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Executive forecast: Ceramic producers investing in technology for 2012

By Louis Iannaco

 

Much like last year, while most tile producers did not see economics conditions in 2011 rebound as quickly as they would have liked, they continue to make investments in technology and look to do more of this going into 2012. Digital printing technology has made a huge impact on what manufacturers can create, and it seems as though they’ll continue this trend moving forward. Mills are also being challenged from abroad, with an increase in imports from places like China only adding to pressure on pricing.

Rafael Palop

CEO, ADEX USA (Spain)

Overall, we are very satisfied with the results of the year. We started a very aggressive marketing and promotion plan two years ago and as a result we have experienced strong growth in 2011. Profitability is still another story. Our price structure hasn’t change in the last three years and the weak dollar is hurting us badly and making our industry less competitive in the global marketplace.

Receivables are something that has and will always continue to be a challenge for all of us. We are fortunate in that we have had very few customers close their doors and have joined us in an aggressive sales and marketing campaign that we feel will grow market share. In our current global fiscal climate, who knows what is ahead but we know that this is the time to get close to your customers, assist them in their challenges and provide a product that is marketable in aesthetic appeal and affordability. Everyone can appreciate design; the key is to make it affordable. We expect a few more surprises and challenges in the near future but we have seen a change for the good during 2011.

We expect to continue growing in 2012 and we have budgeted for another year of product and merchandising solutions for our dealers and will continue to increase the flow of product into our East and West Coast distribution centers. We feel the overall business growth globally in our segment of the market will be very modest.

Regarding the overall industry, investing monies and time in technology, products, promotional activities, etc., we feel that unfortunately this will not be the case in general. As we look around at our industry, caution seems to be the mantra and survival the key. With that said, to invest in new technologies and other projects poses a major financial burden that many cannot or are not willing to finance. It appears the industry will try to maximize its existing capabilities until they see a brighter fiscal climate ahead.

We see 2012 as a year to consolidate business, analyze and tweak our supply chain, manufacturing and inventories to maximize their efficiency and cost effectiveness.

In the last two years we’ve changed the way we operate and have heavily invested to maintain our current growth and to prepare for the future. In 2010 we invested in our logistic facilities and achieved a 40% increase in capacity within the same buildings.

In 2011 we upgraded all our software and computer equipment in order to gain efficiency and improve productivity. This includes optimizing and improving our website.

By 2012 all our enhancements should be in place and ready to absorb the growth we are predicting. For the coming year, we will continue to increase our focus on our marketing and merchandising programs. This will be a segment of our business we will continue to invest in. Our goal is to make our dealers’ sales and marketing efforts simple, effective and productive. After all, they are the means for all of us in the manufacturing and distribution business to succeed or fail. We believe in and will continue our focus on user-friendly products and selling systems in 2012 and beyond.

In general, the cost of energy and all activities involving energy tend to be a continual and unending challenge for all industry. As we look at the market in general, it is not overly forgiving in accepting needed cost increases from energy, logistics, currency exchange, government/ecological compliance and other costs the manufacturing segment of the industry cannot control.

This creates a catch 22 for all in that the acceptance of these cost increases will lead to the industry investing in the technologies and product innovations that have continued to grow the ceramic tile sector of the business while other sectors of the flooring and wall covering business have suffered. We have almost become a “nonprofit” industry and that trend needs to change if we want to continue the innovations the market demands.

Franco Manfredini

President, Confindustria Ceramica, Casalgrande Padana (Italy)

The preliminary 2011 data shows an increase in foreign sales of Italian ceramic tile by 4% because of an increase in average prices by 2.5% (an important result which is in addition to similar growth recorded last year). The positive growth is also due to the productions and sales of foreign factories controlled by the Italian ceramic groups, as in the case of North America.

To make predictions for next year is very difficult because it is highly dependent on the future developments of the Euro. In general, there are concerns of the real estate market in countries including the U.S. We hope the consumption of ceramic recorded this year in the U.S. may be better in 2012.

