Posted on

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.

Posted on

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.]

 

Posted on

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.”

Posted on

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.”

Posted on

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.

 

Posted on

What we know about today’s ‘plugged in’ consumer

June 29; Volume 30/Number 1

By John Weller, vice president, FloorForce

Screen Shot 2015-07-02 at 4.09.44 PMIn the last 24 months over 10 million consumers looking for flooring online were delivered to retailers with FloorForce websites. Monitoring online consumer behavior takes the guess work out of building better websites and increases consumer conversions from online searches to in-store purchases. FloorForce has gathered some key statistics regarding the behavior of flooring consumers from 2013 to 2015.

Mobile usage

  • 45.2% of all online searches for floor covering or related products/services

are now coming from a mobile device.

Ratings and reviews

  • When making a purchase, 91% of consumers consider an online review

more important than input from a salesperson in a store

  • 86% of consumers would pay more for a residential service provider with

higher ratings and reviews

  • 94% of consumers report being influenced by online reviews
  • 74% of consumers searching for residential services are now visiting sites

like Yelp, Google+ Local, Angie’s List & BBB for information

Conversions

  • 71% of all website traffic include visits to the product catalog of a flooring

retailer’s site

  • 78% of the phone calls made to a flooring retailer are made while the

consumer is on a catalog page

  • The number of consumers making online appointments on retailer

websites using FloorForce has increased 139%

The consumer of today is a “digital ninja” and she is never without her phone. She does not trust most advertising, but listens intently to the opinions of other consumers online. She expects immediate satisfaction and is becoming quite comfortable with giving her opinion about products and services online.

 

Posted on

Carpet: Tough first quarter slows residential

June 29; Volume 30/Number 1

By Ken Ryan

If you had asked a carpet manufacturing executive for his 2014 outlook back in the fall of 2013, his prediction would have been overwhelmingly bullish based on the strong push the category made in the latter half of the year.

As we now know, 2014 was the carpet version of the “best laid plans of mice and men;” instead of a momentum-building 2014, the industry stumbled out of the starting gate and never really regained its footing.

“Many thought ‘14 was Screen Shot 2015-07-02 at 3.11.00 PMteeing up pretty well but the weather in the first quarter really affected the industry and we never seemed to catch the consumer by the end of the year,” said Tom Lape, president of Mohawk Industries’ residential business. “The industry did come back—but not enough.”

Randy Merritt, president of Shaw Industries, said, “Compared to 2013, which looked like a solid beginning to the recovery we all looked forward to, 2014 was disappointing.”

Indeed, 2014 got off to a rough start. Housing starts were slowed due to a harsh winter in many parts of the country; recovery was slow to get going and any revival was unable to keep the segment from posting a red number for the year.

FCNews research revealed that carpet sales barely moved the needle, inching up 1.3% to $8.808 billion from $8.696 billion. The category’s high water mark was 2006 when carpet checked in at $12.587 billion, which means carpet is down 30% from its peak. When combined with 4% growth in area rugs during 2014, soft surface now stands at $11.209 billion, representing 44.9% of total floor covering sales.

While carpet continues its sales growth, hard surface is taking bigger and bigger bites out of its share of the total floor covering market. To put things in perspective, carpet held a 46% market share in 2013, 47.4% in 2012 and as much as 51.3% in 2008.

Rugs performed better than carpet in 2014, a reversal from 2013 when they lagged behind. “I think there were several factors that contributed to this growth,” said Jonathan Witt, senior vice president, Oriental Weavers. “First off, we saw a return to slightly higher price points and better goods. There was also an uptick in new home development and remodels. Both of these things confirm the increases we’ve seen in consumer confidence of late, and the overall increased willingness to spend on home accessories.”

In another departure, commercial carpet outperformed residential in 2014 after residential had the upper hand in ’13. While residential dollar sales were down 0.6% in 2014 and residential volume was down 0.2%, estimates of commercial sales were up an estimated 4% in 2014 to $3.881 billion, or 44.1% of total carpet sales.

