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Wood: State of the industry—Builder business, remodel sector propel category

April 2/9, 2018: Volume 33, Issue 21

By Reginald Tucker

 

Preliminary anecdotal information shows the hardwood flooring category grew between 3% and 4% in 2017, placing the estimated value of the category just north of $2.31 billion at the first point of distribution. That growth, manufacturer executives say, puts the category on par with the estimated growth of the industry as a whole but slightly above the total gross domestic product for the year.

In terms of volume, that growth estimate equates to roughly 930 million square feet, lifting the hardwood flooring category ever closer to the 1 billion-square-foot threshold.

Ask a roomful of hardwood flooring manufacturer executives to identify the root cause of this growth, and many will point to the strength of key end-use sectors here in the U.S. market.

“Single-family construction and residential replacement continue to be the core drivers of demand for hardwood,” said Dan Natkin, vice president, wood and laminates, Mannington.

Natalie Cady, hardwood category manager, Shaw Floors, agrees, citing consumption trends and demographic shifts. “Residential is driving the market, and for Shaw that means both single family and residential re-do. And as our single-family business grows, it has that wonderful trickle-down effect.”

By that, Cady means more people are able to get into a new home while sellers have been able to get better market value on their existing properties. As for the former, she is finding that many people strongly aspire to real hardwood and wood lookalikes. She also sees a direct correlation to influential purchasing segments. “Millennials want wood, and they are the No. 1 consumer right now. At the same time, the empty nesters are downsizing and finding they can afford hardwood flooring.”

But that doesn’t imply that it’s going to be smooth sailing. “For us, the driving factor is still the housing market,” said Wade Bondrowski, director of sales, U.S., Mercier Wood Flooring. “Although this segment is trending up, we are still below normal levels.”

Other executives are seeing hardwood growth across virtually all end-use sectors, including commercial specified and Main Street applications. “We think it is all of the above,” said Michael Bell, vice president, hardwood, Armstrong Flooring. “A more stable economic environment continues to steer the hardwood segment on a course of steady growth, with increases in demand in both the new construction and remodeling markets. We also see hardwood opportunities in the commercial marketplace.”

But that doesn’t mean all segments within the hardwood flooring category are growing at the same pace. When it comes to solid vs. engineered, for example—or even between subcategories within the engineered flooring offering—activity can be quite mixed. “While the wood category grew by low single digits in 2017, the growth rates were different between solid and engineered, with solids declining in overall volume and engineered growing by mid-single digits,” Mannington’s Natkin said.

It’s not that the solid segment of the hardwood flooring business is no longer an in-demand category. Truth be told, it still is preferred by many customers, home builders and designers in markets like the Northeast and Pacific Northwest. Rather, experts say, the rapid development and evolution of products that fall under the category of engineered floors is opening up opportunities even in hardcore solid markets.

“There’s never been more changes taking place in the wood flooring segment than what we’re seeing before our eyes right now,” Tom Lape, president, Mohawk Residential, told FCNews. “The biggest trend we’re seeing in the wood flooring segment today is a blurring of the lines within the product categories. For example, we’re clearly seeing many customers, dealers and consumers moving away from solid at a rate that has been running unabated for five years running and continues to accelerate. We see the engineered category evolving right in front of our eyes from what was historically a 5-ply construction format to an HDF product solution.”

Mohawk is so convinced that engineered wood flooring products based on an HDF core are quickly overtaking conventional, multi-ply hardwood flooring options that it is banking on wholesale consumer and end-user acceptance of the emerging format.

“When you see high-end custom builders and high-end production builders in the Northeast and Pacific Northwest coming off solid, it is eye-opening,” Lape said. “That’s not to say that people living out in the Hamptons are buying engineered. Solids are not going away, but where there is a reasonable trade off of in terms of cost, value, etc., I think you’re seeing the market accelerate the move to engineered.”

And all this plays to Mohawk’s strengths, according to Lape. “We try to focus on our game, which is leveraging our position as a true, integrated and vertical HDF engineered wood producer. Making all our own HDF internally gives us an advantage in terms of consistency and uniformity of the product. Second, we produce all those products here in North America, which gives us an advantage in terms of supply chain and reliability.”

For others, the continued migration from solid to engineered doesn’t necessarily spell the end of a category. While engineered floors offer opportunity for design innovation combined with installation flexibility, solids still have their place.

As Armstrong’s Bell explained: “The dynamics are different in solid vs. engineered. In engineered, we see much of the growth occurring on the bookends of the market with significant increases in the opening price point/value engineered products and the best/premium sliced- and sawn-face engineered products. Solid is similarly seeing increased activity on the best/premium side of the market.”

Innovation, Bell added, continues to happen across both structures. “While there is significant activity in engineered floors, we also see that solid wood flooring remains the go-to product in certain parts of the country and for key consumer segments.”

While it is generally accepted that consumer tastes differ by region and/or climate, some point to inherent limitations of solid products as an impediment to acceptance beyond the core solid markets. “With the demand and overall trend moving toward longer and wider, there are limitations you have with solids that are not there with engineered,” Shaw Floors’ Cady said, citing the tendency of solid floors to expand and contract more easily than engineered. “Having the ability to go longer/wider will help people move more toward engineered. Plus, with single-family home construction on the rise, that represents an increase in concrete slab construction—and that lends itself to engineered. At the end of the day, we believe the solid market—which includes both finished and unfinished product—is steady, not actually shrinking.”