The international economic environment is not the best, and is made ​​more complex by a progressive weakening of the world’s forecasted GDP, while the financial imbalances continue to produce negative effects on the economy. The Italian ceramic tile industry continues to invest in shares close to 5% of its sales in new technologies, to develop new products with graphic and aesthetic quality, to promote sustainable development, to continue in an informational and communication pro-market, to strengthen relations with the distribtution partners like the opening of new showrooms. All this continues to be done in a strict control of costs and economic returns.

There are two important parts to this. On one hand, beccause of the economic crisis, there is more uncertainty when doing business—the request for assistance from the government has helped to eliminate the difficulty and uncertainty. The second thing, is that the incentives proposed by the Obama Administration since May of last year, have produced positive effects on ceramic sales. At this stage, further stimulus to the construction sector can be of great help to consumers to overcome the uncertainty.

Francesco Pollastri

Overseas export manager, Cotto d’este (Italy)

So far, sales for 2011 show improvement compared to 2010, plus 8%.

We strongly believe such sales improvement is due to our investment over the last nine years in new technology known as Kerlite, or 3mm thin porcelain.

As far the future, we strongly believe we must keep investing in new technologies, images, products and development as well as human resources and new marketing strategies in order to maintain and be successful throughout the coming years.

 

Lori Kirk-Rolley

Senior marketing director, Dal-Tile

Tile continues to reign as one of the most favored design staples because of its durability, versatility and beauty. In spite of a challenging economy, sales were stronger than anticipated and we’re expecting positive results to close out the year for the Mohawk, Daltile and American Olean tile brands.

For the market in general, we are estimating a total volume of approximately 2 billion square feet to close out 2011. In terms of pricing, tile prices have been relatively stable among the market when compared to 2010, but down when compared to previous years.

Given some recent positive economic indicators, we are cautiously optimistic that we will see sales growth in 2012.

Our customers are looking for total design versatility in the products they choose, and with each new tile collection, our brands bring such design freedom through a variety of styles, graphics, sizes and innovations. The range of design possibilities is truly endless, allowing us to meet the varying needs of residential and commercial audiences.

Trends in tile take some time to get seeded, but once a trend is identified, it tends to evolve and last well beyond its time of origin. Following are top trends we’ve seen over the course of the year that we anticipate will continue to remain popular in the future of the Mohawk, Daltile and American Olean brands.

One of the biggest style trends of the year is the use of tile that emulates the look of wood. Hardwoods have an aesthetic design appeal to both residential and commercial audiences but are limited in application. Porcelain tile that realistically mimics the look of various types of hardwood allows for the beauty of wood with the long-lasting durability and ease of maintenance of porcelain. This provides unlimited application options, including high traffic areas and places exposed to high moisture levels.

Rectangular sized tile in both floor and wall applications have become extremely popular, specifically, long, linear plank sizes. Traditional subway tiles (3 x 6) are still frequently used in design, but the major trend we’re seeing is long and lean. Dimensionality is also a growing trend, especially on the wall. Mosaics and wall tiles create visual relief by utilizing highs and lows, bringing depth and dimension to any design project.

Of the trends driving modern design, the use of clean, minimalist graphics that imitate stained concrete and other visuals, without a lot of movement continues to be popular. Neutrals like black, white and gray are commonly being used together throughout interiors today to achieve a monochromatic look. When paired with bolder color options or splashes of color in accents, these neutral tones create an air of sophistication in any space.

As we look to 2012, warm beige and cream palettes continue to reign as the most desired colors. However, we have seen an increased interest in grays, specifically cooler grays, and anticipate this will continue next year.

Looking ahead, the industry will become further exposed to more realistic visuals due to the advancement of sophisticated digital printing technologies. There will be more suppliers of ink that will be approved by the various ink-jet equipment manufacturers for use in their machines, thus expanding the spectrum of color that can be achieved on a tile. Also, manufacturers of ink-jet machines will continue to find ways to combine other printing technologies with their machines in order to create even more sophisticated products.

It has been exciting to observe technology growth in the tile industry over the last five years. The utilization growth has been exponential in terms of the adoptions rates and implementations of new tech-focused tools used for product information delivery to our customers.

