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Resilient: State of the industry—Category thrives despite tariffs, oversaturation

August 19/26, 2019: Volume 35, Issue 5

By Lindsay Baillie

 

Riding the coattails of a robust 2018, the resilient category saw steady growth in the first six months of this year. This, most industry executives say, is the result of multi-layer flooring’s continued popularity across practically all sectors. As this focus on WPC and other rigid products is expected to continue, executives say the category should finish 2019 just as strong as it did last year.

Despite the category’s expected overall growth, some executives believe the resilient category saw a softer first quarter than anticipated at the beginning of 2019. “This was driven by a decrease in retail sales due to a softer economy than in 2018,” said Nate Hohenstein, director of strategic accounts, Novalis Innovative Flooring. “Beginning in March 2019 the demand for resilient flooring—specifically LVT—has steadily increased, leading to growth year over year through July 2019.”

Kurt Denman, chief marketing officer and executive vice president of sales, Congoleum, agreed the category has continued a nice recovery each month since the first quarter. “You could see it wasn’t just the flooring category that was sluggish,” he noted. “It was across the building and remodeling segments overall. First, there were the new tax laws. Second, there continues to be an uncertainty around tariffs and, more broadly, an uncertainty around global trade partnerships and the health of the economy. When consumers and investors are concerned, they hold on to their money.”

As consumers begin to loosen their grip, executives are seeing growth across their entire portfolio of resilient product. Forbo, for example, has seen “good growth” residentially in resilient sheet and tile, according to Tim Donahue, residential national sales manager.

At Beauflor, growth is being dominated by the company’s LVT/P rigid core collections. “Despite a competitive marketplace, we have been able to build product stories based on the style and design, performance and pricing of our products to gain market share,” said Nick Brown, vice president of sales, North America. “Our sheet vinyl roll products have also seen positive sales growth this year.”

One of the reasons for resilient’s continued success, executives say, is consumers are still drawn to the benefits of LVT—such as being waterproof, family friendly and durable—over other flooring options. “Certainly, the popularity of rigid core/WPC/SPC has contributed to this,” said Bill Anderson, chief executive officer, Karndean Designflooring. “However, we are continuing to see growth in all three of our LVT product categories—glue-down, loose lay and rigid core.”

Newer product technology is also helping to keep resilient products at the helm. As Ed Sanchez, vice president, product management, Mohawk Industries, explained, “We continue to see growth as we have in the previous few years. Part of that is a result of the ongoing improvement in technology that we’ve seen in resilient—improved realism, comfort and performance in scratch, stain and dent like we did with our Pergo Extreme program.”

In addition to LVT’s waterproof qualities and durability, its visuals—which are now being revamped thanks to newer technology—are capturing consumers’ eyes. “Consumers have higher expectations than ever from their floors, and resilient is able to meet or exceed those expectations across the board,” said Herb Upton, vice president hard surface, Shaw Floors. “This category offers a wide variety of visuals, all with an incredibly realistic look and feel, featuring waterproof and water-resistant performance, as well as scuff- and dent-resistance and ease of install. Each of our brands in the resilient space—Shaw Floors, COREtec and Philadelphia Commercial—have continued to broaden capabilities, launching new products with even more performance attributes and realistic visuals.”

Suppliers by and large cite improved durability, stability and imaging technology as the category’s primary drivers. “We continue to expand our business across channels and are seeing strong growth among dealers and the commercial sector,” said Alex Brodkin, senior manager, product management and innovation, Cali Brands. “Cali also continues to implement new manufacturing innovations, allowing us to plan a steady schedule of product launches.”

Attractive features and product attributes are not the only reasons behind the growth. Deb Lechner, vice president, marketing, Armstrong Flooring, believes part of resilient’s growth in the first half of 2019 can be attributed to another factor, namely “the need to work off inventory that had been built up at the end of 2018 in anticipation of higher tariffs on flooring imported from China.”

Tariff talk
The talk and implementation of the additional 15% tariff (bringing the original 10% to now 25%) certainly caused a stir in the flooring industry, with resilient manufacturers feeling the pressure to minimize its impact. However, just how much the 25% tariff has affected the category/consumers is up for debate.

