important role going forward whether it’s the retailer trying to get to the consumer or mills trying to get to both the retail and consumer to establish brand identification and product awareness. There will be investment in that area both residentially and commercially.

It’s such an unpredictable environment both in the standpoint of where demand will be and what will happen with our raw material costs. Oil started to come down a bit now it’s going up again.

As we look at 2012, we anticipate that raw materials will likely see some further escalation. With that being the case, we’re trying to be sure we’re doing everything possible to reduce our own cost internally to reduce our fixed cost and our operations to offset some of that as well seeking price increases to offset the escalation we’ve already seen in 2010 and 2011. We’ve already announced the shut down of certain plants to consolidate production to the plants we have remaining to improve our efficiency and to keep our costs in line.

 

Randy Merritt

President, Shaw Industries

The economic climate continued to create challenges to the flooring industry in 2011. The commercial industry remained a bright spot. While we were disappointed to realize that the upswing in the market demand was not going to happen this year, we made the necessary adjustments to right-size our business to meet these market conditions.

Housing, foreclosures, unemployment and consumer confidence are improving as we head into 2012—all positive economic numbers for the first time in years. But they are far from a guarantee of a stronger economy in the new year.

Our greatest challenge is always creating and implementing the best strategies to reach our customer base. At Shaw, the customer is always our first priority, and our business and marketing approach is designed to ensure we are providing the kind of services, products, value and consistency our customers, regardless of the channel, have come to expect from us.

In addition to raw material prices and market conditions, another challenge is not product category specific, but a broader challenge, which we also see as our greatest opportunity: Continuing to engage our associates in the process of innovation. They have responded well to our continued capital investments even in the face of the most challenging economic environment in a generation.

Our investments in innovation and acquisitions position us well to take advantage of any growth opportunities in all flooring categories. We have the right manufacturing and operations efficiencies to exceed customer requirements. And while we do not anticipate a rapid upturn in business next year, we will continue to invest in 2012 and position the company for the future. We are cautiously optimistic.

We continue to focus on design and product innovation across all categories to exceed the growing needs of our customers in all market segments.

On the carpet side, we are excited about LokDots, Shaw’s new installation technology for our Ecoworx Tile franchise.

This proprietary technology allows simple and easy installation of tile in occupied spaces and high moisture areas, and it uses less material and reduces preparation time for most surfaces.

 

Steve Sieracki

Vice president of marketing and product, Shaw Industries

The overall carpet industry has been close to flat in units as business continues to bounce along the bottom…better in commercial and not quite as good in residential. We have continued to make the internal adjustments needed to positively respond to altering market conditions.

Our commercial business has stayed relatively strong, with increases in units and dollars enabling Shaw to take market share in commercial. Carpet tile continued to grow for both our specifier and Main Street categories. Leading into 2012, we are expecting our carpet tile segment to continue to strengthen.

The builder stimulus that artificially stimulated business in the summer of 2010 was significant. With that stimulus gone, we’re not seeing that same influence and growth that we were experiencing in the residential retail and builder segments. We focus on producing carpet products that offer outstanding value at a variety of different price points.

Our products are softer, more durable and more environmentally friendly than ever before. We will continue to invest in our residential products in our growth areas of Anso nylon and ClearTouch. We will also build on our fusion technology nylon products that were launched in the builder segment in 2011.

In our commercial segment, we’ll continue driving Main Street with our innovative carpet tile offerings. These products offer easy and convenient installation to meet consumer demand connected with today’s transitional lifestyle.

The carpet industry needs to continue to fight to debunk the myth that carpet is a problem for people who suffer from asthma and allergies. At Shaw we are continuing to invest in the science and study of this issue. Shaw continues to build consumer awareness around this issue.

 

Tom Lape

President of Residential and Commercial Business at Mohawk & Karastan. Mohawk

Mohawk—like the rest of the flooring industry—has continued to experience a challenging business environment in 2011. The industry is faced with rising costs for transportation and raw materials, while Americans remain uncertain about the overall stability of the economy. 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.

Economically speaking, 2012 is difficult to gauge. The current market is tougher than we would like, and it is certainly more difficult than what economic experts originally predicted. The nation’s unemployment rate will continue to be a determining factor in 2012, as it influences consumer confidence, as well as discretionary spending. We know that flooring is a purchase that consumers will delay if they do not feel confident about spending their money. In addition, we continue to have an oversaturated inventory in the housing market, and new construction is directly tied to sales growth in the residential flooring industry.