With consumers continuing to ride the longer/wider wave, suppliers remain committed to giving them more of what they’re looking for. “The good story is the industry is not sitting still; we’re giving consumers more of what they want—wider and longer,” Mohawk’s Lape explained. “We’re selling planks up to 80 inches long and 9 inches wide, and we’re making better-performing products for contractors, retailers as well as consumers.”

While all this continues to play out, suppliers continue to fortify—and diversify—their product mix to ensure they have all the bases covered.

Over the past 18 months, for example, Quebec-based Wickham Hardwood introduced several new engineered offerings designed to complement its solid hardwood collections. According to Paul Rezuke, vice president residential sales, U.S., the breakdown seems to follow along geographic lines. “As part of our engineered strategy, we targeted two platforms based on a ½- and a ¾-inch format. We initially envisioned that the ½-inch product would be most suited for the U.S. market and the ¾-inch line for our Canadian business partners. What we are seeing is the demand in the U.S. market for a thicker platform appears to be on the rise. With this demand, we are projecting a significant demand for ¾-inch platform engineered products in our U.S. footprint.”

Tracking design trends

The shift in product preference within the hardwood flooring segment is not limited to the product’s core construction. Industry observers are also keeping a close eye on changing consumer tastes relative to color, species, surface texture and even board length and width. For many suppliers, staying ahead of consumer trends and anticipating what’s going to be the next big thing is akin to shooting after a moving target.

“The key is making sure we stay out in front in terms of styling and design,” Shaw Floors’ Cady said. “We’re still seeing the move toward longer, wider planks, but we are also seeing a move toward more traditional visuals. Instead of going into the European wide-oak visuals, we’re going back to basics by focusing on the natural characteristics of hardwood—meaning showcasing less texture and lighter colors so consumers can see the actual wood, not covering it up with dark stains.”

At the other end of the spectrum, some suppliers are seeing a mild resurgence in demand not for domestic species—which had been rising in popularity—but for exotic looks. With anecdotal information and consumer purchasing trends showing shoppers gravitating more toward home-grown species such as walnut, hickory and birch, to name a few, others—including companies like Ribadao Wood Boutique—say there’s still a viable market for imported product.

“We’re still very bullish on exotics, although it’s just one line that we offer,” Bruce Hammer, vice president of sales, said. “It’s true the U.S. market is nowhere near what it was for exotics about 10 years ago, but that doesn’t mean there’s no opportunity for us. We consider our products to be more ‘boutique’ offerings. It’s still a viable product line for us to be offering.”

Ongoing challenges

Hardwood flooring has long been linked to its ability to contribute to rising home values, and it remains—as suppliers argue—the product that many homeowners covet. But aggressive competition from competing “wood-look” visuals available with LVT, WPC, laminate and, now, ceramic is a cause for concern.

“The growth of wood-look products such as WPC is an issue,” Mannington’s Natkin said. “While cannibalization is minimal for the consumer who really desires hardwood, there is conversion for consumers who are not sure what product is right for them.”

Armstrong’s Bell is in agreement, adding that—with the exception of tile— most of these products cost less than real hardwood. Also at play, he said, is the fact that the quality of the visuals and textures has evolved so much that many consumers feel comfortable using these faux wood products instead of the real thing. “However, there is nothing that can truly compete with genuine hardwood from either a look or value equation. It is a great long-term investment and can actually become a strong resale argument, exceeding the initial installation cost of the floors. And, it’s organic, natural and renewable, and, of course, since it is natural, has less pattern repeat.”

Traditional, hardwood-only suppliers seem to be taking it in stride. As Wickham’s Rezuke explained, “Currently, WPC appears to be the category of the month. We’ve experienced this in the past with both laminate and LVT.  Our position remains that there will be new products that will present challenges. But in the long run, hardwood will always maintain a significant market share in the flooring industry.”

Those companies that supply the full range of competing hard surface materials believe all products can successfully coexist. But that doesn’t mean equal market share for all product segments.

“It’s an ongoing conversation with all flooring suppliers and it comes down to having products to fulfill consumer needs and wants, Shaw Floors’ Cady said.

But wood’s classification as a natural product also subjects the category to price fluctuations due to rising raw material costs. “We are seeing some upward pressure in raw material pricing,” Mannington’s Natkin said. “Certain regions are more dramatic than others.”

Armstrong, one of the suppliers to pass on increases to its customers earlier this month, also attributes the hikes to rising natural gas and electricity prices—all of which impact costs to power the plants. Bell doesn’t see any let-up in sight. “We expect this cost pressure to continue throughout 2018.”

Despite these challenges, suppliers are optimistic about the category’s prospects in 2018. “We predict the overall hardwood category will have a moderate growth rate of 3%-5% this year,” said Brad Williams, vice president of sales and marketing for Boa-Franc, maker of the Mirage brand. “We feel our greatest opportunity continues to be within our existing network. We will continue try to understand our customers’ needs and focus on creating opportunities for them.”

Don Finkell, president and CEO, American OEM, is confident the category will grow by at least 6% this year, surpassing the rate of growth achieved in 2017. The prospects look even better from an internal standpoint, he noted. “I expect our company to more than double that growth rate at about 12% to 15%. “We are adding new products for our existing distributors, building on our private-label programs and developing coverage of our new Hearthwood brand. Plus, we will be adding more domestically made products to our Hemisphere brand.”