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Resilient: State of the industry—LVT, WPC remain primary drivers of category growth

July 31/Aug. 7: Volume 31, Issue 4
By Lindsay Baillie

The resilient category continues to follow its blazing path from 2016 with aggressive growth just six months into 2017. Industry observers attribute this activity once again to the industry’s “darlings”—LVT, WPC and rigid core.

Screen Shot 2017-08-07 at 11.14.42 AMBased on FCNews research, LVT and its subcategories accounted for 42.3% of residential volume and 67.6% of residential dollars in 2016. Observers expect numbers in 2017 to reflect similar—if not more—control of the category. In 2016 the resilient category as a whole saw a 19.7% increase ($3.499 billion) over 2015’s $2.924 billion. This percentage is almost four times the growth of the overall industry. In addition, resilient captured 16.5% of the total flooring industry in dollars—the highest among all hard surfaces. Industry experts predict resilient numbers for 2017 will continue to rise, especially as waterproof products capture consumer interest.

In fact, many of the fiscal trends seen in 2016 have continued into the first half of 2017. For example, most experts have noticed residential sheet is still relatively flat, and felt is continuing to lose market share to fiberglass. Meanwhile, LVT continues to gain market share at the expense of sheet and other flooring types such as laminate and hardwood. Furthermore, LVT and its subcategories continue to gain market share as more manufacturers ramp up U.S. production for faster lead times and greater product control. Lastly, with the soaring popularity of WPC-type floors, more companies are adding rigid core to their portfolios.

Overall, success in this category is often attributed to the various innovations in printing and design, allowing manufacturers to create visuals that are almost indistinguishable from the natural materials they mimic. In addition, these designs can be achieved at a fraction of the cost. “Style is the point of entry to any design decision, but then cost quickly becomes a factor,” said Gary Keeble, director of marketing, Metroflor. “The ease of installation, the durability of LVT and associated easy care and maintenance have all assembled in a bit of a perfect storm.”

Looking at the trends, it’s easy to see why the industry is bullish about the category’s growth in 2017. “As a luxury vinyl specialist, 2017 has fared very well for us, both in terms of our glue-down products and with the introduction of our rigid core product line,” said Larry Browder, CEO, Karndean Designflooring. “The tremendous growth LVT has experienced confirms what we’ve known all along: Luxury vinyl provides the beauty and realism of natural wood and stone in a more practical format.”

All types of manufacturers, even those that produce multiple types of flooring, have seen impressive increases so far. “Resilient continues to be a very strong category for Shaw and is showing no signs of slowing down in 2017 or the foreseeable future,” said Clark Hodgkins, resilient director.

Sheet, felt feel the squeeze
FCNews research shows residential sheet vinyl had a less-than-stellar year in 2016—coming up relatively flat with a 0.2% decrease compared to 2015. Most industry observers attribute this subpar performance to the rise in demand for LVT, WPC and rigid core products.

“Sheet vinyl has lost share to LVT for several reasons,” explained John Wu, CEO, Novalis Innovative Flooring. “More manufacturers are adding LVT to their product offerings, so LVT is promoted more than sheet vinyl. Secondly, handling and installation [of LVT] is easier, especially for DIY applications.”

Screen Shot 2017-08-07 at 11.15.10 AMEasier installation is one major factor sheet vinyl manufacturers need to consider when developing new products, according to executives such as Jeff Fenwick, president and COO, Tarkett North America. As it stands today, “[installing] sheet product requires a level of expertise that tile does not.”

Fenwick also believes improvements in design are needed to help capture the consumer’s eye and break the stereotype that sheet vinyl is “what’s laid down in grandma’s kitchen.”

While some experts see the slight decline of sheet continuing in 2017, many manufacturers believe the category is still viable.

“There’s some softness on the sheet vinyl side but we firmly believe in the category,” said David Sheehan, senior vice president of product management, IVC—a division of Mohawk Industries. “Sheet in general is going to have to innovate. As manufacturers of sheet we need to do a better job of stepping up by innovating not only from a product standpoint but also in terms of how we talk about these products.”

For some manufacturers sheet still holds a certain value proposition. “Sheet is still the best value per square foot in flooring,” said Kurt Denman, chief marketing officer and executive vice president of sales, Congoleum. “This is the original waterproof flooring and it delivers an exceptional value.”

Instead of simply dismissing the segment most sheet vinyl manufacturers are working on ways to innovate their product offerings to compete with LVT, WPC and rigid core. Investments in manufacturing, processes and technology are ways suppliers are seeking to re-invigorate the segment.

“Regardless of what the market is doing, we’re focused on growing our business by bringing innovative products to market,” said Matthew Savarino, senior product manager, resilient sheet, Armstrong Flooring. “We have already introduced new innovations in 2017, specifically Diamond 10 technology across select residential and commercial sheet.”

Sheet innovation at Mannington Mills involves finding answers to the question: How can the company push style and design? “You can make really innovative looks with sheet vinyl,” said Jimmy Tuley, vice president of residential resilient. “I know that has not been the popular perception in the past, but if you look at a couple of our new collections they really do a fantastic job of mimicking incredibly high-end looks with embossed in register, very realistic visuals at a very reasonable price point.”

Despite the overall segment’s slight decline, some manufacturers reported seeing an uptick among their sheet offerings. “We continue to see good strong performance and actually growth out of our sheet category,” Denman noted. “We’ve spent a fair amount of time really targeting the builder/multi-family market. A couple of years ago we introduced the ArmorCore line, which was designed specifically for them. We’ve invested [heavily in] the category and we continue to see growth.”

Just as sheet continues to fight against LVT and its subcategories for market share, felt continues to battle fiberglass. In 2016 fiberglass saw a 4.8% increase in dollars while felt was down 6%, according to FCNews research. Most manufacturers see this flip from felt to fiberglass continuing through 2017, but do not see felt completely disappearing.

“Growth in felt market share is going to come from specific market segments,” Armstrong’s Savarino explained. “Felt-based products still provide, generally speaking, greater durability over fiberglass-based vinyl sheet. The comfort tradeoff has won out with homeowners—which is why we have seen such a large shift in the market [to fiberglass], but segments such as property management and builders still put a high value on rip, tear and gouge performance. The installation benefits of fiberglass over felt have also been swaying some buyers in that segment, but picking between durability and ease of install is still a tough decision for many customers.”

LVT output rises
LVT is still singing 2016’s hit song as it continues to drive category growth and take market share from other categories. Based on FCNews data, LVT had a strong year in 2016, capturing 48.1% of residential market share in dollars. With only six months left of 2017 most manufacturers are reporting strong growth in LVT. This is most commonly attributed to the aggressive nature of it subcategories—WPC and rigid core.

As LVT remains a category favorite more manufacturers are expanding into domestic production. Experts have taken notice of the increase; however, most do not expect import production to disappear.

Screen Shot 2017-08-07 at 11.14.53 AM“With the significant growth in the category, both domestic and import production will continue to expand,” said Lindsey Nisbet, head of product marketing and development, EarthWerks. “With the increased demand on the market today, many are finding it possible to produce in the United States. However, the technology for this category continues to be derived from Asia, as well as many of the components that make up the products. I foresee a nice balance of the category across the globe.”

Mannington is a company dedicated to U.S. production and has seen success from its acquisition of Amtico. “It’s important for several key suppliers to be able to produce here in the U.S.” Tuley explained. However, he also sees a need in the industry for balance between domestic and import production, specifically in regards to keeping up with consumer demands. Tuley cited the rapid expansion of the market and the need for technical innovations as some of the reasons for a balance strategy.

Manufacturers invested in domestic production see a number of benefits that are not always available when importing. A few examples include greater product control, faster lead time and a Made-in-the-USA story.

“In today’s market end users and consumers want product faster,” said Michael Raskin, president and CEO of Raskin Industries. “Domestic production provides shorter lead times. Another point to consider is younger consumers with children are asking where the product is made and the perception is ‘made in the USA’ is better quality and safer. It’s also very hard to guess right with inventory management since we are in a fashion business and as trends develop, distributors and retailers can react much faster with supply/demand when product is made in the U.S.”

For some, the issue is not so cut and dry. For instance, Jamann Stepp, director of marketing and product management for USFloors, there are both positives and negatives to domestic and import production. In addition to the benefits listed previously, Stepp cited greater quality control with domestic production. When importing, he explained, a manufacturer is able to eliminate the capital required to set up, run and maintain a manufacturing operation.

Others see more benefits in importing products. “Importation can actually be more flexible and responsive to the needs and trends in the marketplace,” Novalis’ Wu explained.

Even though importing products may result in longer lead times and less control over manufacturing, the vast majority of LVT products are still coming from overseas, observers say. “If you’re importing it allows for quicker response for changes in construction processing,” Congoleum’s Denman said. “There’s no capital expense investment. You can also get fairly competitive bidding between [businesses]. The number that exists allows a brand to have a lot of choices and opportunities to building the product that it wants.”

In addition to the increase of LVT domestic production, some manufacturers are also bringing rigid construction to the U.S. One in particular is IVC, which announced last year that it is building a rigid plant in Dalton.

“We expect to be up and running the first part of 2018 and getting product out through the latter part of 2018,” IVC’s Sheehan reports. “We’re going to be at the lead of that movement which makes sense from a lead-time standpoint and not having to tie up a lot of inventory, work, capital and being able to serve the needs of our customers in a better fashion.”

Even though a growing number of manufacturers are investing in U.S. production, some say the effects of their shift away from importing has yet to be felt. “Most of these factories are still coming on line,” Metroflor’s Keeble said. “With that said, the overwhelming majority of LVT sold in the USA remains imported, and with the category growing as it has, imports will likely remain a very large part of the overall market.”

