June 26: Volume 32, Issue 1
By Reginald Tucker
The U.S. hardwood flooring category continued to hold its own against the intensifying pressure of competing categories—namely LVT/P, WPC and even laminate—all of which continue to make strides in replicating the look, texture and heft of genuine wood. FCNews research shows sales in 2016 reached $2.23 billion, a 5.1% increase over 2015’s upwardly revised sales of $2.12 billion.
Volume growth was pretty much on pace with the increase in sales as square footage shipped at the first point of sale in 2016 reached an estimated 898 million square feet, a 4.8% increase over 2015’s 857 million square feet. (This figure was also adjusted based on new data released since the publication of last year’s Statistical Issue.)
To put things in perspective, hardwood represented 10.5% of total industry sales in 2015 but only 4.7% of total volume. Compared to five years ago, wood represented 9.1% of total flooring dollars at the first point of sale and only 3.8% of total volume.
But looking at hard surfaces specifically, wood’s share swells to 18% in terms of value and 11.4% with respect to volume. Still, that’s a long way off from 2011, when hardwood’s share of the overall hard surface pie was 23.4% of value.
The fact remains, observers say, that hardwood is still a popular choice for homebuyers and existing homeowners. Couple that with an overarching shift from soft goods to hard surface, and you have a scenario that bodes well for the hardwood category.
“Last year was a fairly good year for hardwood,” said Brian Jones, vice president, product management, Armstrong Flooring. “As home values started to increase across the country, we saw the retail and remodel side of the hardwood industry beginning to grow again. While the new home construction sector did not reach the lofty highs that many expected, a modest movement helped to lift sales of hardwood flooring to a respectable level in 2016.”
Other industry observers attribute the category’s performance in 2016 to key market sectors. “Builder/new construction is still very important to the category, but residential replacement/remodel is where we’re seeing the greatest strength,” said Dan Natkin, vice president, hardwood and laminates, Mannington. “As consumers have gotten a little more confident in the values of their homes, wood is really the go-to product from a consumer desirability standpoint.”
Not all suppliers reported having the same experience. At Shaw Floors, for example, the ratio of residential replacement sales to new construction was almost reversed. “Builder/new construction sales accounted for the majority of our flooring sales for 2016, with the other being attributed to residential remodel/replacement,” said Drew Hash, vice president, hard surface category management. But that disparity didn’t leave the company any less bullish about the category’s performance last year. “We estimate the hardwood industry grew between 4% and 6% in 2016.”
The same can’t be said for all end-use sectors across the board. “For example, in commercial, quite honestly, we see wood getting replaced by alternative products such as LVT,” Natkin explained.
Much of the anecdotal reports surrounding the non-residential market are in line with FCNews’ research. Newly compiled statistics show wood sales attributed to the commercial market sector slipped from 9% in 2015 to about 7% of sales last year.
Engineered seizes share
One trend that virtually all suppliers can agree upon, however, is engineered’s continued—albeit incremental—seizure of market share from its solid counterpart. While production selection has largely been a function of geography, historically speaking, the pace of innovation is slowly changing that. For instance, several suppliers have introduced engineered hardwood floors that replicate the overall thickness of ¾-inch solid wood flooring. The end result is the traditional solid wood flooring end user—builders and contractors, in many cases—can now nail down an engineered floor in much the same way they would a solid product and still be able to sand and finish multiple times. The only difference, proponents argue, is the end user has a more dimensionally stable product with engineered.
This market shift bears out in the numbers. According to FCNews research, engineered wood floors represented 55% of the market—roughly the reversal of the breakout reported just seven years ago. Some industry experts put engineered’s share even higher. “Sales favored engineered hardwood to solid even more strongly in 2016 according to our research, putting the split at roughly 60/40,” Shaw Floors’ Hash said. The primary drivers for this, he noted, is the breadth of visual options in engineered as well as the growth in concrete slab construction in certain parts of the country.
Either way you slice it, many suppliers are investing more money in the production of engineered products to meet end-user needs. “We have built the largest sawn-faced plant in the United States, in Arkansas, and we’ve added a brand new cold press along with other new technologies,” said David Holt, senior vice president, Mohawk. These investments, he said, will support increased production of multi-ply product in a longer, wider format. “Much of the wood flooring market—with the exception of the Northeast—has moved to this new format. That’s where most of the growth has been—in engineered hardwood.”
The ongoing migration to engineered hardwood is reflected in the investments major manufacturers are making in the segment. Shaw Floors, for instance, completed the expansion of its hardwood flooring manufacturing facility in South Pittsburg, Tenn., specifically to meet the growing demand for its engineered hardwood flooring products. The $40 million investment adds more than 60% capacity to the existing hardwood manufacturing facility.
Mohawk and Shaw are not the only companies heavily investing in engineered production. Last summer Mullican Flooring announced plans to invest $15 million in equipment, buildings and working capital to expand its manufacturing operations via the acquisition of a 126,000-square-foot warehouse in Johnson City, Tenn. This latest expansion, which marks Mullican Flooring’s fourth major growth initiative in Johnson City during the past 16 years, will provide extra capacity as well as raw material and finished product storage space to meet increased manufacturing needs.
In that same vein, Wickham Hardwood has invested more than $7 million in a new, state-of-the-art engineered flooring line. The game plan over the mid to long term, according to Paul Rezuke, vice president, residential sales, USA, is to align its engineered offerings with its solid products.
