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Made in the USA: Domestic production hits its stride

April 24/May 1, 2017: Volume 31, Issue 23

By Ken Ryan

 

Screen Shot 2017-05-01 at 2.36.11 PMOn April 18, President Donald Trump signed an executive order directing federal agencies to implement the “Buy American, Hire American” rhetoric of his campaign. The executive order came as part of the President’s effort to prod U.S. businesses to invest more money domestically and create jobs for American workers.

If the President was looking for an industry that could serve as the role model for this cause, he might consider the flooring sector. Led by the major manufacturers, the flooring industry has been doing its part to bring manufacturing back to the U.S. and create thousands of new jobs.

Anecdotal research shows by the end of 2017, there will be 13 new LVT, sheet, rigid core and carpet plants completed in the U.S.—a testament to the so-called “reshoring” or onshoring movement—a term used to describe the return of manufacturing to U.S. shores.

Cathy Gundlach, vice president of merchandising for Flooring America/Flooring Canada, International Design Guild and The Floor Trader groups, said there is a lot to like with this trend. “We continue to see manufacturing plant investments and openings into the U.S. marketplace for the production of flooring from our key suppliers, which in turn is growing the assortment of Made in USA goods available to our consumers.”

Industry observers say onshoring is rapidly gathering steam among flooring manufacturers. While full capacity has been slowly ramping up, executives point to 2017 as the year when production really gains a head of steam.

What manufacturers are doing
Shaw has invested significantly in manufacturing capacity with the recent completion of its new LVT facility in Ringgold, Ga.; the opening of a new carpet tile facility in Adairsville, Ga.; the expansion and modernization of an extrusion facility in Columbia, S.C., and the expansion of its hardwood manufacturing facility in South Pittsburg, Tenn. “In 2017, we’ll truly begin to see the benefit of those investments with each entering a full year of operation,” said Randy Merritt, president. “That gives us even greater ability to meet customers’ quality and service needs with a diverse portfolio of products.” In addition, by the end of 2017, Shaw will have completed its 67,000-square-foot Create Centre in Cartersville, Ga., which will house the commercial division’s marketing and design teams.

Mannington, which launched its “Let’s Make Some Noise” campaign promoting domestic manufacturing back in 2011, now has its production tentacles spread throughout the U.S. The company manufactures all residential and commercial sheet vinyl as well as VCT in Salem, N.J.; all laminate in High Point, N.C.; all carpet in Calhoun, Ga.; all rubber in San Jose, Calif., and Eustis, Fla.; more than 80% of hardwood in Epes, Ala., and High Point, N.C.; and most LVT in Madison, Ga.

Not to be overlooked, Armstrong continues to support U.S. manufacturing. Alterna, its highly successful engineered stone, is produced in Kankakee, Ill. This is in addition to the LVT plant it added in Lancaster, where the company repurposed an unused building and outfitted it with state-of-the-art equipment to manufacture Vivero luxury flooring and Natural Creations with Diamond 10 technology.

Mohawk operates domestic manufacturing facilities for every category of product—including carpet, hardwood, laminate, ceramic and resilient—and has a footprint that stretches from coast to coast. It recently expanded its plant in Melbourne, Ark., to be the only one in the country capable of producing both solid and engineered prefinished hardwood flooring with larger dimensions and more characteristic styling. Meanwhile, Mohawk’s divisions are making big news with new production facilities popping up all over. IVC’s Moduleo LVT collection is U.S. made. Dal-Tile’s plant in Dickson, Tenn., has reached full production and is making color-body porcelain that will boost capacity and technical capabilities.

Other tile companies such as Crossville and Florida Tile are growing their U.S. production roots. The latter’s manufacturing plant, distribution center, corporate offices and showrooms are all located in the U.S. Florida Tile has joined over 180 other domestic building product manufacturers in the “We Build American” initiative.

Mullican recently announced plans to bring full production of all sawn engineered products to the U.S. beginning early summer 2017. Plans to transition additional overseas production to the U.S. will be announced in Q3. “Since 2012 we have converted much of our engineered hardwood production from imported to domestically manufactured product,” said Neil Poland, president, Mullican Flooring. “The transition of our sawn lines to the U.S. is a natural extension of that movement.”