We are applying new technologies every month to areas of our business where it makes sense for the market, and most importantly, where it makes sense for our customers. For example, earlier this year, Dal-Tile unveiled two digital resources that provide savvy professionals and consumers alike with easily accessible information and inspiration for tile and natural stone designs in both residential and commercial applications.

Dal-Tile’s mobile catalog, available for iPhone, iPad, and Android devices, brings our breadth of product and service offerings to the palm of your hand, allowing quick reference and product selection. In addition, the iPhone and iPad Inspiration Gallery apps aggregate the creative visions inspired by our products, providing a beautiful portfolio of room scenes that will trigger imaginative design and, ultimately, actual execution. The app also allows for customers to identify products used in the room scenes as well as find a Daltile location or dealer.

Dal-Tile is committed to a constant focus on our customers. As a trusted manufacturer, we continue to provide depth in our product offerings, provide competitive prices and continue to deliver product innovation. We are always improving efficiencies in the manufacturing process, supply chain and technology advances as well.

Dal-Tile will remain focused on many of the same challenges that needed to be overcome in years past. Pricing remains down, housing is stagnant, and unemployment continues to remain high. Employment and consumer confidence will be crucial to driving growth in the coming year. Another challenge is the need to continue to manage costs in the face of rising fuel prices and raw material costs.

 

Massimo Barbari,

Executive vice president of sales, marketing, Florida Tile

Sales are up double digits for us versus prior year. Units are up a little less than the growth, and a little better than the previous year. It has been worse than expected due to the economic situation for the most part. Uncertainty in the economy and instability of people as far as their job is paying a big role in people spending. Biggest obstacle is the low rate of new construction. At the moment what is keeping the business up is remodeling on the residential side and some commercial.

On the economic side I see 2012 pretty much as 2011 has been. With regard to product trends, I see bigger sizes. A growing trend is contemporary looks, but with the core still being the stones and travertine reproduction. In technology, it’s digital and more digital. Also wood looks will be a growing trend. I see the industry investing in technology and advertising, marketing and social media.

For us the most important thing will be the investment in additional capacity in the U.S. that will make us more competitive. We are strengthening our position as leaders in the digital technology with more investment on this side and we are already working hard in keeping an high standard in our merchandising, advertising and social media trying to develop further the latest two above all with more targeted messages to specific audiences (commercial, end user, etc).

We will try also to improve our communication in the social media. We are also giving a big emphasis on sustainability and green building with investment in recycled content and to be leaders within our industry in promoting the green message.

In tile I see the issue being more competition on prices that will generate a lower margin as the biggest challenge for our industry above all for domestic production. There is as well a tension toward the high point on cost of raw materials, packaging and transportation. The big challenge is selling value—not only final price point but trying to overcome potential objections with aesthetic value, service and logistic. The continuous battle to grow market shares above all versus other typologies we are not currently selling, like carpet, wood, laminates.

One of the biggest challenges is improving knowledgeable sales personnel—that becomes more important every day. I think domestic production has a big opportunity to gain market shares versus competition from overseas, above all Europe, but still China, Mexico, etc., remain a big menace.

Kim Holm

President residential business, Mannington Mills

We’re disappointed in 2011—units were below expectations, and dollars were actually worse than units. The difference between the units and the dollars was mix. The consumer out there today is more value conscious and so the sales we did achieve this year were more on the lower end of the spectrum of our product line than the upper end.

Our units came in down 10% versus expectations, and our dollars were down 14%. We were down 1% versus a year ago, so maybe we had more optimistic expectations for the year going into 2011 and next year we are optimistic as well. Our numbers suggest we should see growth around 6% in 2012.

The model we are using from analysts would indicate we are going to see an improved year. You’re not hearing too many people talk about that right now but then I’ve been optimistic for the last six years, and I’ve been 0 for 6. Nevertheless, we see overall the industry improving on the hard surface side to the tune of close to 8% in 2012, and we see porcelain being in about the 6% range.