WPC’s performance edge
Experts predict the aggressive growth of WPC and rigid core products will continue as long as waterproof products continue to capture the hearts and eyes of consumers. As these subcategories achieve meteoric growth other flooring categories will continue to lose overall market share.

“The growth in LVT has come at the expense of many categories including sheet vinyl, hardwood and especially laminate,” Karndean’s Browder said. “With the advent of WPC/rigid core, laminate is taking an even bigger hit. The fall of laminate flooring due to water and noise issues created a market for WPC and rigid core products.”

The success of WPC and rigid core can be attributed to multiple factors including the categories’ abilities to solve certain performance problems. “Rigid core products have helped to solve for additional challenges that regular LVT could not,” said Jeremy Kleinberg, senior product manager, Armstrong Flooring. “For example, telegraphing of minor subfloor texture.”

Ongoing developments
In 2016 WPC and rigid core products saw what many industry experts have called phenomenal activity. In fact the subcategories, combined, have more than tripled in volume from 2015. Most industry experts expect this growth to continue well into 2018.

Screen Shot 2017-08-07 at 11.15.01 AM“I wouldn’t be surprised if WPC/rigid core becomes the larger sub-segment of LVT,” IVC’s Sheehan said. While he sees these subcategories still gaining market share, he does expect the WPC/rigid core craze will eventually level off and allow for an increase in sheet market share.

As fairly new subcategories, WPC and rigid core are expected to see at least two more years of aggressive innovation. In fact, Mannington’s Tuley sees these subcategories still in the early, steep part of the growth curve.

“There’s also a significant amount of innovation that’s going to be coming,” he added. “I wouldn’t think that even in the next two years that will stop. You will see a significant number of entrants moving away from WPC and going toward rigid core.”

Tuley has a good point. As WPC and rigid core continue to grow, more manufacturers are adding the products to their resilient offerings. New rigid core and WPC introductions—as well as additions to existing collections—are already being brought to market only six months into 2017. For example, Novalis has introduced its High Performance Core (HPC Technology) line for WPC/rigid LVT. Wu sees these newer introductions taking market share from other categories as well as developing a greater presence in the commercial sector.

Manufacturers such as Karndean have developed new rigid products to meet dealer demands. “Our dealers had been asking for a rigid core product with Karndean designs,” Browder said. “With Korlok we have the perfect combination of industry-leading technology and our renowned design quality.”

Shaw Floors has also taken advantage of the success of WPC and rigid core with a mid-year launch of the company’s new Floorté PRO collection.

WPC and rigid core have managed to attract almost every manufacturer. One concern regarding these products is the possibility they might cannibalize traditional LVT. According to the experts, higher-end traditional LVT may take a hit; however, low-end LVT should be able to withstand the “perfect storm,” as one executive described it.

“While multi-layer flooring is definitely taking share over the click options of LVT, the traditional glue-down LVT is also growing,” EarthWerks’ Nisbet explained. “The multi-layer flooring options are taking place of the original click LVT, as well as alternate flooring categories. With the enhanced technologies and realistic attributes of these designs, the affordability and performance of multi-layer flooring, the vinyl option has become a clear competitor in the overall choice for flooring.”

USFloors’ Stepp doesn’t see the subcategories cannibalizing LVT; rather, they are providing the consumer or end user with various choices. “[WPC/rigid core] merely offers the end-user and consumer a choice based on functionality, application and budget. The consumer will make the choice as to what best suits her needs in terms of performance, fashion and cost.”

 

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Commercial sector stalls, then rebounds, in 2016

July 3/10: Volume 32, Issue 2

By Reginald Tucker

 

Screen Shot 2017-07-10 at 2.44.33 PMThe U.S. non-residential construction industry finished strong in 2016, with key end-use segments posting some of the highest numbers since the market began to rebound in the spring of 2015. That’s according to newly released U.S. Department of Commerce figures that show non-residential construction spending reached a seasonally adjusted annual value of $430.1 billion in December, nearly the same as November 2016 but up 9.2% compared to December 2015.

With respect to private construction, most segments were up during the period, with the exception of lodging and education, where spending was down 4.4% and 2.1% in December, respectively. Meanwhile, office construction spending was up 2% with commercial and healthcare rising 0.7% and 1.2%, respectively, during the final month of the year.

The value of private construction in 2016 was $876.3 billion, a 6.4% increase over 2015. Total non-residential private construction reached $420.1 billion, a 7.8% uptick over 2015.

In terms of public non-residential construction spending, the picture was vastly different. Spending across virtually all categories was down, led by office (off 7%) followed by education (down 2.1%). Public commercial and healthcare construction spending fell 1.1% and 1.5%, respectively, during the month of December.

Looking at 2016 as a whole, the value of public construction was $286 billion, a tad below 2015’s $288.9 billion. Total educational construction spending in 2016 was $69.7 billion, a 4.7% increase over 2015.

Screen Shot 2017-07-10 at 2.44.59 PM“2016 was a chaotic year for non-residential building activity,” said Kermit Baker, chief economist for the American Institute of Architects (AIA), Washington, D.C. “For most serving this market, it turned out to be a successful year—construction spending in this sector rose almost 8%, according to current estimates—even as challenges to the industry were continually emerging.”

Anika Khan, senior economist with Wells Fargo, said lodging, office and amusement-related construction spending on the whole registered solid gains in 2016. She expects this trend to continue throughout 2017. “These outlays will likely advance as builders construct so-called ‘integrated’ resorts that include lodging, gaming and meeting spaces. Office activity is also expected to continue to post strong gains with the construction of large-scale projects. However, overall office operating fundamentals suggest some moderation in activity is in store.”

Experts believe rising construction costs will also play a role in slowing overall activity during 2017. “Costs have been muted in recent years, largely due to weak global demand and the strong dollar,” Khan stated. “However, the overall cost of materials and components for construction, including gypsum, ready-mix concrete and steel, is expected to see some upward pressure in 2017. Moreover, labor costs could also rise further as construction firms continue to report a shortage of skilled workers.”

 

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Housing: No records shattered, but progress nonetheless

June 26: Volume 32, Issue 1

By Reginald Tucker

 

Screen Shot 2017-07-05 at 9.45.38 AMThe U.S. housing market continued movement in a positive direction in 2016. Figures supplied by the U.S. Census Bureau show total housing starts reached 1.1738 million units last year—an uptick of 5.5% over 2015’s 1.1118 million units and nearly 17% over 2014. More importantly, it’s the highest number the industry has seen since 2007, when 1.355 million starts were registered. (If you recall, that’s the year before the housing market literally fell of the cliff.) For perspective, from 2008 through 2013, housing starts consistently dipped far below the 1 million contract benchmark, ranging between 608 million and 924 million starts over that time period.

But things have turned around since then. Based on a geographic breakdown of total housing starts—which includes both single- and multi-family units—the South region led the pack with just over 584,000 units—up 5.2%, while the West generated the second-highest number of starts at roughly 290,000, up 9.5%. The Midwest region came in third with just a little over 182,000 starts, an increase of 19% over 2015, while starts in the Northeast actually dipped 16% to 116,000.

In the bellwether single-family category, total starts in 2016 reached 781.5 million, an increase of 9.3%. The multi-family sector as a whole, however, did not fare quite as well last year, statistics show. Housing starts entailing five units or more came in a tad over 380,000 units in 2016, a 1.3% dip from 2015. Still, multi-family starts encompassing five units or more grew each year from 2009-14, starting with just 97,000 starts in 2009 and rising to just over 347,000 starts in 2014. Meanwhile, multi-family starts covering two to four units were flat in 2016, maintaining a meager level of just 11,500 ground breakings.

The year 2016 also finished strong in terms of value. Data analysis conducted by the National Association of Home Builders (NAHB) shows total private residential construction spending grew 0.5% in December 2016 to a seasonally adjusted annual rate (SAAR) of $466.9 billion. After slowing in August and September the SAAR of spending on residential construction finished 2016 with its third consecutive monthly increase. Looking at 2016 as a whole, the value of all private residential construction put in place reached $456.2 billion (not seasonally adjusted) in 2016, 5.2% higher than the total for 2015 ($433.7 billion).

In terms of housing sales, Business Insider called 2016 the “best year for the housing market since the financial crisis.” Total existing-home sales—completed transactions that include single-family homes, townhomes, condominiums and co-ops—finished 2016 at the highest level since 2006 (6.48 million), surpassing 2015’s 5.25 million, according to statistics released by the National Association of Realtors (NAR). “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” said Lawrence Yun, the association’s chief economist.

Outlook for remainder of 2017
All this bodes well for the housing market this year, observers say, despite ongoing challenges facing the builder community. Fueled by a growing economy, solid employment gains and rising household formations, single-family production should continue on a gradual, upward trajectory in 2017. So said Robert Dietz, chief economist with NAHB, during an address to attendees of the International Builders Show in January.

“While positive developments on the demand side will support solid growth in the single-family housing sector in 2017, builders in many markets continue to face supply-side constraints led by the three ‘Ls’ – lots, labor and lending.”

Dietz added that 64% of builders nationwide report low or very-low lot supplies and that the rate of unfilled jobs in the construction sector is now higher than the building boom. What’s more, acquisition, development and construction loans for builders—while on the rise—needs to grow faster to meet demand, he added. “The industry needs to recruit more workers and get more land in the pipeline, but it will take time.”

However, Dietz stressed that these supply-side challenges are more than offset by continued economic growth, ongoing job creation, rising wages and favorable demographics. Moreover, builder confidence is up on anticipation the Trump administration will help lower regulatory costs going forward.

“Regulatory requirements make up nearly 25% of the cost of a new home,” Dietz explained. “Given those constraints, it is hard to build a $200,000, entry-level house.”