Additionally, 2012 is an important election year, and we know that the nation’s economy is the number one issue on the minds of Americans. We will see presidential and U.S. congressional candidates continue to shape the conversation in our country, with their influence gaining even more weight in the second half of the year. We anticipate the pace of our recovery, which up until now has been low and slow, will be closely linked to the electoral environment in 2012.

In technology, we will continue to see sales growth in triexta, namely Mohawk’s exclusive and extensive SmartStrand product platform. We took SmartStrand’s eco-friendly innovation to a new level at NeoCon 2011, launching the “What Moves You” SmartStrand Contract with DuPont Sorona commercial carpet collection. “What Moves You” will be a growing part of our modular tile program in 2012 for commercial.

Residentially, we continue to expand our exclusive SmartStrand with DuPont Sorona product offerings to further differentiate Mohawk in the marketplace and give Mohawk retailers a leading sales position. SmartStrand has been rated No. 1 in customer satisfaction for two straight years, and nine out of 10 SmartStrand owners say they would buy SmartStrand carpet again. According to a recent Brandware research study, consumers are more satisfied with the softness and wear resistance of SmartStrand than owners of nylon or polyester carpets. In addition, SmartStrand has the lowest claims and callbacks of any product. All of this works to give retailers more confidence in the SmartStrand products they are selling.

Capitalizing on SmartStrand’s groundbreaking levels of customer satisfaction, Mohawk has gone one step farther and engineered a new residential SmartStrand product offering that takes softness to an unprecedented level. SmartStrand Silk is the industry’s most luxuriously soft carpet, and the only soft carpet featuring lifetime stain and soil protection. We anticipate this revolutionary innovation—SmartStrand Silk—will increase Mohawk retail sales, as we know comfort is one of the main reasons a consumer chooses to install carpet in her home. These are just a few of the reasons why Mohawk believes triexta will continue to gain market share in 2012.

The current market does present opportunities, and Mohawk continues to seize them. We have used this challenging economic period to make many company improvements, resulting in a more efficient and effectively performing organization. Mohawk continues to introduce innovative products and re-engineer existing ones in an effort to give our retailers a competitive advantage in the local flooring market. These measures have positioned Mohawk well for 2012.

 

Tony Prespitino

Executive vice president, sales and marketing, Gulistan

2011 has been a disappointment. If you would’ve asked me in March, I would have said we were on our way to having a great year. Once gas got to $4 a gallon, we saw a dramatic drop in our business and then Congress got dysfunctional, and business dropped back again. We really didn’t have a fall selling season, until starting in October, then all of a sudden it came back. In the last month and a half, our business has been pretty good.

But one thing I’ve learned in all this, I can’t forecast. It used to be where you could figure this stuff out, and with all the stuff going on, and now it’s probably more dysfunction in Washington and Europe I believe has some people concerned, it’s just one thing after another. So it’s been a disappointing year where we thought after the first we thought we were going to be smoking.

Our higher end is selling better than the low end. What seems to be coming back now are the people with money. We’re not in the low end, we don’t sell polyester and I do know that is taking major share. It’s probably put staple out of business. You read every month where staple facilities are shutting down and polypropylene I don’t here anything about anymore.

Concerning what I see economically in 2012, I think it’s pretty set in stone now that Washington is not going in consumer confidence until after the 2012 elections. I believe they are bent in blaming each other for the problems and trying to get a leg up, so I’m afraid we are going to have to muddle through this for the next year until after the election.

More than anything else, what we are trying to take advantage of is our space dye capabilities. What we’re seeing is that texture is really getting stronger and stronger. It used to be that friezes and textures really split the majority of the market up. We’re seeing textures take over for more of the friezes. It could be, just in part to the way the economy is, people are getting more conservative so they want things that will look better longer. If they want to make design changes in the home, they can repaint the walls, put new drapes up but they don’t have to change the carpet. So we’re seeing the resurgence of texture.

Our big new introduction at Surfaces will be a new space dyed look we’ve come out with where we’ve taken our sister company Ronile and they are doing some really nice space dyed work on Stainmaster Luxerelle that we believe will be pretty hot.

You always have to invest in technology, that has to be a constant just to keep up with everybody else. Social media is getting bigger and bigger, it’s here to stay. Ee have to hire younger people who understand the generation X’ers and Y’ers on the social media side.