What happened?Screen Shot 2015-07-02 at 3.11.25 PM

A year ago, top executives were pointing to 2013 as a very good year, perhaps the beginning of an upward swing for carpet. That momentum took a hiatus in 2014, however, with the brutal winter blamed for killing the rally. Unlike the 2015 winter, which was particularly brutal in New England, 2014 cut a large swath throughout the country including the Southeast region that was paralyzed by several storms.

However, weather was not the only hindrance. Consumer spending for remodeling was slower than expected, and the residential mix continued to shift with lower-priced PET polyester growing faster than other fibers.

Lape said the consumer wasn’t “peeking out” as much as expected, a reference to holding back on purchasing. “It’s an improved environment but still a tough business out there. I sound like a broken record when we talk about a bifurcated market, but it’s there. The upper end of the market continues to be strong and the low end was strong—it is that middle ground that is tough.”

At the high end, the factors that drive the economy were favorable in 2014—real estate prices came roaring back, bonuses improved for top-tier executives, and that translated into higher-end remodels seeing strong activity. “All those tick marks were pretty good for the upper end but it did not cascade across the whole market,” Lape said. “There was a lot of hand-to-hand combat in ’14 collectively.”

The commercial story

FCNews research suggests the specified commercial carpet market came in at $3.14 billion, while Main Street accounted for another $669 million in the mix, giving commercial total sales of $3.881 billion.

[Editor’s 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, while others do not.]

Carpet tile continues to be a hot product in the commercial space. 2014 marked the first time mill executives estimated carpet tile surpassed broadloom as a percentage of the business by a 52-48 margin; in 2013, that margin was reversed in broadloom’s favor. Carpet tile’s growth has been taking share from broadloom in Main Street as well as higher end specified.

“The commercial business in 2014 fared better than residential primarily due to the continued growth in carpet tile,” Merritt said. “As for the average selling price of carpet tile, we are seeing more activity in lower-priced carpet tile but that is being offset by more higher-end business as well. Over the last three years neither our broadloom nor tile average prices have moved very much.”

There were parallel factors affecting both residential and commercial in 2014—a weather-influenced first quarter, a better second quarter, a disappointing third quarter, and, at least on the commercial side, a strong fourth quarter.

John Wells, president of Interface Americas, said the commercial segment really got going in August of 2014, with the corporate market serving as the catalyst. “The corporate office market had been choppy, really good in some places—like the tech sector on the West Coast or where there are pockets of energy interests such as Texas. What you began to see was fairly across-the-board improvement. We finally saw things catch up; office vacancy came back.”

An improving job market in 2014 encouraged corporate rally. To attract worthy job candidates and keep them away from rival companies, corporations invested in their physical structure to entice recruits. That, in turn, stimulated the market. “Corporate is more than 50% of the commercial market,” Wells said, “so any positive movement in corporate bodes well for the entire segment.”

Fiber/yarn systems

The pace of technological innovation in the last five years has dwarfed anything seen in the previous 20, according to mill executives. Lape said the carpet industry is in the midst of a “fiber engineered transfer” from chemical companies to the mills.

“At one time, the fiber expertise in this industry rested with BASF, Honeywell and DuPont; now the fiber expertise is with the manufacturers. What you are seeing is the innovation of fiber engineering coming up more on the manufacturing side.”

These innovations in intricate processes have cScreen Shot 2015-07-02 at 3.11.14 PMreated truly differentiated offerings than what existed just a few years ago. “We, as an industry, are creating better performing, softer carpets that relay back to fiber, which fundamentally makes better carpets,” he added.

Merritt offered that manufacturing innovations in polyester fiber have allowed mills to make aesthetically appealing products that will perform in the right applications. These innovations include new heat set technology to lock in twist. “All of this is improving product performance while still living up to the more value-driven sales proposition polyester provides.”

