November 30/December 14; Volume 30/Number 12
By Ken Ryan
The flooring industry’s top executives are fairly bullish on prospects for a solid 2016. Why the positive vibe? They point to consumer confidence, market stability and an improving new construction market as factors that will likely deliver mid single-digit growth for the industry.
So much is predicated on where you are stepping in from the prior year. In 2013 we stepped into 2014 feeling all froggy; however 2014 didn’t pan out quite like we had hoped. 2015 was still low and slow; not bad but not good, and in 2016 we are coming off a stable base. We see the market continuing to strengthen in 2016. Floor covering is a GDP-plus growth business and we continue to hold that view. There is as much, if not more, structural pent-up demand on residential flooring work now than in anytime in our history. We have solid consumer confidence, recovering real estate values and industry wealth going up. The new construction market and new home market production are building. These are all favorable factors. All those together, we still like our hand in flooring.
The impact on labor, both the quality and quantity, is an issue for everybody. I am not convinced it is impeding growth—other than some areas of builder where it may have delayed some schedules. Recoveries of today are different than recoveries of the past. The dealers are profitable today. Everyone would like to make more money but there is capital coming into industry.
All paths lead to design and innovation. Each year we ask ourselves ‘What are we doing to push the envelope on innovation, design and style? What can we bring to the market that is unique and different?’
At Mohawk, we still see tremendous growth in SmartStrand, which had a very good 2015. We launched Forever Clean; that was transformational. Overall, both those initiatives did very well for us. You will see more unique styling coming from SmartStrand and other products.
Manufacturers will do more with patterned textures and design in 2016. We like the trend of more exciting products and designs. We will introduce some unique advantages in our polyester Continuum which will be unveiled in January.
We have a saying, ‘Don’t watch our words, watch our footprint,’ because we are plowing the return back into the business every year.
In the flooring industry so much depends on what happens in new construction. The last couple of years have shown growth, and we expect it to grow again in 2016.
Consumer buying behaviors and demands are changing in a big way—and fast. They have access to more information, and also have less time, than ever before. We have a real opportunity to embrace this new consumer mindset by continually finding newer, smarter ways to innovate and elevate the shopping and purchasing experiences.
Additionally, installation—specifically not enough labor—is a challenge in virtually every channel. Construction projects take longer to complete in part due to labor challenges in every phase of the project.
There is a tremendous opportunity to enhance the synergies between hard and soft surface products. The preference for hard surface has obviously grown significantly in recent years so creating those popular looks that hit every price point and attract the widest range of consumers is certainly important. And there’s the inherent desire for warmth and comfort that only soft surface products provide. Telling that blended story and showing the consumer how she can enjoy both is critical.
We have several exciting key initiatives for the upcoming year, including our new Epic Plus engineered hardwood collection. We launched Epic in 2006 and it truly revolutionized the industry. Epic Plus contains a new, proprietary Stabilitek core that is built for high performance. This innovation will absolutely take our Epic product to the next level in durability and ease of installation.
We are also expanding upon several key product innovations that took the industry by storm this year. Our exclusive waterproof LifeGuard technology, which is featured in Floorté enhanced vinyl plank and our Life Happens carpet collection, remains of critical importance to Shaw’s product mix. For carpet, the waterproof backing system provides a real solution to consumers who are worried about spills, stains and odors getting trapped underneath.
We see the industry continuing to show slow but steady improvement. Overall, we’re anticipating low to mid single-digit growth for 2016. Mannington is still a major player across all hard surface categories, and with some of the things we have planned for 2016 we think we will be on par with that growth, perhaps outperforming it in some categories. We are being quite aggressive with our introductions, as everyone will see at Surfaces.
As for an unknown factor that will impact business in 2016, I wish I had that crystal ball. Election years can be volatile but signs that might happen this time around aren’t really there. Economic forecasters say that by November 2016 unemployment will be at its lowest since 2000. And they see interest rates, inflation and gas prices only slightly higher than they are now. The X factor has been, and will continue to be, competition from imports. We face this in the marketplace with copyright and patent infringement in addition to the challenge of communicating the value proposition of domestically produced products. We invest heavily in the style and design of our products to keep one step ahead of this type of competition.
We believe LVT is the category that continues to offer the most opportunity. It’s still growing and evolving; the bottom line is it’s a product that looks great and performs well while offering a good value. As this category evolves and matures, differentiation will become more important and we intend to drive that.
In 2016, Mannington will be celebrating its 100th year in business. It’s a major milestone for the Campbell family and for all of us who work here. It’s also an opportunity for our customers to leverage that relationship and sell it downstream to consumers. Consumers today look to do business with companies they can trust, that will be there down the road, and that invest in doing business and creating jobs in the U.S. Mannington has the unique opportunity in 2016 to embrace them with this message and drive it throughout the year.
Armstrong Flooring Products
Let’s reflect back on 2015. In the residential business, the recovery in new home construction outpaced the growth in renovation activity. North American commercial sales improved sequentially from the first half of the year, despite continuing weakness in health care as well as constrained repair and remodel activity across most end markets.
For wood specifically, macroeconomic challenges kept pressure on costs; while raw material costs have moderated from their peak in 2014, they remain above historic average rates. LVT is the segment that is still really growing quite significantly both in commercial and residential applications.
For 2016 we don’t see there being a significant change. We believe hard surface will continue to benefit from its popularity over soft surface throughout the home and commercial flooring will continue to improve.
For all manufacturers, the cost of raw materials is critical. The wood market is particularly volatile; however, we believe Armstrong is well positioned to leverage our scale to ensure a value proposition for retailers and consumers. We are going to continue to focus on the value of the brand, our service, our quality and our innovation in order to overcome some of the challenges that our competition can’t leverage.
We are gearing up for a stronger, more agile flooring business that will emerge from the separation of the ceiling and flooring divisions of Armstrong World Industries. One of the goals of separating the companies is to improve Armstrong Flooring’s business agility. As an independent company, Armstrong Flooring will have greater flexibility to pursue our strategic growth opportunities and will be 100% focused on the flooring markets. I believe our flooring business will continue to provide the high-quality products and superior service that so often differentiates us.
For Armstrong, we’re pleased with where our residential and commercial businesses are and where they are headed. We made investments in manufacturing capabilities over the past two years that will now drive further differentiation and leadership. And we are sharpening our focus on customer value by improving our merchandising systems and integrated marketing concepts that can pull through demand. Our constant goal is to be our retailers’ preferred flooring brand.