“Tariffs will force pricing up on imported LVT products,” said Dick Quinlan, senior vice president of sales and marketing, Wellmade Performance Flooring. “This may delay consumer purchases to some degree. Even at higher prices, LVT offers a great value to the consumer, so sales are expected to continue to grow throughout the category.”

Jimmy Tuley, residential resilient business, Mannington Mills, said the first tariff was relatively transparent to the consumer. However, he believes the second tariff will cause consumers to notice price increases. “The second tariff has probably provided some emphasis on other product categories such as U.S.- and European-produced laminates,” he explained. “I think the second tariff has probably caused some behavioral changes, but I don't think it’s a major shift. I still believe the value LVT, SPC and WPC products bring to the market can command a higher price.”

While industry executives are mixed on the kind of impact the tariffs could have in the near future, manufacturers with domestic facilities as well as those with plants in other eastern countries are seeing an uptick in demand. “We have continued to see double-digit increases in resilient sales,” said Tommy Junker, LVF business unity manager, EarthWerks. “We attribute this growth to the popularity of the rigid category at retail but also to our non-Chinese, entry-level, glue-down business. With so many increases coming from products out of China, we have been able to stay at or below market by sourcing from countries such as Korea and Taiwan.”

As talks between the U.S. and China continue, resilient flooring manufacturers continue to look into ways to minimize the effects of the 25% tariff.

“We are currently experiencing a minimal impact from the tariffs for the rigid core category,” said Isaac Lee, regional manager, Eternity Flooring. “We’ve had multiple meetings with our suppliers overseas to figure out how to absorb/minimize the costs that would be passed over to the consumers. However, we can only hold down costs for so long.”

Despite the uncertainty and frustration surrounding the tariffs, Art Layton, director of specialty products, Axiscor, sees the tariffs as an opportunity to make the category even stronger. “Tariffs have absolutely created uncertainty in the category to the point that manufacturers are considering a lot of options,” he explained. “New opportunities are being created for those willing to invest, and that investment will lead to improvements of product and service making the resilient category even better.”

Oversaturation
As arguably the most popular flooring category today, resilient is fighting against not only the tariffs but an oversaturated market. With the success of LVT, WPC and SPC products, more manufacturers are entering the arena, making innovation and differentiation crucial to a company’s success.

“The point of saturation is upon us now,” said Jamann Stepp, vice president hard surface, The Dixie Group. “Innovation and design visuals are key, as is finding a reliable supplier/trade partner. The overwhelming majority of rigid core will continue to come out of China. However, if the tariffs remain at 25% long term, we will see additional factories relocate from China to Cambodia, Vietnam, Thailand—perhaps even South Korea. We will also see SPC operations open in the U.S. if the tariffs and the consumer’s demand for rigid core continue on the current path.”

In addition to the battle to stand out among a sea of resilient products, manufacturers are also fighting against a race to the bottom in terms of price. “We’ve certainly seen a growth and influx of low cost imported products,” Mohawk’s Sanchez explained. “There are a number of instances that I’ve seen in the marketplace where people go to these cheap, low-cost import providers, but they don’t have the quality assurance and quality check infrastructure that a company like Mohawk is able to bring to the supply chain both domestic and international.”

Along with lower prices, the quality standard of these products are often called into question, explained Chet Graham, president, Marquis Industries. “We work hard with our manufacturing partners to continue to produce quality product at a value. Without a governing body to institute and hold accountable the builds and pricing structures, we will have to deal with oversaturation of the category. The proof will be in five years with warranty call backs for overstated claims failing to meet expectations.”

Michael Raskin, CEO, Raskin Industries, suggested only those who stay true to their brand and support their customers with tools to promote and sell product will survive in the congested category. “Companies that are built on strong foundations and adapt to the new business climate will overcome the pressures of oversaturation and low-priced competition,” he explained. “The companies that add value to the market, reinvest in their customers and serve a real function to their customers will find a way to weather the storm during oversaturation. We believe the cream will rise to the top.”