Nylon is still the dominant fiber used in commercial and remains the best performing fiber for carpet overall. “We are seeing a lot of consumers and dealers asking for more nylon,” Merritt said. “Over the past several years, fiber innovations have enabled us to create a softer product for the consumer without sacrificing performance.”

Posted on

Scoring flooring

Industry Stats for 2014

June 29; Volume 30/Number 1

While the flooring industry continues its recovery from the prolonged recession, the satisfying gains it posted in 2013 in value and volume slowed somewhat in 2014. A harsh winter that greatly hindered first quarter sales, coupled with inconsistent new home construction throughout the year (single-family housing starts were 11% lower than initially forecasted), left the industry with growth of 3.6% in dollars and 1.8% in volume compared to the respective 5.5% and 3.8% growth in 2013.

When the dust settled, floor covering sales in 2014 totaled $19.599 billion and 17.956 billion square feet. While these numbers are well off 2006 highs of $24.715 billion and 26.36 billion square feet of flooring sold in the U.S., these figures represent the fifth consecutive year of dollar growth and third straight year of volume increases. On an even more positive note, the average price per square foot of all flooring was $1.09 in 2014, up about two cents from 2013. The average selling price is also up significantly from 2009, when it was $0.96.

To put things in further perspective, floor Screen Shot 2015-07-02 at 3.01.29 PMcovering sales in 2014 were at its highest level since 2008’s $19.743 billion and were up 21.1% from 2009, when the industry bottomed out at $16.189 billion.

The good news doesn’t end there. More floor covering was sold last year in the U.S. than in any year since 2008. Unit growth is up 7.3% from 2011’s low point.

(Editor’s note: FCNews does not include stone flooring in its aggregate total, nor does it include ceramic wall tile. In addition, rubber flooring numbers include sheet, tile, accessories and cove base. Some numbers from years past have been changed slightly to reflect updated information.)

Also for the third consecutive year, every floor covering category showed growth in both dollars and units with the resilient category continuing to be the locomotive powering the industry. Within resilient, luxury vinyl tile has been the catalyst for this explosive increase.

In 2014, resilient posted the largest percentage gain of any flooring category, rising 8.4% to $2.392 billion from $2.206 billion in 2013. Since 2009, the category has increased a stunning 36.6% and is now at its dollar high point in recent history.

Resilient now accounts for 12.2% of the total flooring market in dollars and 15.1% in volume after a 3.8% rise in units to 2.69 billion square feet. In 2013 resilient held an 11.7% share, up from 11.3% in 2012 and 10.8% in 2008. Interestingly, its market share in volume has stayed around 15% for the last seven years. That suggests resilient’s average price point increased by virtue of the migration from sheet to LVT.

FCNews research reveals how LVT is driving category growth. From nearly $750 million in 2012 to $948 million in 2013 and $1.142 billion in 2014, LVT rose 52.3% in two years. It also carries with it a premium price tag as it comprises 47.7% of the category’s dollars but only 26.4% of its volume. To illustrate its growth, those numbers were 43% and 22.3% in 2013 and 37.4% and 20.6%, respectively, in 2012.

LVT increased significantly in both residential and commercial markets—dollars and square feet—in 2014. Residential LVT saw a 14.1% increase in square footage from 392.2 million in 2013 to 451.5 million, making up 55.2% of the LVT market in dollars and 63.7% in volume. The commercial market rose from 194 million square feet to 257 million, a 32.5% increase. While residential brought in more dollars—$630.5 million—last year, commercial LVT posted a bigger percentage increase, rising 23.6% from $413.75 million in 2013 to $511.25 million in ’14.

The versatility of luxury vinyl—tile or plank—makes it an ideal solution for any number of residential, commercial and project-oriented applications. 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 of introducing differentiated product across a wider front, ebbing the march toward commoditization.

Originally, LVT became popular as a water resistant, hard surface product that was ideal for mainly kitchens anScreen Shot 2015-07-02 at 3.02.36 PMd sometimes spaces such as a laundry room. In the past, LVT would not be considered for bedrooms or other larger living spaces throughout the home. But in recent years this perception has changed.

