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Executive forecast: Wood struggles continue but execs see light

By Matthew Spieler

 

While 2011 seemed to mirror 2010 for the wood industry, manufacturing executives say it was expected and, considering the losses that mounted up since the recession started, not so bad. Though the overall economy doesn’t appear much brighter in 2012, many feel there will be some upward movement due to pent-up demand as well as other indicators that favor their products.

 

Jason Strong, vice president of sales and marketing for IndusParquet

This year has been a building and investment year for IndusParquet and it has gone extremely well. Distributors and dealers have been very responsive to the launch and are excited to work with the only exotic hardwood flooring manufacturer to offer domestic service. By the end of December we should have 3,000 dealers selling IndusParquet products.

Although we foresee the economy as a whole flat in 2012 and even 2013, we are expecting growth, as customers tell us IndusParquet has filled a void with our domestic service, high level of quality and vast variety of more than 100 unique exotic hardwood species.

We expect to see increased sales of our one-of-a-kind products within the Coterié collection. We believe as more dealers, architects and designers are aware of our mosaics, sculptured wall treatments and metallic flooring profiles the popularity of that line will continue to grow.

To tell our story, we are partnering with an award-winning public relations firm to help introduce the IndusParquet brand to flooring dealers in unique and creative ways.

The biggest challenge we’ve had this year is the influx of manufacturers from Asia with low quality products coming in to the U.S. market. They are able to get prices down extremely low which makes it hard to compete. But, with the economy as it is, consumers are looking for long-lasting quality products that are unique and that’s what IndusParquet offers. We’ll continue to educate our dealers on the unbeatable quality and selection IndusParquet offers.

IndusParquet flooring is manufactured with a proprietary process designed to keep products as beautiful as they are when installed. And, our more than 70,000 square foot U.S. warehouse of inventory enables us to act fast and meet dealer needs in a timely manner.

 

Wade Bondrowski, director of sales USA for Mercier

2011 looked just like 2010 but finally our hard work, efforts and programs seem to be paying off, we have produced products outside of our oak and maple comfort zone, for example, hickory with two tones, and we have fashioned some stained exotics just for a diverse visual, which is helping.

We continue to set the standard in finishes, by introducing the first soy based, eco friendly healthy factory finish, and have been awarded the Greenguard Children’s Certification for schools.

We are making our just in time manufacturing process our priority and servicing better than the competition. Our distributors like the service and our retailers enjoy the turnaround times.

Overall, we were anticipating a little increase in 2011 and got it—we grew in revenue and units, but pricing remained the same and we are feeling the pricing pressure all the time.

The No. 1 problem with wood is the manufactures and distributors selling it. We as an industry need to get out of the rock bottom price selling; it is unfortunate it is only about how low they can go, instead of talking about their qualities.

Pricing continues to spiral down at the retail level. It is imperative the dealer knows what is being sold at the boxes and Lumber Liquidators, and to make sure they don’t support the same products and affiliated manufactures. It is imperative to their survival and ours.

We see 2012 just about the same as the last couple years. Unfortunately it is still the lack of a real estate/new home construction market. And we see ourselves slugging it out for increases in sales and market share.

We do see a lot opportunities in the wood category. Research still shows, the consumer ultimately wants to purchase a quality hardwood floor. The problem is still being able to quantify what this really is. Once retailers learn to quantify wood, and sell better quality mills, they will find that profit margins will increase, claims will go down, and they create a new happy, long-term customer, That is areas they can grow in, which by extension will help Mercier grow.

Overall, these have been the toughest and most challenging years in my career, but we managed the down turns very well and Mercier has enjoyed some current success. Regrettably we won’t get to enjoy the success for long, for there is still a lot of hard work ahead of us just to stay on pace.

 

Luc Robitaille vice president of marketing for Boa-Franc/Mirage

We expected 2011 to be more of a wait and see type of year for all parties and that’s what happened. It was pretty much the same as 2010 but in an inverted way, where the second half was stronger than the first. However, the economy improved a bit in comparison to 2010, and consumers started spending again, but cautiously. As a result, our sales have been in line with expectations for 2011.

One of the expected bright spots for 2011 was the buying public’s growing preference for more local products and domestic species, which makes manufacturers like Mirage more attractive to consumers. We see this trend increasing in the next few years.

