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Executive forecast: Economy continues to favor resilient category

By Ken Ryan

The shift toward resilient products in the flooring industry away from other hard surface offerings has created market opportunities for leading suppliers, as well as increased competition globally, particularly from China.

On the plus side, the soft economy has favored lower cost, performance value options like vinyl flooring in both residential and commercial segments; however, skyrocketing raw material costs have prompted some major manufacturers to pass along the increases, making for a rather volatile market as 2011 comes to a close.

How will 2012 play out? Here is perspectives and insights from several of the category’s leading executives:

 

Dennis Jarosz, senior vice president of marketing for Congoleum

From a business point of view, 2012 looks to be about the same as 2011. In reality, 2012 could be better—beginning from late second quarter—but we are not forecasting that, or making our budget plans with that in mind.

Units year-to-year are above flat in 2011. Back in the second quarter, and into the third quarter, we were looking at an increase, but July and then September the market weakened; it’s been spotty.

Every time the Euro crises flares up people stop buying. There are people out there with a lot of money to spend but whenever they hear bad economic news, they stop spending. We’re hearing from big retailers and some distributors that business is reasonably good but distributors are planning their inventories much tighter than in the past.

Our AirStep Plus and AirStep Evolution, our alternative to the fiberglass sheet product in the market, has experienced double-digit%age growth; it has been well accepted. DuraCeramic, despite all the competition out there, is flat as a category but, considering the competition, has been a strong category for us. The plank look, specifically our partially floating Connections is a category growing significantly for us. LVT is growing significantly as well.

In light commercial—office space, some assisted living facilities—it’s amazing the number of orders we get from these segments.

 

Kim Holm, president of Mannington Residential

Sheet vinyl will beat expectations by high single digits in units and 10% in dollars because of price hikes. They were much-needed price increases.

For 2012, our sheet vinyl is expected to grow 9.7%, compared with 7.7% for other hard surfaces. Overall we will outperform hard surfaces as it relates to sheet.

The challenge continues to be raw material costs. They continue to rise and are at unprecedented levels— it’s staggering. They are tied to oil prices but also other materials and shortages. It’s beyond what we have ever experienced.

Realism is the code word for sheet, especially glass-backed. There is tremendous realism. Trends we are seeing include grouted, rustic looks similar to wood, and larger scale tile formats similar to porcelain.

We’re investing downstream in products and displays like we always do because product is king. Our Ultraflex displays have been successful we will continue to invest in that area.

LVT continues to be solid, exceeding expectations, and driven by our LockSolid click products. From a product standpoint, the realistic looks of LVT make it a stand out. A lot of the market is the installation and the click profile work; there are virtually no problems with the installation.

LVT has a fair amount of tail wind behind it, and will continue to produce growth opportunities. We have big expectations for 2012—7.3% growth, and will add market share as well.

 

Kevin Biedermann, senior vice president, Armstrong

We’ve been making adjustments to our expectations for market conditions and business performance all year—either adjusting downward or holding the line, but nothing on the upside. Even so, we’ve taken share in all categories of hard surface flooring, proving to us that even in tough times, our brand matters.

Property management is showing healthy performance, probably benefiting from the same dynamics that are depressing new home purchases. Fortunately, our product innovations over the last year are perfectly suited to the needs of that segment. StrataMax and our new sheet vinyl products are proving to be great value for property managers.

Our retailer partners also profited from our luxury vinyl launch: Luxe Plank, Alterna and Alterna Reserve. They continue to win in the marketplace because of industry-best designs and installation advantages. Glueless systems like Luxe Plank are gaining favor, with a triple bottom line for the buyer: looks, ease of installation and worry-free maintenance. It’s been phenomenal.

The fiberglass sheet area has shown consistent growth over the last five-to-seven years and we expect that trend to continue. We also continue to see growth of high-performance, loose-lay floors like StrataMax.

The growth in LVT means many competitors are getting into the category.

The challenge lies in the flooring industry being able to keep consumers focused on value instead of on price. You have to believe the challenging conditions will continue to shake out the long-term winners from the rest of the pack.

Another challenge, besides the economy and the housing market that will continue to impact flooring in 2012, is raw material inflation. For all manufacturers, the cost of raw materials continues to rise at an extraordinary rate.

Armstrong continues to do the things you would expect in this tough environment—manage expenses, drive cost productivity through process improvement, and adjust our manufacturing footprint based on demand. However, we will not cut our investment in what’s important to our success: fulfilling our brand promise, new products, quality and programs that drive profitable sales for our customers.

 

Paul Murfin, president of IVC U.S.

2011 was essentially in line with company expectations, which were probably lower than normal given this was a transition year for IVC. We moved from importing from our European plants to manufacturing product at our new state-of-the-art Dalton facility. It’s up and running and through many of the teething problems a new plant experiences. I doubt anybody is investing more in the residential resilient category than IVC. If it were not for the significant changes, we would have expected even better results in the year.

I think the economy will give us more assistance in 2012 than 2011, but nobody should be relying on the market to get better numbers. Our share is still relatively low, so market has less of an impact on IVC than the industry giants. However, the shift toward resilient products is especially exciting for IVC.

The rate of change toward cushion-backed (glass) and away from felt is increasing, and the interest around LVT is obvious. These are our primary businesses.

With two brand new facilities we are eager to grow and do it quickly. We are still a relative newcomer to the U.S. market but more and more people will view us as the future in the resilient category. We simply need more exposure across North America. We plan on being where the industry is headed and not where it has been, and will continue to offer above-market margin opportunity for our partners.

Aside from pressure of raw material supply and pricing there are more opportunities than challenges for the resilient category. The products in general offer consumers a wonderful combination of performance and value. In IVC’s case, we just need more industry partners to recognize the opportunities we present to them.

 

Steve Sieracki, vice president of marketing for Shaw

The hard surface business continues to be affected by the lack of residential new construction. This has influenced all categories, but our launch into the vinyl sector in 2011 has led to significant growth and tremendous business opportunities, particularly in commercial sheet goods and LVT offerings.

We are starting to see some positive economic numbers for the first time in years. These indications show that the economy could be stronger in 2012, but there are no guarantees. The economic numbers would indicate that housing, foreclosures, unemployment and consumer confidence are improving as we head into 2012 but that does not necessarily mean that business will improve.

Technology is continuing to evolve in this category, but within this there are tremendous opportunities we are capitalizing on. We are working aggressively to become a leader in this category with industry-leading style and design.

 

Jeff Collum, director of flooring for CBC Flooring

Certainly our expectations going into 2011 had the economy bouncing back in the second half of the year. Still, our sales will be up double digits following the same in 2010, with the strongest growth in LVT as well as our homogeneous and recycled limestone tile lines.

In all categories of resilient flooring, we view the challenges with controlling costs and creating value in our product offering as a significant factor. Our goal to supply excellence in a value-added product versus a tremendous amount of commodity product sold today that is short on quality and value is more difficult in times of greater budgetary constraints. Selling premium brands while staying within what the market defines as justifiable premium pricing in today’s environment is obviously more challenging than ever.

We expect to capitalize on our PVC free leadership position with expansion of our offerings in 2012. In addition, we are investing in our LVT lines with new constructions that are required for different market segments.

We are projecting a moderate improvement in select markets while some will continue to fall short. The demand for PVC free resilient products is growing despite the pressure to value engineer projects due to budget cuts. In addition, LVT as a category remains strong and is growing as a result of new technologies such as various glueless constructions.