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Ceramic: Domestic production fueled by burgeoning demand

January 16/23, 2017: Volume 31, Number 16

By K.J. Quinn

 

Screen Shot 2017-01-16 at 12.30.27 PMOnce upon a time, the U.S. ceramic business was dominated by foreign competition, which had a leg up on their local counterparts in production technology, styling and distribution channels. But that is no longer the case, as domestic companies bolster capacity and open more factories in their efforts to strengthen market share and take advantage of a fast-growing market.

“U.S.-based production has definitely been increasing the last few years because of a few factors,” said Rick Church, executive director, Ceramic Tile Distributors Association (CTDA). “One is increased demand. Two, and more significantly, is because of new plants being developed and coming online. Most of those new plants are owned by non-U.S.-based companies.”

For the seventh consecutive year, U.S. tile consumption was 9% to 10% growth, according to industry estimates. 2016 ceramic sales were expected to reach approximately $2.9 billion and 2.4 billion square feet. Domestic producers played a big part in category growth, accounting for approximately one-third of U.S. tile sales.

“In recent years, there has been more attention on products that are made in the USA, largely due to the newfound interest that consumers want to know where their products are coming from and are embracing products that are made in the U.S.,” observed Gianni Mattioli, executive vice president, product and marketing, Dal-Tile. “We’re seeing a resurgence in style among domestic manufacturers, which is helping promote ‘made in the USA’ and provides a talking point during the sales process.”

The irony behind the explosive growth in domestic production is that foreign tile producers, led by Italian companies, are reportedly investing millions of dollars to bolster production on U.S. soil. Italy, along with China, Mexico, Spain and Turkey, are considered the top exporters of tile to the U.S. “Certainly, the non-U.S.-based manufacturers see the opportunity to produce in the U.S. and serve, or partially serve, this market without having to export from Europe, etc.,” CTDA’s Church said. “Clearly, this makes it more efficient to bring the product to market.”

Maintaining a local presence provides easier access to raw materials, distribution channels and insight into trends influencing design preferences of American consumers. “Over the past few years, we have been making record investments on the domestic front, including the addition of our Dickson, Tenn., facility,” Dal-Tile’s Mattioli said. “By investing in our facilities, we are able to ensure we have the broadest, most accomplished manufacturing operations in the North American ceramic tile industry.”

Indeed, Tennessee is being transformed into the tile industry’s version of Dalton, as an influx of local and foreign manufacturers have opened up shop in a state that provides numerous benefits for doing business there. “Certainly, U.S.-based manufacturers are investing in new technologies during this upswing,” Church said. “However, the greatest investment is coming from non-U.S.-based manufacturers building plants in the U.S. Several have been built and come online over the last few years and others are in progress—mostly in the Tennessee area.”

The U.S. represents a last frontier of sorts for the ceramic industry as the market is only scratching the surface in per-capita use. Tile’s share of total U.S. flooring sales hovers around 15%, according to industry estimates, so there is plenty of room to grow. “Our ceramic tile selections have grown significantly in popularity over the past three to five years, and we don’t expect interest to wane in the coming year,” said Vance Hunsucker, national sales manager, ceramic tile/stone, Shaw Floors.

There is cause for optimism as economic trends used to gauge the health of the industry—such as the new housing market, consumer confidence, lending and unemployment rates—are favorable. Among the biggest is new single-family homes, which rose 11% in October from the previous month, reaching a nine-year high with a seasonally adjusted annual rate of 869,000 units, according to the U.S. Department of Housing and Urban Development and U.S. Census Bureau. Tile as a percentage of total flooring in new homes continues to rise, as it finds more applications in spaces such as patios, garages and basements.

“We have certainly seen a positive impact to sales throughout this past year,” Hunsucker said. “Forecasts indicate the segment is expected to grow.”

Key drivers
Screen Shot 2017-01-16 at 12.30.22 PMWhile smooth sailing lies ahead, there are emerging issues which have the potential to throw this fast-moving catamaran off course. For instance, a stronger U.S. dollar is reportedly reducing the costs of imported products, observers say, which directly impacts pricing and competition with domestic suppliers. Meanwhile, some tile producers may have jumped the gun in expanding their domestic manufacturing footprints.

“You have companies thatcame here with all new manufacturing technology,” said Donato Grosser, president and chief consultant, D. Grosser & Associates. “These companies are betting the market will keep expanding and consumption of ceramic tile will go up. But if you’re increasing manufacturing capacity around 20% and you only have a 5% increase in consumption some companies are going to suffer.”

Some industry members believe the potential rewards outweigh the risks. For example, U.S.-based tile producers are less exposed to uncontrollable risks such as exchange rate fluctuations and ocean freight price increases due to capacity shortages. Faster turnaround times on orders and possibly less expensive access to products are cited as two key benefits. “Domestic facilities offer manufacturers a number of key advantages, including the quality of the local workforce, access to raw materials and an ideal location from which we can ship to a majority of the U.S. population quickly and efficiently,” Dal-Tile’s Mattioli said.

Historically, style and sophistication in tile was limited to European markets. Not anymore, observers say, as advances in digital printing technology and increased investments in American manufacturing capabilities have helped elevate the cache of tile products made right here in the U.S.

“We are now able to produce products that are as visually appealing as the products being imported from Europe,” Mattioli pointed out. “At Mohawk and Dal-Tile, we are leading the advancement of design and manufacturing technologies domestically, so we can continue to deliver on our promise of providing our customers the best value through these innovative products and exceptional service.”

Indeed, technology is making it possible for vendors to produce higher end visuals that aim to mimic stone, marble and hardwood. “Additionally, the average sales price is increasing as customers embrace higher end looks, including decorative accents and large-format styles,” Hunsucker said. “All of this demand has an impact on the growth of this category.”