Nonetheless, we expect much of the same as 2011 for 2012 since indicators do not provide any tangible signs of improvement and there is still too much volatility to reassure consumers.

We see the market polarizing itself even more into two segments: high end and low end, with the middle fading away slowly. The biggest challenge for our industry is to be able to maintain market shares in the overall floor covering industry. Since people have moved down in their floor covering choices from wood to other less expensive alternatives.

The economy also presents a big challenge in terms of instability and volatility which makes it difficult to plan ahead operationally and creates inefficiencies that most of us didn’t have before.

Looking ahead, we will continue to work closely with our distribution network to ensure training is occurring across the sales network and at all levels. For us training is a major part of how we sell our product and during these tougher times we need to support our sales network with the most up-to-date continuing education about our products.

Mirage’s products introductions for 2012 include new domestic species, stains and some wide plank worn-rustic looking products with a lot of character. Again we will be coming out with over 50 new SKU’s. Our approach in this economic situation is to provide to our network with the products that the market wants and needs in order to maintain our dealer’s competitiveness.

Our introductions were designed based on what we see the market moving toward, which is products that have a very current and trendy appeal, rich stains that will make an eye-catching addition to a décor.

Styles will continue to be worn-rustic looking products with a lot of character. Wide will still be the choice of most consumers and dark colors will still have the main share in the stains.

 

Neil Poland, president of Mullican Flooring

While we did have some months where we saw a bump in sales, 2011 was as tough as we anticipated.

We are going into 2012 with reserved optimism. It looks like the winter will be tough. At the same time, though, we feel consumers are running out of patience of holding back. Just look at Black Friday and the shopping records that were set. There’s some good pent-up demand. So we think demand will be slightly ahead of supply as the year moves on.

There are some other positive trends, such as the [recent] unemployment report. Also, the cover stories in the recent Florida Trend magazine are encouraging as Florida has been one of the hardest hit markets—and it has not been a big market for us. Plus, if housing starts do not go back up, people will have to remodel. Wood is so tied to housing that any improvement helps—new or remodel.

But, any small piece of negative news could stop everything in its tracks.

Right now there is too much supply for the demand and we need to get the demand slightly beyond supply as that will help push prices up, help with companies want to stock more and so on. Overall, it would be a healthier situation.

The last three years, we as an industry have been focused on volume at any price point, but we need to get back to selling and getting upgrades, even a slight one, as it’s still an upgrade.

The positive signs mentioned before bode well for Mullican as we starting to manufacture engineered wood in the U.S., and hope we’ll be able to increase capacity.

Mullican is proud to be one of the first to bring engineered production back to U.S. soil from Asia. At Surfaces 2012, Mullican will introduce the Hillshire Collection, the company’s first American-made engineered line of products. It will include five 3/8-inch-thick, prefinished engineered oak products available in both three-inch and five-inch widths. The selections are red oak natural, oak caramel, oak gunstock, oak saddle and oak bordeaux.

We made our decision to bring the manufacturing to our U.S. base due to a number of factores, including the rising costs of raw materials in Asia, increased transportation costs (fuel) and our ability to automate the manufacturing process here in the U.S., which minimizes the advantage of low-cost Asian labor. And we will continue to invest in state-of-the-art equipment. This allows us to get improvements in material handling, which gives better yields and productivity.

In addition, Mullican has always been on the forefront of the green movement. Our move from Asia further reduces our carbon footprint and utilizes sustainable raw materials from U.S. forests, which have a healthy growth rate of 1.8 to 1 as verified by the U.S. Forest Service.

 

Kevin M. Biedermann, senior vice president, Armstrong

The hardwood industry overall was down about 6% in units 2011verses 2010. This combined with the impact of negative mix as consumers traded down to less expensive engineered and solid wood products resulted in the category being down 9% to 15% in dollars. The negative is just a reflection of the housing market continuing to struggle and declining further this year, as well as a significant downturn in remodel because of lack of consumer confidence.

Hardwood is a mainstay in the American psyche, desired by consumers. As consumers gain confidence, we don’t have much concern that wood would lose market share to other categories, long-term. In fact, it’s just the opposite in that as consumers gain confidence they will come back and buy wood floors.

