Modest growth gives carpet industry hope

Similar to the year overall, 2012 was a tough but productive 12 months for the carpet and rug industry, thanks to factors ranging from strong residential market sales to a relatively robust commercial sector. The end result was an industry that saw both sales and units inch their way upward.

This was the second consecutive year in which carpet sales were up; the U.S. has not seen carpet growth in back-to-back years since 2004 and 2005. For 2012, sales were up 1.4%, from $8.007 billion to $8.119 billion, which is carpet’s highest total since 2008.

Domestically made rugs experienced a very soft, even down, market. However, imports, which represent 79% of the total rug market, were up 7.5%. Machine- made products lead the way as home centers and mass merchants lowered their mix to attract a more value-conscious consumer. In the end, the rug sector still saw gains for the fourth straight year with sales up 4.3%, from $2.16 billion to $2.253 billion.

When it comes to total volume, the carpet and rug industry experienced something it had not seen in virtually a decade—upturn. (Editor’s note: The industry does not break out the volume of carpet and rugs separately.) Albeit it was only .3%, from 10.81 billion square feet in 2011 to 10.84 billion square feet last year, but there was still an increase. This development, combined with other pertinent factors, has manufacturers and industry observers predicting the bottom of the recession has been reached and the category is finally on the long road to recovery.

As was the case with many other manufacturers, producers of soft surface saw
a semi-tumultuous year that began fairly strong, giving many companies hope the recovery they kept expecting was finally here. But, as was the case in recent years, business fizzled out with the start
of summer. However, by the fourth quarter, the market picked up and actually showed a steady gain. For many carpet mills, this was the first time since the housing market hit the wall in August 2006 that the sector recorded three to four consecutive positive months.

Despite weather-related issues in January, the upward trend has continued into 2013. Some observers reflected that 2012 as a whole was similar to 2011, which was relatively akin to 2010. But, when dissected month-by-month, there is more of an understanding as to why the industry is “certain” of a bright future.

Mixed residential

The residential market in general can be compared to a three-ring circus; depending on the area, there were many different happenings.

First, there was the positive housing industry: Both single-family and multifamily housing production reached some of their highest levels since 2008. The average home price started to increase—in some markets prices hit levels not seen since 2003 when the market was marching upward—and mortgage rates remained at historically low levels.

The negative side was that most new housing growth was in multifamily, which typically favors lower-end products due to constant turnover. The home remodeling market—where the majority of sales are geared—was down.

Helping the industry was the high-end design business which was much healthier than the overall retail carpet business. And, on the specialty side, the upper-end market showed signs of life thanks to the influx of new ultra soft carpets.

As one observer noted, “The higher end of residential carpet performed better because the luxury consumer was ready to remodel and the low end of carpet was driven by multifamily construction.”

In fact, many believe 2012 will be known as a year of transition in specialty as dealers filled their showrooms with an increasing amount of “soft” carpets. This was evident with the trend exhibited during the fourth quarter as, coincidentally, it was then when a number of the newer, softer collections hit retail showrooms—from the latest SmartStrand Silk product by Mohawk to Shaw and Dixie launching carpets made with Invista’s TruSoft fibers.

With the anticipation of even more product coming in 2013—in both nylon and now polyester— manufacturers say you can “feel” the business starting to recover because soft fiber carpets, even those made with polyester, are starting at higher price points than normal. Growth in this area is out- pacing the market as a whole.

Fiber wars

While the high-end soft market is helping to keep the specialty retail sector upbeat, the amount of carpet made without nylon continues to grow. The faster growth in multi-family is helping fuel this trend, based on facility managers seeking less expensive carpets as they know their replacement cycles are 35% to 50% more than those of single- family homes.

For the first time, nylon’s share of the carpet and rug market, based on face yarn only, is below 50%. This percentage is even lower in residential, where nylon’s share is projected around 40%.

While polyester has risen to 25% of the total market (it was under 10% a quarter of a century ago), isn’t the only product taking share. Triexta, which is used by Mohawk to make its SmartStrand products, was introduced last year to the commercial market. In combination with other mills, Triexta has risen to an 11% market share with regard to face fibers. Manufactured using DuPont’s Sorona polymer, Triexta is a cousin to poly- ester as it shares attributes with the material as well as those of nylon. In 2009, the government gave permission to classify Triexta under its own label as opposed to being bulked with traditional polyester.

Polypropylene, or olefin, has held steady over the years—in the mid teens as a face fiber—thanks to its use in the machine-made rug market. Its overall market share is even higher as it is still the fiber used for the primary and secondary backings in residential and broad- loom commercial products.

Beyond the change of fiber faces used, there has also been a switch in recent years from staple fibers to bulk continuous filament (BCF). The writing was on the wall prior to the recession, but it allowed mills to accelerate their plans to shut down and/or convert their staple production facilities to BCF plants.

In nylon, staple production in the U.S. officially disappeared last year. However, in polyester, there is still a small niche for staple as it provides a certain look and feel BCF currently cannot replicate. Staple is more expensive than BCF and goes against the entire soft trend due to its construction in a tighter gauge, but there are places where a firmer feel is desired.

Commercial rules

One of the big saviors for the carpet industry in 2012 was the specified commercial market, which exhibited considerable growth, especially in sectors such as corporate. Healthcare, particularly assisted living, also flourished. Interestingly, while these sales generally go through the A&D community, many products have a residential look and feel, as healthcare facilities now have guest rooms that resemble homes rather than hospitals.

Facilitating commercial’s expansion was carpet tile, which even started to sneak its way into some residential settings. Overall, broadloom was still the predominant product in totality with an 83% market share, but in commercial modular products carpet tile accounted for approximately 55% of the carpets sold.

Because carpet tile is generally twice as expensive as broadloom, its fastest rise in sales is a key reason why overall sales outpaced overall volume. In addition, higher-end residential broadloom also experienced a significant increase.

Interestingly, the surge in development of innovations and engineered product is still taking place beyond softer fibers. For instance, carpet tile manufacturers are able to offer products at half the typical weight but with the same performance attributes. However, many contractors believe convincing clients that a 14-ounce tile will work just as well as a 28-ounce option still presents a challenge.

In addition, consolidation continues as larger mills purchase back-end capabilities that help to create not only more cost-effective products, but also materials that can be recycled in a closed loop process.

The hope of the industry is that the government will allow manufacturers to solve the recycling problem without regulation. As some mills pointed out, the industry is the largest collector and recycler of plastic drinking bottles, accounting for more than 25% of what the country discards. The next step is discovering a way to make face fiber, namely polyester, even more sustainable.