Sales still shifting toward non-specialty retail channels
by Steven Feldman
The laminate flooring market in 2011 could best be described as more of the same. Sales dollars decreased for the fifth consecutive year, albeit slightly, volume increased for the third year in a row and more business was directed toward the home center and mass merchant channel.
When the dust cleared, FCNews research puts the laminate flooring market at $1.094 billion, down 1.6% from the $1.112 billion in 2010. At the same time, units went from 1.01 billion square feet to 1.02 billion square feet sold, a 1% gain. That means the average selling price continues to erode, now standing at $1.07 a square foot, down from $1.10 last year. It was only five years ago when the average selling price of laminate flooring was $1.30.
There have been many reasons for this: First, lower-priced imports from China proliferating the market. Second, new suppliers fighting for market position. Third, home centers, price clubs and lumber/salvage yards stepping up their games, all of which work on lower margins than traditional specialty flooring retailers.
Laminate flooring is also competing for sales with low-end hardwood flooring. Laminate was always positioned as an affordable wood flooring substitute for consumers who could not afford real wood. Now, there is real wood on the market at comparable price points. Also, luxury vinyl tile has been going after that same consumer who may not want or cannot afford real wood or ceramic. Priced slightly less than laminate flooring with better built-in sound deadening features and much less susceptible to water spills, LVT has stolen much of laminate flooring’s residential growth over the last several years.
The good news is the category is actually performing better than many believe. While not necessarily vibrant, the product’s ease of installation, which lends itself to DIY, is finding a home at not only the home centers, but Lumber Liquidators, as well. Its financial report for 2011 shows laminate sales to the end user at approximately $163 million, up from $130 million the year before. That’s 25%. Supporting the DIY story is the fact that more than 90% of laminate flooring installations today are glueless.
Boxes keep growing
Home centers continue to take share from specialty retailers and are now estimated to control more than 50% of laminate sales, experts say. There are reasons. “Once upon a time, Home Depot offered only 17 stocking SKUs of laminate,” said David Hartman, vice president of sales for Pergo. “Today, it still has 17 stocking SKUs but also offers 200 special order SKUs in the aisle. In addition, it offers a promotion to install a whole house for $397. That is generating big orders for people doing larger areas. It has really boosted its special order business.”
There is also business being done at price clubs like Sam’s and Costco, which is estimated to be between 5% and 7% of industry sales. “The downturn has not helped the price clubs in the laminate category,” Hartman said. “Sam’s shifted its store emphasis to consumerables during the downtown. They took their products like laminate and moved them into the back corner.”
And lost in the shuffle and never talked about is the business being done at lumber and salvage yards like Grossman’s and Ollie’s, where the average selling price may be under 75 cents a foot but it still constitutes good business.
Roger Farabee, senior vice president, Mohawk Hard Surfaces, acknowledged the challenge for specialty retailers. “You have more momentum going on in the home center channel, Lumber Liquidators and a few other channels vs. traditional floor covering retailers. The average selling price erosion and margin in laminate makes the category less attractive for retailers. The category is not the new kid on the block anymore and retailers are always looking for what’s new and different.”
Decrease in imports
One of the biggest changes the industry is witnessing is a de-creasing emphasis on imports. For 2011, imports represented 32% of U.S. laminate flooring sales in terms of square feet, down from about 40% the year before. One manufacturer estimated the dollar value of imports dropped 20% from 2010. Germany, Spain and Belgium all experienced significant declines. Belgium suffered from the increase in production by Quick•Step at its U.S. plant. It has been rumored that only tile visuals are now imported from Belgium. Germany has also suffered a similar fate from Kronotex’ U.S. plant coming on line. Then, of course, you have a general decline in imports from Europe due to unfavorable currency exchange rates.
China is currently the No. 1 importer of laminate flooring to the U.S., mainly due to its private label business with Armstrong and other domestic brands, as well as being a supplier of private label laminate flooring to major U.S. retailers and distributors. Next in line is Canada, where Pergo’s parent, Pfleiderer, has a facility by virtue of its purchase of Uniboard some years ago.
Manufacturers agree 2011 was defined by two halves with the first being much better than the second. Each had its own story, though. “For Pergo, the market rolled over in May after a good first four months. To talk 2011, we have to talk 2010,” Hartman said. “Coming out of 2010, we had to absorb some changes that were made by our key customers. When Pfleiderer announced it was in danger of missing its lending covenance, it put the company on everyone’s watch list. So our customers had to make decisions to manage the risk. Flooring has been one of the big boxes’ best selling categories; laminate has been a star of the category and Pergo has been half the business. So when they hear some negative news regarding a particular company, the lights go on and they have to manage the risk. Then we launched some new products, which started hitting the second half of the year.”
While specialty retail has been a challenge for Mohawk/Quick•Step, Farabee told FCNews the company is taking market share by giving dealers an opportunity to offer consumers unique products where they can make a good margin. “We have been able to buck the trends and outperform the category in the specialty retail channel, so we feel we are taking market share. We are continuing to invest in new products, which few people have been doing in the last few years. Reclame in Quick•Step is a good example; we are investing more in the premium price points. We are continuing to invest in merchandising systems and support. That has allowed us to win more floor covering retail business. The strategy is working so all our brands can co-exist in retail stores and all do well.”
Tarkett also saw some bright spots in what Jeff Katz, director of laminate business, referred to as the “value-added” price points. “Just because all we see is doorbuster pricing, that doesn’t necessarily mean the consumer is buying those products. Door-buster pricing is a tool to draw consumers into the store, but they are willing to pay more, and dealers should be willing to sell them value-added products.”