From an industry standpoint, the two biggest trends are larger format tiles as well as rectangles and ink-jet printing, which I believe is here to stay. It’s going to become the major provider of print technology for the industry. It’s unbelievable how detailed and fine the print can be on tile.

I don’t see any advertising or promotional work being done, virtually in any category, but I do see investments in technology, primarily ink-jet printing and larger formats.

Our position continues to be to invest downstream with retailers, investing in products, displays, support for them at conventions and the like. We start the year optimisticly. As an example, we’ll be back on the main floor at Surfaces, with four introductions we are pretty excited about. We’re hoping this is the come out year for our industry. I think the perception throughout much of the country is that we are out of the recession and I guess that we are, but this industry continues to be engaged in a recession but I do believe we’ll come out of it in 2012. And we are continuing to invest heavily downstream to ensure that we come out of it in a strong fashion.

In this particular category, it’s all about the economy and investing in your home. We need stabilization of home prices, we need people to feel like investing in their homes again and can provide value to them, long term return. Porcelain tile is at the upper end of the price scale, and this category, and to some degree wood, needs the economic improvement and stabilization of existing homes for this category to rebound.

If you look at the news coming out of Black Friday, consumers were out spending money again, which is very encouraging, and may suggest that consumer attitude is more positive, but they haven’t been investing in their homes, albeit I did read recently the numbers out of Home Depot and Lowe’s would indicate they are beginning to go back in, as they are seeing same-store comps beginning to improve for the first time in a long time, which suggests consumers are beginning to re-invest in their homes, but we certainly haven’t seen or felt it in that much in flooring yet.

But I do believe there is a fair amount of pent up demand out there, once housing prices stabilize and the consumer really appreciate the value of their home and and they can increase the value by going back in and re-investing in their house.

Gianni Mattioli

CEO, Marazzi USA (Italy)

We expected the market for ceramic products to grow about 5% to 6% this year based on 2010 results. Unfortunately, we have seen a slowdown beginning late spring, and we are now forecasting a flat market for the year. We are expecting to finish the year slightly ahead of last year, mainly due to a better mix of products.

Marazzi anticipates 2012 will be another challenging year, very similar to 2011. Our industry, and we in particular, continue to invest in new technologies such as enhanced digital print capabilities as well as added production capacity. Investments in social media are increasing, sometimes to the detriment of other media.

We just completed a $25 million investment in our Sunnyvale, Tex., facility that allows us to remain competitive in a market that continues to prize value products. Given today’s market conditions this trend is here to stay. In addition, we continue to introduce all the latest technologies in all of our plants. A major effort to advance into the commercial market is under way, with very promising results.

Marazzi sees the opportunity for ceramic tile products to continue gaining market share against not only carpet and vinyl, but, especially with the new ink-jet/digital print technology, also against natural stone and wood as unstoppable. Low life cycle costs for tile plus domestic manufacturing offers customers ready access to a wide range of porcelain, ceramic and decorative tile that can contribute to LEED accreditation, an increasingly important factor, especially in commercial venues.

 

Santiago Manent

East coast sales manager, Porcelanosa (Spain)

2011 has surpassed all of our expectations following the complete renovation and expansion of all our retail showrooms in 2009 and 2010 with the latest being Rockville, Md. (opened in early November with 12,000 square feet dedicated to the group). We expected to continue with the growth and expansion/diversification of 2010 but the reality has been much better.

All of our regions and the different lines from the group (tile, mosaics and stone, bath, kitchen, wood, and setting materials) have experienced tremendous growth. The best response came from clients shopping at our retail showrooms where we see a very high rate of repeat clients, and through the hospitality and specification markets.

For 2012, we still expect a shaky economic situation on the global scene. Due to this factor, we need to continue to invest in our offering and selling tools if we want to perpetuate these past years’ growth.

We will continue to update our retail stores with the latest collections as well as re-thinking them when needed. For example, we have equipped all of our showrooms with working libraries for the use of not only our retail clients but architects, designers or builders.

A top priority in our business plans is to continue to invest on the specification and hospitality divisions with more human resources and specific product offering, areas where we have generated national specs over the past years that are have been bringing good results.