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Trump’s policies aim to boost manufacturing

April 24/May 1, 2017: Volume 31, Issue 23

By Reginald Tucker

 

Screen Shot 2017-05-01 at 10.05.31 AMLower corporate tax rates coupled with a slightly weaker dollar, less regulation on business and renegotiation/restructuring of historically lopsided trade deals. These are the key measures that Harry Moser—president of the Reshoring Initiative and one of the foremost authorities on all things related to onshoring—believes will give U.S. manufacturing a much-needed shot in the arm. “If President Trump gets those things passed, I see millions of manufacturing jobs coming back to the U.S. over the next 10 years.”

Following the election of President Trump, leaders of the Reshoring Initiative —a non-profit advisory group focused on bringing American jobs back home after they were outsourced to other countries—recommended a robust national strategy to achieve then President-elect Trump’s goal of returning millions of U.S. manufacturing jobs. During the campaign, Moser said, candidate Trump focused on seemingly uncomplicated actions such as imposing 35% to 45% tariffs on Mexican and Chinese goods, renegotiating trade agreements such as NAFTA and cutting the corporate tax rate to 15%. President Trump, he noted, will need to utilize a broader portfolio of actions, especially those that are proven and can be unilaterally implemented by the U.S. and passed by Congress.

“The country has a unique opportunity to address a broad range of economic and social issues,” Moser said. “Reshoring’s success bringing back hundreds of thousands of jobs in the last six years despite the headwinds faced by U.S. manufacturing is proof that millions can, and will, be brought back when the headwinds are eliminated.”

Screen Shot 2017-05-01 at 10.06.04 AMThat movement may have already begun, Moser said. By his count, the rate of reshoring announcements has doubled in November and remained at that level. One prominent example is the Carrier Corp. case—the commercial refrigeration company that was persuaded by then Presidential candidate Trump to scale back jobs it had planned to outsource to Mexico.

At the same time, there are critics of Trump’s economic policies who argue that his proposed tax cuts—which would, theoretically, fuel investment, hiring and economic development—would actually result in $6 trillion in lost revenue over the next decade (“Donald Trump’s Economic Plan, Up Close, Doesn’t Add Up,” The Wall Street Journal).

Trend or anomaly?
The reshoring phenomenon is not a passing fad, according to Moser. If you look at the balance of flow of jobs going back, say, 15 years ago, the U.S. was losing about 200,000 manufacturing positions a year to offshoring. But by 2016, he said, we were—net—bringing in 20,000-30,000. “That’s a reversal of about 250,000 per year. We’ve gone from a huge net loss to a moderate gain.”

Moser is primarily seeing more manufacturing positions crop up in industries such as transportation (automotive, specifically), machining, electronics and, surprisingly, apparel. The regions generating the most investment, he said, are the Southeast U.S., Texas, Michigan and Ohio. “GM and Ford have brought back work from Mexico especially, and we’ve had Toyota as well as the German car companies investing billions and hiring thousands of people.”

In the home furnishings category, Moser also reports big names such as Ethan Allen, Emerald Home Furnishings, LaZ-Boy, among others, have also increased domestic production in recent years.

Reasons to return
In the past, U.S. manufacturing companies looking to save on production costs merely looked at one variable in making their case to move more production offshore: the flat cost of labor. But with wages in China rising about 12-15% per year, there is no longer a clear-cut advantage. “The cost difference in China has shrunk to the point where other factors become significant enough to offset that remaining difference,” Moser stated.

Other factors supporting U.S. manufacturing: higher productivity, lower electricity costs and lower capital equipment costs.

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What Trump’s presidency may mean for flooring

Republican control could signal significant change

January 16/23, 2017: Volume 31, Number 16

By Ken Ryan

Screen Shot 2017-01-16 at 10.47.19 AMRepublican president and Republican-controlled Congress would ordinarily be greeted with cheers from small businesses. And that may indeed turn out to be the case. However, the 2016 campaign was anything but ordinary, and President-elect Trump is anything but an ordinary politician, so it is anyone’s guess what the next four years will be like for the flooring industry.

With the new administration set to take over Jan. 20, many business leaders are hopeful, albeit a tad skeptical, about the next four years and the potential impact on their businesses.