“Consumers and retailers quickly understood that the product was a natural fit for wet areas because of its inherent water-resistant properties,” said Ed Duncan, Mannington’s president of residential business, “but they also started looking at LVT as a product that was easily moved into a lot of other spaces because of its various performance attributes. The ability to create a product that mimics virtually every hard surface type is what really drove LVT into more spaces.”

Also driving the category are its floating options, be it non-skid backings, click or self-stick strips. However, traditional glue down is still a large part of the market because of the lower price points in addition to the hesitation of the commercial market of using a floating product.

As LVT grows, it is taking share from other resilient categories, especially vinyl composition tile (VCT), but sheet vinyl as well. Sheet vinyl—both residential and commercial—was down 4.5% in dollars in 2014 to $756 million from 2013’s $791 million. The commercial market took the big hit, declining 13.9% in dollars from $254.24 million in 2013 to $219 million last year. The residential segment was flat at $537 million (compared to $537.2 million in 2013). Sheet remains the volume leader in residential resilient sales with 60.2% of the market, but comprises only 43.2% in dollars. LVT is now at 50.7%

Despite less than robust numbers, sheet vinyl remains a viable product within the resilient category. Some executives, including Paul Murfin, co-CEO of IVC US, call sheet “the single best value product in the industry.”

Murfin said sheet provides a particularly compelling option for younger consumers who want the look of a really good floor without the price tag associated with it. As he put it, “People don’t know it is sheet vinyl, they just see a great looking floor.”

Within sheet, glass-backed is growing at the expense of felt, and that trend is expected to continue. Experts say some of the shift toward glass-backed is because of ease of installation, as it is demonstrably easier for floor layers to work with glass-backed sheet vinyl, especially in smaller areas—particularly in new home construction—than it is felt. Other factors driving fiberglass are cushioned comfort underfoot, ease of repair and affordable price points. FCNews analyses suggest fiberglass now constitutes more than 70% of the sheet vinyl market in terms of dollars and over 60% in terms of volume.

As the overall flooring market pivots toward hard surfaces, resilient flooring is poised to reap a sizable portion of that shift because of its sheer size and for offering an incredible value through price and durability. That value proposition is further buttressed by the numerous design options that are available in different constructions. It all adds up to an exceptional product that provides residential and commercial customers with an ideal flooring solution that doesn’t break the bank.

Carpet

There may be no stopping the trend away from soft surface to hard surface flooring. Where carpet traditionally resided (hotels, bedrooms), LVT and other hard surface products are now being installed.

Some executives say it is because carpet is not as highly desired as LVT, or is not the aspirational product hardwood is. There is tangible evidence of this shift in the numbers. As recent as 2010 carpet and rugs commanded 66.2% of the flooring market in volume; in 2014 that number was 62.15%.

Which is not to suggest carpet is going away any time soon or isn’t still a major segment of the industry; indeed, it still represents a majority of the market at 44.9%. In 2014 residential sales fell an estimated 0.6%; volume was down 0.2%. Estimates for commercial sales showed an increase of 3.5% in sales to $3.88 billion, or 44% of total carpet sales. Rugs helped the overall soft surface number with a 4% increase; carpet and rugs now comprise 57.2% of industry dollars vs. 61.2% in 2010.

On the contract side, the corporate segment—which accounts for 50% of specified commercial—experienced a strong second half. This was in part because of an improved jobs market, which meant more corporations and firms were investing in their workspaces to attract top talent.

A shift in demographics is also impacting carpet. Senior living, which can be classified as both health care and multi-family, is a particularly active segment that offers tremendous opportunity now and in the future as anScreen Shot 2015-07-02 at 3.02.47 PM aging population naturally prefers the softer flooring surface.