We expect to open three new retail locations in the U.S., where we see more and more clients getting away of the old square white and beige tile and embracing larger format and rectified tiles with unique textures, stone or marble looks.

A key aspect of our business model is our in-stock inventory through our distribution centers around the country, bringing more products and providing faster and better service to our clients.

We’re also introducing new product offering such as: our most successful collections in Europe; we plan to get certification in 2012 for our ventilated facade cladding system which is of great interest due to its endless aesthetic possibilities and energy saving features; our solid surface material, Krion which is available in a wide range of colors; new LEED eligible products like our 95% recycled porcelain tile collection. We also plan to consolidate our presence throughout the country with either company owned showrooms or key retailer partners.

We should only focus on those obstacles we can solve with our feet on the ground and investing with sense and consciousness. Challenges for the industry are opportunities to us—where competitors reduce offering we introduce new collections and increase inventory. Porcelanosa has always been a trendsetter since its foundation and our recipe for these turbulent economic times is working even harder to meet our even more demanding customers. Big or small, every client is our priority and word of mouth is one of our best marketing tools.

 

Jonathan McIntosh

President & CEO, SnapStone/Avaire

Our home center sales were ahead of expectations and generally up compared to 2010 except for some softness in September. Th especialty retailer channel has been a mixed bag.  Some retailers saw decent sales rates, but store traffic and demand has been inconsistent throughout the year.  Another bright spot for us has been very strong growth in the commercial segment for our product.

Our labor efficiencies, installation speed, massive future replacement savings and our ability to solve specific installation issues have been recognized by key commercial contractors. As a result, we’ve seen our commercial projects at least double in 2011, and we’re positioned for explosive growth in the future. And, our product has been formally embraced by Starnet, one of the industry’s most respected commercial contractor groups.

We expect to see continued growth in commercial and at the home centers. The specialty segment of the business will go as the economy goes—and my crystal ball on that one has been murky of late.

We plan on introducing products geared toward the contract markets including commercial-specific styles and a narrower grout line. We expect to see continued investment in ink-jet technology, which improves factory efficiencies, and enables a rapid introduction of new styles for designers and consumers. Our innovative SnapSys InterLoc floating tile system is one of the few disruptive technologies gaining traction in the flooring industry. As has been the case in every other segment of flooring, the move to a floating system carries significant benefits across the supply chain.

Regarding social media, it will be interesting to see how this new channel plays out in 2012 and beyond. We’ve fully embraced the concept of participating in a transparent platform through which customers can interact directly with each other and with us. Our SnapStone and Avaire products, being “new and interesting” may benefit from social media more than the typical flooring product because of the wow factor, but that remains to be seen. Interestingly, we have more Facebook fans than numerous main stream flooring manufacturers.

We recently invested in additional manufacturing capacity in anticipation of 2012 growth.

While many of SnapStone and Avaire floors have been installed over the past five years with industry-leading customer satisfaction, the average consumer is still learning about the new floating tile category. We’ve been pleased that at least one respected industry leader has introduced a floating tile system—we look at their entry as validation of the concept. While it may sound counter intuitive, we actually welcome worthy competition as we believe all boats will rise with the rising awareness tide.

Steve Sieracki

Vice president of marketing and product, Shaw Industries

Despite economic conditions, we continue to respond to the consumer’s demand for quality and value throughout our product lines.

The tile industry continues to be challenged with low priced imports from around the globe, particularly Mexico.

Fortunately, we are positioned very well in all flooring categories, [including tile]; we continue to focus on product innovation. Our tile and stone products are continuing to evolve with the use of Clarity Digital Imaging technology, which is now being added to our ceramic offerings, making the variety of detail in design extremely diverse.

This imaging process results in vibrant designs, clear visuals and a variety of images that can bring character or stylish elegance into the home environment.

Across all of our hard and soft categories, we continue to invest heavily in technology to ensure we are both an innovative and low cost producer with the highest quality products available.

Our product designs are continuously updated to meet altering interior design styles. For our customers, we know education is important as they strive to succeed. We continue to invest time and energy in bringing world class training opportunities to our associates and to our customers.