Other reports support a positive outlook. NAHB is projecting 1.16 million total housing starts in 2016, up 4.9% from the previous year’s total of 1.11 million units. Single-family production is expected to rise 10% in 2017 to 855,000 units and increase an additional 12% to 961,000 next year. Setting the 2000-2003 period as a benchmark for normal housing activity when single-family production averaged 1.3 million units annually, single-family starts are expected to steadily rise from 56% of what is considered a typical market in the third quarter of 2016 to 75% of normal by the fourth quarter of 2018.

On the multi-family front, NAHB is anticipating starts to hold steady in 2017 at 384,000 units, which would be 1,000 units above last year’s pace. While this level is slightly above trend, Dietz noted this pace is sustainable due to demographics and the balance between supply and demand. Also, as the economy continues to grow, NAHB expects mortgage interest rates will average 4.5% in 2017 and 5.3% in 2018. Meanwhile, residential remodeling activity is expected to register a 1% gain this year.

Policy impacts
Ultimately, observers say, continued progress will be contingent on the political climate. “Policy changes under the new Administration—in its nature, sequencing and magnitude—will determine the direction of economic growth in 2017,” said Doug Duncan, Fannie Mae chief economist. “Incoming data suggest improving consumer spending, diminished labor market slack and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year. Thus our theme for the year: ‘Will policy changes extend the expansion?’ If stimulus policy is enacted, it would likely add to growth but could also be offset by potential tightened trade policy given the already historically strong dollar.”

All things considered, Fannie Mae expects housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle, particularly for first-time homeowners. “Demographic factors, however, are positive,” Duncan said. “Our research shows older millennials have begun to buy homes and close the homeownership attainment gap with their predecessors.”

Indeed, for the third straight year, millennials represented the largest group of recent buyers. According to a study compiled by NAR, this group accounts for 35% of all buyers, up from 32% in 2014. That’s more than the combined amount of younger and older boomers (31%). By comparison, Generation X represented 26% of buyers.

The study, titled “Home Buyer and Seller Generational Trends,” evaluates the generational differences of recent home buyers and sellers. It shows a growing share of homebuyers are millennials, and more of them are purchasing single-family homes outside of urban areas. The share of millennials buying in an urban or central city area decreased to 17% vs. 21% a year ago while fewer of them (10%) purchased a multi-family home compared to a year ago (15%).

Overall, the majority of buyers in all generations continue to purchase a single-family home in a suburban area, and the younger the buyer, the older the home they purchased.

Another interesting tidbit: While millennials may choose to live in an urban area as renters, the survey reveals that most aren’t staying once they’re ready to buy. “The median age of a millennial homebuyer is 30 years old, which typically is the time in life where one settles down to marry and raise a family,” NAR’s Yun explained. “Even if an urban setting is where they’d like to buy their first home, the need for more space at an affordable price is, for the most part, pushing their search further out.”

 

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Ceramic: Suppliers ramp up domestic production, capacity

June 26: Volume 32, Issue 1

By Ken Ryan

Screen Shot 2017-07-05 at 9.38.54 AMCeramic tile remains a heavily imported flooring product, with imports making up 68.6% of U.S. tile consumption (in terms of square feet) in 2016, down a tick from 68.7% in 2015, according to the Tile Council of North America (TCNA). A decade earlier in 2006, however, imports represented 80% of U.S. consumption.

Industry observers say the trend toward lowering imports as a percentage of consumption as more product is made domestically is likely to continue as both U.S.-based and foreign countries begin manufacturing operations in the states. Advances in digital printing technology and increased investments in American manufacturing capabilities have helped elevate the cache of tile products made in the U.S.

The biggest splash was made by market leader Dal-Tile, which began producing tile out of its $180 million, 1.8-million-square-foot facility in Dickson, Tenn. The Dickson plant will employ the latest advanced decoration technology, including the company’s Reveal Imaging capability, to produce ceramic tile. The plant will also have the flexibility to produce larger format and plank format tiles marketed through its five leading brands in North America: Daltile, American Olean, Marazzi, Ragno and Mohawk. The Dickson plant will feature glazed porcelain capabilities as well as technology to meet the need of the commercial market through technical color body products, plus in-line rectification and polishing to meet market requirements.

Foreign investment is also occurring in the U.S. The Wonderful Group, a tile and ceramics manufacturer based in China, is investing $150 million in a 500,000-square-foot manufacturing facility in Tennessee.

Likewise, Landmark Ceramics, part of family-owned Gruppo Concorde of Italy, christened its North American headquarters in Mt. Pleasant, Tenn., in 2016, with a goal of producing high-quality porcelain tile 24 hours a day. The plant’s initial production run commenced June 30, 2016. Landmark Ceramics employs 130, including administration and sales staff, and will add around 40 more with the third shift that is coming online in 2017.

“To invest in the U.S. market is always a good investment,” said Federico Curioni, Landmark Ceramics president. “We are able to reach the largest and biggest supplier when you make the product here. There’s only so much you can do from Italy. The United States is just such a vast market.”

Add Florim USA, part of the Florim Group of Italy, and Florida Tile to the list of ceramic tile companies that invested in new production equipment at existing U.S. facilities.

Industry observers say among the benefits to selling domestically are quality control and quick supply. They note that domestic producers are less exposed to risks they cannot control such as exchange rate fluctuations and ocean freight price increases due to capacity shortages. In addition, domestic facilities offer manufacturers an ideal location from which it can ship to a majority of the U.S. population quickly and efficiently.

Florida Tile, which touts its Made in USA story, manufactures the bulk of its products from its headquarters in Lawrenceburg, Ky., which it said is within 500 miles of 80% of the U.S. population.

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Ceramic: Tile turns in another winning performance

June 26: Volume 32, Issue 1
By Ken Ryan

 

Screen Shot 2017-07-05 at 9.35.49 AMThe U.S. ceramic tile market, bolstered by steady growth in the all-important housing and construction markets, recorded its seventh consecutive year of growth in 2016. FCNews research shows sales rose 5.7% to $2.761 billion while volume increased an estimated 5.5% to 2.31 billion units.

The 2016 numbers were off slightly from 2015, when sales rose 9.8% and volume increased 9.9%. Still, it was another stellar year for a category that continues to grow and evolve with some of the most innovative products influencing the market.

Statistics show growth is coming from all precincts, with builder and overall commercial up an estimated 7%-10%, with retail lagging, yet still at 2%-4% growth. Even at the low end, the 2% increase in retail was in line with the U.S. gross domestic product (GDP) for 2016, which came in at 2.1%. The GDP is regarded as the most important of all economic statistics as it captures the state of the economy.

To shed additional light on the ceramic category, tile is the third-largest sector in terms of dollars, representing 13% of all flooring in 2016, up from 12.7% in 2015. In terms of volume, ceramic tile represented 12.1% of total industry volume, trailing only carpet and rugs (58.7%) and resilient (18.8%).

The seven-year winning streak follows a particularly bleak period for ceramic. Hard to imagine that in 2009 ceramic tile was down a staggering 24% in dollars and 22.5% in volume. It marked the third year in a row that ceramic tile had sustained losses of 20% or greater. While other flooring segments also suffered during that stretch, ceramic was hit the hardest, as it is the most prone to housing swings, experts say.

Clearly, these are halcyon days for ceramic, and there is not much on the horizon to suggest a slowdown. “Much like 2015 we continued to see growth in the ceramic tile market in 2016,” said Jason Roshel, senior director, product strategy, Dal-Tile, the Mohawk brand with roughly 40% market share. “There has been, and continues to be, tremendous growth opportunity for the tile category. Our industry tends to follow overarching economic trends, which impact all major spending. Key economic drivers include new housing starts, commercial market recovery, consumer confidence, credit availability and interest rate fluctuation.”

Domestic production has been a big story in ceramic tile for the past few years, and 2016 saw several companies expand production or break ground on new plants. In March 2016, almost two years to the date that Dal-Tile’s $180 million, 1.8-million-square-foot facility was announced in Dickson, Tenn., the company’s first production run was completed, with large format 12 x 24 glazed porcelain tiles being produced. In June 2017 Mohawk announced a second plant in Dickson that would add 245 jobs at full capacity; it is scheduled to begin operation in late 2018. Construction on the new facility is starting this summer, with several other manufacturers following suit.

Industry observers such as Rick Church, executive director, Ceramic Tile Distributors Association (CTDA), believe that what’s driving domestic production is increased demand and, more significantly, the new plants that are being developed and coming online. Most of those new plants are owned by foreign companies who see the opportunity to produce in the U.S. and serve the market without having to export from Europe. By establishing a local presence, these companies have easier access to raw materials, enjoy closer proximity to their distribution channels and gain insight into trends influencing the U.S. market.

Residential
A stronger and still improving economy and housing market generally bodes well for the ceramic category, and that proved to be the case in 2016. New home starts rose for the seventh consecutive year and were at their highest point since 2007. The 1.17 million units started in 2016 represented a 4.9% increase from the previous year. As encouraging as the gains are, however, there is still ground to be made up to reach the pre-recession level of 2.07 million units started in 2005.

New single-family home sales increased for the fifth consecutive year and hit 563,000 units in 2016, up 12.2% vs. 2015. While this recent growth is encouraging, new home sales were still down 56.1% from the all-time high level of 1.28 million units reached in 2005. Foreclosure filings, another key indicator of the U.S. housing market’s health, declined by 13.9% in 2016 to 933,000 units. This marked the sixth consecutive year-over-year drop in foreclosure filings and the lowest annual foreclosure total since 2006.

“There is a strong correlation between ceramic tile consumption and new housing starts, which contributed to the continued growth of the category in 2016,” Roshel said. “One factor is the increased construction of new single-family homes, which have grown larger in size. These bigger, more expensive homes often use larger quantities of tile because it offers the style, design and luxury many homeowners desire without the maintenance concerns found in other materials.”