Policy shifts
Torrey Jaeckle, vice president at Jaeckle Distributors, Madison, Wis., said he believed a Trump administration could be a mix of both positive and negative. “Trump has no guiding political ideology or philosophy from which to forecast what he might do. We therefore can only go by what he has said he will do, keeping in mind all that might change as circumstances change and evolve. Trump is more pragmatic than ideological, and that can lead to more frequent policy swings and changes than you would see in someone with a more ideological bent. We shouldn’t be surprised if he completely changes course on some issues.”

Potential red flags?
For those flooring companies that import from China, Trump’s protectionist bloviating concerned some dealers and distributors who argue that the benefits and virtues of trade, specifically free trade, have been proven—not just from a theoretical standpoint but also from real-world experience. “It remains to be seen if Trump’s rhetoric in this area is just bluster that he is using as a negotiating tactic, or if he truly would slap tariffs on imported products which would prove detrimental to our economy in the long run,” Jaeckle said. “As a free-market businessman in an industry that relies on a fair amount of imported product, this is the area that most concerns me about Trump.”

During the campaign Trump was often criticized for his lack of understanding—or even interest—in some policy issues. But then again, some executives said Ronald Reagan was not an expert on every issue but was a great delegator and communicator nonetheless.

“When a Fortune 500 company hires a new CEO, they don’t hire someone who has the answer and solution to every problem plaguing the business,” Jaeckle explained. “Instead they hire someone with good instincts who can assemble a competent team, work proactively with others and lead the entire group toward a common goal. Whether Trump can do that remains to be seen, but we’re about to find out.”

Positives
On the positive side, executives point out that Trump has promised to help ease the burdens on business that have been imposed and increased under President Obama. Executives agree most retailers would welcome a more pro-business, or at least more even-sided Department of Labor than we have seen under President Obama. “Good intentions don’t necessarily lead to good policy, and much of Obama’s labor policy has unfortunately fallen into that category, in my opinion,” Jaeckle said. “Several DOL rulings have been challenged in court and are still in flux as we speak—specifically the recent overtime changes.  If Trump can end that uncertainty, specifically by undoing those detrimental DOL rulings, then that will be a positive thing.”

Michael Geisler, president of The L&L Company, sees a more business- centric climate emerging, one he hopes is less controlled by government interference. “I think changes to regulations and oversight that may have been necessary in the past have outlived their usefulness and have made it difficult for us to operate even more efficiently,” he said. “The change with the new administration is welcomed, but I am sure it will come with its own set of issues. That being said, we are betting on more growth as a result and feel the next two years will add jobs and opportunity.” Executives said they were happy to see the new overtime rule postponed.

The Labor Department’s contentious overtime rule was supposed to go into effect Dec. 1. However, a federal judge in Texas issued a temporary injunction halting the rule nationwide. The rule would have extended overtime pay to more than 4 million workers. It would have required employers to pay overtime to most salaried workers who earn less than $47,476 annually, a much higher threshold than the current annual salary limit of $23,660.

While flooring dealers breathed a sigh of relief on the OT change, there are other onerous regulatory issues still out there, including rising cost of health care and escalating tax rates. Many hope Trump is the elixir to cure these ills. “Hopefully a Republican president and Congress can help with the financial aspect of our business,” said Casey Dillabaugh, owner of Dillabaugh’s Flooring America in Boise, Idaho. “All in all though, I think the pros outweigh the cons for the small to medium, family-owned business.”

Rick Holden, COO of Derr Flooring, Willow Grove, Pa., said two things come to mind regarding a Trump presidency. “He stated he wants to remove onerous regulations that impede businesses from growing. Lowering corporate tax rates is another promise from Mr. Trump that will improve the ability of companies to reinvest in their businesses and people. Both of these initiatives should help businesses.”

Sam Roberts, owner of Houston-based Roberts Carpet & Fine Flooring, also sees positive signs. “Lower taxes, less regulation and pro-growth government policies are all generally good for both small and large business,” he said. “I think most dealers would welcome change that might alter current business realities.”

