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Tariff update: Suppliers, distributors counter with price hikes

May 27/June 3, 2019: Volume 34, Issue 25

By Ken Ryan

 

Flooring manufacturers and distributors wasted little time in responding to the additional 15% hike in tariffs to 25% on Chinese goods, announcing their own increases on a wide range of products ranging from LVT and ceramic tile to laminate and engineered wood flooring.

Suppliers and distributors sent out letters to their retail customers outlining the terms of the price increases, with most ranging in the 7% to 15% range. For example, on the residential side, Shaw and Mannington increased prices 8%, which retailer Steve Weisberg of Allentown, Pa.-based Crest Flooring felt “was fair” in light of the overall tariff increase.

Mohawk said it plans to raise prices on goods made in China on orders placed as of June 1 and shipments as of June 24. However, the company did not disclose which products would be impacted in its letter to customers. Tarkett implemented a 10% surcharge on all imported Chinese products impacted by the tariff. Tarkett’s increase applies to several of its LVT collections.

Armstrong Flooring announced several steps related to the increase in tariff, including an 8% increase on select sourced LVT products to offset the tariffs. At the same time, Armstrong emphasized its wide range of domestically manufactured flooring, including LVT; VCT; PVC-free, bio-based tile; engineered tile; and vinyl sheet.

In a letter to customers, Romeoville, Ill.-based FlorStar Sales, a top 20 distributor, said it was working with vendors to “mitigate the impact of the past and forthcoming tariffs, by both expanding our non-Chinese sourcing options as well as developing new ones.”

Hikes hit home
The tariffs have already hit the homebuilding industry, adding $1 billion to the costs of U.S. housing construction, according to the National Association of Home Builders (NAHB). That figure could jump to $2.5 billion with the latest hike in tariffs by the Trump administration, the trade group said.

By NAHB’s estimates, as much as $10 billion in goods imported from China are used in homebuilding. So far, materials affected by the U.S. tariffs on Chinese imports include granite, cement, vinyl flooring, waferboard, ceramic tile and stainless steel, the builders group said. Robert Dietz, the group’s chief economist, predicted the rising cost in materials “will be borne by home buyers, renters and remodeling homeowners” in the form of higher prices.

While most hard surfaces will be impacted by the tariff increase, luxury vinyl (LVT/WPC/SPC) is regarded as the most vulnerable, with some retailers believing it might sway consumers away from flooring’s hottest category. “Another 20 cents or 30 cents or more on LVP—which, after all is just plastic (although the visuals are terrific)—will give way to domestic manufacturers of hardwood and laminate,” Olga Robertson, president of FCA Network, told FCNews. “Mohawk, for example, has an engineered hardwood called Canyon Lodge in a hickory species around $2.60 a square foot, and it’s real wood. Shaw has a waterproof line of hardwood called Exquisite that’s under $4 a square foot. Some of the enhanced LVP and tile visuals will cost more. Given a choice of real wood or vinyl that looks like wood, the consumer will choose hardwood. Don’t get me wrong—LVP is a hot category and continues to grow. But if I were a flooring retailer today, and wanted to separate myself from the competition, how would I do that?”

Vinyl is far from the only product being impacted. Ceramic, porcelain, natural stone, glass and installation supplies used by the ceramic category are earmarked for tariff increases. In response, The Coalition for Fair Trade in Ceramic Tile filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission seeking antidumping and countervailing duties on imports of ceramic tile products from China. The Coalition consists of U.S. ceramic tile producers such as Florida Tile, Crossville, Florim USA, Dal-Tile, Del Conca USA and StonePeak Ceramics—all members of the Tile Council of North America.

In another move, a broad representation of North American-based importers, distributors, retailers and design professionals formed the Ceramic Tile Alliance (CTA), which is strongly opposed to the tariffs. The group believes tariffs jeopardize the long-term health and growth of the entire ceramic tile industry.

Flooring retailers FCNews contacted say they have little choice but to raise prices on products affected by the latest round of tariffs. Some believe the price increase of 25% from a year ago will not hurt sales appreciably because flooring is such an infrequent purchase and many homeowners are not price conscious.

“In my opinion, the normal walk-in consumer who has not bought flooring in seven years will never know the difference, and so the tariff will have no effect on the sale,” said Jon Dauenhauer, co-owner of Carpet World Bismarck, based in North Dakota. “The builder or customer who has been programmed at a certain price will see and feel the difference in their pocketbooks. I think many builders are used to the rising costs from lumber, sheetrock, plumbing, electrical, flooring, etc. Many have to make the choice to use cheaper products and offer the same pricing or raise the cost of that home. Either way, it is a lot of work for everyone involved.”

Other industry observers say the tariff will influence those consumers who already started the shopping process. “In that scenario it will affect their buying decision,” said Pat Theis, vice president of sales and marketing for Herregan Distributors, Eagan, Minn. “They may trade down, delay or cancel their project. It will not really change shopping behavior of consumers who start the shopping process after the tariff—although their money will not go as far. The average selling price will go up, but will it be enough to offset the headwinds created by higher prices?”

Unintended consequences
Between the initial 10% tariff in 2018 and the 15% increase last month, China’s currency—the yuan—has depreciated to levels not seen in a decade. Experts suggest currency depreciation could help China by canceling out—or at least minimizing—the impact of the new U.S. tariffs and keeping its exports affordable in America. Nick Freadreacea, president of Louisville, Ky.-based The Flooring Gallery, said there is an abundance of product at a lower cost today than when the first increases went into effect. “Realistically, some items should really not increase much at this point,” he explained. “My guess is there will be some profit taking during this round and some U.S. manufacturers will increase their cost to take some additional profit as well. I believe it will be several months before all of this shakes out.”

For many executives the biggest fear is that of the unknown. Experts say these tariffs, fueled by the ongoing trade war between the world’s two biggest economies, make for uncertain times. Executives are asking themselves questions like, “Will these tariffs be rescinded at some point?” “Will successful upper-end products be priced out of the market?”

For Michael Martin, president and CEO of the National Wood Flooring Association (NWFA), market uncertainty has already become an issue. “NWFA supports a level playing field, no matter where the products originate,” he explained. “Unfortunately, the uncertainty about the tariffs has already impacted the market as suppliers have been extremely cautious about purchases. Volume has been significantly impacted.”

Martin added the industry is already experiencing supply issues, with exports to China down significantly from this time last year. “The additional tariffs will have an even greater impact in the months to come,” he stated.

While unease is certainly a common feeling shared by flooring executives, there are some industry veterans who believe the current tariff situation won’t be so draconian. Hoy Lanning, CEO of Haines, the industry’s largest distributor, presented this scenario: If a $2 per-square-foot product is now $2.50 per square foot, 50 cents on a 200 square-foot room translates to a $100 increase—$400 vs. $500. “I don’t think this will stop the sale,” he said. “Also, more products will be imported from other countries—including South Korea, Cambodia and Vietnam—or sales for U.S. factories.”

At the end of the day, Lanning does not believe the tariffs will keep consumers from buying floors. “I feel [the trade conflict] is a negotiation that we needed to eventually have,” he stated. “I think it will work out for the U.S. in the end.”