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Eye on inflation: Flooring industry meets economic threats head on

June 11/18, 2018: Volume 33, Issue 26

By Ken Ryan

 

The flooring industry is operating amidst significant inflationary pressures, the likes of which haven’t been experienced since the end of the Great Recession. In fact, the U.S. Bureau of Labor Statistics reported in June that inflation climbed 2.8% in the last 12 months to its highest level in six years.

Inflation impacts all industries, including flooring, which is heavily dependent on raw materials and transportation—both of which have endured substantial cost increases.

“Inflation is a real business challenge that is facing Mohawk and many other industries today,” said Brian Carson, president, Mohawk Flooring N.A. “We hear about it in the newspapers, on TV, everywhere. We see it in our personal lives when we go to the store, the restaurant and even the gas station. The good news is our economy has strengthened over the past few years, but that strength has created constraints in many areas of our businesses—from lumber and petrochemical materials in our products, to transportation and labor to produce and deliver them.”

In response, suppliers across the board are announcing significant price increases in products. Others along the supply chain have acted in kind, passing along cost increases to their end users. At the same time, companies are working to maximize efficiencies to better withstand an inflationary period that some believe will be the new norm.

“If you have only been in business since 2006, you haven’t seen inflation—we have been in a deflationary period,” said Tim Baucom, executive vice president of the residential division of Shaw Floors. “Since the Great Recession we’re feeling legitimate inflationary pressures for the first time. Going forward, we have to manage and lead with an inflationary mindset rather than a deflationary mindset, because we are moving toward a period like in the early ’80s where even if you are making significant improvements in product, you will have to raise prices to maintain profitability, so you can reinvest in your business; otherwise, you will fall behind.”

Like other manufacturers, Armstrong Flooring has implemented price increases and surcharges in cases where it can no longer absorb the effects of inflation. According to Steve McLean, director, global procurement, the company is proactively working to manage the impact of inflation primarily in lumber, resilient raw materials and transportation costs. “We consistently monitor basic energy, petrochemical feedstocks, key raw material markets and macro-economic indicators globally to understand pricing trends. This enables us to identify risks and opportunities in the market. Our efforts include negotiating with suppliers, particularly where prices are not warranted by market dynamics. We also leverage the extensive global supply base we’ve built up over decades to give us flexibility in sourcing.”

Distributors in the middle

Flooring wholesalers feel the pain of inflation as acutely as any member of the supply chain, as they have faced steady margin erosion even while looking internally to control costs. The consensus among several of the top 20 flooring distributors is the consumer of any goods or services should bear the cost of inflation. Accordingly, wholesalers typically pass along a portion of their increased input costs to the channel, much as their various suppliers do as well.

Raising prices or kicking the inflationary can down the road is not enough, however. At the same time, both distributors and their channel partners are working together to drive efficiencies. That’s according to Scott Rozmus, CEO of FlorStar Sales, a top 20 wholesaler based in Romeoville, Ill. Whether it involves finding lighter-weight (but still protective) packaging, reviewing and optimizing delivery routes, introducing additional technology to improve the speed and accuracy of order entry, or otherwise simplifying the business process, he believes any activity that reduces cost provides an opportunity to pass less along. “While we certainly are committed to such efficiencies, at the end of the day much of inflationary supply chain pressure has to get passed along to that end consumer of the goods or services.”

As with others, Haines has certainly dealt with cost increases, particularly in the transportation arena where ELD (electronic logging devices) mandates have caused a significant contraction of capacity. The industry’s largest wholesaler has worked over the past three years to find ways around what was then a projected increase in costs.

