Laminate: U.S., European sales rise, Chinese imports decline

June 28, 2016

June 20/27, 2016; Volume 30, Number 26

By Reginald Tucker

Screen Shot 2016-06-28 at 12.01.20 PMU.S. laminate flooring sales held steady in 2015 despite a sizeable falloff in imported shipments—particularly from China—coupled with intensified competition from LVT, WPC and other engineered flooring products. FCNews research shows laminate flooring sales reached $1.137 billion in 2015, a slight uptick from $1.135 billion in 2015. With respect to volume, however, shipments were estimated to have dipped to 1.034 billion square feet, a 3% decline over the 1.066 billion square feet delivered at the first point of sale in 2014.

In the grand scheme of things, that puts the category at 5.6% of the total flooring market—down slightly from 5.8% in terms of dollars compared to 2014, but down in volume compared to 6% last year. Compared to 2009, the laminate flooring category represented 6.5% of the industry in terms of dollars and 5.5% with respect to volume.

The significant falloff in volume last year, which translates into roughly 30 million square feet of product, was primarily due to the elimination of some Chinese-made laminate flooring imports that did not comply with CARB-2 federal regulations. Specifically, adhesives incorporated in many of these products—which were sold through major home center chains, mass merchants and other outlets in the U.S. market—were found to contain excessive levels of formaldehyde—a known carcinogen—according to a widely watched CBS “60 Minutes” report that first aired in 2015. Worse, the expose disclosed a practice whereby some mills purposely mislabeled shipments as being CARB-2 compliant, when video footage and audio statements clearly showed this was not the case. A subsequent episode that followed in February this year showed the tested formaldehyde levels in some of the products were significantly higher than the maximums allowed under the California Air Resources Board’s Airborne Toxic Control Measure (ATCM) 93120 Title 17, California Code of Regulations, Phase 2 requirements for composite, wood-based products.

The initial incident, which kicked off a backlash from consumers, retailers and distributors alike, served as more than just a black eye on certain segments of the category; the end result was a tangible effect on production and distribution of the product in the United States during 2015. According to Bill Dearing, executive director of the North American Laminate Flooring Association (NALFA), the decline in importation from China was palpable and swift. By his count, the pullback in non-CARB 2-compliant laminate flooring imports from China could have been as high as 5% of total volume shipped at the first point of distribution, which would put the decline in shipments at more than 53 million square feet. By his count, that would have pulled the total volume number down even further to 1.013 billion square feet.

Within this dark cloud, some observers see a silver lining. “I believe that, more properly, the ‘bad year’ pertained to bad products from certain manufacturers in China who allegedly false-labeled their products,” Dearing stated. Conversely, many NALFA-member companies sought to reframe the message, turning an unfortunate development into an opportunity to shine a spotlight on those companies that are playing by the rules. As Dearing explained, NALFA-certified products must pass 10 rigorous tests conducted by an independent third-party laboratory, including meeting or exceeding CARB Phase 2 emission standards, to be approved to carry the NALFA certification seal. Furthermore, laminate flooring products bearing this seal must undergo laboratory testing that affirms compliance with applicable federal and state regulations pertaining to formaldehyde content. “This seal serves as verification that a product will provide the retailer and consumer a safe flooring option,” he said.

 

Tale of two markets

Screen Shot 2016-06-28 at 12.01.31 PMThis might very well explain why those companies that voluntarily report to NALFA—or who are card-carrying NALFA members—report having a completely different experience in 2015. While some Chinese imports declined anywhere from 3% to 5%, many NALFA members with manufacturing operations in the U.S., Canada and Europe reported double-digit increases last year. Roger Farabee, senior vice president of marketing for Mohawk Hard Surfaces/Unilin North America, said he has not seen any data showing any decline whatsoever among European importers. “So that means [the decreases] came out of Chinese imports; those are the products that took a hit. Luckily the domestic industry and the better European imports did not see any negative impact.”

Other industry observers agree with this assessment. “We think the [“60 Minutes”] report had a dramatic effect on Chinese imports, but not the category in general,” said Jeff Francis, hard surfaces laminate category manager, Shaw Industries, which is also a NALFA member that offers products carrying the CARB-2 compliant seal. “As a domestic manufacturer, this has been good for us in 2015.”