For Armstrong, it’s about focusing on hardwood products people value and making them available to consumers at an attractive price. We have launched hand-scraped products this year that make us the largest supplier of these products in North America. We offer more value products than before, in both Bruce and Armstrong, the two best-known brands in hardwood. We also launched performance-based hardwood, and we have the performance story on Dundee, Premier Performance and other products.

For hardwood, the challenge is just the broad demand for product—people building houses, remodeling—there’s nothing we can do to affect the demand. We only can offer products that cover the entire spectrum—from value-oriented goods to those that inspire. Whatever her pocketbook will allow, Armstrong has the product to fit her needs. There is no reason to look elsewhere.

Retailers can succeed in this tough economic environment by offering on-trend products that homeowners want. Armstrong also has invested in easily shopped, unique display systems and in-store tools that present products in a way that is attractive, logical, intuitive and easy to understand. The display draws consumers in with the branding, a distinctive upscale look and larger samples—all in one place, with less confusion and less floor space. Salespeople can take customers to the Armstrong display first because they will find products they will want to buy. This really helps retailers make the sale.

Despite the difficult economic environment, we continue to support the success of our retailers by investing in the Armstrong brand, by producing highly qualified sales leads through our retail website, and by introducing the right products for this economy.

Our approach ensures Armstrong retailers have a competitive advantage by virtue of having the most trusted name in flooring standing with them.

 

Harry Bogner, senior vice president of hardwood for Unilin Flooring (Mohawk)

During 2011, the industry as a whole faced the challenges of slow to flat recovery in new home and replacement/remodel sales as well as increased raw material and energy prices. Overall, the hardwood industry experienced the flat-to-slow growth rates that experts had predicted.

One of the positive takeaways from 2011 is the hardwood market did not get worse. This, most likely, signals hardwood has already hit the bottom of the downturn. This type of stability should position wood to experience some growth in 2012.

The Mohawk, Columbia, and Century brands fared better than the overall hardwood industry during 2011. We attribute this, in part, to our recent re-engineering of each brand’s entire product line as well as the financial stability of our brands’ parent company. We entered 2011 with the right mix of competitively priced products for each of the different audiences our brands target. As a result, customers purchased our products at a better pace than the overall industry during 2011.

When it comes to products, consumers will continue to demand those with a strong price/value relationship. Throughout the past year, a strong price/value relationship was of paramount importance to consumers. A good value proposition doesn’t mean cheap; it means offering consumers a quality product at an affordable price. We expect this to be the norm during 2012 also.

We expect to see the continued growth of click. The search for greater value by today’s consumer and a willingness to install product themselves should continue to drive sales of glueless hardwood products during 2012.

There will also be continued demand for domestically manufactured products. Over the past two years, most retailers and distributors have maintained lower levels of inventory, requiring more rapid service. Domestically manufactured products were capable of filling these quick-turn requests better than most imports. We expect most retailers and distributors will continue focusing on domestically manufactured wood products.

Our hardwood brands will continue to capitalize on our leadership in technology and product innovation. Leveraging these distinctive competencies will enable our brands to continue bringing quality products to the market in 2012 at prices attractive to the majority of our retailers’ customers. Although American consumers’ budgets may have changed, their demand for style and quality has, for the most part, not changed.

We will continue to offer the broadest assortment of products, across our different residential brands, than any other manufacturer in the hardwood industry. Our continued investment provides our Mohawk, Columbia and Century customers with uninterrupted levels of product innovation, fresh designs and service.

The strong price/value relationship of our brands’ products will continue to be further enhanced by additional features such as the durability and premier resistance to stains/grime that come from our use of industry leading technologies. These include the following:

•The exclusive Mohawk Scotchgard Protector Advanced Repel Technology by 3M, Columbia SuperiorShield Surface and CenturySeal Advanced Finish Technology give our floors superior resistance to stains and grime, keeping floors cleaner and newer looking longer.

•Our ArmorMax coating system offered on Mohawk and Columbia products provides five times greater wear resistance compared to other wood flooring products. This increased performance allows our brands to confidently offer a 50-year wear warranty, and

•Mohawk’s DuraBeauty Acrylic Impregnated flooring is up to 50% harder than non-impregnated wood floors, with highly competitive pricing.