“As this forecast has become reality, these plans are helping us,” said Michael Barrett, president and CEO, Haines, Glen Burnie, Md. “We have worked to engage companies such as JB Hunt and CH Robinson to assist us contractually to ensure our costs are kept under control. On the delivery side, we have a multi-year contract with moderate escalators that has aided us in managing through the cost component of transportation. Companies like Hunt also have much greater capability to ensure our driver pool is maintained through their capabilities in sourcing and hiring drivers. The one variable that does affect us and others is fuel. As fuel continues to rise, we will have to address the cost impact of this charge. On the inbound freight side, the positive impact that CH Robinson provides is the ability to find capacity needed to move freight. We are seeing costs escalate here as well and we continue to monitor to ensure we can achieve our goals.”

Both of these approaches are within Haines’ business model. What is somewhat out of its control is manufacturer price increases. As Barrett explained, “[Manufacturers] are balancing all the transportation cost issues but are feeling pressure on energy costs to run factories as well as raw material cost increases. In these cases where price increases are happening, we are having to pass them through. We continue to look for ways to keep our costs under control, so we can minimize any internal need to raise fees or other costs. We will maintain that approach for the foreseeable future.”

To a large degree, increases in raw materials and transportation costs are part and parcel of doing business in any industry, flooring included. What’s different now as opposed to, say, six years ago is the pace of inflationary pressure, executives say.

Several distributors began working on inflationary strategies long before inflation began creeping into the picture. Madison, Wis.-based Jaeckle Distributing, for example, has had a fuel surcharge in place for many years to help cover the fluctuations in costs that can’t always be addressed through constant price revisions. That helps keep things more stable so the company doesn’t have to reissue standard pricing as frequently. “That said, price changes are happening more frequently these days, and it can be a challenge to stay on top of things and keep all pricing updated,” said Torrey Jaeckle, vice president. “We’ve had one vendor who has increased prices three times already this year. Given the fact that product might only be ordered by a customer once a month or so, it can be confusing for customers to be getting billed different prices on every subsequent order. It also creates issues for distribution and retailers who might bid a job several months in advance only to find costs have changed significantly once the order actually comes through.”

What’s more, he added, vendors seem to be giving less notice on price increases now, which gives distributors less time to implement the increases, which means they are absorbing some increases at least for a short period of time until they can work through the logistics of implementing it on their end. “In addition, pricing has become much more complex over the past several years, which increases the time to implementation,” Jaeckle said. “Many prices are now negotiated between the retailer, distributor and manufacturer, and when prices change trying to get all three of us on the same page with regards to new pricing going forward can be a challenge and time consuming.”

Adleta, a top 20 wholesaler in Carrollton, Texas, has absorbed as much as it could, according to John Sher, president. For the first time in years it has been forced to increase its delivery costs. “However, our one-charge drop fee is still a tremendous value,” Sher explained. “Our customers have told us the consistent Adleta delivery on our trucks with Adleta-employed drivers trained to handle flooring products is one of the value adds we bring.”

Exacerbating the inflationary pressures in 2018 are increases in labor—both in hiring and retaining—insurance premiums and fuel costs. “Workers costs have gone up; entry-level costs have gone up substantially in the last three to five years but really in the last year,” said Jeff Striegel, president of Elias Wilf, a top 20 distributor based in Owings Mills, Md. “The fact is labor, insurance and fuel all continue to rise. This time it’s for real.”

Given the tight labor market, several manufacturers say they have been forced to pay bonuses for new hires and to retain quality employees.

Retailers react

To no one’s surprise, flooring dealers say they are experiencing the same pressures as everyone else. Strategies to combat the inflation differ somewhat, however. Nick Freadreacea, president of The Flooring Gallery, Louisville, Ky., said some material costs can be caught upfront and passed on in some cases or not at all. “Retail prices are usually easily adjusted, but builder/multifamily can be hard to change more than once a year,” he said. “Freight and fuel surcharges are those hidden cost that are harder to recover, and those items really eat into the bottom line of a company.”

Adam Joss, co-owner of The Vertical Connection Carpet One, Columbia, Md., said inflationary pressures haven’t negatively impacted his business since the increases get passed on to the consumer anyway. “Personally, I think there’s more to it than just labor shortages and raw material costs—it’s also a result of years of consolidation.”

