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Tariff update:Industry weighs potential impact of additional hikes

September 2/9, 2019: Volume 35, Issue 6

By Ken Ryan

 

As the U.S.-China trade war escalates, some Wall Street banks fear the economy could be headed toward a recession.

The flooring industry has dealt with tariffs on Chinese imports at 10%, escalating up to 25%. If President Trump carries through with his latest threat, tariffs that include flooring will hit 30% next month.

This latest salvo in the ongoing trade war between the U.S. and China took place last month when the White House instructed the United States Trade Representative (USTR) to increase by 5% tariffs on approximately $550 billion worth of Chinese imports. For the 25% tariffs on approximately $250 billion worth of Chinese imports, USTR will begin the process of increasing the tariff rate to 30%, effective Oct. 1 following a notice and comment period. That move followed China’s decision to impose tariffs targeting U.S. products.

Flooring suppliers are in the process of deciding next steps. Shaw Floors, for example, announced a 5% price increase effective Oct. 4. Tim Baucom, president of Shaw Industries, is among those who believe the tariff—or “tax” as he called it—may put a crimp on what has been a robust flooring market for many. “This tax on LVT—the fastest-growing category in flooring—may discourage consumption or result in a shift to other product categories, potentially impacting Shaw and the flooring industry. This uncertainty stands to impact investment in domestic manufacturing in this category if consumer demand is eroded.”

To that point, according to a JPMorgan report, Americans could face $1,000 in extra costs a year resulting from the U.S. tariffs on Chinese goods. Two other Wall Street banks—Morgan Stanley and UBS—reported that the latest escalation of the trade war could push the U.S. economy to the brink of a recession.

Flooring dealers contacted by FCNews said their biggest concern is the emotional impact this is having on consumers. “Our customers only have so much disposal income,” said Kevin Rose, president and owner, Carpetland USA and America’s Flooring Store, with three stores in Illinois. “As the cost of goods increases, they are not able to spend as much on items that are able to be put off until next year.”

Eric Langan, president and owner of Carpetland USA (The Langan Group), with nine locations serving eastern Iowa and western Illinois, said the publicity—negative or otherwise—will adversely affect the flooring industry and the economy as a whole. “We don’t need to be giving the consumer a reason not to shop or buy. Flooring is a put-off purchase already. Adding another reason to wait, or not to buy, will only hurt our industry.”

Some flooring dealers worry that a prolonged trade war will cause consumers to delay big-ticket purchases.

Several dealers said they have no choice but to increase their price of goods, citing previous hikes related to tariffs. One outlier is Yates Flooring Center in Lubbock, Texas, which said it plans to absorb the pending 5% increase. “The everyday consumer doesn’t see it, but our long-term contracts and builders simply don’t like the term ‘increase’ brought up,” said Anthony Maye, vice president of sales. “We would rather take a point or two of margin than have to continually upset our customers.”

The tariffs on Chinese imports have impacted several flooring categories, chief among them luxury vinyl. But engineered hardwood and ceramic tile products are also affected. To this point at least, the subsegment of LVT has withstood the onslaught of price increases, according to retailers.

“The funny thing is that WPC and SPC products are still as popular as ever, but you have to wonder if at some point we will hit a breaking point as the costs continue to go up,” said Billy Mahone III, manager of Atlas Floors, San Antonio.

Elisabeth Stubbs, owner of Enhance Floors & More, Marietta, Ga., said she believes since most of her customers shop at the higher end of the product spectrum, they have no real idea what flooring should cost. In that respect, the tariffs are not an issue for her. “If they like the product and can afford it, they will pay the price we quote,” she explained.

Unintended consequence?
At least one flooring segment seems to have benefited from this tit-for-tat trade battle— laminate. Flooring dealers report that American-made laminate products, especially those with water-resistant properties, have become a viable flooring option these days. “Several of our sales professionals have indicated they are showing laminate more and more because of the price competitiveness and the superior scratch and dent resistance compared to vinyl topped floor coverings,” Atlas Floors’ Mahone said, adding that his laminate sales have risen year to date.

Stubbs added that the tariffs are making laminate a “tremendous value” right now. “Our laminate business has almost doubled vs. last year. However, this is not all price related. We have a lot of success with the Mannington Restorations line—we did not have this in the store last year—and Mohawk laminate is a very steady seller. My LVP business is up this year, too, but not as dramatically as laminate. I will add that both the Mannington and Mohawk laminates are made in North Carolina.”