Mixed-use development also presents a prime opportunity for the foreseeable future with increased urbanization trends and both residential and commercial flooring needs. That demand will continue to spur new development as well as the redevelopment of existing properties.

On the product side, carpet tile continues to grow as a percentage of the business and now accounts for 52% of the mix on the commercial side; in 2014 modular carpet trended toward higher priced products, which helped boost overall sales even while units were essentially flat.

From a design trend perspective, shapes other than the classic carpet tile square trended in 2014, with the introduction of hexagons, rectangles and facet or rhombus shapes, presenting endless opportunities for the A&D community.

In terms of fiber, nylon’s share in residential carpet has been trending down; it was estimated to be 40% in 2012, 31% in 2013 and around 29% in 2014, although some estimates are a bit higher. The strong growth in multi-family helped fuel the trend as facility managers opted for less expensive carpet since replacement cycles are 35% to 50% higher than those of single-family homes. PET’s biggest benefit, experts say, is its value proposition due to the lower raw material cost compared to nylon. As such, polyester continues to grow, especially the solution-dyed component.

An encouraging note for the carpet industry is that the pace of technological innovation in the last five years is unlike anything seen in the previous 20, executives said. Whereas chemical companies such as BASF and DuPont were the fiber innovators in the past, today’s major mills are driving design innovation through the use of new technology and machinery that can create uniquely differentiated patterns, twists and colors.

Stain and soil resistance protection that is incorporated into carpet fiber continues to play an important role. Some of the newest entries into the market include moisture resistance backing that provides greater assurances for homeowners worried about clean up.

A return to slightly higher price points and better goods helped the area rugs category increase 4% in 2014, an increase of 1.7% over the previous year. An uptick in new home development and remodels, and consumers’ willingness to spend on home accessories, benefited the rug segment in 2014.

Hardwood

“Stabilization and regrowth” was the headline for the hardwood category in 2014. While not sexy like LVT, hardwood has been on a slow, steady growth path since ebbing in 2007 during the Great Recession. After hardwood sales reached its high in 2006, it took until 2013 for the market to recover to near 2008 levels.

And while 2014’s sales in hardwood flooring grew 7% to $1.943 billion, and 6.1% in units to about 770 million square feet, it was still the second best year since 2007 in terms of growth, trailing only last year’s 10.7% increase. More so than just the numbers, industry executives are pleased the segment is on firmer, more stable footing than it has been for some time.

Dollar growth outpaced units in 2014 largely because of price appreciation in solid wood driven by the run-up in lumber that led to multiple price increases. The industry continued to realize price appreciation for the first eight months of the year before leveling off. That would explaiScreen Shot 2015-07-02 at 3.03.09 PMn dollar growth outpacing units.

Stability in raw material costs, especially in the second half, was a major story in 2014. The availability of lumber and veneer improved considerably as the year progressed to the point where supply adequately met demand. With raw material costs in check, hardwood suppliers could turn their attention from raising prices to selling more products.

Were it not for a tough first quarter in 2014, largely attributed to the harsh winter weather, hardwood sales in percentage growth may have topped 2013’s numbers. Another detriment was housing starts, which proved more sluggish than expected.

“Everyone was thinking about a breakout year, and that simply did not materialize affecting overall growth for the year,” said Luc Robitaille, vice president of marketing at Boa-Franc, makers of the Mirage brand.

As it was, the 7% increase in sales and 6.1% bump in units amid improving economic conditions gave executives reason to believe the recovery is here to stay.

Michael Martin, president and CEO of the National Wood Flooring Association (NWFA), said most of the important data was trending upward. “Single-family construction was pretty good. On the retail side, mid- to upper-end hardwood saw a resurgence in demand, and there is also still some pent-up demand out there that we saw in 2014.”

Hardwood suppliers that source domestically—including U.S. and Canadian manufacturers—are seeing the effects of the growing Made in the USA movement (or for Mirage, Mercier and several others, the pull of Canadian quality). Executives are finding that not only do consumers feel more confident trusting products produced by American manufacturers under U.S. regulations, there has also been a renewed pride in purposefully supporting brands that provide American jobs.