In talking to many of its dealer partners, Mohawk’s Carson said he knows they have seen inflation in their costs as well—things like installation labor and rents. “At Mohawk, we are constantly investing in our plants to innovate new products, but also to innovate our processes to drive efficiencies and lower our costs and to do our best to offset inflation. Despite these efforts, sometimes the input costs rise to a degree where we have no alternative but to pass them along. I know that’s difficult, but it’s a reality in today’s markets. I think these pressures of additional inflation will be with us for a while.”

Keeping its plants financially healthy is the fuel that allows for continued investment in new products, new capacities, new services and new efficiencies, Carson added. “These investments in innovation are vital to all our businesses whether the dealer, the distributor or the manufacturer. Mohawk will always be committed to continuous innovation.”

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Shaw’s Bellera strikes a chord with retailers

June 11/18, 2018: Volume 33, Issue 26

By Ken Ryan

 

Shaw Floors’ Bellera High Performance Carpet has only been in the market for a little over a month, yet flooring dealers are already touting this new, feature-rich collection for its vast potential in soft surface.

Shaw Flooring dealers have been eager to get their hands on the collection since first seeing previews in January. Although still early in the launch, their initial impressions are very positive.

“Everything in the line is a home run—colors, pattern, fiber and Lifeguard backing, and the pricing is very reasonable for what you get,” said Steve Weisberg, president of Crest Flooring in Allentown, Pa. “If I am correct in thinking there will be more of this type product, Crest Flooring will be stocking it in the future.”

Steve Vanderhye, vice president of Banter Floors and More in Cedar Lake, Ind., noted sales have been excellent in the first month since the first displays arrived. “The customers are drawn to the styles and are excited about all of the benefits that come with this carpet,” he said. “The softness/looks of the styles, the Lifeguard backing, excellent warranty and its great pricing are the perfect combination to make this product a big success.”

Other flooring dealers likened Bellera to a top baseball prospect making his debut in the big leagues. While not ready to put the product in the Hall of Fame, they see the potential is unlimited. “I went to their show in January closed minded and wanted nothing,” one dealer told FCNews. “I said 2018 is the year of the vinyl plank, which it still is. But I have to say, I came away very impressed with their presentation on Bellera, and the color lines were impressive. If it performs the way they say it will—and with all the guarantees it has—it will be a gold mine.”

Bellera High Performance Carpet has been more than two years in the making. It isn’t an extension or enhancement of a previous line, it is altogether new. In fact, Tim Baucom, executive vice president of the residential division for Shaw Floors, said he challenged his team to start with a blank sheet of paper to create what is now Bellera. “I told them, ‘Take out your perceptions of incremental thinking.’ How would you build a great product that hits these [mid-range] price points?”

The making of Bellera was buttressed through discussions with consumers and dealers. “We looked at consumers holistically—how they purchase, what they purchase, what are their pain points, what are their concerns—and how do we develop a product to meet those needs,” said Heather Yamada, marketing director, retail, Shaw. “We know consumers really want durability and performance, but they also want beautiful. Here, they didn’t have to have one or the other, they could have both. We wanted to give them confidence that this is a great product.”

Teresa Tran, director of soft surface portfolio management for Shaw, said the vetting process also entailed product knowledge presentations and demonstrations. “For people who shop for carpet every seven to 10 years, demos are very powerful. You don’t have to visualize or imagine this product; you can see it right here in the display.”

Shaw believes Bellera can be a legacy collection of the type that 10 years from now dealers will look back and say this was one of the most impressive soft surface lines they have ever carried. “It’s certainly not a one and done,” Baucom said. “It creates a category of exciting products in the mid part of the market.”

Bellera High Performance Carpet will retail between the mid $20s and low $30s. For that, consumers get a product that has no compromises, Yamada said. “It’s not just one feature, it’s a package of features.”

After extensive testing, key attributes of Bellera have been designed to ensure that when it is placed in an active household, it will look as good after five years of wear as it did on day one, thanks to high-performance fiber that features crush resistance while retaining its softness.

