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Laminate: End-use activity shifts amidst sales, volume declines

June 26-July 2, 2018: Volume 34, Issue 1

 

By Reginald Tucker

 

A palpable shift in import shipments, combined with the loss of significant domestic capacity when one major supplier shuttered its U.S. laminate operations, led to a simultaneous dip in both category sales and volume for the first time in many years. FCNewsresearch shows sales of laminate in the U.S. fell to $1.123 billion, a falloff of 2.7% compared to 2016. Volume shipped also decreased in 2017—albeit at a slower rate—as square footage at the first point of distribution hit an estimated 1.034 billion square feet, down 1.9% compared to 2016.

That would put would laminate sales at their lowest level since 2013—when sales reached just over $1.12 billion before rising each year for three consecutive years—and volume at its lowest point since 2011, when shipments totaled 1.02 billion square feet. The contrast is even more stark when comparing last year’s activity to laminate’s performance 10 years ago; at that time, U.S. sales hit $1.169 billion, with volume reaching roughly 970 million square feet.

Dan Natkin, vice president, hardwood and laminates at Mannington, and president of the North American Laminate Flooring Association (NALFA), concurs that U.S. laminate flooring sales were down about 2%-3% in 2017. But that doesn’t mean the category is down for the count. (In fact, Mannington’s top-selling laminate line was up by double digits last year.) “At the end of the day, it’s still a $1 billion product category,” he said. “We are forecasting 2018 will be a growth year for laminate.”

As of now, though, the laminate category has its hands full trying to fend off pressure from competing hard surface segments. In 2017, laminate represented 5.1% of total flooring sales and 10.6% of hard surface consumption. That’s down markedly from 2012, for example, when laminate flooring represented roughly 17% of all hard surface sales and a little over 15% in terms of volume. Meanwhile, competing products such as resilient and ceramic tile grew their shares of the hard surface market to 37.8% and 13.3%, respectively, in 2017.

While laminate has been facing some stiff competition, particularly from LVT, WPC and hardwood, not everyone believes the category lost as much share as has been reported. “Our research shows laminate was up about 1% to 2% in 2017,” said Roger Farabee, senior vice president, laminate and hardwood, Mohawk Industries. Meanwhile, Swiss Krono’s 2017 estimates put the laminate market around 1.3 billion square feet and about $1.3 billion in sales—a level that category has not seen since its heydays in the U.S. market some 20 years ago. Others still are split with respect to sales/volume activity within the category. Drew Hash, vice president, hard surface product category manager, Shaw Floors, estimates the segment was down in terms of overall square footage shipped in 2017 but up in revenues.

Nonetheless, suppliers are still bullish on the category’s prospects. “Most laminate companies would probably
say their mix of better-end goods has improved throughout 2017, and that trend should continue this year,” Hash told FCNews. “From our perspective, we
still believe—now that we have a model where we can truly take the most innovative products anywhere in
the world and put them through our systems with
our salesforce and service—
that it will be a growing part
of our business.”

Proponents of the category—particularly those companies that continue to invest in new technologies and innovations in support of the segment—attest to laminate’s viability. “The laminate flooring industry is in a good place,” said Derek Welbourn, CEO, Inhaus. “It continues to enhance its core value proposition, which is a great looking floor at a leading price point that won’t let you down on performance. We see continued evolution in terms of design and features that are creating some amazing looks and furthering the value proposition of laminate.”

Other industry executives agree wholeheartedly. “It’s a wood product with the look and feel of solid hardwood but with less maintenance and more durability,” said Travis Bass, executive vice president, Swiss Krono. “It’s easier to install and offers a much healthier, sustainable environmental impact than many competing products.”

Part of that optimism, observers say, comes from evidence showing a continued shift in consumption by end-use channels. For example, in 2012, the new home construction market accounted for roughly 6.3% of laminate sales. But that has changed as more major home builders embrace the product category. FCNews research shows new residential construction accounted for 10% of sales, while the residential replacement sector maintained its share of nearly 88% of sales—consistent with its stake in 2012. Where the category has seen the biggest drop-off consumption-wise, however, is the commercial market. Estimated at 2.5% of category sales in 2012, laminate represented less than 0.2% of specified commercial in 2017. However, the Main Street market, which hasn’t moved the needle above 2.5% of sales since 2012, still seems to be popular among barber shops, boutiques and stores of that ilk.

“Laminate flooring has always been strongest in residential replacement, and this continued in 2017,” Inhaus’ Welbourn said. “We feel there has been an increase in new construction thanks to better designs.” But it’s the new home construction market where suppliers see the greatest potential. “We see a rapidly growing acceptance of laminate here,” Mannington’s Natkin said. In fact, he believes this sector may have accounted for as much as 15% of laminate sales last year. “Laminates have begun to take the place of entry-level hardwood in this sector.”

Changing channel dynamics
Just as end-use activity has changed in recent years, so has the sales activity as defined by distribution channel. FCNews research shows the specialty retail sector accounts for roughly one-third of category sales. What’s more, observers say, many of the laminate flooring products sold at this channel represent thicker, higher-margin items not typically sold at the average home center or mass merchant. Some observers feel specialty retail’s share was a bit higher than that. “We feel it might be as high as about 35%-36% given the growth in new home construction,” Natkin told FCNews.

