June 26: Volume 32, Issue 1
By Ken Ryan
The U.S. ceramic tile market, bolstered by steady growth in the all-important housing and construction markets, recorded its seventh consecutive year of growth in 2016. FCNews research shows sales rose 5.7% to $2.761 billion while volume increased an estimated 5.5% to 2.31 billion units.
The 2016 numbers were off slightly from 2015, when sales rose 9.8% and volume increased 9.9%. Still, it was another stellar year for a category that continues to grow and evolve with some of the most innovative products influencing the market.
Statistics show growth is coming from all precincts, with builder and overall commercial up an estimated 7%-10%, with retail lagging, yet still at 2%-4% growth. Even at the low end, the 2% increase in retail was in line with the U.S. gross domestic product (GDP) for 2016, which came in at 2.1%. The GDP is regarded as the most important of all economic statistics as it captures the state of the economy.
To shed additional light on the ceramic category, tile is the third-largest sector in terms of dollars, representing 13% of all flooring in 2016, up from 12.7% in 2015. In terms of volume, ceramic tile represented 12.1% of total industry volume, trailing only carpet and rugs (58.7%) and resilient (18.8%).
The seven-year winning streak follows a particularly bleak period for ceramic. Hard to imagine that in 2009 ceramic tile was down a staggering 24% in dollars and 22.5% in volume. It marked the third year in a row that ceramic tile had sustained losses of 20% or greater. While other flooring segments also suffered during that stretch, ceramic was hit the hardest, as it is the most prone to housing swings, experts say.
Clearly, these are halcyon days for ceramic, and there is not much on the horizon to suggest a slowdown. “Much like 2015 we continued to see growth in the ceramic tile market in 2016,” said Jason Roshel, senior director, product strategy, Dal-Tile, the Mohawk brand with roughly 40% market share. “There has been, and continues to be, tremendous growth opportunity for the tile category. Our industry tends to follow overarching economic trends, which impact all major spending. Key economic drivers include new housing starts, commercial market recovery, consumer confidence, credit availability and interest rate fluctuation.”
Domestic production has been a big story in ceramic tile for the past few years, and 2016 saw several companies expand production or break ground on new plants. In March 2016, almost two years to the date that Dal-Tile’s $180 million, 1.8-million-square-foot facility was announced in Dickson, Tenn., the company’s first production run was completed, with large format 12 x 24 glazed porcelain tiles being produced. In June 2017 Mohawk announced a second plant in Dickson that would add 245 jobs at full capacity; it is scheduled to begin operation in late 2018. Construction on the new facility is starting this summer, with several other manufacturers following suit.
Industry observers such as Rick Church, executive director, Ceramic Tile Distributors Association (CTDA), believe that what’s driving domestic production is increased demand and, more significantly, the new plants that are being developed and coming online. Most of those new plants are owned by foreign companies who see the opportunity to produce in the U.S. and serve the market without having to export from Europe. By establishing a local presence, these companies have easier access to raw materials, enjoy closer proximity to their distribution channels and gain insight into trends influencing the U.S. market.
A stronger and still improving economy and housing market generally bodes well for the ceramic category, and that proved to be the case in 2016. New home starts rose for the seventh consecutive year and were at their highest point since 2007. The 1.17 million units started in 2016 represented a 4.9% increase from the previous year. As encouraging as the gains are, however, there is still ground to be made up to reach the pre-recession level of 2.07 million units started in 2005.
New single-family home sales increased for the fifth consecutive year and hit 563,000 units in 2016, up 12.2% vs. 2015. While this recent growth is encouraging, new home sales were still down 56.1% from the all-time high level of 1.28 million units reached in 2005. Foreclosure filings, another key indicator of the U.S. housing market’s health, declined by 13.9% in 2016 to 933,000 units. This marked the sixth consecutive year-over-year drop in foreclosure filings and the lowest annual foreclosure total since 2006.
“There is a strong correlation between ceramic tile consumption and new housing starts, which contributed to the continued growth of the category in 2016,” Roshel said. “One factor is the increased construction of new single-family homes, which have grown larger in size. These bigger, more expensive homes often use larger quantities of tile because it offers the style, design and luxury many homeowners desire without the maintenance concerns found in other materials.”
Bob Baldocchi, chief marketing officer and vice president of business development for Emser Tile, said new home sales will continue to drive much of the growth in the market in 2017 and into 2018. Recent surveys show that homes are selling at a record pace due to tight supply. In May 2017, for example, the average house sat on the market for 27 days, which is the fastest reading since Redfin, a real estate brokerage, began tracking the market seven years ago. The tight supply is pushing home prices higher, which—while good for homeowners—could be a detriment to market growth given the higher entry price point. The median price of a home sold in May jumped 6.8%, which is about triple the average income gains and may already be hurting sales as affordability weakens.
Baldocchi said labor, particularly the dearth of qualified installers in an expanding market, could dampen the full potential of ceramic. “Labor challenges need to be solved for demand in the market to truly be met. Labor solutions and availability still has a longer-term view.”
Commercial activity was encouraging in most sectors, executives said, with growth seen in hospitality, healthcare, education and corporate spaces. “Homebuilder and commercial segments showed continued signs of growth,” Baldocchi added. “Commercial projects and spending continued on its growth path seen from the last couple years. Growth was slowed partially due to continued labor issues in the marketplace.”
Imports vs. exports
Imports in 2016 made up 68.6% of U.S. tile consumption (in square feet), down slightly from 68.7% the previous year, according to the Tile Council of North America. TCNA reported that China remained the largest exporter to the U.S. (in sq. ft.) in 2016 with a 29.4% share of U.S. imports (in sq. ft.), followed by Mexico (23.4%) and Italy (19.4%). Spain and Turkey rounded out the top five with a 9.3% and 5.1% share of imports, respectively.
Italy remained the largest exporter to the U.S. on a dollar basis (including duty, freight, and insurance) in 2016, comprising 35.8% of U.S. imports. China was second with a 24.7% share, and Mexico was third with a 12.6% share.
The emergence of advanced technologies such as 3D printing, digital printing, anti-microbial glazes and nanotechnology have to some degree taken away from global differentiation. Ten years ago new technologies or techniques for ceramics and porcelain product started in places like Italy and were more exclusively found there for a longer period of time. “Today the advancement, regardless of the country of origin, seem to go global very quickly,” Baldocchi said. “Global differentiation still exists but now it is experience, techniques, quality and design that might differentiate on ceramic floor tile.”
[Editor’s note: The value of ceramic tile is calculated at point of entry into the U.S. In other words, it is recorded when it lands at U.S. ports. So, much of the increases seen in ceramic tile shipments was attributed to suppliers beefing up their inventory levels and not reaching first point of sale.]