The collection comes with LifeGuard Spill-Proof backing, which is debuting its new blue color on Bellera. The company believes the ‘Backed by Blue’ moniker will resonate with consumers. Bellera is also engineered with R2X Soil and Stain Resistance, which keeps spills and messes on the surface of the carpet longer for easier
cleanup. A “no surprises, worry-free” warranty is added to give consumers peace of mind. “It’s unheard of to say you won’t have to worry about spills or pet accidents on carpet, but we’ve made that possible for consumers with Bellera,” Baucom said.

Bellera hit the market with 13 new styles and over 200 product offerings in solid textures, tonals, tweeds, loops and patterns. It also offers on-trend colors and patterns geared toward a variety of tastes and interiors. “The carpet’s visual aesthetics and color options were born from trend tracking, consumer testing and countless hours of research,” said Pam Rainey, ASID, IIDA, vice president product design for Shaw. “The wide variety of patterns, textures and colors ensures Bellera can fit seamlessly into any modern to transitional home’s design scheme.”

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Hardwood price hikes slated for April, May

March 19/26, 2018: Volume 33, Issue 20

By Reginald Tucker

Price increases on select brands of hardwood flooring are scheduled to take effect this spring.

Armstrong Flooring plans to initiate a 5%-7% price hike on solid hardwood products in the United States and Canada in May. “We have experienced significant increases in raw material costs, with lumber inflation across wood species and grades, coupled with energy, transportation and operating cost inflation,” Brent Flaharty, senior vice president of sales, North America, explained. “Rising natural gas and electricity prices are increasing our manufacturing facility operating costs, and fuel and transportation rates are rising, thereby impacting our delivered cost.”

Hardwood prices are also going up at Shaw Floors. Beginning April 2, the company will institute a 10% increase on its solid products. Tim Baucom, executive vice president of Shaw Floors’ residential division, also cited significant increases in the cost of solid hardwood raw materials in the last several months. “We have done our best to absorb these increases since they began in mid-2017 while continuing to provide superior products—at the same price—to our customers. After months of resisting, we must now raise prices to cover the cost of raw materials needed to make our solid hardwood products.”

Other major suppliers are taking a wait-and-see approach. “We are not planning any price increases at this time,” said Dan Natkin, vice president, hardwood and laminates, Mannington. “But we are monitoring raw material prices very closely.”

Canada-based Mercier, which raised prices on solids back in January, is holding for now. “We aren’t planning any increases

at the moment,” said

Wade Bondrowski, director of sales, U.S. market. “However, a couple more increases [on the supply side] and we may be forced to.”

Mohawk Industries told FCNews that it is not its policy to comment on any inquiries regarding price increases.

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Shaw introduces innovation in resilient flooring

Shaw-Floors-Logo-300x106Cartersville, Ga.—Shaw Industries announced a new innovation in resilient flooring with the introduction of EcoWorx resilient. Designed with future lifecycles in mind, EcoWorx resilient is Cradle to Cradle v3.1 Bronze certified and offers a high performance vinyl alternative for commercial resilient flooring applications.

“By introducing a sustainable product that led the market in design, performance, materials chemistry and service, Shaw Industries set a new industry standard with EcoWorx carpet tile. We are now changing the hard surface category with EcoWorx resilient,” said Tim Baucom, vice president of Shaw Commercial.

A sustainable resilient flooring solution, products are phthalate- and PVC-free and offer guaranteed reclamation and recycling at end of life. Engineered to withstand the demands of intense-use environments, EcoWorx resilient features a wear layer to protect against scratches, scuffs and stains, and products are backed with lifetime warranties.

“Adding EcoWorx resilient to our wide range of hard surface product offerings is a result of listening to the market and providing new solutions that meet changing customer requirements,” Baucom said. “By diversifying our product line, customers have more choice, and we are better prepared to respond to changing market needs in the future.”