Screen Shot 2017-07-05 at 9.35.55 AMBob Baldocchi, chief marketing officer and vice president of business development for Emser Tile, said new home sales will continue to drive much of the growth in the market in 2017 and into 2018. Recent surveys show that homes are selling at a record pace due to tight supply. In May 2017, for example, the average house sat on the market for 27 days, which is the fastest reading since Redfin, a real estate brokerage, began tracking the market seven years ago. The tight supply is pushing home prices higher, which—while good for homeowners—could be a detriment to market growth given the higher entry price point. The median price of a home sold in May jumped 6.8%, which is about triple the average income gains and may already be hurting sales as affordability weakens.

Baldocchi said labor, particularly the dearth of qualified installers in an expanding market, could dampen the full potential of ceramic. “Labor challenges need to be solved for demand in the market to truly be met. Labor solutions and availability still has a longer-term view.”

Commercial activity was encouraging in most sectors, executives said, with growth seen in hospitality, healthcare, education and corporate spaces. “Homebuilder and commercial segments showed continued signs of growth,” Baldocchi added. “Commercial projects and spending continued on its growth path seen from the last couple years. Growth was slowed partially due to continued labor issues in the marketplace.”

Imports vs. exports
Imports in 2016 made up 68.6% of U.S. tile consumption (in square feet), down slightly from 68.7% the previous year, according to the Tile Council of North America. TCNA reported that China remained the largest exporter to the U.S. (in sq. ft.) in 2016 with a 29.4% share of U.S. imports (in sq. ft.), followed by Mexico (23.4%) and Italy (19.4%). Spain and Turkey rounded out the top five with a 9.3% and 5.1% share of imports, respectively.

Screen Shot 2017-07-05 at 9.36.06 AMItaly remained the largest exporter to the U.S. on a dollar basis (including duty, freight, and insurance) in 2016, comprising 35.8% of U.S. imports. China was second with a 24.7% share, and Mexico was third with a 12.6% share.

The emergence of advanced technologies such as 3D printing, digital printing, anti-microbial glazes and nanotechnology have to some degree taken away from global differentiation. Ten years ago new technologies or techniques for ceramics and porcelain product started in places like Italy and were more exclusively found there for a longer period of time. “Today the advancement, regardless of the country of origin, seem to go global very quickly,” Baldocchi said. “Global differentiation still exists but now it is experience, techniques, quality and design that might differentiate on ceramic floor tile.”

[Editor’s note: The value of ceramic tile is calculated at point of entry into the U.S. In other words, it is recorded when it lands at U.S. ports. So, much of the increases seen in ceramic tile shipments was attributed to suppliers beefing up their inventory levels and not reaching first point of sale.]

 

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Laminate: Sourcing shift changes import/domestic dynamic

June 26: Volume 32, Issue 1

By Reginald Tucker

 

Screen Shot 2017-07-05 at 9.32.26 AMA gradual build-up of stateside production and capacity of laminate flooring in 2016—combined with an increase in European-made product—was partially neutralized by the continued drop-off in imports from China that began in earnest in early 2015. The end result was a category that grew marginally in terms of value but slightly more with respect to volume.

FCNews research showed U.S. laminate flooring sales eked out $1.154 billion in sales last year, an uptick of just 1.5%—the lowest rate of increase of any hard surface category. Volume-wise, the category grew at a rate of 2% to 1.054 billion square feet—a reflection of the rise in shipments from Germany plus the increased domestic capacity that came online toward the latter part of the year. This represents a slight improvement over the 2014-15 period, which saw laminate volume decline to the tune of 3%. Sales-wise, laminate revenues grew a mere 0.17% over the same year-ago period.

All in all, things haven’t changed that much from, say, five years ago. In 2011, for example, U.S. laminate flooring sales were about $1.094 and 1.02 billion square feet. These figures represent increases of just 5.4% and 3.3% in terms of sales and volume, respectively, compared to 2016.

The larger story—even amidst the slight increases the category has seen since 2011 and year to date—is its decline in terms of the overall share of hard surface activity. In 2011, for example, laminate flooring represented 16.9% of all hard surface sales and a little over 14% in terms of volume; last year, the category’s percentage of hard surface sales slipped to 9.3% in value and 13.4% with respect to volume. Meanwhile, competing products such as resilient and ceramic tile grew their respective shares of the hard surface market over that time period.

Industry observers acknowledge the category’s mediocre performance in 2016.

“We estimate the market was somewhat flat between 2015 and 2016,” said Dan Natkin, vice president of hardwood and laminates, Mannington. “We show the total category was actually down about 2%, in both units and dollars.”

At the same time, Natkin acknowledges increased activity on the home front compared to the dramatic pullback from China that started in 2015 and continued into 2016. “The interesting thing is, with some of the new operations in the U.S.—and new capacity coming online—we think U.S. production actually picked up some share in 2016.”

David Holt, senior vice president, Mohawk Industries, can attest to the shift. Over the past year the company has been investing heavily in its laminate flooring operations in North Carolina with plans to start up an entirely new plant in the fourth quarter. “We are adding capacity when others are scaling back,” he said. “We believe in domestic manufacturing, and we’re investing in various assets to make sure we maintain a leadership role. This will increase our laminate capacity as we continue to grow.”

The changing import vs. domestic production dynamic is palpable—so much so that many industry observers are seeing an almost “about-face” turn 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 2016,” said Drew Hash, vice president, hard surface category management, Shaw Floors. “We estimate closer to a 70/30 split between domestic and imported laminate, respectively, with the likelihood of closing in on a 75/25 split for 2017 as domestic capacity continues to increase.”

Screen Shot 2017-07-05 at 9.32.31 AMTravis Bass, executive vice president, Swiss Krono, 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. “Europe has shifted from 14% to 19% while China fell from 26% to 21%.”

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,” said Derek Welbourn, CEO of Inhaus, which has manufacturing operations in Germany. “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,” said Roger Farabee, senior vice president, laminate and hardwood at Mohawk, which counts the Quick-Step brand among its assets. “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, Farabee stated. This phenomenon, he believes, will 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. However, we do expect some price pressure.”

Sales by channel
Just as the mix of laminate sources 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—a bright spot for the independent or aligned floor covering dealer.

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,” Mannington’s Natkin explained. Shaw’s Hash agreed, citing the company’s internal research that puts specialty retailers’ share of the business in more or less the same vicinity.

Despite this optimism, however, the fact remains home centers and mass merchants still account for the lion’s share of laminate sales. And, according to FCNews research, that share only grows with each passing year. In 2015, for example, home centers’ share of laminate flooring sales was about 45%. Last year that number grew closer to 50%. Throw in warehouse clubs, home décor outlets and the like, and that number balloons to more than 60%.

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 $2.49-and-below 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 $3.99-$4.99 realm). While many home centers can afford to draw consumers in to their stores using entry-level products as “loss leaders” with the hope that shoppers will browse and spend more money in other departments, specialty retailers—already operating on razor-thin margins—simply cannot win at that game.

Screen Shot 2017-07-05 at 9.32.46 AM“We have had great success with our mid-level laminates meeting a great variety of customer needs and wants,” said Char Smith, manager of Grand Junction, Colo.-based Gallagher’s Flooring, a top-selling Quick-Step dealer. “We try not to compete with box stores on any product. For the most part, they are selling to people who are only interested in a price point and have no idea or concern regarding quality of product. In flooring you get what you pay for—just like anything else.”

End-use activity
Given laminate flooring’s accessible price points, it should come as no surprise that the product remains a perennial favorite in residential replacement applications.

FCNews research shows the sector continued to generate the lion’s share of laminate sales—approximately 85%—last year. That’s up slightly from 82% the year prior but down from just over 88% in 2011.

“Laminate flooring has always been strongest in residential replacement, and this continued in 2016,” Welbourn said. “We feel there has been an increase in new construction with better design by all laminate producers.”

Meanwhile, FCNews research shows new construction accounted for roughly 12% of sales last year, up from about 9% in 2015. By comparison, new construction accounted for about 6.8% of laminate sales in 2011.

“We see a rapidly growing acceptance of laminate products in new home construction,” Mannington’s Natkin said. 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.”

Morgan Hafer, laminate product manager, Armstrong, also sees activity in the new home construction sector as more builders look to laminate as an entry-level product. On the commercial front, she said laminate also has a place “because it looks and feels like traditional hardwood, but has the durability attribute necessary for Main Street businesses.” FCNews research shows laminate flooring continued to cede commercial market share to competing categories, presumably LVT and, now, WPC. Statistics also show the contract commercial and Main Street markets combined accounted for just 2.4% of category sales in 2016—down from 4.2% in 2011.

“There will be variation by segment, but laminate in general will continue to lose share to categories like LVT and innovative new multi-layered flooring products,” Hafer added.

Indeed, the well-documented success of waterproof floors, LVT and rigid-core products has forced laminate manufacturers to step up their game. “There is no doubt these hot categories have stolen growth from the laminate category and others,” Inhaus’ Welbourn stated. “However, laminate is in a much better cost position than these plastic-based categories and 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 2017. Proponents say it is only fitting given the innovations that originally inspired the creation of the laminate sector (i.e., improved performance in regards to moisture and general everyday use). 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 continuing to create 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. 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. The fact that the U.S. laminate industry is still a one-billion-dollar-plus category is also something worth noting.

“We see continued growth for the laminate category at a pace between 2% and 5%,” Welbourn said. “We estimate the flooring category as a whole will have a higher rate of growth as the housing sector continues to recover.”

The optimism suppliers feel is supported by the investments they are making in manufacturing and the capacity they are building. For instance, Kronospan USA is demonstrating its commitment to the U.S. marketplace by investing and building manufacturing plants. In 2015 the company purchased Shippenville, Pa.-based Clarion Boards and Clarion Laminates, which produces medium-density fiberboard (MDF) and high-density fiberboard (HDF) panels as well as laminate flooring at the same site. Kronospan already operates a facility in Eastaboga, Ala., a site where the company manufactures MDF and HDF for manufacturers of laminate flooring, furniture, store fixtures, moldings, doors and other architectural applications.

