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Wood: State of the industry—Key sectors fuel greater buying activity

April 15/22, 2019: Volume 34, Issue 23

By Reginald Tucker

 

Like other hard surface sectors facing intense competition from the likes of LVT/WPC/SPC, hardwood flooring also felt pressure in terms of both market share and profit margins. But thanks to strong end-use activity in 2018, the category continued to post respectable numbers despite the onslaught of so many wood look-alike products.

It’s not just the widely held belief that real hardwood remains the most aspirational product category today— although some ultra-high-end offerings are admittedly out of reach for many consumers. What’s also working in wood’s favor is the health of several key end-use market sectors.

“Hardwood flooring consumption is being driven primarily by a combination of single- family new construction and residential replacement,” said Michael Bell, COO of AHF Products, the former wood division of Armstrong Flooring that was purchased by American Industrial Partners (AIP) last year. “We have enjoyed steady overall growth for the past 10 years, but housing starts slowed a bit during the winter months, especially with the extreme weather conditions this year.”

AHF Products is not alone in its assessment of the market. Key bellwether sectors also drove hardwood sales at Mannington. “Residential replacement continues to be the primary driver of hardwood consumption,” said Dan Natkin, vice president of hardwood and laminate. “New construction would be the next biggest sector—primarily single family. At the core, consumers still have a desire for hardwood flooring. It is the only flooring type that has been proven to add value to the home.”

But within these end-use sectors, observers cite some product stratification. “In single family you’re still seeing less expensive wood,” said Adam Ward, senior director of wood and laminate, Mohawk. “At the same time, you’re definitely seeing more products such as rigid and LVT and even products like RevWood doing well in single family. But when you get into multifamily it’s a different story; carpet continues to do well there, although we have seen the desire of end users to switch to hard surface in that environment as well. When you look at the upper-end multifamily market, particularly in the major metro areas like New York, Chicago and San Francisco, we still see wood as a desirable option at that price point.”

Let’s not forget about non-residential applications. For some suppliers, this sector accounted for the greatest sales growth in terms of a percentage increase. “We have experienced growth across several major sectors, but I would say we’re much more involved in the commercial arena, especially with our engineered lines,” said Paul Rezuke, vice president, U.S. sales, Wickham Hardwood Flooring. “It’s still a predominantly solid market for us, but clearly engineered is gaining more market share every month.”

The commercial contract market is also driving sales at Boa-Franc, maker of the Mirage brand. In fact, according to Mario St-Pierre, the company’s director of marketing, it’s the second strongest sector behind single-family construction.

Another upside for those companies that do a healthy commercial business is the type of products generally specified for those segments often hit higher price points—and, thus, provide much better margins. “Entry-level products in the 3⁄8- to 1⁄2-inch thickness with a 2mm wear layer are driven, as always, by the new construction sector,” noted Mitch Tagle, founder and CEO of DuChâteau. “But as we move to higher-end specifications, we are seeing more style-driven projects hit the market, especially in the hospitality sector.”

Fierce competition

One of the factors that has put increasing pressure on the hardwood category and stolen market share in some end-use sectors is the competition from LVT/WPC products—many of which are designed to mimic not only the visual depth of genuine hardwood, but also the texture.

“There is no question that wood flooring—along with most floor covering categories—has been significantly impacted by the rise of waterproof products in the marketplace,” said Don Finkell, CEO and founder, American OEM.

Mannington’s Natkin agreed. “Without a doubt, these categories are exerting tremendous pressure on the lower end of the wood category. We have seen significant cannibalization within the category as vinyl- based products continue to take share. However, the mid to upper ends of the segment remain stronger and less prone to impact from the look-alike products.”

Companies like Wickham, which specializes in wood, are really feeling the heat. “There’s no doubt about it—WPC/LVT has gained market share, and some of our customers have looked at investing in some of those products,” Rezuke stated. “But we have been able to offset that impact with our growth in other areas where we haven’t had a presence—namely engineered.”

The onslaught of LVT/WPC reminds Rezuke of a time when laminate flooring was in its hey- day. “Everyone was predicting that category was going to replace hardwood,” he recalled. “Well, that hasn’t happened.”