Today’s retailers are more interested than ever in finding a way to differentiate themselves and keep volume products profitable. These advanced performance finishes give retailers a legitimately enhanced market position against their competitors.

Our brand’s click options have a distinct competitive advantage over all other brands in the industry. The patented Uniclic glueless installation locking system found on our Mohawk, Columbia and Century products is the most widely used glueless locking system in the world and also remains the best system on the market.

The superior design of the patented Uniclic locking system offers the optimal balance between ease of installation and locking strength, ensuring a damage-resistant surface unrivaled in the industry.

Our wood brands should continue to perform better than the overall hardwood industry during 2012. Our investments in leading edge manufacturing technology will continue to enable us to produce products with higher quality milling, finishing and texturing. These advance systems produce stunning products featuring rich visuals and designs that are still priced within a consumer’s budget.

Also, as a financially stable company, our investments have positioned our brands for success and a continued leadership role in the industry as the economy begins growing at a more robust pace.

 

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.  Additionally, Chinese imports continue to threaten the [wood] market.

We expect that market conditions will continue to be challenging for all flooring categories. Our hardwood portfolio will continue to diversify as we offer uniquely styled solid and engineered flooring products to meet the demands of remodelers and builders. Despite economic conditions, we continue to respond to the consumer’s demand for quality and value.

One of our biggest challenges in wood is the rising demand for wider width solid versus the lumber yield which is degrading the value of solid strip flooring along with the continue degradation of market pricing caused by Asian imports on the engineered side.

In addition to investing in products, our plans continue to involve marketing to the consumer in new and creative ways while constantly adjusting to meet the evolving demands of each market segment.

We are fortunate to have the financial strength that allows us to invest in diversification, in expansion where necessary, and to support the industry’s most talented field team as we strive to serve our customers. We are making the long-term adjustments needed to develop as a company despite any continued economic challenges we expect to face in the year ahead.

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.

We have been the leader in promotions, social media outreach, mobile applications, QR tag integration, media events and more. Our fall and spring promotions, along with special sales, such as our recent offer on Grand Canyon Hardwood, have all had impressive, industry-leading components designed to directly reach the consumer in unique ways.

At Shaw, we will continue to focus on building our brand with all audiences, focusing on the consumer, dealer and retail sales associate. Throughout 2012 you will see a variety of traditional, interactive and social media marketing and public relations strategies created to build the reliable Shaw brand.

 

Kim Holm, president of Mannington Residential

2011 did not meet our expectations; overall we saw units off about 8% and sales 3% versus 2010. Basically, the housing market did not respond like we thought it would.

Nonetheless, we are optimistic going into 2012. Based on our forecast model, we project the category to grow by 6%. And, we think for domestic producers such as Mannington the opportunities are greater.

With the ITC decision now finalized—appeals can be made but decisions will have to be made regardless when it comes to importing product from China due to the unknowns of retroactive duties—its impact will be felt in 2012.

Mannington’s imports have been slowing down in recent years and will continue as we replace those products with ones that we can make at our U.S. plants.

Regarding products, the wood category truly runs from soup to nuts, from handscrapes to exotics and everything in between. We are seeing a trend toward the refined rustic look with more brown tones and less red. You see this happening in furniture and cabinets and is moving throughout interior fashions.

While some companies are investing in their plants, either upgrading to more modern equipment or adding capacity as they bring products back to be made in the U.S., there is not much investing going within the category. There is such an abundance right now, and the industry needs to move through this first.

For Manningtion we are doing what we’ve been doing: investing in new products, samples and displays. For example, our Ultraflex display has been very well received in how it makes the shopping process easier for the consumer.

In addition to maintaining our focus on helping retailers sell easier, we have initiated and internal push to reduce costs by getting more efficient yields and so forth. Pricing is very tough right now and the wood industry as a whole needs to drive down costs.

We will also continue to dabble in social media as it is becoming more of a marketing tool. Right now, though, it is not something we see consumers going to for flooring. It’s a generational thing and right now the people who are mostly engaged are not yet floor covering purchasers. They will be and when they do, Mannington will be there to help drive traffic to retailers.