A fully integrated supplier, Kronospan also produces specialty and decorative paper as well as other associated value-added products. More recently, Kronsopan USA completed the construction of a laminate facility in Oxford, Ala. Once fully operational, this facility will add even more capacity to fuel distributor and retailer demands.

Kronospan is not alone. The aforementioned investments Mohawk is making in its stateside laminate manufacturing operations is another prime example. “We believe in laminates as much as we believe in engineered wood,” Holt said. “With our hard surface offerings we service the builder trade as well as retail, so time to market is critical. And the only way you can say you service that builder market and retail market in a timely fashion is through domestic manufacturing.”

Not to be outdone, Swiss Krono continues to expand its production capabilities. Last summer the company broke ground on a $230 million high-density fiberboard mill and laminate flooring production expansion. This expansion—which will bring more than 100 new highly-skilled technical and management jobs to the Barnwell area—will allow Swiss Krono to produce 300,000 cubic-meters of HDF per year, which the company will use for laminate flooring manufacturing operations and sell to furniture, cabinet, fixture, door and other wood-based manufacturers. In total, the project will increase the company’s annual laminate flooring capacity by an additional 8 million square-meters.

This latest investment by Swiss Krono comes on top of a $30 million infusion the manufacturer’s parent company made several years ago to build a melamine resin paper treatment plant in Barnwell, S.C. “All of this [supports] our move to be vertically integrated,” Bass explained. “Heretofore, we had outsourced our HDF production as well as our paper treatment.”

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Wood: New engineered platforms provide momentum

June 26: Volume 32, Issue 1
By Reginald Tucker

 

Screen Shot 2017-07-05 at 9.26.44 AMThe U.S. hardwood flooring category continued to hold its own against the intensifying pressure of competing categories—namely LVT/P, WPC and even laminate—all of which continue to make strides in replicating the look, texture and heft of genuine wood. FCNews research shows sales in 2016 reached $2.23 billion, a 5.1% increase over 2015’s upwardly revised sales of $2.12 billion.

Volume growth was pretty much on pace with the increase in sales as square footage shipped at the first point of sale in 2016 reached an estimated 898 million square feet, a 4.8% increase over 2015’s 857 million square feet. (This figure was also adjusted based on new data released since the publication of last year’s Statistical Issue.)

To put things in perspective, hardwood represented 10.5% of total industry sales in 2015 but only 4.7% of total volume. Compared to five years ago, wood represented 9.1% of total flooring dollars at the first point of sale and only 3.8% of total volume.

But looking at hard surfaces specifically, wood’s share swells to 18% in terms of value and 11.4% with respect to volume. Still, that’s a long way off from 2011, when hardwood’s share of the overall hard surface pie was 23.4% of value.

The fact remains, observers say, that hardwood is still a popular choice for homebuyers and existing homeowners. Couple that with an overarching shift from soft goods to hard surface, and you have a scenario that bodes well for the hardwood category.

“Last year was a fairly good year for hardwood,” said Brian Jones, vice president, product management, Armstrong Flooring. “As home values started to increase across the country, we saw the retail and remodel side of the hardwood industry beginning to grow again. While the new home construction sector did not reach the lofty highs that many expected, a modest movement helped to lift sales of hardwood flooring to a respectable level in 2016.”

Other industry observers attribute the category’s performance in 2016 to key market sectors. “Builder/new construction is still very important to the category, but residential replacement/remodel is where we’re seeing the greatest strength,” said Dan Natkin, vice president, hardwood and laminates, Mannington. “As consumers have gotten a little more confident in the values of their homes, wood is really the go-to product from a consumer desirability standpoint.”

Not all suppliers reported having the same experience. At Shaw Floors, for example, the ratio of residential replacement sales to new construction was almost reversed. “Builder/new construction sales accounted for the majority of our flooring sales for 2016, with the other being attributed to residential remodel/replacement,” said Drew Hash, vice president, hard surface category management. But that disparity didn’t leave the company any less bullish about the category’s performance last year. “We estimate the hardwood industry grew between 4% and 6% in 2016.”

The same can’t be said for all end-use sectors across the board. “For example, in commercial, quite honestly, we see wood getting replaced by alternative products such as LVT,” Natkin explained.

Much of the anecdotal reports surrounding the non-residential market are in line with FCNews’ research. Newly compiled statistics show wood sales attributed to the commercial market sector slipped from 9% in 2015 to about 7% of sales last year.

Engineered seizes share
One trend that virtually all suppliers can agree upon, however, is engineered’s continued—albeit incremental—seizure of market share from its solid counterpart. While production selection has largely been a function of geography, historically speaking, the pace of innovation is slowly changing that. For instance, several suppliers have introduced engineered hardwood floors that replicate the overall thickness of ¾-inch solid wood flooring. The end result is the traditional solid wood flooring end user—builders and contractors, in many cases—can now nail down an engineered floor in much the same way they would a solid product and still be able to sand and finish multiple times. The only difference, proponents argue, is the end user has a more dimensionally stable product with engineered.

Screen Shot 2017-07-05 at 9.27.34 AMThis market shift bears out in the numbers. According to FCNews research, engineered wood floors represented 55% of the market—roughly the reversal of the breakout reported just seven years ago. Some industry experts put engineered’s share even higher. “Sales favored engineered hardwood to solid even more strongly in 2016 according to our research, putting the split at roughly 60/40,” Shaw Floors’ Hash said. The primary drivers for this, he noted, is the breadth of visual options in engineered as well as the growth in concrete slab construction in certain parts of the country.

Either way you slice it, many suppliers are investing more money in the production of engineered products to meet end-user needs. “We have built the largest sawn-faced plant in the United States, in Arkansas, and we’ve added a brand new cold press along with other new technologies,” said David Holt, senior vice president, Mohawk. These investments, he said, will support increased production of multi-ply product in a longer, wider format. “Much of the wood flooring market—with the exception of the Northeast—has moved to this new format. That’s where most of the growth has been—in engineered hardwood.”

The ongoing migration to engineered hardwood is reflected in the investments major manufacturers are making in the segment. Shaw Floors, for instance, completed the expansion of its hardwood flooring manufacturing facility in South Pittsburg, Tenn., specifically to meet the growing demand for its engineered hardwood flooring products. The $40 million investment adds more than 60% capacity to the existing hardwood manufacturing facility.

Mohawk and Shaw are not the only companies heavily investing in engineered production. Last summer Mullican Flooring announced plans to invest $15 million in equipment, buildings and working capital to expand its manufacturing operations via the acquisition of a 126,000-square-foot warehouse in Johnson City, Tenn. This latest expansion, which marks Mullican Flooring’s fourth major growth initiative in Johnson City during the past 16 years, will provide extra capacity as well as raw material and finished product storage space to meet increased manufacturing needs.

In that same vein, Wickham Hardwood has invested more than $7 million in a new, state-of-the-art engineered flooring line. The game plan over the mid to long term, according to Paul Rezuke, vice president, residential sales, USA, is to align its engineered offerings with its solid products.

The continued shift from solid to engineered is increasingly evident, experts say, especially as imports continue to take market share from domestic manufacturers. Brad Williams, vice president of sales and marketing for Boa-Franc, makers of the Mirage brand, cited several reasons why these thicker engineered products continue to increase their share. “With the builder market using wood subfloors, their goal is to make a flush transition with ceramic floors in the kitchen, bathroom, etc. As ceramic tiles trend larger and thicker, it’s a nice option to have the same in hardwood—wider and thicker. There is also the renovation market where flooring ripped out was ¾ inches thick. It makes for an easier renovation as the heights for doors and cabinetry were done based on ¾-inch thickness.”

Right in line with the swing from solid to engineered is the move to prefinished from unfinished (traditional hardwood flooring contractors being the primary exception). FCNews research shows the share of prefinished products grew to nearly 60% last year—up from just 54% the year prior. Looking back five years ago, the ratio of prefinished to unfinished was just the opposite.

The U.S. hardwood flooring market also saw a bit of a shift with respect to domestic production vs. imports. FCNews research showed imports from Canada rose slightly from 9% to 12% in 2016. At the same time, shipments from Brazil dropped from 5.6% in 2015 to just over 3% in 2016. Although China—which ships more engineered than solid product—still accounts for the bulk of imported hardwood flooring, its share also fell slightly year over year.

Screen Shot 2017-07-05 at 9.27.26 AM“If you look at engineered only, China accounts for more than 50% of the total sales in that category,” Mannington’s Natkin said. “No. 2 behind China would be Southeast Asia (Vietnam, Cambodia, Indonesia, etc.). South America has definitely declined from my early days in the category. At one time, there was a ton coming in from South America but not as much anymore. It’s more of a reflection of style trends as exotics have definitely cooled off quite a bit, although you can still find them. The visuals have definitely gone very euro-centric—a lot of white oak, domestic species being sold.”

The drop-off in imported exotics species has become more evident in recent years. FCNews research shows the collective share of exotic species from Brazil and other areas fell from about 8% of the market to just about half that number. The root causes, industry observers report, have more to do with the changing tastes of North American consumers than supply/demand or natural resource issues.

“The color trends shifted from reds to browns, and wider widths became much more popular,” said Bill Schollmeyer, CEO of Johnson Hardwood Floors. “Exotics became too expensive vs. domestic species and, for the most part, their colors and widths weren’t in sync with the trends. But I’m sure at some point they’ll come back into style.”

