June 20/27, 2016; Volume 30, Number 26
By Ken Ryan
The U.S. ceramic tile market turned in a stellar performance in 2015, its sixth consecutive year of growth. Led by gains in the construction and housing markets, and buttressed by low interest rates and an improving employment picture, industry experts estimated sales increased 9.8% to $2.613 billion, with volume up 9.9% over 2014 to 2.187 billion.
That compares to a 6.2% increase in sales from 2013 to 2014. The biggest change was in volume, which gained a tepid 0.5% in 2014. Out of the last five years, only 2013’s 12.9% volume increase bested the 9.9% gain seen in 2015.
To put things in perspective, the ceramic tile category was the third-largest sector in terms of dollars, representing 12.7% of all flooring. In terms of volume, ceramic tile represented 11.9% of total industry sales, trailing only carpet and rugs (60%) and resilient (16.8%).
Industry observers cited increased domestic capacity as the primary contributor to the growth in consumption of U.S.-produced tile. In fact, according to The Tile Council of North America, 2015 was a record year for U.S. manufacturers as an all-time high of 857.2 million square feet of ceramic tile was shipped domestically.
Domestic production is expected to rise over the next few years as U.S. companies continue to break ground on new U.S. facilities. In 2015, Dal-Tile, the industry’s largest player, began manufacturing product from the 1.4-million-square-foot ceramic tile plant in Dickson, Tenn. Several other manufacturers are also in the process of adding domestic capacity.
Bob Baldocchi, chief marketing officer and vice president of sales support for Emser Tile, said the gains in volume were made up by a combination of unit growth and average selling price growth, with the two factors split approximately 50/50 in terms of impact.
While hard surfaces have taken market share from soft goods, ceramic tile as a category outpaced other hard surfaces by 5% to 8% in 2015. Baldocchi cited several key factors driving this trend, including improved consumer confidence thanks to a national increase in home values and perceived stability in the economy. Meanwhile, the downward slide in oil prices had a negative impact in regional markets such as Houston, where consumers are reliant on the health of this industry. However, from a broader, national perspective, lower prices at the pump had a positive impact on consumer spending capabilities. Other factors contributing to growth included an increase in housing starts for both single- and multi-family housing as well as a rise in commercial spending on new construction and remodel work, Baldocchi added.
Residential
Housing starts and new home sales play a particularly important role in the ceramic category. In 2015 new home starts increased for the sixth consecutive year, reaching their highest annual level since 2007. The 1.11 million units started in 2015 represented a 10.8% increase from the previous year. Additionally, new single-family home sales rose for the fourth straight year, climbing 14.5% vs. 2014, or an increase of 501,000 units. Another component of the housing market that showed favorable metrics was foreclosures. Often a major indicator of the residential market’s health, foreclosures in 2015 fell for the fifth straight year to their lowest annual total since 2006. The 1.08 million foreclosure filings on U.S. properties in 2015 represented a 3% decline from 2014 but a 62.3% decline from the peak foreclosure year of 2010.
Experts noted that new home sales are seeing better elasticity in consumers’ ability to upgrade features in the home, which bodes well for ceramic tile. “Flooring is a key benefactor in this trend,” Baldocchi explained. “Competition for fashion-conscious consumers is causing all sectors—including multi-family, manufactured housing builders, new production homebuilders and others—to upgrade their base or include upgraded features in their offering. Often this included better ceramic products.”
Changes in formats, looks and applications are influencing product sales. In ceramic tile, wood looks, wall tile and decorative accents are generating the greatest activity, observers say. In addition, products once seen mainly in commercial applications such as large formats—those greater than 24 inches—contemporary looks and colors are now commonly done in production build, custom homes and are being sold though residential retail outlets.
As the housing market continues to improve, executives expect demand will favorably impact ceramic tile growth. Within the new residential construction segment, it is estimated that approximately 75% of sales are in single-family units with the remainder in the multi-family category. “We are projecting that the growth in single-family home construction is expected to continue to outpace the growth in multi-family over the next couple of years,” said Jason Roshel, senior director, product strategy at Dal-Tile. “Additionally, the trend since 2010 has been that single-family homes continue to get bigger while multi-family homes continue to shrink. Since ceramic tile represents a greater percentage of the flooring used in a single-family home than a multi-family home, this will have a positive impact on the ceramic tile category.”
There are those who suggest the ceramic tile market would have achieved even greater gains were it not for the uncertainty that still exists among consumers regarding the overall state of the economy. These executives note the industry tends to follow economic trends such as housing recovery, interest rate fluctuation, credit availability, commercial market recovery and consumer confidence in order to gauge how well the market is bouncing back. While there has been an uptick in the overall economy, it is still not as robust as some would like.
Commercial
Tile demand in the commercial market continues to grow, according to experts who cited hospitality, assisted-living healthcare facilities and retail sectors in particular. The hospitality sector led in all categories in terms of commercial sales growth, with demand for value-priced products remaining strong.
In healthcare, the aging population continues to fuel growth. In terms of design, many facilities are striving to create an atmosphere that’s more home-like or similar to high-end hospitality settings. These types of design choices allow patients to feel more comfortable compared to a more traditional, clinical environment. Also driving growth in this category is the increasing development of extended stay rooms where patients’ family members can reside during long stays.
With respect to retail, activity has been fueled in part by increased activity in the residential building sector. “We are seeing more commercial spaces, especially in the hospitality and healthcare segments, taking inspiration from residential designs, making public spaces more home-like,” Dal-Tile’s Roshel said. “On the opposite side, residential areas are utilizing more traditionally commercial styles, including large-format sizing and clean lines in design.”
Imports vs. exports
While imports comprised 68.7% of the U.S. market in volume through 2015, U.S.-produced tile has made significant inroads over the last decade. As recently as 2006 imports comprised 82.4% of the market; the 68.7% mark was unchanged over 2014.
According to the Tile Council of North America (TCNA), China regained the position as largest exporter in square feet to the U.S. in 2015, supplanting Mexico. China’s share of U.S. imports was 29%, followed by Mexico with a 27% share of imports and Italy with an 18.5% share. Spain and Turkey rounded out the top five with a 7.2% and 4.6% share of imports, respectively.
Italy remained the largest exporter to the U.S. on a dollar basis in 2015, comprising 34.6% of U.S. imports. China was second with a 26% share and Mexico was third at 14.3%.
Industry observers note that the product’s value is calculated at point of entry into the U.S. In other words, it is recorded when it lands on U.S. soil. To that end, much of ceramic tile’s increase was attributed to suppliers beefing up their inventory levels and not reaching first point of sale.