Ultimately, oversaturation causes product confusion for flooring dealers and consumers. To combat this, manufacturers must work to provide dealers with unique products and displays. As Shaw Industries’ Upton explained, “As more manufacturers are offering resilient flooring, the retail showroom space can become overwhelming to the consumer and even to the RSA. It is our job as manufacturers to provide an impactful and distinctive presence in a finite space.”

Despite the uncertainty around the tariffs as well as dealing with a saturated market, industry executives are bullish about the resilient category in 2019 and beyond.

“WPC/SPC is the basis of the innovation within the LVT category,” said John Szilagyi, manager, market intelligence, Tarkett North America. “The rigid category will continue to be the driver for change. It is creating a lot of the growth we see today and will continue to do so in the near future. We see resilient continuing to grow over the next few years, but the pace is expected to slow some.”

Following the heels of WPC and SPC, floating floors are expected to experience market growth. “There has been a proliferation of floating floor options, such as locking planks as well as self-adhering floors, which enable customers to forego traditional adhesives,” Armstrong’s Lechner said. “These advancements are helpful not only for the do-it-yourself market but also due to the shortage of installers within the industry.”

The big three
Innovation in the LVT, WPC and SPC subsegments is expected to help these products steal even more market share from their resilient brethren as well as other hard surfaces. Newer cores, visuals, performance stories and attributes await the industry, executives say. “Resilient products offer

great versatility, durability, performance and aesthetic flexibility in the marketplace,” explained Lisa King, vice president of innovation, insights and product management, Interface. “The category continues to see more innovation across the industry with ever-evolving designs and better sustainability.”

As these three products continue to evolve, executives are seeing SPC take share from WPC. “Rigid core will continue to grow,” said Ana Torrence, hard surface category manager, Engineered Floors. “Although, WPC as a subcategory is shrinking as it offers lower performance vs. SPC and a higher cost.”

According to EarthWerks’ Junker, the growth of the rigid category shows no signs of slowing down. What’s more, the sub-segment is seeing greater demand in the multi-family channel—from office spaces and club houses to corridors and units.

As new products fight for differentiation, manufacturers are expected to develop new innovations. “The cores will continue to evolve,” said Chris Dillon, vice president, marketing and sales, SLCC. “Current rigid core contains limestone, and many manufacturers have moved on to magnesium as a core. The cores will continue to get better along with ease of installation.”

Others, such as Bret Perkins, vice president, hard surface, Southwind, expect updates to anti-scratch technologies, better visuals and deeper embossing to create differentiation among current LVT, WPC and rigid manufacturers.

Jason Hair, vice president, Phenix Flooring, said he sees most of the innovation focusing on taking market share away from flooring such as ceramic tile and hardwood. “We’re seeing SPC products with painted bevel, so they look much more realistic like stone or ceramic tile. They’re imitating other floors’ even broader designs, wider widths—just flexibility that would be very costly and expensive for hardwood to actually do. We’re finding those looks to be gaining popularity from the LVT category.”

Space for sheet
Although sheet had a rocky finish in 2018—down 12.3% in dollars and 12.6% in volume from 2017, according to FCNews research—industry executives say the product is still preferred in certain applications. In the hopes of growing the product’s market share, manufacturers are developing enticing visuals that mimic natural flooring products such as hardwood and stone.

“Vinyl sheet continues to be a go-to flooring solution for certain segments, including healthcare facilities,” Armstrong’s Lechner explained. “Vinyl sheet provides the ability to heat weld and flash cove the flooring for a seam-free surface that is easier to keep clean and hygienic. It also has strong adoption in value-driven markets such as multi-family and builder as it is a compelling alternative to natural stone, ceramic tile or even hardwood that can be installed as a single solid surface in moisture-prone rooms like kitchens and baths.”

Mannington’s Tuley said the company continues to push and innovate from a style and design perspective. “We have put in some exceptionally good-looking patterns and retro colors that the market and our competitors have followed pretty aggressively because it has worked so well in the specialty retail space. We continue to invest in significant new colors in the specialty retail space every year with the higher-end glass products and they continue to be valued in the remodel category.”