In particular, the trend toward more rustic looks—an aesthetic not usually associated with exotics—is playing a critical role in the shift. “Exotics tend to have a smoother texture and they typically feature higher gloss levels,” said John Himes, president and CEO of Wood Flooring International. “This has made the market for those floors much smaller than it had been, say, 10 or 15 years ago. And with so much migration to texture, scrapes, wire-brushes and larger bevels across the country, more and more people are going to the rustic products.”

Consumption trends
Market shifts also occurred farther down the distribution channel. FCNews research showed floor covering stores increased their share slightly, growing to 36.6%. Sales attributed to the specialty hardwood flooring contractor also grew, rising from just over 24% in 2015 to 28% last year. Meanwhile, activity attributed to home centers fell slightly from 27.6% to just over 23%.

Some industry observers believe those ratios change slightly depending on how dealers are categorized. “If Lumber Liquidators and Floor & Décor are home centers, then that segment would be the largest,” Neil Poland, president of Mullican Flooring, explained. “Wood flooring contractors and specialty retailers would also cross over quite a lot; if you combine those two segments, that one might be your largest group.”

Others believe the market share attributed to home centers might be underrated.

“Home centers—direct online, etc.—probably only account for about 30-35% of the category,” Natkin said, adding that it’s almost the direct inverse of laminate. “I think that’s very much a function of the type of installation that goes on. Because hardwood floors are primarily professionally installed, people tend to go to specialty flooring retailers and hardwood flooring contractors for their hardwood choices.”

Another factor that has positively impacted U.S. hardwood flooring manufacturers is the continued stabilization of raw material costs. In 2013 and into 2014, skyrocketing lumber costs negatively impacted margins for many suppliers—including Canadian companies—and forced several market leaders to raise prices. But manufacturers report the raw material pricing stability they experienced in late 2015 has carried over into 2016.

Screen Shot 2017-07-05 at 9.27.15 AMOn the whole, pricing seems to be stable, although several domestic suppliers agree that certain species—hickory, walnut and white oak, to name a few—are showing modest inflation. “There is great pricing stability at the moment,” Boa-Franc’s Williams said. “We believe the demand from overseas has softened with North American suppliers, which creates more of a need to supply the local market here in North America, so pricing is holding steady. At the same time, inventories throughout the pipeline are at good, balanced levels—which also contributes to stable prices.”

While hardwood suppliers are keeping a close eye on raw material costs, they are also watching the rising popularity of competing hard surface products, particularly those that are doing a much better job of replicating natural materials such as wood. WPC, LVT and, yes, laminate all fall into this category.

Wood suppliers agree some of their products could be ceding market share to these competitive categories. “For the first time in my career, I can definitively say some of these categories have taken share within certain segments from hardwood,” Natkin told FCNews.

Williams believes some wood products—especially those on the lower end of the price spectrum—have ceded some market share to competing categories, but he thinks that pressure is coming primarily from builder and residential renovation markets, which tend to be more cost conscious. On the whole, though, he has not seen any dramatic market share shift from a numbers point of view to substantiate and support this increase is coming at the expense of wood.

At the end of the day, many wood proponents believe wood will continue to command a significant share of the hard surface pie. “Wood will always be a part of the marketplace,” Mohawk’s Holt said. “I don’t care how much vinyl, laminate or carpet is introduced, Americans have a love affair with wood. Everybody is trying to emulate wood, whether it’s ceramic, laminate or vinyl. Americans have had wood on the floors since the pioneer days, and they are going to continue to have them when I’m long gone.”

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Resilient: LVT, WPC continue to seize market share

June 26: Volume 32, Issue 1
By Lindsay Baillie

 

Screen Shot 2017-07-05 at 9.21.00 AMThe resilient category continues to assert itself as a force to be reckoned with as it continues to generate substantial growth. FCNews research shows resilient sales in 2016 climbed to $3.499 billion (not including rubber), an increase of 19.7% over 2015’s $2.924 billion. This rise is almost four times the growth of the entire industry, which gained 5.1% last year. In terms of volume, the resilient category grew 6.5% to 3.537 billion square feet—the highest percentage of volume growth of all the other categories.

Resilient’s dominance is even more evident when viewed through the prism of market share. In 2016, the segment accounted for 16.5% of the total flooring industry in dollars and 18.8% in volume—the highest among all hard surface categories, FCNews research shows.

The main driver behind this dominant performance, industry observers say, is the continuous growth of LVT and its sister category, WPC/rigid core. Statistics show LVT, WPC and rigid core products made up more than half the dollars generated by the residential sector in 2016, capturing 48.1% and 19.52% of the sector, respectively. These percentages are key when taking into account residential resilient sales made up 63.9% of total resilient sales.

Resilient’s astonishing growth in sales in 2016 is even more significant when looking at the category’s performance over the past few years. FCNews research shows 2016’s sales represent a 40.4% increase from 2014’s $2.492 billion and a 58.6% increase from 2013. To put resilient’s growth into greater perspective, the category is up over $1.5 billion in the last five years (total resilient sales in 2011 were $1.931 billion).

In terms of volume, resilient saw an increase of 6.5% from 2015’s 3.321 billion square feet. While not as aggressive as its percent of sales, this increase was nearly double the industry’s increase, which clocked in at 3.8%. Last year’s volume also saw a 22.5% increase from 2014. A look back five years ago shows resilient’s volume has increased by 49.9% from 2011, a year in which 2.36 billion square feet was sold.

Industry observers believe there are several factors that contributed to LVT’s growth in 2016. “Compared to other flooring categories the LVT category has seen many design changes from additional looks, durability, availability and product makeup,” said John Wu, CEO, Novalis Innovative Flooring. “LVT has the perfect appearance and strength that allows a specific look at a less expensive price than upgrading to more expensive products.”

Michael Raskin, president and CEO, Raskin Industries, cited the product’s ability to be used in multiple applications as a primary selling factor. “The product is suitable for both commercial and residential, which offers sheer volume in square footage. In addition, the product can be mass-produced, which keeps the supply stable. The category is now available in many subcategories, such as dry back, loose lay, WPC, rigid, etc., which organically increases market share.”

Indeed, resilient’s ability to take market share from other flooring categories, such as laminate, hardwood and carpet, is well documented at the retail level. What’s more, the disproportionate increase of sales vs. volume within the resilient category reflects the fact that LVT and WPC have been able to maintain strong average selling prices—a phenomenon not usually seen in many competing categories.

“These numbers are indicative of the increase in average selling price of resilient products due to the rapid increase in WPC sales,” said Clark Hodgkins, director of resilient category, Shaw Floors. “The continued strong growth of WPC and the various rigid-core products are responsible for the large gains within the resilient category.”

Screen Shot 2017-07-05 at 9.21.37 AMThe product’s performance compared to competing hard surface categories is another factor driving category sales. “The fall of laminate flooring due to water and noise issues created a market for WPC and rigid-core products,” said Larry Browder, CEO, Karndean Designflooring. “The LVT industry has done a good job capitalizing on this.”

Other experts agree LVT is growing at the expense of other categories. “In the flexible category the majority of it is in the multi-family channel with a decent amount in the residential replacement in the smaller areas,” said David Holt, senior vice president of builder and multi-family retail and hard surface for Mohawk Industries. “But with the new intake of the new rigid vinyl products you have a lot of that going into residential replacement, and it’s going in at the expense of engineered wood and laminate.”

The design flexibility of LVT, which is marketed as a multi-purpose product for a variety of applications, is also driving consumers away from traditional hard surface products. “The versatility of LVT—tile or plank—makes it an ideal solution for any number of residential, commercial and project-oriented applications,” said Amanda O’Neil, product manager, Armstrong. “This multi-tasking ability has allowed LVT to migrate into builder, multi-family and residential-remodeling applications. The large space in which LVT operates, in turn, has afforded manufacturers the means to introduce differentiated product across a wider front, ebbing the march toward commoditization.”

Residential report
With respect to end-use markets, residential resilient accounted for the bulk of activity in the category. FCNews research show residential resilient sales reached $2.236 billion, a whopping increase of 28.9% over the prior year. Most executives found the greatest growth within this category to come from replacement/ redesign in both multi- and single-family homes. However, some executives also cited an increase in the new home construction segment.

Jonathan Klinger, chief marketing officer, Tarkett North America, explained the residential market is roughly an 80/20 split between replacement and new construction, respectively. “Within new construction we believe most of the volume is in single-family homes. The reason for that is there is roughly double the number of homes being built relative to multi-family units, and homes have larger floor space.”

Karndean’s Browder also attributed growth in the residential sector to replacement and redesign business, but he also highlighted a shift of LVT into builder applications. “Recently, LVT in the builder sector has started to show great promise, especially as the builder market for single-family homes has started to improve.”

Broken down by category, resilient sheet was down 0.2%; however, fiberglass was up 4.8% and felt was down 6%. Residential LVT and WPC (including rigid products) made up a large portion of residential sales (totaling $1.512 billion). Meanwhile, suppliers say residential tile was flat in 2016, simply maintaining itself against the bigger LVT, WPC and sheet products.

While LVT and WPC took home a larger piece of sales, sheet still dominated the residential sector in terms of volume. For 2016 sheet accounted for 1.156 billion square feet, or 47% of the category. Part of sheet’s appeal, experts suggest, is the cost as well as the aesthetic attributes.

“Sheet vinyl is still a tremendous value and brings a lot of features and benefits to the end user,” said Eric Erikson, vice president sales and marketing, North America, Beauflor USA. “For the price point it’s hard to find a better value.”

Screen Shot 2017-07-05 at 9.21.23 AMSome observers see a value proposition between LVT and sheet vinyl. “The glass sheet products have some of the same positive characteristics as LVT; they are waterproof and very durable,” said Jimmy Tuley, vice president of residential resilient for Mannington. “The other nice thing about sheet is you can [achieve] some looks that you cannot do with LVT. I think that there has been a nice improvement in the visuals of sheet vinyl. [Sheet] really has beautiful visuals and you can get it at a decent price.”