In addition, most retailers and distributors are maintaining lower levels of inventory in response to the tightening overall economic conditions. These lower inventory levels require more rapid service; domestically made products are capable of filling those quick-turn requests better than most imports, and this trend continued during 2014.

Another trend that continued was the movement toward engineered hardwood from solid. Engineered picked up at least 1 percentage point—some would argue a bit more than that—and now commands about 54% of the market. Executives say engineered is growing in demand because it offers numerous options at affordable prices with a design aesthetic that resonates with consumers, including wide planks.

Hardwood flooring continues to trend toward wider, longer planks, playing into engineered’s wheelhouse. As Don Finkell, CEO of American OEM put it, “Solids don’t do wide well.”

Laminate

Although the category has been under pressure from LVT, industry experts agree the intensity of the threat has finally died down and laminate remained relatively flat throughout 2014. FCNews research revealed that laminate was relatively stable with slight increases in both volume and dollars.

For the third consecutive year, laminate showed gains—1.1% in sales to $1.135 billion from $1.123 billion in 2013; and 0.6% in units to 1.066 billion from 1.060 billion square feet in 2013. While 2013 results foreshadowed some price stability, last year’s results showed an increase in average selling price for the first time after years of decline to $1.06 per square foot—back to where it was in 2012.

The consensus among industry leaders is that the commoditization of laminate pricing has resulted in more of the business going to the home centers; where specialty retailers have made their mark is in the mid- to higher-end products that are 8 to 12 mil with distinctive wood-like characteristics and features. Specialty retail accounts for an estimated 30% of the laminate business, with the rest found in home centers and Lumber Liquidators.

Laminate remains very much a residential replacement product, however the category did see some growth in the new construction market, coming in at 10%, up from 8% in 2013. With the help of advanced digital printing, manufacturers have been able to develop laminate products that provide realistic, at times exotic, visuals and replicate natural textures of hardwood. This R&D ability creates a “wonderful opportunity for laminate to encroach upon hardwood in the builder segment,” said Steve Roan, sales and marketing director, North America, Beaulieu Flooring Solutions USA.

Laminate is also making small strides in penetrating the builder segment; thicker, premium (namely 12 mil) products have become a more appealing alternative to higher priced hardwood flooring.

At its core, laminate offers numerous performance benefits, and as long as it does so it will remain an enduring presence in the floor covering market. “Laminate is still the most scratch-resistant flooring surface outside of concrete,” Mannington’s Natkin said. “Secondly, NALFA certified are some of the greenest products there are. The one Achilles heel is moisture, and we’re working on that. The laminate category has good long-term viability.”

Ceramic tile

As much as any category, ceramic is tied to housing starts, which did not match 2013’s 18% increase, the best year for builders since 2007. In addition, ceramic is closely tied to new home sales, which also did not live up to 2013’s highest level since 2008.

Still, ceramic sales in dollars were up 6.2% in 2014 to $2.38 billion, although volume was relatively flat, up 0.5% from 1.98 billion square feet to 1.99 billion feet. Ceramic now commands a 12.1% market share in terms of dollars and an 11.2% share in volume. This is up from 9.8% and 7.6% in 2009.

However, ceramic’s leap comes with a caveat. Nearly 70% of all ceramic tile sold in the U.S. is imported, and the product’s value is calculated at point of entry into the U.S. In other words, it is recorded when it lands on U.S. soil. So, much of ceramic tile’s increase was attributed to suppliers beefing up their inventory levels and not reaching first point of sale.

Italy, China, and Mexico—in that order—represent more than 75% of the dollar value of ceramic tile imports into the U.S. in terms of dollars. Because of the many types of ceramic tile, nearly all U.S. manufacturers import product to supplement their domestically produced product. In terms of units, Mexico and China lead the way as much of the lower-priced products come from south of the border.