The continued shift from solid to engineered is increasingly evident, experts say, especially as imports continue to take market share from domestic manufacturers. Brad Williams, vice president of sales and marketing for Boa-Franc, makers of the Mirage brand, cited several reasons why these thicker engineered products continue to increase their share. “With the builder market using wood subfloors, their goal is to make a flush transition with ceramic floors in the kitchen, bathroom, etc. As ceramic tiles trend larger and thicker, it’s a nice option to have the same in hardwood—wider and thicker. There is also the renovation market where flooring ripped out was ¾ inches thick. It makes for an easier renovation as the heights for doors and cabinetry were done based on ¾-inch thickness.”
Right in line with the swing from solid to engineered is the move to prefinished from unfinished (traditional hardwood flooring contractors being the primary exception). FCNews research shows the share of prefinished products grew to nearly 60% last year—up from just 54% the year prior. Looking back five years ago, the ratio of prefinished to unfinished was just the opposite.
The U.S. hardwood flooring market also saw a bit of a shift with respect to domestic production vs. imports. FCNews research showed imports from Canada rose slightly from 9% to 12% in 2016. At the same time, shipments from Brazil dropped from 5.6% in 2015 to just over 3% in 2016. Although China—which ships more engineered than solid product—still accounts for the bulk of imported hardwood flooring, its share also fell slightly year over year.
“If you look at engineered only, China accounts for more than 50% of the total sales in that category,” Mannington’s Natkin said. “No. 2 behind China would be Southeast Asia (Vietnam, Cambodia, Indonesia, etc.). South America has definitely declined from my early days in the category. At one time, there was a ton coming in from South America but not as much anymore. It’s more of a reflection of style trends as exotics have definitely cooled off quite a bit, although you can still find them. The visuals have definitely gone very euro-centric—a lot of white oak, domestic species being sold.”
The drop-off in imported exotics species has become more evident in recent years. FCNews research shows the collective share of exotic species from Brazil and other areas fell from about 8% of the market to just about half that number. The root causes, industry observers report, have more to do with the changing tastes of North American consumers than supply/demand or natural resource issues.
“The color trends shifted from reds to browns, and wider widths became much more popular,” said Bill Schollmeyer, CEO of Johnson Hardwood Floors. “Exotics became too expensive vs. domestic species and, for the most part, their colors and widths weren’t in sync with the trends. But I’m sure at some point they’ll come back into style.”
In particular, the trend toward more rustic looks—an aesthetic not usually associated with exotics—is playing a critical role in the shift. “Exotics tend to have a smoother texture and they typically feature higher gloss levels,” said John Himes, president and CEO of Wood Flooring International. “This has made the market for those floors much smaller than it had been, say, 10 or 15 years ago. And with so much migration to texture, scrapes, wire-brushes and larger bevels across the country, more and more people are going to the rustic products.”
Market shifts also occurred farther down the distribution channel. FCNews research showed floor covering stores increased their share slightly, growing to 36.6%. Sales attributed to the specialty hardwood flooring contractor also grew, rising from just over 24% in 2015 to 28% last year. Meanwhile, activity attributed to home centers fell slightly from 27.6% to just over 23%.
Some industry observers believe those ratios change slightly depending on how dealers are categorized. “If Lumber Liquidators and Floor & Décor are home centers, then that segment would be the largest,” Neil Poland, president of Mullican Flooring, explained. “Wood flooring contractors and specialty retailers would also cross over quite a lot; if you combine those two segments, that one might be your largest group.”
Others believe the market share attributed to home centers might be underrated.
“Home centers—direct online, etc.—probably only account for about 30-35% of the category,” Natkin said, adding that it’s almost the direct inverse of laminate. “I think that’s very much a function of the type of installation that goes on. Because hardwood floors are primarily professionally installed, people tend to go to specialty flooring retailers and hardwood flooring contractors for their hardwood choices.”
Another factor that has positively impacted U.S. hardwood flooring manufacturers is the continued stabilization of raw material costs. In 2013 and into 2014, skyrocketing lumber costs negatively impacted margins for many suppliers—including Canadian companies—and forced several market leaders to raise prices. But manufacturers report the raw material pricing stability they experienced in late 2015 has carried over into 2016.
On the whole, pricing seems to be stable, although several domestic suppliers agree that certain species—hickory, walnut and white oak, to name a few—are showing modest inflation. “There is great pricing stability at the moment,” Boa-Franc’s Williams said. “We believe the demand from overseas has softened with North American suppliers, which creates more of a need to supply the local market here in North America, so pricing is holding steady. At the same time, inventories throughout the pipeline are at good, balanced levels—which also contributes to stable prices.”
While hardwood suppliers are keeping a close eye on raw material costs, they are also watching the rising popularity of competing hard surface products, particularly those that are doing a much better job of replicating natural materials such as wood. WPC, LVT and, yes, laminate all fall into this category.
Wood suppliers agree some of their products could be ceding market share to these competitive categories. “For the first time in my career, I can definitively say some of these categories have taken share within certain segments from hardwood,” Natkin told FCNews.
Williams believes some wood products—especially those on the lower end of the price spectrum—have ceded some market share to competing categories, but he thinks that pressure is coming primarily from builder and residential renovation markets, which tend to be more cost conscious. On the whole, though, he has not seen any dramatic market share shift from a numbers point of view to substantiate and support this increase is coming at the expense of wood.
At the end of the day, many wood proponents believe wood will continue to command a significant share of the hard surface pie. “Wood will always be a part of the marketplace,” Mohawk’s Holt said. “I don’t care how much vinyl, laminate or carpet is introduced, Americans have a love affair with wood. Everybody is trying to emulate wood, whether it’s ceramic, laminate or vinyl. Americans have had wood on the floors since the pioneer days, and they are going to continue to have them when I’m long gone.”