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Retail roundup: Industry cautiously optimistic about Trump presidency

November 21/28, 2016: Volume 31, Number 12

By Ken Ryan

screen-shot-2016-11-28-at-11-31-35-amFlooring retailers acknowledge that while it is premature to know what a Trump presidency and Republican-controlled Congress will mean for the flooring trade over the next four years, the initial returns point toward a more favorable business climate.

It did not go unnoticed that on Tuesday, Nov. 22, the three U.S. stock indices all broke records, with the Dow Jones Industrial Average closing above 19,000, the S&P 500 closing over 2,200 and the NASDAQ closing over 5,300. All were first-time highs, which may suggest that perhaps President-elect Trump will be good for the economy after all.

While some flooring dealers did not want to speak on the record about the next four years, others provided significant commentary on their hopes and beliefs.

Josh Elder, co-owner of Gainesville CarpetsPlus Colortile in Gainesville, Fla., echoed a sentiment shared by many dealers contacted by FCNews when he said it was “still too early” to say how the election will directly impact business. However, like the others, he found some positive takeaways. “Looking at the way the stock market has reacted is a good sign,” Elder said. “It really depends on the administration Trump brings in, but I am optimistic that the market will continue to rally which will increase consumer confidence and spending. That spending could include housing and that equates to business for us.”

Sam Roberts, owner of Roberts Carpet & Fine Floors in Houston, believes the implications for the flooring industry has to be viewed as a positive. “For any dealer who is largely unhappy with the current business status quo—and retail floor covering has suffered another difficult year in 2016 in many markets–I don’t know what could provoke an expectation of significant change eventuating from a Hillary Clinton administration. Lower taxes, less regulation and pro-growth government policies are all generally good for both small and large business. I would think most dealers would welcome change that might alter current business realities.”

Roberts opined that some possible long-term damage could occur in the event of increased deficits and potential and unforeseeable economic damage that could result from foreign policy decisions and initiatives. “I have no clue as how to factor that into any general prognostication. I think most objections, which largely stems from one’s point of view, to the new administration will largely be on social issues, not economic ones.”

Then again, Roberts noted, “I will be surprised if I am not surprised by something I’m totally missing on this subject.”

Nick Freadreacea, president, The Flooring Gallery in Louisville, has a wish list of what he hopes can be accomplished. “Items that may be good for our industry would be the passage of the Marketplace Fairness Act, which would put brick and mortar stores on equal ground with the Internet sellers; getting some clarity on how subcontractors are viewed by the various governmental departments; repealing the new salary and overtime rules (set to take effect Dec. 1), and maybe even doing something that will reduce health care costs. If he can accomplish any of those items it would be a great step forward for small business.”

Freadreacea said he has already noticed an uptick for small cap stocks, which would indicate this might be good for small businesses—the backbone of the flooring industry.

Casey Dillabaugh, owner of Dillabaugh’s Flooring America in Boise, Idaho,

believes, from a business perspective, the Republican-led legislative branch should equate to progress. As he explained, the rising cost of health care, the various pay requirements and tax rates that can chew up profits in a hurry can make doing business appear frustratingly futile.

“Hopefully, a Republican president and Congress can help with the financial aspect of our business,” he said. “On the other hand, depending on some of the immigration policy that gets enacted, certain states may or may not experience further installer shortage issues. All in all though, I think the pros outweigh the cons for the small to medium, family-owned business.”

FCA Network president Olga Robertson, an astute observer of political events, provided an assessment worthy of a political commentator. “Based on my understanding of President-elect Trump’s outline for the first 100 days, it’s jobs, jobs, jobs and security. He will withdraw from TPP [Trans-Pacific Partnership], which he believes is a jobs killer—although many experts believe it plays into the hands of China by giving them more control over Asia. He will reduce environmental restrictions on production of American energy, which he believes is a jobs killer and will also cut regulations on business. For every new regulation he will eliminate two. He wants to guard against cyber-attacks, examine the Visa program and enact lobbying bans.”

If Trump does even half of what he proposes the first 100 days, Robertson said, it will be good for small business owners who will get some tax relief, and fewer restrictions on new business start-ups and more. “I’m hopeful—but I don’t think it’s likely—that all the Republicans will come together to push through Trump’s agenda, as self-interest will trump the people’s business.”