Functionality and affordability are two factors keeping sheet relevant in the residential sector. “It’s viewed as very functional and probably the most affordable category,” said David Sheehan, senior vice president of product management, IVC US. “For that reason it still commands a pretty large share of the marketplace in both the home center and specialty retail channel. Sheet is a great value proposition to the customer.”

LVT and WPC are not too far behind, however, with a combined 42.3% of residential volume. In fact, research shows WPC (which includes rigid core products) more than tripled in volume from 2015. Executives cite WPC’s features, ease of installation and various innovations as three of the product’s main selling points.

“The features and benefits of WPC are hard to dispute: waterproof, kid-proof and pet-proof, to name three,” said Jamann Stepp, director of marketing and product management, USFloors. “The ease of installation including no acclimation required and the ability to install over most any hard surface substrate are properties that dry back and sheet vinyl cannot offer. Minimal subfloor prep is yet another factor along with greater dimensional stability. The innovation within the WPC category is second to none: high-definition visuals, mixed widths and planks along with enhanced/deep beveled edges are properties and attributes not found in sheet or dry back products.”

Executies such as Piet Dossche, CEO of USFloors, view rigid core as “a step up from solid LVT.”

LVT is gaining more ground as it now finds itself in all areas of the home. “Originally, LVT became popular as a water-resistant, hard surface product ideal for mainly kitchens and sometimes spaces such as a laundry room,” Armstrong’s O’Neil explained. “In the past, LVT would not be considered for bedrooms or other larger living spaces throughout the home. However, this perception has changed in recent years.”

With respect to installation type, residential dry back LVT is down slightly from 2015, with a large portion of the market containing click and grip-strip, research shows. Again, experts say this shift is likely due to an increase in WPC sales, along with the ease of installation often offered by click and grip-strip products. Loose lay products had a small impact on the category.

“Floating LVT—solid click and now rigid core—is becoming the preferred format in residential applications due to the ease of installation,” said Gary Keeble, director of marketing, Metroflor. “The advent of rigid-core products has enhanced the ease-of- installation proposition by reducing or eliminating costs related to subfloor prep and disposal of the existing floor in many cases.”

While click is seen as a favorite, Lindsey Nisbet, head of product marketing and development, EarthWerks, explained both click and glue-down options have their positions in the market. “While there is clearly some overlap in the marketplace, the fact remains that no matter the specification, performance needs or style, there is an LVT/P to fit any requirement. As development continues to be more advanced and styling gets better—and more realistic—LVT/P will [hold] the leader position in industry growth. There is literally a style for any need.”

Some executives believe the glue-down market is still growing. “There are still several reasons to use a glue-back floor, especially when you’re going in to do new construction,” Mannington’s Tuley explained. “Things like being able to put cabinets over the top of the product or permanently attach it to the floor without moldings or transitions—and being able to do longer runs—all make glue-down a continued attractive product.”

Screen Shot 2017-07-05 at 9.21.14 AMMohawk Industries’ Holt acknowledged dry back has seen a decrease in the residential segment, but he adds: “There will always be a place for the product in two categories: multi-family and commercial.”

Some executives also view dry back as the optimal performing product, as it does not have to deal with certain issues after installation. “The best-preforming LVT, without a doubt, is a glue-down installation,” IVC’s Sheehan said. “In fact that’s why the commercial channel will always have dry-back.”

Speaking of commercial, observers believe dry back accounted for 73.3% of LVT/WPC business in 2016—3.6% increase from two years ago. According to David Thoreson, senior vice president of commercial hard surfaces, Mohawk Group, dry back is viewed as a tried-and-true product for the commercial market. He also sees promise in loose lay. “Difficulties with click systems from various manufacturers have pushed the market consistently toward dry back but also loose lay. We feel loose lay will grab a noticeable share by the end of 2017.”

Observers believe dry back will always remain king. “When you get into commercial applications, it’s a lot different from the residential side; you have things such as rolling heavy loads, foot traffic,” said Al Boulogne, vice president of commercial resilient, Mannington. “When you have something that isn’t glued down in those applications you’re opening yourself up to problems with gapping or peaking, or the floor just not performing as well.”

Tarkett’s Klinger shared a similar sentiment and explained that dry back sales are mainly driven by the commercial environment’s strict needs. “It’s primarily driven by the fact that in a commercial environment the need for both the installer and the end customer is that the installation is as robust as possible and that it’s going to be able to withstand heavy traffic.”

Commercial activity
Not including rubber, commercial resilient saw a 6.3% increase in sales, according to FCNews research. While commercial sheet was down 1.2%, commercial LVT—including a small share of WPC—increased by 16.7%. Commercial executives attribute the category’s overall growth to several factors including an increase in demand from key end-use market sectors.

“Healthcare was a pretty strong growth segment for us here,” Boulogne said. “It continues to pull through some serious volume on the resilient side. Two other segments for 2016: Hospitality is a segment that traditionally hasn’t really looked to resilient as a category but is starting to more and more. That was an emerging segment growth for us. The other similar story is corporate. That has become a growth segment as well.”

In perhaps direct relation to LVT and WPC’s percentage increase, VCT was down 5% in 2016. While some companies are concerned about VCT losing market share to LVT and other resilient products in the commercial space, others continue to see VCT as an opportunity. One of those companies is Armstrong, which recently completed a transaction to purchase Mannington’s VCT business.

Screen Shot 2017-07-05 at 9.21.07 AM“[The recent purchase] gives us a good opportunity to increase revenue within the VCT category, which has historically generated above-average profitability within our product portfolio,” O’Neil explained. “VCT is a very important product for our commercial customers, and it is a significant category within the hard surface flooring industry. We expect this transaction will enable us to increase our VCT volume and make more efficient use of our production capacity and go-to-market structure.”

Even though VCT claimed 515.7 million square feet in volume, some industry executives believe it will continue to face intense pressure from alternatives. “I think VCT is a category that is getting pinched by others,” Mannington’s Boulogne said. “LVT has a lot of performance attributes and price benefit vs. VCT. It’s getting harder for VCT to find its market position. LVT wins pretty easily in terms of style and design. VCT still has its places, but its getting pinched out as the market on the LVT side becomes more competitive.”

Other executives agree. “Due to the durability, appearance, ease of maintenance and price, we believe that VCT will continue on a downward trend for now,” Novalis’ Wu said. “Building owners are getting a premium product for pennies more a foot in comparison to a floor that requires more maintenance and usually costs 15 times more than the original price paid on VCT at the end of its life cycle.”

Rubber bounces up
FCNews research shows rubber generated $176.2 million in sales in 2016, a 4% uptick over 2015. In terms of volume the category accounted for 39.2 million square feet. Some flooring executives attribute the rise in rubber to commercial flooring’s shift away from soft surfaces. Others suggest rubber’s durability and sound control make it an ideal product for education and other highly populated/trafficked areas.

“We’re seeing universities putting them in corridors and student unions,” said Mark Tickle, director of marketing, American Biltrite. “[University] libraries are the traditional place for rubber.” He explained that while rubber has traditionally been used in post-secondary schools, it is now making moves in primary schools. He cited rubber’s recent restyling—which includes newer organic visuals and colors within patterns—as a top influencer.

Mark Bischoff, vice president of commercial sales, Tarkett North America, sees rubber being used in multi-use spaces because of its many benefits, including sound control, slip resistance, durability, flexiblility and easy maintenance, as well as thousands of texture, color and design options. “Another appealing attribute is the long-term performance record. Traditionally rubber flooring had been used in the most difficult and dangerous traffic areas of a building—the stairwells. Today, with updated visuals, that level of performance is welcome in many spaces across all segments.”

Part of rubber’s charm, proponents say, is it is suited to those end users that own their own buildings and are looking for long-term performance with minimal disruption. “Because of the unique sizes and shapes, vibrant saturated color and depth of surface texture options, we also see rubber used in retail and hospitality applications looking for branded experiences or outstanding visual impact,” Bischoff added.

Domestic vs. imports
FCNews research revealed 85.2% of the $1.724 billion LVT market is imported—a number that stood at 78.7% in 2015 and 78.1% in 2014. VCT, on the other hand, continues to be manufactured in the United States. As was the case in prior years, many executives believe U.S. production has yet to affect the market shift in domestic vs. imported products. In addition, some observers explained that even if a large shift toward domestic products did happen, imported materials and flooring would still be necessary to meet global demands.

“The bulk of LVT continues to be manufactured in Asia, and with the current LVT demand in the U.S. and worldwide, the additional domestic capacity still wouldn’t satisfy it.” Novalis’ Wu said.

Manufacturers with domestic facilities view any increase in domestic production as an opportunity to create price competition and drive innovation. “The more domestic manufacturers there are the less people will be looking to those imported products—which are really noisy in the marketplace right now,” Mannington’s Boulogne said. “Those that are making products domestically, it’s going to force us to be smarter about how we make [them] and be more cost competitive, but it’s also going to force innovation and I think we’re going to have to find ways to differentiate in a meaningful way to make sure we’re getting that share of the market.”

Domestic production also provides a great product story as well as faster delivery times, proponents say. “Having a ‘Made in the USA’ print on the carton means high quality,” Raskin said. “In addition, once a product is selected, time and place become critical. Domestic production can cut lead times down by two-thirds.”

Mohawk’s Thoreson explained that while LVT growth only offsets U.S. production, at some point the U.S. market will catch up and place pressure on manufacturers overseas. “As a result, the pricing will face significant downward pressure. Today Mohawk blends sourcing our commercial resilient collections with U.S. and believe in time U.S. production will take over all but the most specialized parts of our business.”