Other major hardwood flooring suppliers are responding to the threat of LVT/WPC by coming out with their own rigid core products. American OEM is one of them. “For this reason we are introducing our Raintree product line, which is a real wood veneer on a waterproof SPC core,” Finkell explained. “We are also planning to introduce a water-resistant, six-surface coating system on our premium products at the NWFA convention in May. This enhancement will allow our traditional veneer core wood floors to be warranted for certain wet mopping maintenance systems. We think this is a significant improvement to most wood floor warranties offered today which disclaim any type of wet maintenance. This real wood floor will be warranted to withstand being totally submerged in water for up to 24 hours.”

Other suppliers, including Shaw Floors, are stepping into the hybrid arena as well. At Surfaces earlier this year, the company took the wraps off a water-resistant wood line, Repel Hardwood, as well as Floorté Hardwood, which is billed as waterproof. In addition, there’s COREtec Wood from its USFloors division. As Herb Upton, vice president of hard surfaces, explained, “On the Floorté hardwood side, it’s a traditional SPC core with a real wood veneer; on the COREtec side, we’re coming out with a mineral-based board core attached to a wood veneer top. We see this as the best of both worlds. You have the authenticity and beauty of real wood in these products, because it is real wood veneer available in multiple species and different finishing applications and other textures, but it’s on a core that is high performance that makes it waterproof and reliable.”

Those flooring companies that participate in multiple product categories believe the advent of LVT/WPC/SPC as well as so-called hybrid offerings has forced real hardwood to emphasize what makes it special and unique to the customers. “Hardwood at the upper end—I’m talking about the better, best and premium category—still remains a viable option because there’s less com- petition there,” Mohawk’s Ward said. “There’s a lot of new products in the hardwood category as well as others that are making it a dynamic market. At the end of the day we welcome the competition; it ultimately forces the stronger players to adapt and innovate, and it gives consumers more choices as well.”

Traditional hardwood flooring enthusiasts, however, are not budging. “Surely the LVT category has taken its toll on the wood market, but it doesn’t seem to be affecting our products as much as it is at the lower-end type products,” said Wade Bondrowski, director of U.S. sales, Mercier. “We are finding the real wood buyer is considering better goods and they understand the added value to their homes.”

Boa-Franc’s St-Pierre concurred, adding that it’s mostly lower-end, entry-level hardwood that’s feeling the pinch. And that’s not an area where Mirage plays. “For consumers who want to add value to their home, hardwood floor remains their preferred choice. It’s our responsibility to promote the benefits of hardwood over look-alike products.”

AHF Product’s Bell embraces a similar philosophy as a strictly hardwood flooring manufacturer. He believes hardwood consumption will remain strong due to the authenticity of natural products. “Hardwood flooring continues to be desired by homeowners as the ultimate complement to any design, style and taste, and is the flooring of choice because of its natural beauty, enduring quality, warmth and natural durability,” he explained. “This is an investment that lasts for years and offers timeless style.”

The benefits of real wood don’t end there, proponents say.

While a challenge comes from faux wood-look products, many argue there is nothing that can truly compete with genuine hardwood from either a visual, prestige or value equation. “It’s organic, natural and renewable,” Bell added. “What’s more, hardwood flooring comes from a natural resource that can be maintained and regrown—which is perfect for people who are sensitive to allergens. These sustainable factors cannot be overlooked and play a particularly important role with buyers.

“Simply put, at the end of the day, consumers really don’t want imposters; they want the real thing and we are innovating to bring them real hardwood that also addresses performance needs, such as resistance to moisture, dents, scratches and stains.”

Impact of hybrid products

As the hardwood flooring sector has evolved, the industry certainly is seeing more “hybrid” products emerge. For example, more suppliers are using real hardwood veneers (albeit much thinner ones) over traditional rigid cores, HDF cores and, now, magnesium-oxide based core boards. The jury remains mixed on whether these hybrid products negatively impact the viability of the hardwood flooring category with respect to traditional 3⁄4-inch solid and 3⁄8-inch (and thicker) engineered hardwood products.

For some it’s nothing new. “These types of products have been around for years,” Mannington’s Natkin said. “Originally on HDF cores and now evolving to vinyl or stone based. The latest twist is the marketing of products as waterproof—that claim is somewhat dubious and its impact has yet to be determined.”

Others don’t see hybrids as an immediate threat. “It hasn’t had an impact on our business,” Wickham’s Rezuke said “First of all, as a Canadian supplier, we have to manufacture to certain specifications so we can ship our real hardwood products into the U.S. What we are finding is more and more customers are interested in our 3⁄4-inch platforms with 4mm, 5.5mm and 6mm veneers.”