Dan Natkin, senior director, residential products, Mannington—which also markets laminate flooring products that carry the NALFA seal—believes the damage was primarily limited to non-compliant floors from China. “I don’t think the ‘60 Minutes’ story hit the category in [general], although it had a profound impact at Lumber Liquidators,” he said. “Ultimately, I don’t think it’s going to impact the category because we’ve already seen a shift back toward non-Chinese produced laminate flooring. There are a lot of phenomenal options both domestically produced and made in Europe that comply with—or exceed—the CARB standard.”

Interestingly, the formaldehyde/composite wood product issue is not a new phenomenon. According to Derek Welbourn, CEO of Inhaus, the matter has been effectively managed in Europe for many years. As an example, he cited how Ikea—the well-known modular furniture purveyor—emerged as an early pioneer in the use of low-formaldehyde material for building products. “From a technical perspective, it is very simple: Don’t use formaldehyde glue when making your products,” he explained. “This has been a standard in Europe an in our factory since its inception.”

Similarly, when California first announced plans to issue new standards for composite wood products, Welbourn said Inhaus reviewed those standards and found it surpassed the benchmark.

At the end of the day—at least in the mid-term aftermath of the “60 Minutes” report and the subsequent findings—the market hasn’t altogether turned its back on the laminate sector. “I don’t believe retailers will give pause about supporting the category,” said Brian Parker, director, product management, resilient tile, Armstrong. “However, retailers will give pause to the brands that they carry and offer as consumers will continue to be concerned about purchasing little-known or unknown brands.”

Mohawk’s Farabee agrees, adding that it boils down to dispelling untruths and misperceptions. He believes most American consumers can distinguish between a few “bad actors” and the laminate flooring industry as a whole. “I think there’s still education that needs to be done,” he said. “But we’ve worked very hard, both as Mohawk Industries and also as participants in NALFA, to talk about the quality of our products, the steps we go through to ensure the safety of our products—not only being CARB compliant but also doing third-party testing that is more rigorous and goes beyond what is required to ensure there are no issues with our products in regards to overall safety and indoor air quality. That’s what all the better manufacturers have been focusing on, and I think we need to continue that.”

 

End-use market activity

Screen Shot 2016-06-28 at 12.01.40 PMWhen the first laminate floors were introduced to the U.S. market just a little over 20 years ago, residential replacement seemed like an ideal fit given the product’s relative ease of installation, broad availability and accessible price points. Not much has changed in this regard as the sector represents nearly 90% of category sales, FCNews research shows. “Clearly residential replacement is where this product fits, and it’s where most of the installations occur,” Shaw’s Francis said.

Armstrong’s Parker agrees, referring to residential replacement as “the dominant category by far.” At the same time, he has seen what he describes as “solid movement” in new home construction. (FCNews research showed the builder segment accounted for roughly 8% of laminate flooring sales last year—up 4% from just a few years ago.)

Industry observers point to gradual acceptance by new homeowners and builder contractors alike. “That’s probably the largest single area of growth right now Mannington’s Natkin said. “The product has always existed in the multi-family environment, but single-family new home construction is a rapidly growing area.”

Broader economic indicators support the growth of this sector. According to the U.S. Department of Commerce, more than 8.34 million single-family permits were issued in 2015—an 18% increase over 2014. Looking at housing permits in general (single- and multi-family), new permits issued in 2015 exceeded 14.1 million units—an increase of 11.7% over the previous year.

 

Channel dynamics

Given laminate’s stronghold in the residential replacement sector, it should come as no surprise that—from a channel perspective—home centers and mass merchants continue to drive the bulk of category sales, as much as 70%, FCNews research shows. These big box, warehouse-style outlets, which include the likes of Home Depot, Lowe’s, Floor & Décor and others, have combined to keep the specialty retail segment from building its share of laminate flooring sales beyond 25% to 30%.

“Home centers, along with a combination of multi-location, national retailers still represent a decent size of the market,” Mohawk’s Farabee said, adding declines that outlets like Lumber Liquidators experienced last year didn’t move the needle appreciably. “Specialty retail, in particular the independent retailer, is by far the smallest segment selling laminate flooring today.”

Interestingly, industry observers are seeing movement in other emerging channels. “Direct to consumer is growing, although it is hard to segment this data as many of the home centers and retailers service this market via online sales,” Inhaus’ Welbourn said. “It is an important area of growth, but there are still challenges shipping pallets of heavy goods direct.”

Travis Bass, executive vice president of sales and marketing for Swiss Krono, also sees e-commerce gaining ground as it pertains to laminate flooring sales. “Specialty retail seems to have stabilized with a basic percentage of consumers willing to pay for expertise, knowledge and services.”

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