We have to come to the realization that what is happening today might be the new norm. So we have to adjust to this. It will be a long time before we get back to the heydays of new home construction. I used to say new home construction never affected us because we weren’t in that market but I was wrong because even though we didn’t sell new homes, it caused a chain reaction where people were buying, they would remodel, people were selling, they would remodel and that’s were we got all of ours was in residential replacement.

We’re probably looking at streamlining our product offering especially in regards to existing products, maybe not have as many as in the past make it easier for manufacturing and also for us to service our customers. As far as product development, instead of throwing a bunch of products out there and hope they stick but really researching the market and taking moiré of a rifle shot approach on product development, filling voids that we know or needs that are in the marketplace and being a lot more specific on that.

I wish there was a way we could help our retailers get customers into their stores. Raw materials are a wildcard, they are so volatile right now that you just don’t know which way it is going to go. You can’t make long-term promises and what we’re seeing from our suppliers, if something happens, they want a raise immediately, they used to be able to give us 30-day notices, it’s almost immediate now.

 

Kennedy Frierson

COO, The Dixie Group.

We were very fortunate with our sales volumes in 2011 and were able to exceed expectations in terms of sales units and sales dollars. Residentially, we had expected the overall market would be flat and that we would be up slightly. We attribute most of our success to two primary factors: The upper end of the market where we are positioned has outperformed the overall residential market and our continued investment in new product.

Commercially, we had expected a slight increase this year in the overall market—we were pleasantly surprised that the commercial environment was more favorable than projected. We were able to grow our business with significant increases in modular tile products and with an increase in our national accounts business.

In 2012, we expect that business will continue to be challenging with small increases in both the residential and commercial parts of the industry. In terms of product trends, we continue to see modular tile gain market share at the expense of broadloom in the commercial sector.  We also expect that polyester BCF (PET and PTT) will continue to gain share in the residential market at the expense of other fibers.

The industry continues to invest in yarn and extrusion equipment necessary to support the shift from staple to BCF (and polyester). Because of the reduced volume levels that we currently operate, I believe that it will be unlikely that we will see significant investment in new tufting technologies over the next 12 months. With regard to advertising/marketing, all manufacturers are realizing that social media and the online experience are becoming more important in capturing the attention of the consumer. We will continue to see investments in these areas to capitalize on the shifts that consumers are making in their shopping process.

Dixie is continuing to invest in new products in order to insure success for itself and its customers. Being positioned at the upper end of the market, we believe new products are the lifeblood of our company. We have invested in new tufting technology over the past several years and have invested in additional yarn capacity to provide a foundation for future growth.

The greatest challenge in the carpet industry is the increasing commoditization that is occurring during this downturn. Because of lower overall volumes that currently exist, it is more difficult to support the economies in the manufacturing process with more differentiated, lower volume products. We are also seeing a significant shift to lower cost solution-dyed polyester offerings; however, it is more difficult to differentiate residential solution-dyed products than the more traditional piece-dyed products.  Finally, home centers have successfully commoditized the installation / service piece of the carpet purchase and taken share from the independent retailers.

The result of this increasing commoditization of product and purchase experience is that the consumer is not provided the choices and options that will lead to her highest level of satisfaction.  In addition, this reduces the opportunity for the manufacturer and the retailer to generate the profitability to reinvest in their business and drive consumer-focused innovation.

 

Jonathan Cohen

COO, Stanton Carpet

We saw business consistently stabilize in the back half of 2010, that stability continued throughout 2011 with additional momentum enabling us to exceed our expectations.

We continued to invest heavily into existing and new product category expansion in 2010 and 2011, which has served us well so far, we have planned for additional product expansion in 2012 and have set our budget accordingly. We will invest more time and effort into social media in 2012.  We expect to see silver and gray’s colorations expand their influence along with some lilacs and medium browns and blue-green along with navy.

We spend considerable time ensuring we can meet and hopefully exceed our budget, this includes preparing ourselves for inventory, service and automation needs to provide excellent product and services to the market.  In the last 12 months we have purchased a small company, added rug fabrication services and added two new categories to best service and gain more business from our client base.

For us, its about styling; color and design rule the day in most of our categories particularly with our residential replacement focus.  IF we can continue to be on the right edge of style and couple that with inventory, fair prices and great service we feel we can continue to grow.