Despite this optimism, however, the fact remains home centers and mass merchants still account for the bulk of laminate flooring sales. FCNews research shows Home Depot and Lowe’s increased their share of laminate sales to the tune of a combined 46%, up from 42% in 2017. That’s in keeping the big-box giants’ market share of laminate sales reported in 2012. Meanwhile, warehouse clubs, home décor outlets and the like accounted for roughly 10% of sales, down a few percentage points from 2016.

When it comes to actual profit margins, however, specialty retailers stand to emerge as the biggest beneficiaries. A cursory review of national home center laminate flooring pricing finds much of the products advertised target the $1.99-2.49 range, while many specialty retailers and buying group dealers concentrate on the mid-to-upper end of the price spectrum (those products retailing in the $3.49-$4.99 realm).

Price pressure from competing categories such as WPC, LVT and SPC, along with aggressive advertising promotions driving some of these categories, is also impacting how the traditional laminate customer views the product. “There is no doubt these hot categories have stolen growth from the laminate cate- gory and others,” Inhaus’ Welbourn stated. “However, laminate is in a much better cost position than these plastic- based categories, and it is able to deliver some of the best value in the flooring business. This fact, along with continued innovation in the laminate category, has kept it competitive.”

As consumer preferences shift toward more hard surfaces being incorporated into the home, resilient flooring has seen an uptick in market share. The challenge for laminate flooring manufacturers, executives say, lies in improving upon water-resistant technology. This was evidenced by the various performance demonstrations conducted at Surfaces 2018. Proponents say it is only fitting given the innovations that originally inspired the creation of the laminate sector. Suppliers say enhancing these features certainly has created greater value for laminate flooring. “Additional focus on design continues in laminate with further enhanced textures and high-definition printing contributing to creating the best designs the laminate category has ever been able to offer,” Welbourn added.

Many concede that laminate—much like other flooring products—has lost some market share to WPC/rigid core (roughly $950 million in sales last year). But from the consumer’s perspective, suppliers believe laminate is still a viable product that’s relatively inexpensive and offers several key attributes end users are looking for—realistic-looking patterns and design with proven performance.

Imports vs. exports
The changing import vs. domestic production dynamic is palpable—so much so that many industry observers are seeing almost a complete reversal with respect to the traditional laminate product mix. While FCNews research showed the share of domestic production of laminate rising from 60% to 64% in 2016 (compared to imports’ market share decline from 41% to 36%), some believe that ratio is even more lopsided.

“The ratio appears to be shifting in favor of domestically produced laminate due to the increase in capacity that came online in 2017,” Shaw Floors’ Hash said. “We estimate closer to a 70/30 split between domestic and imported laminate, respectively, as domestic capacity continues to increase.”

Swiss Krono’s Bass has the domestic/import split closer to 60/40, respectively. But even he’s in agreement that German producers increased their share the past year. “I believe Europe’s share shifted from 14% to 19% while China’s share of the overall pie fell by double digits.”

To some industry experts, the dramatic drop in imports from China reflects a paradigm shift. “What we’re seeing is a preference for European and domestic supply,” Welbourn said. “As the domestic suppliers add capacity, the volume of imports will go down and the ratio of import vs. domestic will be reduced.”

Not everyone, however, believes the full impact of all this additional capacity is being felt at present. Some industry experts feel the biggest ripples are yet to come. “It really hasn’t had an impact yet because most of that new capacity has not yet come online,” Mohawk’s Farabee told FCNews. “We’re certainly seeing companies putting more capacity in the U.S., going after all the big- box customers in particular. This will continue as that capacity comes online.”

In some cases, this new capacity simply displaces product that had previously been made in Europe by those same companies that are now producing domestically, observers said. This phenomenon will likely put pressure on the remaining producers both in the U.S. and in Europe to be able to compete not only on price but also in terms of product performance and visuals. “It will be interesting to watch because there’s a lot of new capacity coming online in a category that’s not really growing,” Farabee said “However, we do expect some price pressure.”

The road ahead
In spite of the challenges facing the laminate sector, manufacturers believe laminates have a place in the market. “In some cases, we’ve lost sight of what makes laminate great—phenomenal realism, all bio-based, superior indentation and scratch resistance, and the fact the vast majority is made in the USA,” Natkin said. “Most laminate is significantly moisture resistant as well with multiple manufacturers developing new technologies to make the product nearly impervious to liquids.”

Natkin is not alone. “We see continued growth for the laminate category at a pace between 2% and 5% in 2018,” Welbourn said. “We estimate as a whole will have a higher rate of growth as the housing sector continues to recover.”

While the laminate flooring category has certainly ceded some market share, the fact remains it is still a viable option since its official entry into the U.S. marketplace more than 20 years ago. “As manufacturers, it’s our job to remind people of the incredible benefits laminate flooring offers,” Mohawk’s Farabee pointed out. “It’s a wood-based product; it’s the most durable hard surface product outside of ceramic; it’s the easiest to install; it’s the most cost-effective product on an installed basis; and it offers the most realistic visuals of any replica product on the market.”

Barron Frith, president, CFL North America, maker of the Atroguard brand of laminate, concurs. “The bulletproof reputation has proven to be a big positive for us since we launched Atroguard more than four years ago. Today, many large players are getting into the game and pushing these products to their distributors. We believe the combined marketing power of the big players has already started bringing much attention to the category, and we would not be surprised to see a slightly stronger growth for the category in 2018.”