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Carpet: Category cedes ground, but still maintains lead position

June 26: Volume 32, Issue 1

By Ken Ryan

 

Screen Shot 2017-07-05 at 9.16.04 AMThe carpet industry, facing the onslaught of exponential growth in hard surfaces in both the residential and commercial sectors, saw scant growth in units in 2016 while overall dollars fell.

FCNews’ research shows carpet sales slid down 1% in 2016 to $8.78 billion compared with $8.87 billion in 2015. However, total volume—which includes carpet and area rugs—gained 1.2% to 11.22 billion square feet from 11.09 billion square feet in 2015. Rug sales were up 3%, marking the third year in a row in which the segment outperformed carpet.

Within the category, residential carpet sales declined an estimated 1.5% in 2016 while units were up 1.3%. Commercial sales, meanwhile, dropped 0.5% in sales and volume fell by an estimated 1.5% year over year.

Despite the falloff, carpet and area rugs make up 58.8% of the flooring industry in volume—the largest percentage of any flooring surface. There’s no doubt, though, that carpet’s dominance is waning little by little. In 2006, for example, carpet/rugs made up 66.8% of the flooring market in units.

“As an industry we have to do better,” said Tom Lape, president of Mohawk Residential. “Will it go back to where it once was? That is a longshot. Will it grow? Absolutely.”

Tale of two markets
Carpet still has its strengths regionally—in the upper Midwest and Northeast—and at both the low and high ends of the market. Engineered Floors, which is now the No. 3 carpet company in the business by market share, is flourishing in the lower-end polyester arena. Conversely, experts believe Shaw and Mohawk are operating at some of the highest profitability levels ever experienced within the industry at the high end.

Therein lies the rub in this hourglass market. The treacherous soft middle is in the $8 to $13 price range, which is dormant; below $8 and north of $13-$14 is resonating with consumers who are more style and design conscious. Meanwhile, at the upper end, soft is still percolating. Mohawk is in the fifth or sixth generation of Silk, which means consumers continue to validate the importance of soft fibers in their homes. Mill executives agree the industry must push innovation to the highest levels possible to at least forestall the continued growth of LVT/WPC and other hard surfaces. “Rather than building products that fit your assets, the industry needs to build products that fit the customers’ needs,” Lape said. “We have to figure out a way to create compelling products for our retailers, even if it is hard.”

Price erosion
Residential sales have lost some ground on price largely due to the influx of polyester. Price erosion is occurring in the builder and multi-family segments by virtue of the fact the average selling price is lower in these areas. Brad Christensen, vice president, soft surface category, Shaw Floors, said the shrinking dollars in carpet could be attributed to what he calls “the continuation of the race to the bottom in terms of PET pricing and overall devaluation of the category.” Observers believe the industry collectively needs to do more to promote the benefits of soft surfaces, even comparing its value to other surfaces. “We don’t need to give it away,” Christensen noted.

In examining carpet’s loss of market share in recent years, it’s worth noting that 10 years ago the segment was mired in a deep recession, with double-digit losses in both sales and volume. While the recovery has been painfully slow, there have been signs of positive activity.

Improvement in units can be attributed to a fairly robust builder market in both multi- and single-family dwellings as well as in the return of home equities in the retail remodel sector. Builder/multi-family continues to outperform the overall market, with builder the stronger of the two. “We are cautiously bullish in the single-family builder segment for the foreseeable future,” Christensen said.

Screen Shot 2017-07-05 at 9.16.19 AMOthers noted that with the overall residential carpet market fairly flat, that means the residential replacement carpet business is declining. The culprit? The increased popularity and consumption of hard surfaces, which continue to encroach on soft surface territory. Experts say this trend might not be reversible, at least for many years. Blame it on demographics and an aging population that is moving south and west to warmer climates. This is not a new trend; it has been going on for decades. But what has changed, to some degree, is the fact that builders are constructing homes and apartments in these markets with less carpet than they have installed in the past.

Adding to the challenges facing the residential replacement segment, the home center channel has been successful in driving volume with heavy advertising and promotions that offer “free installation” as long as consumers spend a certain dollar amount. For example, Lowe’s is currently offering consumers “free whole home deluxe installation” when they buy Stainmaster carpet and pad. While this free installation may be viewed as a gimmick (the price of installation is often built into the product, experts say), it appears to be working. Recent financial reports from Home Depot and Lowe’s confirms the floor covering department has been a growth area for big boxes.

Commercial activity
Commercial carpet, which makes up 44.6% of the overall carpet market, was estimated at $3.923 billion in sales for 2016, with specified contract sales coming in at $3.23 billion and Main Street business at $698 million.

[Note: For years a large percentage of mills considered level loop polypropylene a Main Street product, mostly installed in rental space/tenant improvement and low-end apartments and basements. Today much of this business has been lost to low-end polyester cut piles. These cut pile sales are reported as residential, not Main Street. As well, some mills break out Main Street from their specified business; others do not.]

After two consecutive years of the commercial market clearly outperforming residential, soft surface commercial backed off in 2016. The positive news is that carpet tile is growing, and in most cases at better average net selling prices than broadloom. But just as in the residential segment, soft commercial has felt the impact of hard surfaces—with LVT and its subsegment products infiltrating most sectors of the specified market. The consensus among executives is that commercial soft surface sales fell 0.5% in 2016 vs. 2015 while units dropped 1.5%.

Where is the softness? Institutional, government and clearly the independent retail segment were down. One executive said of commercial retail: “They are looking at survival budgets, not five-year projections.”

Healthcare and corporate were moderate to strong. In both segments carpet tile flourished. “Everyone loves carpet tile, from specifiers to installers,” said Ralph Grogan, CEO of Bentley Mills. “There are so many advantages out there vs. broadloom. When we introduce products we rarely ever introduce product that is just broadloom.”

At one point Bentley was predominantly a broadloom company. Today, nearly 75% of its business is in carpet tile. The company has also added LVT, albeit just 5% now but expected to grow.

Rugs
For the third year in a row, the U.S. rug business bested carpet, growing by an estimated 3% in 2016. Experts believe the segment was clearly buoyed by the growth in hard surfaces, which led to add-on sales. The popularity of custom rug programs was also a driver. Most broadloom companies now offer some variation of a custom rug program in which rugs are cut from broadloom and can be specifically tailored to the needs of consumers. Executives said they expect the custom rug trend to continue to evolve as more flooring dealers—and non-flooring outlets—get involved.

What’s preventing more flooring dealers from reinvesting in rugs is the online world as well as the space commitment. The ecommerce channel is still small but is growing double digits. Some flooring dealers have stepped up and are now selling rugs strictly online. In this way they are competing with home goods sites such as Wayfair, Overstock and Amazon. The bulk of online area rug sales are said to be mostly in the $199 and under range, although that is anecdotal; if so, online sales are not likely to impact the better goods mills just yet.

 

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My Take: The flooring industry, by numbers

June 26: Volume 32, Issue 1

By Steven Feldman

 

Screen Shot 2016-07-15 at 3.46.11 PMSo when the dust settled, FCNews’ exclusive research revealed the flooring industry in 2016 was up 5.1% in dollars and nearly 4% in volume. This is the seventh consecutive year in which dollars outpaced volume, meaning the average selling price of most products continues to rise. Attribute that to some price hikes and consumers buying higher-priced goods. Every category showed gains with the exception of carpet, which posted the slightest of losses.

All in all, the industry continues its rebound from the Great Recession. Hey, it may not be as good as the mid-2000s, but then again, neither am I.

Unless you have just awoken from a year-long coma, you know the resilient category, specifically LVT and to be more accurate, WPC/rigid core, is driving the growth. The joke on the street is one company said to the other, “How’s your sheet business?” Response: “Why? Do you want to buy it?”

A few words about our numbers, which we believe to be the most accurate in the industry. We comb government and industry data, and we speak to a lot of people—particularly on the resilient side—because it is the category driving the industry right now. Just about every manufacturer shared with us their proprietary numbers. The lone holdout was Armstrong. Repeated phone calls and emails to various individuals were left unreturned. So in this case we were forced to talk to countless individuals with knowledge of their business. We are confident we got close enough to ensure the most accurate aggregate number.

A couple of things to keep in mind about our numbers:

  1. The ceramic number we report is strictly floor tile. The general rule of thumb is flooring constitutes about 78% of the ceramic floor/wall tile market. So after we did the research and came up with the total floor and wall number, we applied the factor.
  2. Our total industry sales do not include stone flooring, which admittedly is a significant number. Why? Because we don’t feel we can apply the same degree of accuracy to the stone flooring market that we assign to every other category. Most people interviewed for this report feel there is no way to determine whether a particular square foot or linear slab of stone—be it granite, marble, slate, travertine, etc.—that gets sold is going on the floor, wall or countertop. Some stone can even wind up in other applications. So rather than just guess, we’ll leave that to you.
  3. You will notice a lower rubber number from years past. Reason being: We are only taking rubber sheet and tile flooring into consideration this year. We have eliminated the cove base, stair treads, accessories, etc. We estimate the rubber flooring market to be about $180 million. It’s probably in the $550 million range when everything else is counted. We have adjusted numbers from prior years to reflect this change.

There are several industry reports out there, and all have their own methodology. Some rely on government numbers, which are a good start. But sometimes the government misclassifies products, especially as it relates to wood. Others estimate, particularly as it relates to proprietary company information—which is fine if you’re looking to just get into the ballpark but don’t care where you’re sitting. Some industry associations do a good job of having their manufacturer members report confidential sales to a third-party research firm. The RFCI does a good job of this. The problem is it only takes into account member sales. When you don’t include companies like USFloors, Beaulieu, Raskin, Forbo and a host of imports, you are not painting a complete picture.

In any case, rest assured a lot of effort went into compiling the numbers for this issue. We are confident that you’ll find them to be as good as any out there.