Others are taking a more cautious approach when it comes to hybrid products. As Mohawk’s Ward explained, “Products like this have the potential to be good; we’re obviously monitoring the products that are coming out and looking at how can we offer a superior option. While we don’t have one of those cores out yet, we want to make sure what we believe customers want in a hardwood is real, authentic product. And the visual of a real wood product is vastly superior to others and is valuable to the consumer who’s buying it. If we can marry that with some of the benefits—such as a water-resistant or waterproof option—that makes it all the more valuable to a certain subset of customers.”

Shaw Floors’ Upton expects to see greater acceptance of these types of products as the platforms commercialize and become more mainstream. “We’ve seen that in builder where they may have been initially hesitant or slow at some point to adopt WPC and SPC products, but now they are currently specifying those products. nationally.”

By and large, suppliers welcome the competition. “We think it is awesome that companies have been innovating with wood products, and we hope that we never stop trying to find the next great opportunity in wood flooring,” Mercier’s Bondrowski stated. But he offered this caveat: “I would ask, isn’t wood supposed to be a sustainable environmentally friendly floor that has the least adverse health effects with a true green footprint?”

Like Bondrowski, AHF Products’ Bell embraces the development and evolution of core structures. He believes this will ensure the hardwood customer has relevant options based on their particular needs. “It is our job to innovate and lead in the development of such products so we are considered as a dependable solution provider for our channel partners.”

DuChâteau’s Tagle follows that same logic—to a point. “There is certainly a market for new hybrid products; some consumers do get excited about advances in technology, and the idea of a low-cost, low-maintenance floor with real wood is appealing,” he explained. “However, at the higher end of the market, we believe there will continue to be a growing demand for engineered hardwood floors, since consumers love the depth, richness, durability and variation they provide.”

Raw materials pricing

Another factor that impacted the hardwood flooring sector last year—and briefly at the start of 2019—is the availability of popular wood species. “Definitely in 2018 we saw fluctuations especially in white oak,” Mohawk’s Ward said. “There continues to be a trend toward wider widths in natural white washed colors, and white oak works best for that. So, naturally, there’s a lot of competition for that species. The fluctuations that we saw in 2018 have moderated so far in 2019. We haven’t really seen prices come down a lot, but at the same time you’re not seeing a lot of variation in price. We’re just now starting to get into the logging season so we’ll see how that goes. But so far we’re seeing pretty steady pricing.”

Some suppliers are still feeling the sting from last year’s fluctuations. In 2018 Shaw announced an increase on solid hardwoods. While lumber prices have modestly fallen since then, it’s all relative compared to the fluctuations experienced during the first half of 2018, according to Upton. “Prices have leveled off somewhat, but you have to remember we’re coming off a pretty high peak. Then you have the usual supply and demand issue when you have bad weather and you can’t pull trees out of the forest.”

Another issue impacting pricing is the capacity generated by the major sawmills, Upton added. Combined with demand from the other users of wood—such as mat timbers and other businesses that use lumber for industrial purposes—this can cause major disruptions in the supply chain.

For now, though, things seem to have normalized. “We can take a half of breath now compared to what it was this time last year,” Upton stated. “But it’s certainly not what it was 24 months ago.”

So much depends of where manufacturers source their lumber. For example, Mercier has seen prices on red oak and maple stabilize in recent months. But that’s not the case for AHF Products. “We have seen increases in all species, with red oak being the most volatile,” Bell explained. “We have also experienced significant inflation in freight and packaging costs.”

Tariffs take a toll

Beyond raw material price fluctuations, suppliers had to con- tend with the fallout from another issue: newly imposed tariffs on hardwood flooring imports from China. “The tariffs/duties are creating a lot of uncertainty for many manufacturers’ forecasts for 2019,” AHF Products’ Bell said. “The political and economic tensions between the U.S. and China have heightened the need to diversify the supply chain and reduce dependence on hard- wood products from China.”

Even those companies that don’t import directly from China were nonetheless impacted by the repercussions. “For us the imposition of tariffs has been a negative because all of our customers import competitive products affected by duties and tariffs,” American OEM’s Finkell said. “As a result, there has been significant hoarding to beat the imposition of tariffs, which has squeezed available cash supply to buy our products.”

DuChâteau’s Tagle is seeing the same. “We have noticed an increase in prices to the trade, even on products not finished or sourced from regions affected by the tariffs. Many U.S. suppliers have also ramped up their inventory to beat tariff deadlines in an effort to insulate their dealers as much as possible. The good news for the industry is the trade issue seems to be moving toward a resolution.”